GOVERNMENT OF INDIA Department of Industrial ...

GOVERNMENT OF INDIA Department of Industrial Policy and Promotion Ministry of Commerce & Industry

Discussion Paper on Standard Essential Patents and Their Availability on FRAND Terms (March 1, 2016)

Response submitted by:

Professor Jorge L. Contreras University of Utah, S.J. Quinney College of Law 383 South University Street Salt Lake City, Utah, U.S.A. 84112-0731 [email protected]

April 21, 2016

April 21, 2016 Government of India Department of Industrial Policy and Promotion Ministry of Commerce & Industry Ladies and Gentlemen: Thank you for the opportunity to offer views and suggestions to the Department of Industrial Policy and Promotion (DIPP) regarding its Discussion Paper on Standard Essential Patents and Their Availability on FRAND Terms dated March 1, 2016 (Discussion Paper). I am an Associate Professor of Law at the University of Utah S.J. Quinney College of Law (Salt Lake City, Utah, USA) and a Senior Policy Fellow at the Program on Information Justice and Intellectual Property at American University Washington College of Law (Washington DC, USA). Prior to entering academia, I was a partner at the international law firm Wilmer Cutler Pickering Hale and Dorr LLP (and its predecessor entities), where I practiced in Boston, Washington, DC, and London. Both my academic research and legal practice have had a strong focus on intellectual property law and technical standardization. Among my long-term clients is the Internet Engineering Task Force (IETF), the principal global forum for the development of standards and specifications for the Internet. I have also represented industry consortia in a range of fields including avionics, oil and gas exploration, computer software, bioinformatics and semiconductor manufacturing, as well as numerous companies involved in standards development and collaborative research and development. I am the founding editor of the e-journal Law, Policy and Economics of Technical Standards (SSRN), and I edited the reference book Technical Standards Patent Policy Manual (ABA Publishing, Chicago: 2007). I serve as Co-Chair of the Technical Standardization Committee of the American Bar Association’s (ABA) Section of Science & Technology Law, and hold various leadership positions at the American National Standards Institute (ANSI) and ASTM International. I also served as a member of the U.S. National Academy of Science’s (NAS) Committee on Intellectual Property Management in Standard-Setting Processes, which produced the 2013 report Intellectual Property Challenges for Standard-Setting in The Global Economy (Keith Maskus & Stephen A. Merrill, eds., Natl. Acad. Press, Washington DC: 2013). I have published more than fifty articles and chapters on intellectual property, standardization and related topics, which have appeared, among others, in Georgetown Law Journal (forthcoming), Harvard Journal of Law and Technology, Berkeley Technology Law Journal, Antitrust Law Journal, Standards Engineering, Telecommunications Policy and Columbia Journal of Science and Technology Law, as well as books released by Oxford University Press, Cambridge University Press (forthcoming), MIT Press (forthcoming), IGI Global and Edward Elgar. A representative list of my publications can be found at http://ssrn.com/author=1335192. My work has a global focus, and I have conducted studies and research on standardization and intellectual property in India, China, Japan and Korea, in addition to North America and Europe. I have been engaged with the Indian market for more than a decade and have collaborated with Indian law firms and academics on various projects, including as a co-organizer of the Fourth Global Congress on Intellectual Property and the Public Interest held in New Delhi in December

2015. Most recently, I have completed a comprehensive study of the Indian mobile device patent landscape in collaboration with the Centre for Internet and Society (CIS). A draft of the first paper reporting these results (Patents and Mobile Devices in India: An Empirical Survey) is currently available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2756486 . My research over the years has been funded by the U.S. National Institute of Standards and Technology (NIST), the Center for the Protection of Intellectual Property (CPIP), the World Intellectual Property Organization (WIPO), Google, Inc., and others. I have received no external funding for the preparation of these comments. Today, I am pleased to share my views and suggestions with the Department on a number of topics covered by the Discussion Paper. The views expressed in this paper are my own and do not reflect the positions of my university, any of my clients, any government, bar association or other organization. Because I have written extensively about some of these topics in the past, I will not repeat the entirety of my analysis in every response, but will reference additional literature that the Department may wish to review. A wealth of additional literature exists, and I do not intend to be comprehensive in my references. Thank you again for providing this opportunity to comment. I remain at your disposal should you wish to discuss any of these issues in greater detail.

Very truly yours, Jorge L. Contreras

GOVERNMENT OF INDIA Department of Industrial Policy and Promotion Ministry of Commerce & Industry Discussion Paper on Standard Essential Patents and Their Availability on FRAND Terms (March 1, 2016) Response submitted by: Professor Jorge L. Contreras April 21, 2016 Introduction The issues surrounding patents on technical interoperability standards are laid out clearly in the Discussion Paper and well-understood by the Department. As noted in the introductory letter, I have been studying these issues for many years, both as a legal practitioner and, more recently, as a scholar. In my work, I have observed two distinct camps emerge within the community of firms engaged in ICT standards development: Patent-Centric and Product-Centric.1 Patent-Centric Developers earn significant revenue from the licensing of standards-essential patents (SEPs) and, in general, have adopted patent licensing as a primary business model. Product-Centric Developers, while they may obtain and even license SEPs to others, focus on the rapid development and sale of standardized products as their primary business model. The differing business models adopted by these two groups have, in large part, dictated the policy positions taken by these firms and their representatives in recent debates, writings and advocacy. I suspect that many of the responses that the Department receives in response to its Discussion Paper will reflect one or the other of these perspectives. In this Response, I have attempted to avoid the well-worn, polarized positions that too often characterize this debate. I represent neither Patent-Centric nor Product-Centric interests. Like the Department, my aim is to seek solutions that maximize public benefit, useful innovation, vibrant competition and consumer welfare. If I have any bias it is toward the standardization system itself, having represented standards-development organizations (including IETF) for nearly two decades. I hope that the below responses to the Department’s specific questions are helpful.

1

See Jorge L. Contreras, Technical Standards and Ex Ante Disclosure: Results and Analysis of an Empirical Study, 53 JURIMETRICS 163, 206 (2013), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2249926 (describing patentcentric and product-centric business models).

Contreras Response to DIPP on SEPs and FRAND April 21, 2016

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Issues for Resolution a) Whether the existing provisions in the various IPR related legislations, especially the Patents Act, 1970 and Anti-Trust legislations, are adequate to address the issues related to SEPs and their availability on FRAND terms? If not, then can these issues be addressed through appropriate amendments to such IPR related legislations? If so, what changes should be affected. Response – Legislative Proposals: In general, the development of technical interoperability standards is a private sector activity that has not required special legislation. Anticompetitive abuses of the standard-setting process have largely been addressed under existing antitrust and competition laws.2 Existing national patent laws, including the TRIPS-compliant Indian Patents Act, 1970, make patent rights available to a wide range of inventors in all industries. Thus, special-purpose legislation intended to address current issues arising in the context of patents covering standardized technologies could have the potential to distort what is intended to be a general purpose system. This being said, there are two areas in which modest legislative action could improve the standard-setting process and help industries that are dependent on technical standards: 1. Legally Establish the Binding Nature of Licensing Commitments.3 Licensing commitments are made by participants in the standard-setting process based on rules established by the relevant SSO. Different SSOs have markedly different rules and organizational structures. In some SSOs, participants sign written contracts in which they agree to grant licenses to SEPs on terms that are FRAND or royalty-free (RF). In these cases, the common law of contracts (as recognized in the U.S. and India) establishes the legally-binding nature of the licensing commitment. In some jurisdictions, third parties that are intended to benefit from such contractual commitments may also enforce these contracts.4 In other SSOs, however, licensing commitments are not so clearly governed by contract law. For example, some SSOs simply require participants to submit a letter to the SSO expressing their current intentions regarding licensing. Other SSOs merely permit, but do not require, participants to disclose their licensing intentions. Some SSOs do not even have formal membership structures for corporations. In these cases, a contract is almost certainly not established.5

2

See, e.g., American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982) (condemning selfdealing and other improper procedures) and Allied Tube & Conduit v. Indian Head, 486 U.S. 492 (1988) (condemning abuses of SSO membership and voting procedures). 3 The arguments in this paragraph are discussed in greater detail in Jorge L. Contreras, A Market Reliance Theory for FRAND Commitments and Other Patent Pledges, 2015 UTAH L. REV. 479 (2015), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2309023 . 4 By stipulation of the parties, this theory was accepted by the court in cases such as Microsoft Corp. v. Motorola, Inc., Findings of Fact and Conclusions of Law, 2013 U.S. Dist. LEXIS 60233 at *15 (W.D. Wash. Apr. 25, 2013), aff’d 795 F.3d 1024 (9th Cir. 2015). 5 See Contreras, Market Reliance, supra note 3, at 501-17 (refuting common law contract theory as a general solution to enforcing licensing commitments, including with regard to SSOs such as ETSI, IEEE and IETF).


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To get around these difficulties, some have argued that licensing commitments should be enforced as a matter of antitrust or competition law. However, absent some abusive conduct, market power and harm to competition, antitrust and competition law do not seem like reliable doctrines for the consistent enforcement of licensing commitments.6 Nevertheless, the recognition and enforcement of patent licensing commitments is essential to the smooth operation of markets for standardized technologies. Moreover, in order to be effective, such commitments must not only bind the original patent holder making them, but all subsequent holders of the relevant patent. The issue of patent transfer has attracted the notice of both SSOs and regulatory agencies, and is one of the most important issues affecting standards licenses today.7 In recent work, I have argued that courts or legislatures should take a different approach and expressly acknowledge the enforceability of patent licensing commitments that are made to the public with the expectation that they will be relied upon by the marketplace.8 I refer to this approach as “market reliance” and argue that a relatively modest legislative enactment could serve to solidify the legal enforceability of these crucial promises and to ensure that such commitments bind subsequent holders of encumbered patents.9 I would encourage the government of India to consider such legislation. 2. Establish a Public Registry of Patent Licensing Commitments. Patent licensing commitments (and the broader category of patent “pledges”, which may cover commitments beyond licensing) are often made in settings that are not readily accessible to the public. For example, an SSO participant’s letter of assurance to an SSO may not be accessible to anyone but other SSO members, and other commitments made to regulators or on corporate web sites may both be difficult to find and may change unexpectedly. More importantly, in many SSOs it is not even clear which patents are deemed by their owners to be SEPs (see Response (m) below). To address these issues, I have proposed the creation of a centralized registry for FRAND commitments and other patent pledges.10 Participating SSOs could require or encourage the submission of data to the registry, and contribute their own public records of patent and licensing declarations to it. Such a registry should be searchable across SSOs and other bodies, should contain data in a uniform format, and should be openly accessible to the public. Several organizations are likely candidates to host this registry, including one or more national or regional patent offices (e.g., the USPTO, EPO or IPO), the World Intellectual Property Organization (WIPO), a research institution or a private firm. In this regard, India could be a leader in fostering the establishment of this valuable international resource. 6

See id. at 523-34 (refuting antitrust theory as a general solution to enforcing licensing commitments). See id. at 499-500 (discussing transfers). See also Jorge L. Contreras, Patent Pledges, 47 ARIZ. ST. L.J. 543, 598600 (2015), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2525947 (discussing need to render patent pledges enforceable against subsequent patent owners). 8 Contreras, Market Reliance, supra note 3, at 541-55 (proposing “market reliance” theory for the enforcement of patent licensing commitments). 9 See id. at 556 n.361 (offering proposed legislative language). 10 See Contreras, Patent Pledges, supra note 7, at Part III. 7


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b) What should be the IPR policy of Indian Standard Setting Organizations in developing Standards for Telecommunication sector and other sectors in India where Standard Essential Patents are used? Response – Role of National SSOs: Indian SSOs play a vital role in developing standards that promote the health, safety and welfare of Indian citizens. However, the market for high technology devices and equipment has become a global one. It is relatively clear that the most effective approach to developing technical interoperability standards is international. Today, most large SSOs are international by nature. They welcome participation by organizations from around the world, and receive input from all major players in their respective technology markets. It would likely be inefficient for Indian SSOs to attempt to replicate the efforts of international SSOs, and such attempts could ultimately disadvantage Indian manufacturers in the global marketplace. For example, in the area of 3G wireless telephony standardization, China attempted to develop and implement a national standard (TD-SCDMA) in which domestic firms would hold dominant patent positions. While this standard was successfully developed and deployed, it never achieved the success of competing international standards, even among Chinese consumers, carriers and manufacturers.11 Today, moving away from this model, Chinese firms and engineers have become major players in international SSOs, leading to the rapidly increasing success of Chinese firms in global markets.12 Thus, in my view, the ideal role of Indian SSOs in these markets is to encourage and facilitate the participation of Indian engineers and scientists in international SSOs. Only in this way will Indian firms gain a foothold in the technology debates that shape future products and markets.13 c) Whether there is a need for prescribing guidelines on working and operation of Standard Setting Organizations by Government of India? If so, what all areas of working of SSOs should they cover? Response – National SSO Guidelines: Because SSOs are, in essence, groups of competitors that come together to develop next-generation products, there is a need to ensure that SSO practices and procedures do not facilitate anti-competitive activity. To that end, the U.S. Office of Management and Budget has published Circular A-119, which outlines certain “due process” requirements that SSOs must comply with in order 11

See, e.g., Dieter Ernst, Indigenous Innovation and Globalization: The Challenge for China’s Standardization Strategy, East-West Center at Ch. 5 (2011), http://www.eastwestcenter.org/sites/default/files/private/ernstindigenousinnovation.pdf . 12 See Jorge L. Contreras, Divergent Patterns of Engagement in Internet Standardization: Japan, Korea and China, 38 TELECOMMUNICATIONS POLICY 914 (2014), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2523628 . 13 See Jorge L. Contreras, Patents, Standards and Borders: Addressing National Disparities among Holders of Standard-Essential Patents (Jan. 27, 2016) (presented at the NSF/East-West Center Workshop on MegaRegionalism, Jan. 2016), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2726237##


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to have their standards adopted by federal agencies.14 These requirements include openness, balance, due process, an appeals process and consensus.15 The American National Standards Institute (ANSI) has adopted similar due process requirements for SSOs that wish to be recognized as developers of American National Standards.16 The government of India may wish to consider the adoption of similar provisions to ensure that due process requirements are met within Indian SSOs. d) Whether there is a need for prescribing guidelines on setting or fixing the royalties in respect of Standard Essential Patents and defining FRAND terms by Government of India? If not, which would be appropriate authority to issue the guidelines and what could be the possible FRAND terms? Response – Reasonableness and Royalty Stacking: FRAND royalty terms are based on “reasonableness”, which is generally understood to refer to the context of the relevant industry and market. Because so many different industries are affected by standards, it would seem difficult to establish firm rates applicable across all industry categories. This being said, there are a few general principles that could usefully be set forth as guidelines in making FRAND royalty determinations. For example, the “reasonableness” of a royalty on a patent covering a standard or a product should take into account the overall number of patents covering the same standard or product (i.e., royalty “stacking”). As observed by the U.S. district court in Microsoft Corp. v. Motorola, Inc., Motorola's royalty request for its 802.11 SEP portfolio raises significant stacking concerns. There are at least 92 entities that own 802.11 [standardessential patents]. If each of these 92 entities sought royalties similar to Motorola's request of 1.15 % to 1.73 % of the end-product price, the aggregate royalty to implement the 802.11 Standard, which is only one feature of the Xbox product, would exceed the total product price.17 On this basis, the court determined that the royalty Motorola sought was unreasonable, because “if everyone wanted the same deal [as Motorola], it would quickly make the endproduct price untenable commercially”.18 Likewise, in In re Innovatio IP Ventures, LLC,19 the court was required to calculate the “reasonable” royalty for patents covering different aspects of the 802.11 standard. In 14

Office of Management and Budget, OMB Circular A-119: Federal Participation in the Development and Use of Voluntary Consensus Standards and in Conformity Assessment Activities (Jan. 2016), https://www.whitehouse.gov/sites/default/files/omb/inforeg/revised_circular_a-119_as_of_1_22.pdf 15 Id. at 16. 16 See Am. Natl. Standards Inst., ANSI Essential Requirements: Due Process Requirements for American National Standards (Jan. 2016), https://share.ansi.org/shared%20documents/Standards%20Activities/American%20National%20Standards/Procedur es,%20Guides,%20and%20Forms/2016_ANSI_Essential_Requirements.pdf 17 Microsoft, 2013 U.S. Dist. LEXIS 60233 at *213. 18 Id. at *213-14 (quoting testimony of Dr. Matthew Lynde). 19 2013 U.S. Dist. LEXIS 144061 (N.D. Ill. Oct. 3, 2013).


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doing so, it expressly recognized that it must “evaluate a proposed RAND rate in the light of the total royalties an implementer would have to pay to practice the standard” and “consider whether the overall royalty of all standard-essential patents would prohibit widespread adoption of the standard.”20 Accordingly, the existence of royalty stacking as to the 802.11 standard played a significant role in the court’s fixing the upper limit on the applicable royalty at the manufacturer’s existing profit margin.21 e) On what basis should the royalty rates in SEPs be decided? Should it be based on Smallest Saleable Patent Practicing Component (SSPPC), or on the net price of the Downstream Product, or some other criterion? Response – Royalty Base and Comparables: When a patent royalty is charged, the amount paid equals the royalty base multiplied by the royalty rate. Any combination of royalty bases and royalty rates can mathematically yield the same amount (e.g., 1.0% of $1000 is arithmetically equivalent to 10% of $100). For this reason, courts in the U.S. have generally stated royalty damage awards in terms of per-unit fees (e.g., $0.019 per unit) rather than as percentages of sales prices. While percentage-based royalties are ordinarily used in commercial transactions, these will vary based on custom in the industry. Thus, it is extremely difficult to establish a generally-applicable “basis” for the calculation of royalty rates for individual patents. This being said, patent pool royalty rates can, under some circumstances, serve as good indicators of appropriate levels for FRAND royalty rates. The key factor indicating the appropriateness of patent pool rates is the agreement of the pool members that such royalty rates are, indeed, fair and reasonable. Patent pool comparables were used effectively by the court in its assessment of FRAND rates in Microsoft v. Motorola22 and other cases. Of course, pool rates may take into account numerous other factors, such as the value of cross-licenses granted by other pool members. Accordingly, these factors must be taken into account when using pool rates as comparables for FRAND royalty rates, just as the court in Microsoft did. One significant drawback associated with reliance on patent pools as metrics for setting FRAND royalty rates is the general scarcity of patent pools as compared with SSOdeveloped standards. As observed by Biddle, et al, of 251 standards implemented in a typical laptop computer, only 3% were subject to patent pools.23 As I have written elsewhere,24 the court in Microsoft v. Motorola was fortunate that patent pools were 20

Id. at *69-70. Id. at *166-67. 22 Microsoft Corp. v. Motorola, Inc., Findings of Fact and Conclusions of Law, 2013 U.S. Dist. LEXIS 60233 (W.D. Wash., Apr. 25, 2013), aff’d 795 F.3d 1024 (9th Cir. 2015). 23 Brad Biddle, Andrew White & Sean Woods, How Many Standards in a Laptop? (And Other Empirical Questions), in 2010 INT’L TELECOMM. UNION, PROCEEDINGS OF THE 2010 ITUT KALEIDOSCOPE ACADEMIC CONFERENCE: BEYOND THE INTERNET? At Fig. 2 (2010), http://www.itu.int/dms_pub/itu-t/opb/proc/T-PROCKALEI-2010-PDF-E.pdf . 24 Jorge L. Contreras, So That’s What “RAND” Means?: A Brief Report on the Findings of Fact and Conclusions of Law in Microsoft v. Motorola, Patently-O, Apr. 27, 2013, http://patentlyo.com/patent/2013/04/so-thats-what-randmeans-a-brief-report-on-the-findings-of-fact-and-conclusions-of-law-in-microsoft-v-motorola.html. 21


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formed around the two standards at issue, ITU’s H.264 and IEEE’s 802.11. However, as even the Microsoft court acknowledged, the 802.11 pool formed by Via Licensing did not include a large number of patents and was not an ideal comparable. The situation is far worse for the thousands of SSO-developed standards that are too thinly-adopted, uncertain or short-lived to warrant the formation of a patent pool. Accordingly, it is not likely that the use of patent pool rates will be an effective general approach for assessing FRAND royalty rates for SSO-developed standards, even if it is useful for a handful of broadly-adopted industry standards. f) Whether total payment of royalty in case of various SEPs used in one product should be capped? If so, then should this limit be fixed by Government of India or some other statutory body or left to be decided among the parties? Response – Aggregate Royalty Caps: When many different patents held by many different firms cover a single standard or product, the risk of royalty stacking exists (see Response (d) above). One way to address this risk is by capping the total royalties that all patent holders may collectively charge with respect to that standard or product. Such caps may be imposed either by voluntary agreement of the relevant patent holders, by SSOs or by governmental action. Voluntary royalty caps for standardized products have often been agreed by groups of patent holders. Such agreements are fundamental to the nature of patent pools, which, by definition, charge licensees a single royalty for all patents included within the pool. Aggregate royalty agreements have also been reached outside the context of patent pools by firms holding patents covering particular industry standards that they wish to promote.25 I have previously proposed that the uncertainty associated with royalty-stacking of SEPs can be alleviated by SSO (i.e., member) agreement on aggregate royalty caps applicable to all SEPs covering a given standard or set of standards (what I termed a “pseudo-pool” approach).26 I would add that it is possible for the pseudo-pool approach to be adapted for use with single standards, groups of standards developed at the same SSO, and the full set of standards embodied in a single product. All that is required (though this is certainly not trivial in practice) is for the relevant technical communities to come together and agree on the relevant aggregate cap. In fact, a full-product royalty cap would produce the greatest efficiencies of all, as it would eliminate all standards-based stacking uncertainty associated with an entire product. I also reiterate a plea27 for competition authorities worldwide to make clear to the standardization community that such aggregate royalty cap agreements, so long as they 25

See Contreras, Patent Pledges, supra note 7, at 559-61 (describing maximum royalty pledges made by firms in the wireless telecommunications industry on standards including W-CDMA, LTE and WiMax). 26 Jorge L. Contreras, Fixing FRAND: A Pseudo-Pool Approach to Standards-Based Patent Licensing, 79 ANTITRUST L.J. 47 (2013), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2232515. 27 Id. at 93.


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are reached through an open process that involves patent holders, standards implementers and other relevant stakeholders, do not present competition law concerns. Currently, it is my suspicion that those who oppose limitations on patent royalties invoke the specter of antitrust and competition law concerns to preclude discussions of aggregate royalty caps from occurring, or even being considered, at SSOs. This appears to have occurred in 2005, when a proposed ETSI royalty cap was largely scuttled after the European Commission’s attention was drawn to the proposal.28 An official clarification from the CCI would do much to reassure the market that such arrangements will be viewed as procompetitive in India. g) Whether the practice of Non-Disclosure Agreements (NDA) leads to misuse of dominant position and is against the FRAND terms? Response – License Transparency: Non-disclosure Agreements (NDAs) are normal and well-accepted tools of business practice that enable unrelated parties to exchange information without the risk that it will be disclosed or used for unintended purposes. Without NDAs, unrelated parties would be far less willing to enter into negotiations and transactions. Thus, as a general matter, NDAs can be procompetitive business tools. This general proposition may not, however, hold true when FRAND licensing is considered. As I have written previously: Patent holders gain several advantages by withholding information about their SEPs and associated royalties from the marketplace. A general lack of information makes it difficult for prospective licensees to benchmark and compare the “deal” that they are offered with market norms. Withholding such information also obstructs policing of a patent holder’s obligation to grant licenses on terms that are “nondiscriminatory” (the often-overlooked “ND” prong of FRAND).29 Thus, while NDAs serve a useful purpose in general business negotiations, they can be used by patent holders to gain advantages in negotiation of FRAND license terms with potential licensees possessing less knowledge. It thus appears that a more level playing field, consistent with the obligation to grant FRAND licenses, would exist if greater knowledge existed in the marketplace regarding particular patent holders’ past licensing rates. There are several ways that increased transparency as to royalty rates could be achieved. At least one SSO requires that its participants disclose their maximum royalty rates prior 28

CLAUDIA TAPIA, INDUSTRIAL PROPERTY RIGHTS, TECHNICAL STANDARDS AND LICENSING PRACTICES (FRAND) IN TELECOMMUNICATIONS INDUSTRY 165-66 (2010). See also Contreras, Fixing FRAND, supra note 26, at 88-89 and 93. 29 See Contreras, Fixing FRAND, supra note 26, at 65. See also Richard J. Gilbert, Deal or No Deal? Licensing Negotiations in Standard-Setting Organizations, 77 ANTITRUST L.J. 855, 875-76 (2011) (arguing that the nondiscrimination prong of FRAND commitments be given greater weight and attention and proposing that vendors be given the opportunity to select one of a range of pre-determined and publicly-disclosed royalty structures offered by patent holders). THE


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to the adoption of a standard as to which they have declared SEPs.30 While this system has been successfully adopted at the SSO in question, other SSOs have resisted following its example.31 Another way to increase public information regarding FRAND license rates is through voluntary reporting by parties to FRAND licenses. In 2015, a group of academic researchers including myself developed a proposal whereby information from existing FRAND licenses could be collected from parties, aggregated and released on an anonymized basis.32 We believe that the greater transparency provided by such a data resource would provide numerous efficiencies and other benefits, including to parties negotiating FRAND licenses, judges adjudicating FRAND disputes, and regulators evaluating competitive behavior in the marketplace.33 h) What should be the appropriate mode and remedy for settlement of disputes in matters related to SEPs, especially while deciding FRAND terms? Whether Injunctions are a suitable remedy in cases pertaining to SEPs and their availability on FRAND terms? Response: (1) Injunctions. The courts and regulatory agencies in several jurisdictions, including the U.S. federal courts,34 the U.S. Department of Justice, Patent and Trademark Office35 and Federal Trade Commission,36 the European Court of Justice37 and the European Commission,38 have been converging on an approach to the issuance of injunctions for infringement of FRAND-encumbered SEPs. Each of these bodies has recognized that (a) making a FRAND commitment demonstrates the patent holder’s willingness to license its patents, thereby reducing the justification for issuing an injunction against a willing licensee, but also that (b) an injunction may be an appropriate remedy when an infringer is unwilling or unable to enter into a license on FRAND terms. Of course, it is far from settled when an infringer is “unwilling” to enter into a license, and what offered terms qualify as FRAND. However, these issues will likely be worked out over the next few years. (2) Resolution of FRAND Disputes - Arbitration. Disputes regarding SEPs and FRAND terms may be resolved through court litigation, administrative procedures and private 30

See Contreras, Ex Ante, supra note 1, at 172-75 (describing ex ante royalty disclosure policy of VITA). See id. at 205-08 (discussing reasons that ex ante policies have likely not been adopted at other SSOs). 32 See Study Proposal – Commercial Patent Licensing Data available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2755706. A private sector effort known as the Royalty Sunlight Enterprise (ROSE) National Royalty Database is also seeking to develop a similar database. 33 Though our previous proposal did not consider this option, it would also be possible for a government to require that parties operating within its territory submit such anonymized data to a publicly accessible database. 34 Apple, Inc. v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014). 35 U.S. Dep’t of Justice & U.S. Patent & Trademark Office, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments 3 (2013), www.justice.gov/atr/public/guidelines/290994.pdf 36 Fed. Trade Comm’n, Decision and Order, In re. Motorola Mobility LLC and Google Inc., Docket No. C-4410 (Jul. 23, 2013). 37 Huawei Techs. Co. Ltd. v. ZTE Corp., Euro. Ct. Justice, Case C-170/13 (Jul. 16, 2015). 38 Press Release, European Comm’n, Samsung— Enforcement of ETSI Standards Essential Patents (SEPs) (Dec. 21, 2012), http://europa.eu/rapid/press-release_MEMO-12-1021_en.htm, archived at http://perma.cc/4RML-PFHD. 31


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arbitration. Arbitration is often regarded as faster and less financially burdensome on the parties than patent litigation.39 Arbitrators can be selected from individuals having expertise in the relevant technology and legal disciplines, rather than generalist judges (and, in the U.S., juries). And the results of arbitration proceedings are enforceable internationally via the New York Convention,40 whereas judicial orders and decisions are generally not enforceable outside the jurisdiction in which they are rendered. Accordingly, some SSOs have required that participants resolve disputes involving standards and SEPs through arbitration.41 Some may argue that arbitration is less desirable than litigation from a systemic standpoint, as litigation results are typically made public and thereby inform the market regarding royalty rates and other determinations made by the court. However, this outcome is also possible with arbitration. Though the results and reasoning of arbitration are often kept confidential by the parties and tribunal, this degree of secrecy is not mandatory. If an SSO that wished to ensure that information regarding the resolution of disputes over its IPR policy became public, it could require members to agree to waive confidentiality restrictions regarding the outcome of their arbitration proceedings concerning the SSO’s policies.42 The SSO could even collect and publish these results for the benefit of its other members and the public. i) What steps can be taken to make the practice of Cross-Licensing transparent so that royalty rates are fair & reasonable? Response – Cross-Licensing: As several commentators have pointed out, it is difficult to compare FRAND licenses on a one-to-one basis when cross-licenses have been granted.43 Cross-licenses are a form of barter in which valuable IP rights may be traded without the exchange of monetary value. Assuming that both parties agree and there is an absence of improper pressure, such arrangements are legitimate and procompetitive. However, as noted above, cross-licensing complicates the comparison of FRAND licenses and the determination of compliance with a licensor’s non-discrimination (ND) obligations. To address this issue, some commentators have suggested that SEP holders be required to

39

See Jorge L. Contreras & David L. Newman, Developing A Framework For Arbitrating Standards-Essential Patent Disputes, 2014 J. DISPUTE RESOL. 23 (2014), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2335732, Mark A. Lemley & Carl Shapiro, A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents, 28 BERKELEY TECH . L.J. 1135 (2013). 40 U.N. Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958). 41 See Contreras & Newman, supra note 39, at 34-36 (discussing SSOs that have adopted mandatory arbitration procedures). But see J. Gregory Sidak, Mandating Final-Offer Arbitration Of FRAND Royalties For StandardEssential Patents, 18 STAN. TECH. L. REV. 1 (2014) (arguing against mandatory “baseball” arbitration of SEP disputes). 42 See Contreras & Newman, supra note 39, at Part III.D, Yoonhee Kim, Lifting Confidentiality of FRAND Royalties in SEP Arbitration, 16 COLUM. SCI. TECH. L. REV. 1 (2014). 43 Kai-Uwe Kühn, Fiona Scott Morton & Howard Shelanski, Standard Setting Organizations Can Help Solve the Standard Essential Patents Licensing Problem, CPI ANTITRUST CHRON., Mar. 2013, Vol. 3, No. 1, at 4.


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offer a uniform “cash only” price for licenses.44 This option would both eliminate some uncertainty associated with FRAND licenses that include cross-licenses, and also enable licensees without significant patent portfolios to obtain licenses on reasonable terms. j) What steps can be taken to make the practice of Patent Pooling transparent so that royalty rates are fair & reasonable? Response – Patent Pooling: In the U.S., patent pools are subject to significant antitrust scrutiny and relatively well-understood guidelines regarding their operation and procedures.45 In general, patent pools are not required to offer royalty rates that are “fair and reasonable”,46 though some do so voluntarily.47 To the extent that patent pools voluntarily assume FRAND licensing commitments, the other Responses relating to FRAND licensing should apply. k) How should it be determined whether a patent declared as SEP is actually an Essential Patent, particularly when bouquets of patents are used in one device? Response - Essentiality: This is fundamentally a technical question. As I have written previously, imposing a verification system for SEP declarations at SSOs is likely to be impractical: Such a vetting process would typically be cost-prohibitive in the context of SDO-based standards. Some SDOs produce hundreds or thousands of standards in a wide range of product areas. Many SDO standards are never widely adopted or have limited application, so much of the up-front investment of resources to determine essentiality would be wasted.48 In the pseudo-pool approach that I have proposed (see Response (f) above), other SSO members are permitted to challenge the essentiality of declared SEPs through an arbitration mechanism. If they are successful, the patent holder is penalized in terms of its share of the aggregated royalty pool to which it is entitled.49 Vetting SEP declarations is thus left to the market. If other SSO members feel that a SEP has been incorrectly declared, and it is in their financial interest to challenge the declaration, they can do so at their expense. The payoff to the challenger is the removal of the SEP from the pool of 44

Kühn, Scott Morton & Shelanski, supra note 43, at 4. See also Contreras, Fixing FRAND, supra note 26, at 92 (discussing “cash only” proposal), Gilbert, supra note 29, at 875-76 (recommending uniform “royalty schedule” to address non-discrimination requirement). 45 See U.S. DEPT. JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION 64-83 (2007). 46 See DOJ-FTC Antitrust IP Report, supra note 45, at 82 (“The Agencies generally do not assess the reasonableness of royalties set by patent pools. Rather, the Agencies focus on the pool’s formation and whether its structure, including the terms of the contract among pool participants, would likely enable pool participants to raise prices or restrict output in a relevant market”). 47 See, e.g., Gilbert, supra note 29, at 873-75 (discussing several pools purporting to offer FRAND royalty rates, including MPEG-LA, Sisvel and DVDC6). 48 Contreras, Fixing FRAND, supra note 26, at 77. 49 See id. at 82-83.


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royalties in which they share. The penalty structure likewise encourages the patent holder to be as accurate as possible in declaring its SEPs. l) Whether there is a need of setting up of an independent expert body to determine FRAND terms for SEPs and devising methodology for such purpose? Response – Rate Setting: This question warrants significant additional research and analysis. Rate-setting authorities exist in a range of industries and settings. In the United States, state public utility commissions set rates for regulated monopoly utility services such as electricity and natural gas.50 Outside the utility setting, the U.S. Copyright Royalty Board is authorized by Congress to “make determinations and adjustments of reasonable terms and rates of royalty payments” relating to broadcast and transmission of musical works, making and distribution of sound recordings, satellite television broadcasts and digital audio recording devices.51 While it is possible that establishing a FRAND rate-setting authority (FRSA) would reduce uncertainty regarding appropriate royalty rates for FRAND licenses, it is not clear that the expense and administrative overhead of an FRSA would be justified in terms of gained efficiency. That is, if the FRSA were required to determine a FRAND royalty rate for every one of the thousands of standards published or used in India, the work required would be enormous. By comparison, despite their publicity, there have been relatively few disputes regarding FRAND royalty rates over the years,52 and most SEP licenses appear to be executed without dispute or litigation. This is not to say, of course, that such SEP licenses are all on rates that actually comply with FRAND terms, and a lack of litigation is not necessarily an indication that rates are within expected FRAND ranges. Thus, rather than setting FRAND rates for all standards, an FRSA, should one be created, could act only upon request of a party to a SEP license negotiation or a regulatory conducing an investigation. m) If certain Standards can be met without infringing any particular SEP, for instance by use of some alternative technology or because the patent is no longer in force, what should be the process to declassify such a SEP? Response – Declassifying SEPs: There is no uniform practice or procedure for “declassifying” SEPs. Every SSO addresses SEP declarations differently. Some large 50

See, generally, LOWELL ALT, ENERGY UTILITY RATE SETTING (2006). 17 U.S.C. § 801(b)(1). Such royalties are to be “calculated to achieve the following objectives: (A) To maximize the availability of creative works to the public; (B) To afford the copyright owner a fair return for his or her creative work and the copyright user a fair income under existing economic conditions; (C) To reflect the relative roles of the copyright owner and the copyright user in the product made available to the public with respect to relative creative contribution, technological contribution, capital investment, cost, risk, and contribution to the opening of new markets for creative expression and media for their communication; (D) To minimize any disruptive impact on the structure of the industries involved and on generally prevailing industry practices.” Id. 52 See Contreras, Fixing FRAND, supra note 26, at 53-54 and App. (listing all U.S. FRAND litigation resulting in judicial decisions from 1995-2012). 51


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SSO such as ETSI and IETF require participants to declare SEPs, which are then listed on the SSO’s web site. Other major SSOs such as IEEE, however, do not require the identification or declaration of specific SEPs at all. Thus, the public may not learn which patents a patent holder considers to be SEPs until the patent holder seeks to license the patents or asserts them in court. The proposal for a public registry of SEPs and patent pledges made in Response (a-2) above could address this issue, at least in part.