OxFirst’s 4th Symposium on IP and Competition shows the need to conceptualize FRAND internationally

Kat friend Joan Ng brings us the following report on a recent symposium on globalization and FRAND that took place at Oxford.

On Oct 18th, IP Economic advisory OxFirst hosted a symposium on the interplay between globalization and fair, reasonable, and non-discriminatory (FRAND) licensing, held at St Cross College, at the University of Oxford. The event was chaired by Fabian Hoffmann, Judge of the German Federal Court of Justice (the highest court in Germany.)

The symposium covered data on standard essential patent (SEP) litigation, the growing influence of non-practicing entities (NPEs) in litigation around the world, and an in-depth legal debate on global FRAND licensing.

Against that background, Dr Roya Ghafele argued that FRAND rates should reflect the economic value of SEPs rather than either party’s ability to have leverage over the other. Such a rate can be determined with the support of various methods that allow to assess the FRAND licensing rate. These methods, such as the Top Down, Bottom Up or the Incremental Value approach, have been used by courts around the world, either as the sole valuation method, or in combination with other methods, to determine the FRAND rate for a license.

It was also pointed out by several speakers at the conference that FRAND is in need of international collaboration when seeking to come to grips with determining SEPs and setting FRAND licensing rates. This reinforces the need for multilateral approaches to the topic. For such a mechanism to be fair, it should be administered by a neutral party and reflect input from all countries.

In kicking the symposium off, one speaker presented data showing that the usage of standard essential patents (SEPs) has coincided with more litigation. The number of infringement actions and validity challenges involving SEPs, in comparison with non-SEPs, has risen significantly over the last decade. In fact, patent families containing SEPs were 6.4 times more likely to be exposed to an infringement action than a non-SEP family. At the same time, SEPs are also 9.5 times more exposed to a validity challenge than a non-SEP.

This increase is really not surprising, given that declaring a patent as standard and essential immediately increases its value. At the same time, it was also suggested that SEP holders and implementers are struggling more than ever to come to agreeable terms during negotiations. The increase may also be tied to a rise in the number of NPEs owning SEPs, as well as a change in the business models of NPEs. The data presented showed that in the U.S., 77.5% of SEP infringement and validity actions involve NPEs. In Europe, that same figure amounted to 43.9%. One speaker also noted that NPEs are buying ever more patents and expanding their geographical reach.

Such data point to the fact that SEPs continue to be seen as a highly attractive source of revenue. It also suggests that FRAND licensing remains a very contentious matter, such that there is little hope in the near future for a more peaceful approach to FRAND licensing.

Already, there is some indication that fear of litigation from NPEs is having an impact on innovation. At the symposium, research was presented from Gianluca Orsatti and Valerio Sterzi showing that forward citations for patents fall once they are transferred to NPEs. They fall by even more for patents transferred to NPEs with particularly litigious business models.

Clearly, implementers are wary of being dragged into litigation. The role of the courts in FRAND licensing determinations is, therefore, of increasing importance. As NPEs and implementers take to litigation around the world to settle licensing matters, the precedents that courts set will have an impact on negotiating positions.

The U.K approach to global FRAND licensing rates, meanwhile, was subject to heated debate. While a global FRAND licensing rate enhances efficiency and discourages hold out behaviour, it can also lead to forum shopping as well as leverage for the plaintiff. Equally, anti-suit injunctions are a double-edged sword. While they reduce the risk of foreign litigation undermining a domestic court, and avoid the risk of inconsistent litigation and duplication, they can also increase the costs of litigation.This would prevent courts competing based on methodologies that systematically favour either SEP holders or implementers.

It was also suggested that various regional bodies could be established, following the role model of the Unified Patent Court, which would have jurisdiction over regionally harmonized patents. Ultimately, the IP community needs to put its heads together and work towards a truly global solution.

Photo by Brian Fence, who has released it into the public domain.