The Comparative Law and Economics of Standard-Essential Patents and FRAND Royalties

Thomas F. Cotter, University of Minnesota Law School

8/26/2015
(Original Publish Date: 8/29/2013)

Standard setting organizations often require their members to declare which of their patents are essential to the practice of a prospective standard, and to agree to license any such standard-essential patents (SEPs) on "fair, reasonable, and nondiscriminatory" (FRAND) terms. Among the issues that have arisen in recent disputes involving FRAND-encumbered SEPs are (1) whether a FRAND commitment creates a binding contract for the benefit of third parties, obligating the SEP owner to forgo the right to seek injunctive relief for the infringement of the SEP; (2) whether the law of remedies, or other principles of generally applicable civil law such as the doctrine of "abuse of right," can limit the prevailing SEP owner’s ability to obtain injunctive relief; (3) the circustances under which competition law (antitrust) may play a role in resolving these matters; (4) whether the patentee is entitled to relief in the form of ongoing damages, if one or more of these bodies of law eliminates the possibility of an injunction; and (5) if so, how should courts calculate those damages. This article provides both an overview of how courts and other entities have begun to address these questions in the United States and elsewhere, and my analysis of the advantages and disadvantages of different possible approaches. I argue, among other things, first that courts generally should not allow SEP owners to obtain injunctions, but rather only ongoing damages; second, that in principle though perhaps not always in practice, it is preferable to use contract and patent law to achieve this result, as opposed to antitrust; and third, that in awarding monetary relief for the infringement of SEPs courts should apply the same methodology the use to calculate reasonable royalties generally, subject to a few modifications.