The Top FRAND Courts Have Very Different Approaches to Global FRAND Licensing
It goes (nearly) without saying that, as of right now, the top courts for global FRAND disputes take vastly different approaches to FRAND determinations. This was on display at WIPO’s Seminar on SEPs and Dispute Resolution (“Seminar”), which took place last week.[1] The subtitle of the Seminar was, ironically, “Faster, Higher, Stronger – Together?” That question mark was well placed given the last panel of the Seminar, “The Global Scoreboard: Assessing FRAND.”
Four judges spoke on the panel: Chief Judge Weike Du of the Third Civil Division of the Supreme People’s Court of China; Justice Mellor of the High Court of the UK and Wales; Judge Schoen of the 7th Civil Chamber of the Munich Regional Court and Judge Selna of the District Court for the Central District of California.[2] They couldn’t have been more different in tone, and in their descriptions of the manner in which their courts address SEP and FRAND issues. This week’s post focuses on what each judge said about his own court’s fundamental understanding of FRAND, how each court views its role in SEP cases and how each court addresses the transparency problem.
Fundamental Approach to FRAND.
UK: FRAND is both a process and a result. It is a rate, not a range (except perhaps in a few extraordinary cases). If it was a range, the SEP owner would just automatically choose the higher end of the range. It is a waste of time and money to review the patents before making a FRAND determination. In all cases, we should determine the FRAND rate first before making any decisions on willingness. If there are UK FRAND SEPs at issue, we will nearly always issue a global license because the FRAND obligation is to grant a global FRAND license.
China: FRAND should be the “cornerstone” of all court decisions. SEPs are not ordinary patents and SEP patent litigation is a FRAND issue. The fundamental issue in all SEP cases is a FRAND question – money. The courts must find the proper balance between the parties. FRAND is a commitment, an obligation, to do something. The ideas behind it – including top down and comparables – are not court created but instead come from the business world. FRAND should be evaluated in the real world. Injunctions do not solve problems – they are just used as a strategy for leverage. No injunctions should issue if the offer is not FRAND.
U.S.A.: In U.S. cases, we do not do a lot of global FRAND rate setting. For us, the global FRAND rate question usually arises in the context of a request for an anti-suit injunction. When looking at whether an offer is FRAND, top down is the best approach. Top down attempts to eliminate the problem of patent/royalty stacking. Royalty stacking can “get out of hand” so it is better to evaluate the SEP stack as a whole.
Germany: our general approach is that if you have a patent, you can get an injunction. A defendant can raise FRAND as a defense. But, the implementer must be “willing to negotiate, willing to pay the undisputed amount, willing to pay security and willing to pay a FRAND rate.” If an implementer is not willing to do this, or has not done it, then we will issue an injunction. Paying security by itself is not sufficient to be found willing [he did not explain why]. What FRAND means to us is that an implementer can request an early FRAND hearing. But that will be a limited brief and a discussion that will not talk numbers because the negotiations between the parties should be ongoing. If an implementer feels an offer is not FRAND, they should agree to binding arbitration to show willingness. Otherwise, we will think it is too late and they are unwilling. And our court is not going to grant a license at the end of our cases.
Transparency. All but one of the judges agreed that more transparency is needed, and that the lack of true transparency puts implementers in an unfair position and makes it difficult to make FRAND assessments. Several of the judges discussed the disclosures required in their courts.
U.S.A.: “It is difficult to get the basic data.” Judge Selna explained that in the TCL case, under the U.S.’s broad discovery rules, the court had a lot of data on Ericsson’s licenses. The problem was they were strictly confidential so even TCL’s president was not allowed access to that information: TCL’s president would have been the negotiator [so in other words, the key negotiator on the implementer side was in the dark, and kept in the dark, about comparables because of confidentiality issues].
UK: “Confidentiality creates difficulties. I agree with Judge Selna on this.” Justice Mellor explained that the U.K. courts have procedures to require litigants to disclose all relevant licenses. That means that the U.K. courts can see licenses beyond a small selection chosen by the litigants. U.K. judges also make decisions on what is to remain confidential and who can have access to that information. At trial, at least one representative from each party can see the other party’s licenses that will be relied upon at trial.
China: “Transparency if very important to determine if the offer is reasonable.” Judge Du also intimated that SEP holders have stronger negotiating positions because of implementers’ lack of knowledge of comparable rates. But, in Chinese litigation, the court can order both parties to disclose information.
Germany: Judge Schoen downplayed the transparency issue, claiming that the “market knows how much to pay,” at least for cellular SEPs. He did not explain how “the market” knows when licenses are not public and the total royalty stack is unknown. Nor did he explain what “the market” might be. And, of course, unlike the other courts, Judge Schoen’s court does not require a SEP holder to turn over all relevant licenses but instead allows the SEP holder to select what to disclose.
So, four courts with four different viewpoints on what FRAND means, and no concensus about whether lack of transparency is a problem. Although, at least with respect to the transparency issue, only Judge Schoen disagreed with the other three jurists.
[2] For convenience, I will sometimes refer to them by their court’s location and sometimes by the judge’s name.
