Aggregated Royalties for Top-Down FRAND Determinations: Revisiting 'Joint Negotiation'

24 Pages Posted: 12 Oct 2017 Last revised: 28 Nov 2017

Jorge L. Contreras

University of Utah - S.J. Quinney College of Law

Date Written: August 8, 2017

Abstract

In an environment in which widely-adopted technical standards may each be covered by large numbers of patents, there have been increasing calls for courts to determine “fair, reasonable and non-discriminatory” (FRAND) royalties payable to holders of standards-essential patents (SEPs) using “top-down” methodologies. Top-down royalty approaches begin with the aggregate royalty that should be payable with respect to all SEPs covering a particular standard, and then allocate a portion of the total to individual SEPs. Top-down approaches avoid many drawbacks associated with bottom-up approaches in which royalties for individual SEPs are assessed, often in an inconsistent and piecemeal manner, without regard for the other SEPs that cover the standard. Yet despite the potential benefits of top-down methodologies, one of the most promising means for determining aggregate royalty levels – joint agreement by the members of the relevant standards-development organization (SDO) – has gained little traction. The idea of SDO participants jointly negotiating FRAND royalties attracted the attention of commentators and antitrust agencies about a decade ago, when a handful of SDOs began to explore mandatory ex ante rate disclosure requirements. But few SDOs adopted such policies, and joint negotiations were never incorporated into the mainstream standardization process. One of the principal reason that SDOs have been hesitant to endorse joint royalty negotiations is the perceived risk of antitrust liability arising from concerted action among competitors. But as numerous commentators and antitrust officials have reiterated, this fear is largely misplaced in the context of industry standard-setting. Thus, SDOs should follow the lead of patent pools and begin more actively to determine aggregate patent royalty burdens for standards that they develop. In addition, antitrust and competition authorities should assure the market that collective agreement on aggregate royalty rates alone should not give rise to antitrust liability.

Keywords: FRAND, standards, SEP, patent, joint negotiation, oligopsony

JEL Classification: K21, L41, O34

Suggested Citation

Contreras, Jorge L., Aggregated Royalties for Top-Down FRAND Determinations: Revisiting 'Joint Negotiation' (August 8, 2017). Antitrust Bulletin 62(4): 690-709 (2017); University of Utah College of Law Research Paper No. 238. Available at SSRN: https://ssrn.com/abstract=3051502

Jorge L. Contreras (Contact Author)

University of Utah - S.J. Quinney College of Law ( email )

383 S. University Street
Salt Lake City, UT 84112-0730
United States

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