FRAND terms are often discussed in relation to a commitment that a patent owner makes to an SDO. When discussing a standard, SDOs typically require members to publicly declare patents that are potentially essential for that standard - these patents are referred to as standard essential patents (“SEPs”) - and clarify whether they are willing to offer a license to SEPs on FRAND terms. The exact scope of the FRAND commitment is defined in the SDO’s bylaws and may differ across organizations.
For most SDOs, a patent holder can freely decide whether to make a FRAND commitment or not. Put differently, a commitment to offer a license on FRAND terms is a voluntary agreement between the patent holder and the SDO. If the SDO’s licensing requirements are too onerous, the patent holder might decline a FRAND commitment. That is why SDOs seek to define a FRAND commitment in a way that balances between the need to ensure access to essential technologies while also allowing patent owners to be adequately compensated for their R&D investments and contributions they make to the standard.
The specific terms of a license for SEPs are ultimately negotiated between the patent holder and an implementer - that is, a company that offers products or services that use the standard. If the parties are unable to reach an agreement on the FRAND terms, they may seek to resolve their dispute in court. Most courtshave found a FRAND commitment to be an enforceable contract. In the United States, for example, several courts have found that implementers of industry standards are the intended third-party beneficiaries of the FRAND commitment, and as such, have the right to enforce the patent holder’s contractual obligations in court (Microsoft Corp. v. Motorola Inc.).
In the last few years, courts have provided important guidance for resolving FRAND related disputes. For example, the U.S. Court of Appeals for the Federal Circuit said that the analysis of comparable licenses provides a reliable methodology for determining a reasonable royalty for FRAND-encumbered patents (Ericsson Inc. v. D Link Sys., Inc.). Similarly, the UK Supreme Court and the Federal Court of Germany said that comparable licenses provide reliable evidence for determining FRAND royalties as well as other terms and conditions of a license (Sisvel v. Haier; Unwired Planet v. Huawei). Based on the analysis of comparable licenses, both courts determined that when the implementer sells its products worldwide, a FRAND license is global in scope rather than limited to an individual jurisdiction (Unwired Planet v. Huawei; Sisvel v. Haier).
In addition, courts have provided guidance regarding the remedies that a patent owner may seek against an infringer of FRAND committed patents. In 2014, the Court of Justice of the European Union (“CJEU”) issued a seminal opinion addressing the allegations that a patent holder’s request for an injunction would violate EU competition law. The CJEU did not categorically exclude an antitrust liability but said that if a patent owner takes specific steps (such as notifying the implementer about the infringement and extending an offer that complies with the FRAND obligation), a request for an injunction will raise no concerns under competition law. National courts of the European Union and United Kingdom subsequently confirmed that, depending on the circumstances of the case, a patent owner may be entitled to request and obtain an injunction (Sisvel v. Haier; Unwired Planet v. Huawei). In the United States, the Federal Circuit also said there is no “per se rule” against injunctions for SEPs”, although a FRAND commitment is a relevant criterium in determining the entitlement to such a remedy.
FRAND commitments have also been discussed in the context of antitrust. Some commentators have argued that a patent holder’s breach of the obligations arising from a FRAND commitment should be considered a violation of antitrust law. In the United States, courts have rejected that argument (FTC v. Qualcomm). For example, in FTC v. Qualcomm, the Ninth Circuit said that establishing an antitrust violation would require evidence of harm to competition, rather than merely evidence that the patent holder breached its contractual duties. In other words, the Ninth Court said that a breach of a FRAND commitment, without more, is not an antitrust violation.