Global Rate Setting: A Solution for Standard-Essential Patents?

Abstract

The commitment to license patents that are essential to technical interoperability standards on terms that are fair, reasonable and non-discriminatory (FRAND) is a fundamental mechanism that enables standards to be developed collaboratively by groups of competitors. Yet disagreements over FRAND royalty rates continue to bedevil participants in global technology markets. Allegations of opportunistic hold-up and hold-out arise with increasing frequency, spurring competition authorities to investigate and intervene in private standard-setting. And litigation regarding compliance with FRAND commitments has led courts around the world to adjudicate FRAND royalty rates, often on a global basis, but using very different methodologies and doctrinal approaches. The issues affecting the FRAND licensing system can be summarized as deficiencies in transparency, consistency and comprehensiveness. Together, these issues reduce the overall fairness and efficiency of the system and result in excess administrative and transactional costs. This article lays out a roadmap for the establishment of a global FRAND rate-setting tribunal that promotes the tripartite goals of transparency, consistency and comprehensiveness by determining the aggregate value of patents covering a particular standard and allocating that value among individual patents and patent holders. This tribunal is modelled on the U.S. Copyright Royalty Board and similar rate-setting agencies, though it is envisioned not as a governmental body, but an international non-governmental organization. It is hoped that such a tribunal will bring greater predictability and stability to the technology development ecosystem while reducing inefficient litigation.

Keywords: standards, patent, standards-essential patent, FRAND, rate-setting