A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents

32 Pages Posted: 2 Apr 2013 Last revised: 29 Dec 2013

Mark A. Lemley

Stanford Law School

Carl Shapiro

University of California, Berkeley - Haas School of Business

Date Written: November 5, 2013

Abstract

Standard Setting Organizations (SSOs) typically require their members to license any standard-essential patent on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. Unfortunately, numerous high-stakes disputes have recently broken out over just what these “FRAND commitments” mean and how and where to enforce them. We propose a simple, practical set of rules regarding patents that SSOs can adopt to achieve the goals of FRAND commitments far more efficiently with far less litigation. Under our proposed approach, if an standard-essential patent owner and an implementer of the standard cannot agree on licensing terms, the standard-essential patent owner is obligated to enter into binding baseball-style (or “final offer”) arbitration with any willing licensee to determine the royalty rate. This obligation may be conditioned on the implementer making a reciprocal FRAND Commitment for any standard-essential patents it owns that read on the same standard. If the implementer is unwilling to enter into binding arbitration, the standard-essential patent owner’s FRAND commitment not to go to court to enforce its standard-essential patents against that party is discharged. We explain how our proposed FRAND regime would work in practice. Many of the disputes currently arising around FRAND commitments become moot under our approach.

Suggested Citation

Lemley, Mark A. and Shapiro, Carl, A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents (November 5, 2013). Stanford Public Law Working Paper No. 2243026. Available at SSRN: https://ssrn.com/abstract=2243026 or http://dx.doi.org/10.2139/ssrn.2243026

Mark A. Lemley (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States

Carl Shapiro

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
510-642-5905 (Phone)

HOME PAGE: http://faculty.haas.berkeley.edu

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