Global FRAND rate is tool to “sell patents unreasonably”

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Huawei, Nokia and other SEP-focused firms speak on the authority of UK courts to set a global rate, how to set FRAND rates and whether arbitration could be a better solution to disputes

With the possibility of UK courts setting global fair, reasonable and non-discriminatory rates (FRAND) in the fallout of Unwired Planet v Huawei, standard essential patent licensors and licensees say they disagree over whether judges have the knowledge and authority to establish such an order.

“I want to see a good judge set the global FRAND rate,” says the chief IP officer of a European telecoms company. “I adore UK judge Colin Birss who said to the litigating parties and the world: ‘You know what, I’m going to set the rate for the world’.

“It was the right thing to do at that moment in time.”

Others are less happy with national judges setting international rates. Huawei chief IP counsel George Kreuz in Germany says: “It’s not wise for the UK courts to set the global rates. It will have a negative impact on the country. Some lawyers might earn more money but that’s the only good thing I see.”

With the inherent complexities of what constitutes FRAND terms, others in the industry question if courts and judges have the necessary know-how to decide what is fair and reasonable for the market.

The senior licensing manager for a German car company tells Patent Strategy he is not confident that judges will have the knowledge and expertise to set the rate.

On the other side, Clemens Heusch, head of dispute resolution EMEA at Nokia in Germany, says judges are well informed and in the best place to decide on matters between dissenting parties.

“Judge Birss had discovery. There were so many licence agreements that parties had to produce and so many experts, he probably got to see the most informed people on the issue. It is always a judge's job to look into a dispute and decide on the facts the parties bring before them,” he says.

Global savings

Without a global rate, implementers are obliged to negotiate in each jurisdiction where they choose to operate. Companies with a global reach can find themselves negotiating the same deal several times over.

Some industry sources argue that the constant renegotiation of FRAND terms from SEP holders costs companies time and money on both sides of the table, and that this situation could be avoided if a global rate were clear and transparent.

“There should be a global FRAND rate because the alternative would mean needing licence agreements country by country. Nokia operates in almost every jurisdiction, which means we would need to conclude over a hundred agreements for one licensee.

“This cannot be the solution,” says Heusch.

His sentiments are shared by the chief IP officer who argues that the current system is unfair and costly to all involved.

He says: “It is completely unfair that a court case would only focus on the one country where you are litigating, and then you have to start all over again in another country.

“You go to all these other countries and then 50 years down the road you might finally get a decision. It is completely inefficient.”  

While some find the constant renegotiation of FRAND rates cumbersome, Kruez at Huawei says a fair rate can be found without judges’ help.

“Who needs the global FRAND rate? Reasonable companies can already get it. It’s just for people who think they can sell patents unreasonably.

“These people are trying to collect a lot of money. The courts should support these people. They should be independent,” he says.

The automotive senior licensing manager says he is not ready to throw the proverbial baby out with the bath water. While the current system isn’t great, he says, it does work.

“For the big patent owners the system, it is not that bad. It’s not perfect but it does function.”

Arbitration is the new litigation

Until a decision is reached by the UK Supreme Court in Huawei v Unwired Planet, sources suggest that arbitration could be used as an effective means to find common ground.

Kreuz at Huawei says: “We have many ongoing licence agreements, and sometimes there is arbitration if one party wants to change the terms of the agreement. There are always ways of finding reasonable rates in the market, we don’t need to courts to do it.”

The automotive senior licensing officer agrees that arbitration and patent pools can be a good solution to FRAND disputes, and adds that those solutions have the advantage of not being bound by local laws.

“If two parties can’t agree on a rate, they can agree to an arbitration body. An expert group of arbitrators could be in a good position to come up with a FRAND estimate.

“When there are small players coming in, we need better collective mechanisms. Patent pools are good for people who have no experience in the evaluation of FRAND, but they only work if they are really FRAND.”

Arbitration could also streamline the often lengthy negotiation process. Heusch at Nokia says that in addition to speeding up decisions, arbitration can be a good way of getting parties to the table.

“The best of course is just to settle, but if that is not possible a third party has to decide. Indeed arbitration is a very good solution because you can choose the most experienced arbitrators so nobody can say they don’t have the experience or knowledge.”

But whatever the UK Supreme Court decides in Unwired Planet v Huawei, its decision will have giant repercussions for all SEP holders and implementers.

“If the Unwired decision is upheld, Huawei can decide simply not to sell in the UK and say they just don’t care. They would look at the market share in the country and ask if ruining their business plan is worthwhile,” says the automotive chief licensing officer.

While drastic solutions like pulling out of the UK market will hopefully be avoided, more clarity on what is FRAND and how it should evaluated would be welcomed by the chief IP officer of the European telecoms company.

“There needs to be a global rate because we need clarity. As an industry, we are terrible at establishing clarity and it doesn’t really exist. In this whole FRAND debate there is too much polarisation between these silly, highly educated people. We are no better than street fighters,” he says.

While the solution to FRAND floats in the UK judicial system, Heusch would like to extend the olive branch: “We need to continue to make FRAND work.”

Whatever the outcome of Unwired Planet, hopefully all sides of the dispute can come together and accept the decision as fair and reasonable.