Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, April 15, 2013

Lemley and Shaprio on Patent Assertion Entities

Posted by Mark Lemley and Carl Shapiro

We recently released a paper about standard-essential patents, "A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents", at  Many of the problems currently plaguing companies that own and/or practice standard-essential patents will be substantially reduced if standard-setting organizations adopt a relatively simple set of rules, which we describe, governing the licensing of those patents.  The gist of our approach is to require patent holders who agree to license their patents on reasonable terms to submit to arbitration with any willing licensee to determine the reasonable rate.
Standard-setting organizations have been unable to clean up and clarify their intellectual property rules, even though many of the ambiguities and flaws in these rules have been recognized for a decade or more. Our hope is that several forces will now combine to make progress possible: (1) a desire by many market participants to avoid the growing legal costs and uncertainty associated with existing rules; (2) the availability of a package of reforms that will greatly reduce these costs while promoting the basic goals of FRAND regimes; and (3) the growing risk that failure to act will create antitrust liability, as competition authorities increasingly signal their willingness to intervene.
Our paper offers a package of reforms that we believe has widespread support among members of the organizations that set information and communications technology standards . Here is the abstract:
"Standard Setting Organizations (SSOs) typically require their members to license any standard-essential patent on Fair, Reasonable, and Non-Discriminatory (FRAND) terms. Unfortunately, numerous high-stakes disputes have recently broken out over just what these “FRAND commitments” mean and how and where to enforce them. We propose a simple, practical set of rules regarding patents that SSOs can adopt to achieve the goals of FRAND commitments far more efficiently with far less litigation. Under our proposed approach, if an standard-essential patent owner and an implementer of the standard cannot agree on licensing terms, the standard-essential patent owner is obligated to enter into binding baseball-style (or “final offer”) arbitration with any willing licensee to determine the royalty rate. This obligation may be conditioned on the implementer making a reciprocal FRAND Commitment for any standard-essential patents it owns that read on the same standard. If the implementer is unwilling to enter into binding arbitration, the standard-essential patent owner’s FRAND commitment not to go to court to enforce its standard-essential patents against that party is discharged. We explain how our proposed FRAND regime would work in practice. Many of the disputes currently arising around FRAND commitments become moot under our approach."

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