Fair and Unfair Discrimination in Royalties for Standard-Essential Patents Encumbered by a FRAND or RAND Commitment

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Legal disputes between SEP holders and implementers regarding FRAND or RAND royalties for SEPs have increasingly focused on the meaning of the nondiscrimination requirement contained in a FRAND or RAND commitment. However, as of August 2017, there is no agreement on the precise duties arising from such a requirement. The legal and economic literature has proposed divergent, and mainly normative, interpretations of the nondiscrimination requirement. Some commentators say that the nondiscrimination requirement prohibits the SEP holder from excluding individual implementers from using its SEPs, but that the requirement does not limit the terms and conditions that the SEP holder may offer to different licensees. Others say that the requirement imposes on the SEP holder a duty to offer similar terms to similarly situated implementers—although, even then, there is no agreement on how to implement the “similarly situated” construct in practice. The most misguided and unhelpful interpretation in that literature comes from economic scholars who contend that the nondiscrimination requirement imposes on the SEP holder the duty to create and maintain a “level playing field” among the SEP holder’s licensees. The majority of these proposed interpretations rest on normative expressions of what the nondiscrimination requirement should be, as opposed to positive principles of what that requirement is. Thus, they are limited in their ability to guide a court’s interpretation of the nondiscrimination requirement in the FRAND or RAND commitment at issue in a given dispute.

If American law controls the interpretation of the obligations arising from an SEP holder’s FRAND or RAND commitment, there exists a rich positive jurisprudence on nondiscrimination that provides common principles that can aid a court’s interpretation of an SSO’s nondiscrimination requirement. Those principles, which are consistently applied across various fields of law, suggest that evidence that the SEP holder has treated similarly situated implementers differently is necessary but insufficient to prove that the SEP holder has violated the nondiscrimination requirement of a FRAND or RAND commitment. The court must also examine whether the SEP holder had a valid justification for the differential treatment of similarly situated implementers. Economic analysis can help a court to determine whether (1) the claimant is situated similarly to other implementers, (2) the SEP holder has treated the claimant differently, and (3) a valid justification exists for any differential treatment. A finding of impermissible discrimination is supportable only when the SEP holder lacks a legitimate justification for the disparate treatment of similarly situated implementers.

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Cite as

J. Gregory Sidak, Fair and Unfair Discrimination in Royalties for Standard-Essential Patents Encumbered by a FRAND or RAND Commitment, 2 Criterion J. on Innovation 301 (2017).