Fordham 27 (Report 6): FRAND

Before lunch on the second day at the Fordham IP conference, one of the breakout sessions was on FRAND. Being near and dear to the AmeriKat's heart, she ventured down to the Moot Court Room at Fordham Law School. Thankfully, the AmeriKat's paws were able to take a break thanks to Kat friend, Richard Vary (Bird & Bird). 

 

Over to Richard: 

The highlight of the conference was (as one would expect) the FRAND panel. Ably co-chaired by Ari Laakkonen (Powell Gilbert) and Andrew Bowler (Bristows), the panel focussed on regulatory intervention, transparency, and courts setting FRAND rates.

 

Regulatory intervention

 

Marc (Sandy) Block of IBM explained the dilemma facing an in house lawyer when joining an SDO. Some SDOs have clear rules and limited scope. Others have much wider and less clear implications, and it is not clear to what extent they compromise the company's assets. FRAND obligations also keep him awake at night: if we get the rate wrong will a regulator tag us for acting uncompetitively? The stronger the obligations imposed by an SDO are, the more they point companies towards not participating. 

 

Renata Hesse (Sullivan and Cromwell, and former DoJ) sought to reassure patent practitioners that anti-trust was not trying to take over. Industry should not have to worry about an anti-trust regulator coming after them if their conduct was not close to the edge. She was happy to see the courts now engaged in FRAND determinations, because she felt they were better placed than regulators to resolve commercial disputes. With remarkable frankness, she acknowledged that in her time many people felt that the DoJ had pushed the balance too far in favour of implementers. Under her successor, some feel that the balance is swinging too far in the other direction. She explained that in the joint PTO/DoJ statement she had sought to find a fair balance. 

 

Dina Kallay (Ericsson, former FTC) argued that anti-trust regulators should protect the competitive process, rather than particular companies. She questioned whether it was a good use of taxpayers' money to assist one party in a bilateral technology dispute. She coined the phrase "regulatory hold up" to describe the use of regulatory intervention to force a better commercial deal.

 

Transparency

 

Edgar Brinkman (The Hague court) asked whether "hold up" and "hold out" were caused by insufficient transparency? If both sides keep their cards close to their chest, do more disputes arise because implementers suspect that they are being overcharged? Wolrad Waldek (Freshfields) explained that under the current German practice the SEP owner is now required to give the proposed licensee an opportunity to verify non-discrimination: i.e. it must lay open its licences. The practical difficulty was that the licences contain confidentiality clauses, which makes the requirement very difficult for patent owners to satisfy. It was not yet clear in Germany whether the implementer must also show its hand. 

 

David Por (Allen & Overy) explained that the Paris Appeal Court had addressed this in LG v Conversant: the implementer does not have to produce its licences. He accepted Judge Brinkman's view that in theory transparency would improve market function and decrease litigation. But the problem in practice is that pushing for disclosure achieves the opposite. By requiring disclosure, we create an impossible situation because the parties are not allowed to disclose: they would put themselves in breach of confidence. Counter-intuitively, the more we require transparency, the more we hinder resolution. 

 

Steven Geiszler of Huawei added that he was a big fan of transparency. But he questioned its value. Even if we could see everything, licensing practitioners are very smart and are skilled at obscuring the actual valuation and the rates. Eeva Hakoranta thought that the call for transparency may be partly rhetoric: most negotiators had a very good picture. They are not being hindered by a lack of information.

 

Sandy Block raised the possibility that a public statement of rates might actually help a licensor. If he announces that his price is 1% and no one challenges him, it may be said that an implementer has accepted the price by not challenging it when announced.

 

Non-discrimination

 

Andrew Bowler asked whether ND should be hard edged? Renata Hesse was not a fan. Every party is different, and there must be flexibility. Eeva Hakoranta of Nokia agreed: in her experience each negotiation was individual. She observed that if hard-edged non discrimination was imposed, every licensee would demand a better deal than everyone else, and the prices will simply ratchet down. 

 

Unwired Planet and rate setting

 

Jill Ge of Clifford Chance raised Unwired Planet, which she characterised as international coercion. She questioned what would happen if the Chinese courts adopted a similar approach. She also questioned the award of costs, which she felt was a further instance of coercion. Steven Geizler (Huawei) speculated whether this would cause a race to the courthouse. But he took comfort in Judge Gilstrap's decision in PanOptis v Huawei and felt that this would not happen more widely.

 

Renata Hesse understood the comity concern of a single court deciding a global rate, but reminded the panel that when she was at the DoJ  implementers would complain that they were being dragged from court to court around the world. There is a balance. Steven Geisler argued that if one jurisdiction covers 30% of sales then perhaps that should have more weight. But, he accepted, he did not want to have to be sued in 20 jurisdictions. 

 

Wolrad Waldeck pointed out a fact that many critics of the decision have missed: that the German (and many other) courts face exactly the same jurisdictional issue that Jill observed in the UK, but it arises by the back door: if a global rate is FRAND, and the court is deciding whether to award an injunction based on whether a party has offered, or declined a frand licence, it necessarily has to consider what might be a global FRAND rate. 

 

Judge Brinkman felt that courts were not well placed to set rates, just assess willingness or unwillingness.  The strain on courts of deciding rates as well as infringement would be enormous. Annsley Ward from Bristows asked whether the solution was an international tribunal? Andrew Bowler agreed, particularly if this could be agreed at an SSO level. Eeva Hakoranta thought that a single solution would be impossible to agree, but argued that we should have a multitude of solutions that parties could accept. Nokia has demonstrated that Arbitration of FRAND rates works. But it needs consent. 

 

Judge Brinkman concluded by agreeing that some sort of international tribunal would be a good idea. But he questioned whether making it mandatory would comply with competition law.