SEPs and FRAND are key elements in a mandatory industry standard especially mobile industry involve in mobile devices. The manufacturers (or holder’s patent rights) must follow to compulsory conditions and standards if they declared patent to SEP and the disputes, negotiations shall be based on FRAND rules. The third parties must pay royalty fee when buying or using franchisees, the payment and negotiation are account for SEPs and FRAND basis. The main and recent disputes show off the franchise fee is a center of issue.
Standard Essential Patents (SEPs)
- Fair: relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law; fair terms means terms which are not anti-competitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are: requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want or requiring licensees to take licenses to certain unwanted or unneeded patents to obtain licenses to other desired patents (bundling); requiring licensees to license their own IP to the licensor for free (free grant backs); and including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).
- Reasonable: refers mainly to the licensing rates. According to some, a reasonable licensing rate is a rate charged on licenses which would not result in an unreasonable aggregate rate if all licensees were charged a similar rate. According to this view, aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. Similarly, a reasonable licensing rate must reward the licensor with adequate compensation for contributing its essential patents to a standard. Compensation is adequate if it provides the licensor with the incentive to continue investing and contributing to the standard in future time periods. It is worth noting that a licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable “bundled” rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.
- Non-discriminatory: relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms can’t change dependent on the volume and creditworthiness of the licensee. However it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors and to ensure that potential new entrants are free to enter the market on the same basis.
- Sources: https://www.fieldfisher.com/en/insights/what-is-frand