FRAND ARTICE.pdf - The Policy Implications of Licensing...

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The Policy Implications of Licensing Standard Essential FRAND- Committed Patents in Bundles - Anne Layne-Farrar and Michael Salinger 1 July 2016 Abstract: Patents declared to standard development organizations (SDOs) as potentially essential for compliance with standards under development within the SDO are typically bound by so-called FRAND commitments – promises from the patent holder to license the patents on fair, reasonable, and non- discriminatory terms and conditions. It is widely agreed that FRAND commitments impose certain constraints on the terms and conditions that patent holders may seek from licensees in comparison to licensing patents without a FRAND commitment. But exactly what those constraints might entail has been the subject of heated debate for at least a decade. The particular constraint discussed in this paper is whether FRAND prohibits patent portfolio licensing, where both FRAND committed and non-essential, non-FRAND-committed patents are bundled together into a single license. We explain that the answer to that question is “No, FRAND does not create a blanket prohibition against portfolio licensing.” Whether such a patent portfolio license honors a FRAND commitment depends on the specific licensing terms and conditions comporting with FRAND. Key words: patents, licensing, bundling, tying, RAND, FRAND, holdup, intellectual property JEL classifications: O3, K21 1 Dr. Layne-Farrar is a Vice President at Charles River Associates and an Adjunct Professor at Northwestern University School of Law, ; Dr. Salinger is a Professor at - Boston University. We thank Koren Wong-Ervin for helpful comments. -
I. Introduction The majority of standard development organizations (SDOs) 2 around the globe have policy statements guiding member conduct to help ensure the smooth functioning of the standard setting process and the commercialization of standards after the technologies have been defined. And the majority of SDOs with such policy statements include rules on the disclosure, use and licensing of patented technologies within the standards they develop, to help ensure that firms wanting to implement the SDO’s standards will have access to the technologies required for standard compliance. By far, the most prevalent patent licensing rule calls for any patented technologies necessary for compliance with the standard – referred to as “essential” technologies – to be licensed on fair, reasonable, and non-discriminatory (FRAND) terms and conditions. 3 A great deal of ink has been spilled on what a FRAND commitment does and does not imply, but until quite recently there was no analysis (to the best of our knowledge) of the implications of FRAND commitments for licensing patents in bundles or portfolios. 4 The issue is an important one, since the norm in high technology industries – including mobile telecommunications, computer hardware, software, consumer electronics, and others – is for patent holders to license their patents at the technology portfolio level. That is, patent holders in high tech

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