Time to Throw Away the Willing/Unwilling Paradigm

A lot of my practice these days involves technology development deal work.  This includes intellectual property license agreements where technology and know-how is transferred, and agreements to collaborate on developing new technologies.  This type of work is great: I love helping companies grow their business and develop innovative and interesting new technology. 

Negotiations for these types of deals can sometimes take a long time – several months or even as long as a year.  But unlike pure patent licenses, “willingness” is never an issue.  Both parties want to enter into an agreement and most of the time the team is able to make it happen.  I have worked on development deals where the parties ultimately have not been able to agree on the terms – but never once has this been because the parties are an order of magnitude apart on price.  More often than not, collaboration deals die because the parties cannot agree on ownership and licensing for any IP that is developed. 

Not only is money not the thing that tanks collaboration deals, money rarely even takes up a big chunk of negotiating time.  Usually, before the deal even comes to us lawyers, the business people have agreed on pricing.  Generally it does not take the business teams long to figure out and agree on how much money the agreement is worth.  These deals are all about inventing better, newer or different technology and using that technology in useful products.  Yes there is haggling on price, but each party goes into the negotiations having worked out the expected ROI – return on investment.  If the ROI looks good on both sides, the deal moves forward. Also, almost all of the time,[1] the negotiations take place up front before the technology has been developed, and before it has been implemented in a product. 

This is nearly diametrically opposite to SEP licensing.  SEP licensing deals are not fun:  SEP licensing does not involve helping a company develop new and interesting products.  Instead, it involves negotiating how much a company will pay to license patents for their use of an existing standard in existing products.  The technology is often not even something the company itself has developed.  Many SEP licensing matters involve component parts that are purchased by the “implementer” from a different company or even products that the “implementer” is merely using.  See for example, We Sell Tomatoes - SEP Licensing's Impact on SMEs.

Because these matters involve existing products that are difficult to change, there is an additional issue that comes up during negotiations.  SEP holders often try to use injunctions and threats of injunction to force implementers to pay amounts that are not commensurate with the value of the portfolio being licensed.  Nearly twenty years ago, U.S. courts decided that this type of behavior just would not fly.  In the seminal eBay vs. MercExchange decision, the U.S. Supreme Court determined that patent cases, whether for SEPs or non-SEPs, were no different than other types of cases.  Under U.S. law, injunctions can only be granted when money damages are insufficient to compensate the patent holder and the balance of equities weighs in favor of an injunction.  In other words, an injunction will only issue if it is fair and reasonable to the parties and the public in the circumstances of a particular case. 

This means a few things in the context of SEP litigation.  First, in making a FRAND commitment, a SEP holder has acknowledged that money (licensing) will suffice.  Second, the focus on whether to grant an injunction is only partly on the parties.  The public good is also a factor to be considered.  Once a standard has been adopted and has become widespread, the public good is better served by providing for robust competition by implementers.  Thus, under U.S. law, it would be a rare case indeed for an injunction to issue on FRAND committed SEPs.[2] 

Contrast this with the German courts, and the Unified Patent Court influenced by those same German jurists, that stubbornly cling to the idea that injunctions should (nearly) automatically issue in most patent cases.  In 2021, the German Parliament changed the patent law in an attempt to require the courts to consider proportionality and the interest of both parties.  Nonetheless, the German courts, and certain UPC panels, continue to routinely issue injunctions even when a patent holder has committed to license on fair, reasonable and non-discriminatory terms.  

Instead of considering proportionality (or the public good), these courts have created the concept of “willing licensor” and “willing licensee.”  Under that paradigm, if a SEP holder is a “willing” licensor but the implementer is an “unwilling” licensee, then the SEP holder is entitled to an injunction.  If the SEP holder is an “unwilling” licensor but the implementer is a “willing” licensee, then the SEP holder is not entitled to an injunction.  This court created concept seems to view the world as black and white: if the parties are unable to reach agreement on a license it must be because one side or the other is unwilling.

But in my experience, the problem has never been that there are “unwilling” licensors or “unwilling” licensees.  I can just about guarantee that every implementer would be willing to take licenses to all SEPs for a particular standard if each license cost €1 (not €1 per unit but a total of €1 for all patents in a given portfolio).  I can also guarantee that most (but apparently not all, see for example FOSS Patents: Ericsson privateer Unwired Planet seeking $8 billion from Apple over standard-essential patents, submission to UK Supreme Court says) licensors would be willing to license their portfolios if they got €1 billion from each implementer. 

In other words, the problem in nearly every SEP license negotiation is not “willingness” to enter into a license, but money.  Indeed, in my experience, in every negotiation in which the parties have been unable to agree on a SEP license, it is because the parties are orders of magnitudes (1, 2 or even 3 orders of magnitude) apart on money (see for example, The Myth of "Use Cases" - LES SVC Part 2 which is one of the reasons why this is so).

Yet, instead of focusing on the value of the SEPs in a given portfolio (whether that is individual SEPs by courts that do not grant global SEP licenses or overall value of a SEP portfolio for those that do), European courts focus on this extraneous paradigm of willingness in order to try to determine which of the licensor or licensee is unwilling.  This creates a sideshow whose only purpose is to allow for, or prevent, an injunction.  In my experience, this framework has made actual licensing negotiations harder and caused courts to waste large amounts of time (and the party’s money) in SEP litigation without ever deciding a single issue that would make it easier for the parties to reach agreement on a license.  Because of this concept, and the willingness of the German courts to automatically grant injunctions, it has gotten harder and harder over the years to reach license agreements with large SEP licensors. 

Into this fray now comes the UK courts.  The UK courts have come up with a creative solution that does not require weighing the equities in deciding whether to grant an injunction: the interim license.  This concept makes a lot of sense.  If a company helps develop a standard and agrees to grant FRAND licenses, it should be held to being willing to so grant those licenses.  If the parties then disagree as to the value of that license, rather than punishing a perspective licensee if they get something wrong during the negotiations (so is considered unwilling by the court), the licensor gets the benefit of its FRAND bargain: a license.  A license is what the licensor committed to accepting as part of its participation in creating the standard.

This innovative concept of an interim license allows the court and parties to much more quickly get to the heart of the matter while giving the SEP holder the benefit of its FRAND bargain. It is time for the European courts to turn the page on the willing/unwilling paradigm. The willing/unwilling paradigm results in a sideshow that does not help the parties reach a true FRAND license.  It is way past its prime.

It makes much more sense to grant an interim license.  Then, the court can decide on the value of the SEPs in the portfolio and either turn that decision into a permanent license or first see if the decision allows the parties to conclude a license.  The UK Court’s decision to grant an interim license certainly helped the parties reach a final license agreement and settlement of the very wide-ranging and long running Lenovo and Ericsson dispute.[3]  The time has come to replace the willing/unwilling concept with that of an interim license.

[1]          Occasionally – if you are reading this, you know who you are – the technical team will start the development work before the final agreement is executed.  But that usually only happens when the deal being inked is one in a series of development agreements between the same companies. 

[2]          But see Just Say No to the "Restore" Act for a discussion about those who are trying to move U.S. law in the wrong direction.

[3]          See Lenovo and Ericsson enter into SEP licensing agreement ending global litigation - The Global Legal Post and Lenovo, Ericsson settle international patent dispute | Reuters.