Facilitating Negotiation for Licensing Standard Essential Patents in the Shadow of Injunctive Relief Possibilities

Abstract

Apple and Samsung, two of the world’s premier technology companies, have recently been involved in heated legal disputes over certain patents and related technologies. Lawsuits were filed in many jurisdictions around the world. In Korea, Samsung filed a lawsuit against Apple, and one of the issues raised was whether an injunctive relief can be granted when a holder of standard essential patents committed to license its patents under FRAND (fair, reasonable, and non-discriminatory) terms. The answer to this question will have significant ramifications, beyond determining the result of the ongoing lawsuit, and will have a serious impact on the processes and applicable rules employed at many standard-setting organizations. This article reviews the court decision in Korea, with a particular focus on the justifiability of granting an injunction to a holder of standard essential patents who committed to grant licenses under FRAND terms. In reviewing the court decision, the article will consider the negotiating parties’ bargaining behavior and related transaction costs, when an injunctive court relief is sought by a party. This article then proposes a new court procedure, which would ameliorate the parties’ incentives to engage in hold-up or reverse hold-up and would instead prompt and facilitate the parties’ negotiation. Under the proposed court procedure, the court would initially make an interim and provisionary decision on FRAND and would make a final and definitive decision on FRAND only at a later stage when doing so becomes necessary. This procedure would exert pressures on the parties to engage in negotiation in earnest and in good faith, without necessarily relying on the court’s direct involvement.

Keywords: Standard essential patent, FRAND, Injunction, Negotiation, Hold-up, Reverse hold-up

JEL Classification: K41, L49, O34