The FRAND Ceremony and the Engagement of Article 102 TFEU in the Licensing of Standard Essential Patents
20 Pages Posted: 12 Mar 2019
Date Written: March 11, 2019
This Essay examines the FRAND formulation for determining the maximum royalties payable to the holder of a Standard Essential Patent (“SEP”), with a focus on EU competition law. The holder undertaking to license a SEP on FRAND terms undoubtedly makes a contractual commitment. Moreover, the SEP holder effects a change in legal status, engaging Article 102 of the Treaty on the Functioning of the European Union (“TFEU”). There are two related and overlapping sets of FRAND obligations now in play: one established by private law according to express terms defined by the SEP-holder and the SSO; the other flowing from EU competition law. A SEP is a patent that must be practiced by any firm wishing to commercially deploy a privately-adopted standard. The adoption of a standard by a major Standard Setting Organization (“SSO”) requires a declaration by a covered SEP-holder that constitutes a legal commitment to license that the SEP on a fair, reasonable and non-discriminatory basis (“FRAND”). This gesture – which I describe as a “FRAND ceremony” – has multiple legal consequences. The FRAND ceremony binds the SEP-holding declarant to the express terms of the commitment as a matter of private law. Moreover, the FRAND ceremony establishes additional obligations binding on the SEP-holder – sourced in EU competition law. The declarant acknowledges the “essentiality” of its patent to the practice of the standard, which goes a long way to presumptively establishing a “dominant position” under Article 102 TFEU and charging the SEP-holder with “special responsibility.” The holder of a SEP incorporated in a standard of most important SSOs is thus likely bound to make available licenses on FRAND (or FRAND-like) terms that overlay or augment the FRAND undertaking expressly set out in the FRAND declaration itself.
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