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Richard Stark, Mar 16, 2015
It has become commonplace for serious people to assert in the SEP/FRAND context that the possibility of royalty stacking is an issue that must be addressed—a concern that threatens profits, progress, and competition itself. Interested parties around the globe are hard at work seeking to enact laws, rules, and policies to address royalty stacking. Frequently the changes sought involve interpretations of or provisions added to the intellectual property rights policies of standards setting organizations.
The European Commission’s DG-GROW issued a report on patents and standards in March 2014 noting a concern that “[t]he growing number of patents makes the problem of royalty stacking more prominent,” and outlining a number of possible measures for addressing that perceived problem. China’s Electronic Intellectual Property Center, an entity associated with the Ministry of Industry and Information Technology, released for comment in late 2014 a draft, non-binding template for the IPR policies of SSOs. One provision of the draft effectively seeks to define a FRAND royalty as one that takes into account “the total aggregate royalties that may apply if other owners of intellectual property demand similar terms.” In the United States, a number of judicial decisions have addressed royalty stacking, and the IEEE has now revised its IPR policy to recommend that reasonable royalties take royalty stacking into account.
Yet, in all this activity, little attention has been given to the question that ought to be asked first: Has the possibility of royalty stacking manifested itself as a real-world problem? Thus it was noteworthy when, in December 2014, the U.S. Court of Appeals for the Federal Circuit ruled in Ericsson v. D-Link that a jury in a FRAND royalties case may consider royalty stacking only when there is “actual evidence of stacking.”
The Federal Circuit’s ruling heralds a sensible reorientation of the discussion away from mere possibilities toward focusing on realities. No matter where you stand on SEP/FRAND issues, a turn toward evidence should be greeted as a healthy development. The rational development of laws and policies, and rational decisions on individual cases, require factual development as an absolute prerequisite.