Key Takeaways

  • FRAND (Fair, Reasonable, and Non-Discriminatory) terms govern how standard-essential patents (SEPs) are licensed.
  • The concept ensures broad access to critical technology standards like Wi-Fi, 4G, and 5G, preventing abuse of SEP market power.
  • FRAND obligations typically arise through commitments to standard-setting organizations (SSOs), not general public grants.
  • Disputes often center on what qualifies as “fair” or “reasonable” compensation and whether licensors act non-discriminatorily.
  • Global courts differ in interpreting FRAND, with key rulings from the U.S., EU, and Asia influencing negotiations and enforcement.
  • Enforcement may involve contract law, competition law, or patent litigation depending on the jurisdiction.
  • SEP licensing under FRAND can involve royalty calculations, cross-licensing, and the risk of “hold-up” (overcharging) or “hold-out” (refusal to license).

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.

Global Variations in FRAND Enforcement

FRAND licensing operates differently across jurisdictions.

  • United States: FRAND commitments are treated primarily as contractual obligations, though antitrust law may also apply. Courts often grapple with whether royalties should be set at a global portfolio level or limited to specific patents.
  • European Union: FRAND is closely linked with competition law. The European Court of Justice (ECJ) in the Huawei v. ZTE case outlined negotiation steps both licensors and licensees must follow to avoid abusing dominance.
  • Asia (China, Japan, India): Asian courts are increasingly active in SEP disputes. Chinese courts have set global FRAND royalty rates, while Indian regulators often approach cases through competition law frameworks.

These differences complicate negotiations, especially for multinational companies, as one court’s ruling on “fair” terms may not align with another’s.

Core Principles of FRAND

FRAND obligations exist to balance two competing interests: rewarding innovators for their patented contributions and ensuring that technology standards remain widely accessible. “Fair” generally refers to reasonable compensation aligned with the patent’s contribution to the standard, “reasonable” addresses licensing terms such as royalty rates, and “non-discriminatory” prevents preferential treatment of one licensee over another.

In practice, FRAND is not a fixed formula. Courts and regulators have emphasized that terms must reflect economic value while promoting interoperability and competition. For example, royalty rates may be calculated on the smallest saleable unit (like a chip) rather than the end product, to avoid inflated fees.

Common Disputes in FRAND Licensing

FRAND disputes typically arise in the following areas:

  • Royalty Determination: Parties often disagree on whether royalties should be based on a product’s end price (e.g., a smartphone) or on smaller components (e.g., a modem chip).
  • Global vs. National Licenses: SEP owners may push for global portfolio licenses, while implementers may argue for country-specific agreements.
  • Hold-Up vs. Hold-Out: SEP owners risk “hold-up” if they use their position to demand excessive fees, while implementers risk “hold-out” if they delay or refuse to negotiate FRAND licenses in good faith.
  • Injunctions: Whether SEP holders can block sales of infringing products is hotly debated. Some courts allow injunctions if the licensee has not negotiated in good faith, while others restrict injunctions to avoid harming standard adoption.

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.

Future of FRAND Licensing

The legal framework for FRAND is still evolving, particularly as new technologies like 5G, the Internet of Things (IoT), and connected vehicles depend heavily on SEPs. Policymakers continue to debate whether clearer rules are needed to define “fair” and “reasonable” more concretely.

Recent policy discussions in the U.S. and EU focus on:

  • Greater transparency in SEP declarations and essentiality checks.
  • Potential regulatory oversight of FRAND royalty determinations.
  • Mechanisms to reduce global forum shopping in SEP disputes.

Businesses operating in SEP-heavy industries should anticipate continued litigation, evolving regulation, and shifting global interpretations of FRAND commitments.

Frequently Asked Questions

  1. What is FRAND in simple terms?
    FRAND requires SEP owners to license their patents on fair, reasonable, and non-discriminatory terms to ensure access to key technology standards.
  2. How are FRAND royalty rates calculated?
    Courts often use the smallest saleable unit principle or assess a patent’s value relative to the standard, though approaches vary globally.
  3. Can SEP owners seek injunctions under FRAND?
    Injunctions are limited. Some courts allow them if licensees negotiate in bad faith, while others restrict them to prevent market disruption.
  4. Does FRAND apply worldwide?
    Yes, but interpretations differ. U.S. law treats it largely as contract-based, while the EU and Asia often apply competition law principles.
  5. Why is FRAND important for 5G and IoT?
    These technologies rely heavily on SEPs. FRAND ensures fair licensing, preventing bottlenecks that could stall innovation and adoption.

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