Market Reliance and Patent Pledges
Jorge L. Contreras
American University - Washington College of Law
February 3, 2014
In the midst of today’s global smartphone wars, patent holders are making promises. They are promising, among other things, not to assert their patents against certain categories of products, such as open source code software, or to license them on terms that are “fair, reasonable and non-discriminatory” (FRAND). And these promises are not being made in closed door negotiations, but in public fora, for the benefit of entire markets. I call these public, market-facing promises “patent pledges”, and they are beginning to dominate certain large and heavily litigated sectors of the global technology marketplace.
Despite the increasing prevalence of patent pledges and their importance to the technology economy, current legal theories do not adequately support the enforcement of these promises. The principal theory used to enforce patent pledges to-date, particularly in the context of standards-related FRAND commitments, has its roots in common law contract doctrine. The theory situates patent pledges within a contractual framework among patent holders, standards-setting organizations (SSOs) and third party implementers of standards, relying largely on the third party beneficiary doctrine to extend hypothetical licensing commitments made by patent holders to SSOs to the entire market of firms implementing a standard. While this contract-based theory has been adopted by numerous commentators and a handful of courts, it falls short on a number of logical and theoretical grounds, not least because it fails to take into account the diverse range of settings in which technical standards and other common technology platforms are developed. Likewise, antitrust theories have been advanced to support the enforcement of patent pledges, but these too fall short when applied in a broad range of settings. Finally, the equitable doctrine of promissory estoppel, the application of which would appear most closely to address the unilateral nature of patent pledges, fails because a showing of specific reliance by the promisee is required, a showing that is difficult to make in complex technology markets characterized by thousands of patents and dozens of patent holders.
Thus, a new theory is needed to secure the market-wide benefits that patent pledges offer. In this article, I propose a novel “market reliance” theory that adapts the equitable doctrine of promissory estoppel to the patent pledge framework by adding a rebuttable presumption of reliance borrowed from the “fraud-on-the-market” theory under Federal securities law. Under this new approach, a patent holder’s public commitment to refrain from enforcing its patents would be enforceable by any participant in the relevant market, absent a showing that it knowingly rejected the commitment. The market reliance theory would offer a robust means for enforcing legitimate patent pledges by third party market participants, and would extend the effect of such pledges to downstream purchasers of patents. As such, the market reliance theory could fill a critical gap in the existing patent enforcement landscape and give greater assurance to technology markets that depend on them.
Number of Pages in PDF File: 56
Keywords: FRAND, patent, standard, licensing, hold-up, contract, equity, estoppel, reliance, fraud on the marketworking papers series
Date posted: October 30, 2013 ; Last revised: February 11, 2014
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