FRAND licensing — alternately called “RAND” or “F/RAND” — stands for “Fair, Reasonable, and Non-Discriminatory” licensing. This concerns the widespread use of the standard-essential patent (SEP), ensuring that SEP owners benefit from using their patents without gaining unfair bargaining advantages.

About FRAND Licensing

Technological devices govern most people's daily lives. This includes everything from computers and smartphones to earbuds. For each of these to function properly, the technology in each component must work together.

Devices typically have to comply with certain standards or a set of protocols by which they communicate with one another and other technology in order to work. In turn, these standards implicate a huge number of patents that cover parts of the technology that, when combined, are essential for making the devices function.

A patent covering any part of the technology that's used in a standard is a standard essential patent. These standards are essential to the modern world, but they pose patent-licensing problems.

For instance, when a standard is adopted, an SEP owner holds a superior bargaining position that may lead to substantial revenues based on the standard's value instead of the underlying SEP. Likewise, a standard-setting organization, or SSO, may show some reluctance in adopting a standard to begin with if an SEP owner doesn't wish to license it in advance since the value of the SEP is related to the standard's level of adoption.

To avoid these types of licensing problems and to ensure access to standard-essential patents for wide adoption of standards, SSOs created FRAND, the requirement for licensing SEPs on fair terms to other SSO members and non-members who use the standard.

FRAND licensing and its implications affect individuals worldwide. There are no regulations or statutes on imposing FRAND obligations.

SSOs created FRAND in response to SSO members who brought infringement claims against other members practicing their SEPs. SSO members are therefore often required to agree to license SEPs to other SSO members on FRAND terms and to others who use the standard before the adoption of any standard takes place. These SEPs then become “FRAND encumbered,” which keeps SEP owners from gaining unfair market advantages.

Typically, the FRAND commitment comes about in one of two ways:

  • By separate specific agreements executed by SSO members in connection with adopting standards
  • As a function of SSO bylaws or other documents that members agree on

However it comes about, SEP owners commit to a FRAND obligation for the SSO, not the general public.

FRAND and the Courts

Problems have come up concerning who has the authority to enforce a FRAND commitment.

In most instances, courts allow SSO members to do the enforcing since they're third-party beneficiaries of the agreements between the SSO and SEP owners. However, this body of law is still forming, so it remains unclear whether non-members will also be treated as third-party beneficiaries.

The governing law isn't uniform relating to the FRAND commitment, which is treated as a contractual obligation. Typically, laws are written according to an SSO's home jurisdiction, so the FRAND obligation isn't standardized. This is assuming that wording is the same across various FRAND commitments, which is an unfair assumption, since each jurisdiction may have different laws.

For example, in some jurisdictions, contracts are not enforceable unless each term, including the price, is definite. However, price is open to negotiation under a FRAND obligation.

Because a FRAND obligation is contractual, it's arguable that enforcement should take place according to state law and in state courts. Such litigation will undoubtedly impact the underlying patents.

It often comes down to how one party frames a complaint. If an SEP owner sues for infringement, it may be heard as a patent lawsuit in federal court. A FRAND license could be used as a defense. However, if the party brings a contract-related action, the lawsuit may be heard in state court.

Even when there exists a basis for federal jurisdiction, if parties lose at the district court level, they may not be able to appeal to the federal court system.

Because the law is still evolving around FRAND and all of its implications, you may want to consult with an expert in this field if you have any questions concerning it.

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