Determining the FRAND Rate: U.S. Perspectives on Huawei v. InterDigital

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Fei Deng, Su Sun, Feb 11, 2014

Standards have become part of our life in this world of rapid technological progress. Antitrust policy makers and practitioners have long realized the important benefits standards bring to social welfare: higher product quality and lower costs for manufacturers that result from the widespread adoption of advanced technologies and the benefits from network externalities and scale economies. However, in recent years, developments in technology licensing involving standard essential patents have drawn many into heated discussions as to whether owners of SEPs who, as members of the relevant standard-setting organization, promised to license their SEPs on fair, reasonable, and non-discriminatory terms may have abused the market power they possess simply by virtue of their technologies being included in the standard, and whether the rates they seek are inconsistent with their FRAND obligations.

Antitrust enforcement agencies in the United States and in the European Union have shown great concern over licensing practices of SEP owners with FRAND obligations. A general consensus seems to have emerged that SEP owners should be limited by their FRAND commitments, and that seeking injunctions against willing licensees may be considered an antitrust violation. In several cases, putative licensees have requested that a court determine the FRAND rate and assess whether the SEP owner behaved inconsistently with its FRAND obligations.

As the world economy has become increasingly integrated, and intellectual property rights are more strongly enforced in jurisdictions around the world, global technology licensing has become more common. Inevitably, disputes regarding royalty rates and other terms in patent licensing are rising quickly. Although the United States and the European Union remain the major jurisdictions where licensing disputes are adjudicated, other jurisdictions are emerging as new potential forums for parties to consider strategically. For example, the patent war between Apple and Samsung has reached the courts in South Korea, and the Competition Commission of India is investigating Ericsson for allegedly charging Indian companies high royalty rates that violated the company’s FRAND commitments.

But perhaps the most significant emerging jurisdiction for SEP and FRAND disputes is China. On February 4, 2013, the Shenzhen Intermediate People’s Court in Guangdong province in China issued a decision that determined a FRAND rate for InterDigital’s SEPs in Huawei v. InterDigital, several months before a U.S. court ruled on FRAND rates for the first time in Microsoft v. Motorola.