what investors need to know about frand

8/10/2019 What Investors Need to Know About FRAND

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IP Dealmakers Forum

What Investors Need to Know About FRAND

Abha Divine, Techquity Capital Management

Eric Reifschneider, Qualcomm

Scott Weingust, Stout Risius Ross, Inc. (SRR)


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Fair Reasonable and Non-Discriminatory (FRAND)

FRAND commitments:

Are enforceable contracts (at least in the US and many European countries)governed by the IP Policy of the relevant SSO under which the commitmentwas made

Require negotiation in good faith by both parties

Allow a range of potential outcomes

Do not foreclose a SEP owners right to obtain an injunction under allcircumstances


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List of Recent U.S. FRAND Cases

Microsoft v. Motorola, W.D. Wash, April 25, 2013

Ericsson v. D-Link, et al, E.D. Tex, August 6, 2013

In re Innovatio IP Ventures, N.D. Ill, October 3, 2013

Apple Inc. V. Motorola, Inc., Fed. Cir., April 25, 2014

Realtek v. LSI, N.D. Cal, June 16, 2014

Interdigital vs. Nokia & ZTE, ITC No. 337-868, June 26, 2014

CSIRO v. Cisco, E.D. Tex, July 23, 2014 In the Matter of Certain Wireless Devices with 3G and/or 4G Capabilities and

Components Thereof, Inv., ITC No. 337-TA-868, August 28, 2014


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Example: ETSI IPR Policy

The overriding policy goal is expressed as follows:

[T]he ETSI IPR POLICY seeks to reduce the risk to ETSI, MEMBERS, and othersapplying ETSI STANDARDS and TECHNICAL SPECIFICATIONS, that investment in thepreparation, adoption and application of STANDARDS could be wasted as a result of anESSENTIAL IPR for a STANDARD or TECHNICAL SPECIFICATION being unavailable. Inachieving this objective, the ETSI IPR Policy seeks a balance between the needs ofstandardization for public use in the field of telecommunications and the rights ofthe owners of IPRs . ETSI Intellectual Property Rights Policy Sec. 3.1

IPR holders whether members of ETSI and their AFFILIATES or third parties, shouldbe adequately and fairly rewarded for the use of their IPRs in the implementation of

STANDARDS and TECHNICAL SPECIFICATIONS . ETSI Intellectual Property Rights Policy Sec.3.2


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Example: ETSI IPR Policy

The FRAND commitment is expressed as follows:[A]n irrevocable undertaking that it is prepared to grant irrevocable licenses on fair,reasonable and non-discriminatory terms and conditions under such IPR to at least thefollowing extent: MANUFACTURE, including the right to make or have made customizedcomponents and sub-systems to the licensees own design for use in MANUFACTURE;sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED; repair, use, oroperate EQUIPMENT; and use METHODS. The above undertaking may be made subjectto the condition that those who seek licenses agree to reciprocate. ETSI Intellectual PropertyRights Policy Sec. 6.1


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Quotes from Select Cases Smallest Saleable Unit

Finally, the primary problem with Ciscos damages model is the fact that it basesroyalties on chip prices. CSIRO did not invent a wireless chip. Although it islargely undisputed that the inventive aspect of the 069 patent is carried out in thePHY layer of the wireless chip, the chip itself is not the invention. The 069 patent

is a combination of techniques that largely solved the multipath problem for indoorwireless data communication. The benefit of the patent lies in the idea, not inthe small amount of silicon that happens to be where that idea is physicallyimplemented. [Judge Leonard Davis, FINDINGS OF FACT AND CONCLUSIONSOF LAW of July 23, 2014 , pg. 22 - CSIRO v. Cisco, E.D. Tex, July 23, 2014]


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Quotes from Select Cases Smallest Saleable Unit

It is simply illogical to attempt to value the contributions of the 069 Patent basedon wireless chip prices that were artificially deflated because of pervasiveinfringement. Basing a royalty solely on chip price is like valuing acopyrighted book based only on the costs of the binding, paper, and inkneeded to actually produce the physical product. While such a calculationcaptures the cost of the physical product, it provides no indication of itsactual value . [Judge Leonard Davis, FINDINGS OF FACT AND CONCLUSIONSOF LAW of July 23, 2014 , pg. 22 - CSIRO v. Cisco, E.D. Tex, July 23, 2014]


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Quotes from Select Cases Royalty Stacking/Hold UpTheoriesThe best word to describe Defendants royalty stacking argument is theoretical .[Judge Leonard Davis, MEMORANDUM OPINION AND ORDER of August 6, 2013 , pg. 36- Ericsson v. D-Link, et al, E.D. Tex, August 6, 2013]

Further, Defendants failed to present any evidence of actual hold-up or royaltystackingAll of Defendants concerns about royalty stacking were just thatconcerns.Faced with no actual evidence of stacking, Defendants were forced to arguehypothetically. However, their hypothetical arguments would have carried more weight ifDefendants presented any real evidence of stacking. Further, Ericsson presented evidencethat it considered royalty stacking issues when it established its royalty rates. Accordingly,Ericssons RAND rate did not fail to account for hold-up or royalty stacking. [Id., at 51]


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Quotes from Select Cases Royalty Stacking/Hold UpTheories

The essence of the arguments made by the FTC and PTO/DOJ against the availability ofexclusion orders is that by having an exclusion order hanging over the negotiations, thereis a risk of patent holdup: that is the owner of the IPR may obtain remuneration beyondthe value of the IP, because it is standard. There is no evidence that is the case here .

[ALJ Essex, Initial Determination on Violation of Section 337 and RecommendedDetermination on Remedy and Bond of June 26, 2014 , pg. 123 - Interdigital vs. Nokia &ZTE, ITC No. 337-868]


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Quotes from Select Cases InjunctionsTo the extent that the district court applied a per se rule that injunctions areunavailable for SEPs, it erred . While Motorolas FRAND commitments arecertainly criteria relevant to its entitlement to an injunction, we see no reason tocreate, as some amici urge, a separate rule or analytical framework for addressinginjunctions for FRAND-committed patents. The framework laid out by the SupremeCourt in eBay, as interpreted by subsequent decisions of this court, provides amplestrength and flexibility for addressing the unique aspects of FRAND committed

patents and industry standards in general. 547 U.S. at 391-94. [United StatesCourt of Appeals of the Federal Circuit, Decision of April 25, 2014 , pgs. 71 72 -Apple Inc. V. Motorola, Inc.]

On the other hand, an injunction may be justified where an infringerunilaterally refuses a FRAND royalty or unreasonably delays negotiations tothe same effect . See, e.g. , U.S. Dept of Justice and U.S. Patent and TrademarkOffice, Policy Statement on Remedies for Standard-Essential Patents Subject toVoluntary F/RAND Commitments , at 7-8 (Jan. 8, 2013). [Id.]


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What Weve Learned About Litigating FRAND Disputes Courts throughout the world (and the ITC) can and do resolve disputes regarding

Standard Essential Patents (SEP) and FRAND commitments There is no absence of judicial remedies

Tribunals are evaluating FRAND defenses based on FRAND commitmentswhen raised, and before granting exclusionary remedies

Declaring a patent as potentially essential (as may be required by an SSOs IPRpolicies) doesnt make it a SEP and does not make it subject to a FRANDcommitment; the patent must in fact be essential to the standard

SEPs are often licensed in portfolios rather than individually

Compensation for SEP owners must be high enough to ensure that innovators inthe future have an appropriate incentive to invest in future developments and tocontribute their inventions to the standard setting process


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Thank You!

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