London IP Summit: FRAND is 'in the eye of the beholder'

London IP week

In a lively discussion at a London IP conference, a licensee and licensor debated the merits of the German injunction system and what ‘non-discriminatory’ means in the context of fair, reasonable and non-discriminatory

Both sides of the FRAND debate went head to head during a session on licensing rates yesterday at the London IP Summit, held in the Museum of London. Representing licence holders was Taliah Davis Walklett, senior litigation counsel at Nokia in the UK, who squared off against implementer Stephen Chandler, European general counsel at gaming company NVIDIA.

Chandler began by offering a nuanced version of the history of fair, reasonable and non-discriminatory (FRAND), explaining that it was an ambiguous term that was defined mutually by the SEP holders and implementers until a few years ago.

“For years and years, there was little legal progress with FRAND, and frankly it suited everybody for there not to be any progress because the opacity made the implementers and the owners happy.

“The non-discriminatory part of FRAND, I thought, was well understood. I could expect the licensor to show me his other licence agreements so I knew I wasn’t being disadvantaged. Then there was the Unwired decision in the UK that dealt with that point unhelpfully for implementers,” he said.

But it emerged during the session that what is FRAND on one side of the negotiation table is discrimination on the other. When asked how non-discrimination should work, Walklett questioned whether the size of the company or the price of the product should be considered.

“You must not discriminate against the licensee, but you have to take several things into account. You have to understand that there are high-value firms. Apple sells a mobile phone for £1,000, but another company might only sell a phone that uses our tech for £50.

“If we license a patent to the smaller company for less, Apple might say that’s unfair and claim discrimination,” she added.

Responding to her comments, Chandler added that SEP holders have made only marginal modifications to their patents over the past decade in a rent-seeking effort to make as much money from implementers as possible.

“The whole system of SEPs has shifted over the past 10 to 15 years. Some of the early technologies were really ground-breaking, and the monopoly right on the patent was legitimate and fair. But there have been some real changes that have taken place,” said Chandler

“Now there is the desire to patent incremental changes so the patent is only protecting trivial modifications. And the other change is the change of patent owners to tax collectors and nothing more than that.”

Getting your German ducks in a row

It emerged later in the session that the German injunction system is a card in SEP holders’ back pocket. By granting an injunction almost automatically without examining questions of validity, licence holders can dangle the threat of an injunction to make implementers come to the negotiation table.

“The hearings in Germany are very short. The judges have read all the briefs and are familiar with the arguments. They are also very to the point. They will turn to you and say: ‘I don’t think there is infringement here, tell me why I should change my mind’,” said Walklett at Nokia.

But the German injunction system can be a real nightmare for licensees who risk having their products removed from the market. Chandler at NVIDIA told the audience that even if you have all the correct points to argue validity at the time of the injunction hearing, they would be of little use because the validity hearing wouldn't be held until a year later.

“Right now we have some war wounds from the German system,” said Chandler.

“The Germans sometimes stay the injunction, but that is an extremely difficult order to get. They have a system where you can have a grace period before the injunction kicks in, but only in exceptional circumstances. You know that if you don’t have all your ducks in a row, you will get an injunction imposed upon you.”

Walklett chimed in to say that the perception of the German automatic injunction might not be based in reality, because they are not actually ‘automatic’. “Over numerous years we’ve had ongoing battles in Germany. We have asserted many cases in Germany, but we have found that we don’t always do as well as we had hoped.

“Our former boss found that we had about a one in three hit rate getting an injunction. We found that it happened more often than one would expect, because there was no clear case of infringement,” she said.

Chandler counter argued that even having the threat of an injunction is unfair and runs counter to the principle of FRAND. An SEP holder, he said, could make tiny changes to its patents, or have an invalid patent, and still implementers would be forced to bargain for a licence they should not need in the first place.

He added: “Unless you have a very clear prior art claim, there is a real threat of injunction. The threat that an injunction is needed to get implementers to the table is just my point; SEPs have become nothing more than a tax collection system.

“You have deliberately put your technology into a standard and now you want to collect tax. In this respect, it’s wrong to get an injunction. All this should be done in a fair way without the threat of an injunction looming.”

Moderator Patrick Breslin, founder at Breslin Consulting in Washington D.C., asked his panellists how to both parties might come to negotiate without the threat of an injunction. Chandler and Walklett agreed the ball is in the patent holder’s court to open negotiations.

“It has to be the SEP holder who makes the opening pitch once the implementer agrees to negotiate. It is down to the implementer if they want to stare down the beast and negotiate. That is the only path to go,” said Chandler.

Breslin ended the session by concluding that many questions remain around FRAND, including who should define the terms of any agreement. “FRAND, like beauty, is in the eye of the beholder,” he said.