FRAND Holdup and Its Solutions

FRAND Holdup and Its Solutions

Liyang ,Professor of Sun Yat-

Sen University School of Law

Aim

•

Standardization of patent may lead to patent holdup

and royalty stacking.However,uncertainty and

ambiguity of FRAND provided by SSOs to be used for

mitigating patent holdup and royalty stacking and

one-sided denial of injunction against standard

essential patent(SEP) implementer  has resulted in

FRAND holdup and excessively low royalty,the

interest balance between SEP holder and SEP

implementer has been broken by FRAND holdup.A

new balance mechanism must be found to effectively

protect patent rights and fully promote utilization of

patented technologies.

My Research Questions

•

FRAND Holdup and Its Solutions

•

 Focus on the following often neglected issues:

•

1.The reasons why FRAND holdup happen?

•

2.Under what circumstances can SEP holder seek

injunction relief  to avoid FRAND holdup?

•

3.Should SEP holder disclose the comparable royalties to

SEP implementer to avoid FRAND holdup?

•

4.What kind of rules should  be designed to  judge

whether SEP implementer  does FRAND holdup or not?

•

5.What kind of rules should be designed to prevent

FRAND holdup(and patent holdup)?

A Few Important Findings

•

1.The risks of patent holdup and royalty

stacking have been grossly exaggerated.

•

2.FRAND holdup has become an issue

extremely perplexing SEP holder.

•

3.It’s almost impossible for different

jurisdictions to find substantive FRAND

royalty.

•

4.In some circumstances,it’s necessary for SEP

holder to seek injunction relief in order to

avoid FRAND holdup.

•

5.To prevent FRAND holdup and mitigate

patent holdup,SEP holder should disclose the

comparable royalties to SEP implementer.

•

Therefore ,my research provides an

explanation why FRAND holdup happens,and

designs a set of rule to avoid FRAND holdup

and to mitigate patent holdup in the

meantime.

Outline of Presentation

•

I.Background

•

1.Standardization of Patent

•

(1) To facilitate interoperability of different manufacturers’ products and increase

price competition.

•

(2)To decrease comsumer’s switching cost.

•

(3)To promote utilization of patented technology.

•

2.SSOs and intellectual property rights policy

•

II.The risks of patent holdup and FRAND holdup

•

1.What’s patent holdup and FRAND holdup

•

2.The risks of patent holdup and FRAND holdup

•

III.The reasons why FRAND holdup happen.

•

1.The risks of patent holdup is grossly exaggerated.

•

2.The uncertainty and ambiguity of FRAND

•

3.One-sided denial of injunction

•

4.The information asymmetry

•

IV.Solutions to FRAND holdup(and patent holdup at

the meantime)

•

1.Unavoidableness of patent holdup and FRAND

holdup

•

2.Four tasks of any possible solutions.

•

(1)to solve the possibility of injunction

•

(2)to solve disclosure of the comparable royalties.

•

(3)to stimulate SEP holder and SEP implementer to

successfully negotiate  FRAND royalty as possible.

•

(4)to provide guideline for court to decide FRAND

royalty in case of negotiation failure.

•

3.A comment on CJEU’s newest

judgement(Huawei v.ZTE.Case C-170/13).

•

(1)The core of the judgement

•

(2)comment

    4.Rule of Notice and Counter-Notice

•

(1)SEP holder’s Notice

•

(2)SEP implementer’s counter-Notice

•

(3) Consequences against  the rule of Notice and

Counter-Notice

•

V.Conclusion

I.Background

•

I.Background

•

1.Standardization of Patent

•

(1) To facilitate interoperability of different

manufacturers’ products and increase price

competition.

•

(2)To decrease comsumer’s switching cost.

•

(3)To promote utilization of patented technology.

•

2.SSOs and intellectual property Rights policy

•

ETSI:

      6.1: When an ESSENTIAL IPR relating to a particular STANDARD or

TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-

General of ETSI shall immediately request the owner to give within three

months an irrevocable undertaking in writing that it is prepared to grant

irrevocable licences on fair, reasonable and non-discriminatory (“FRAND”)

terms and conditions under such IPR to at least the following extent:

•

MANUFACTURE, including the right to make or have made customized

components and sub-systems to the licensee's own design for use in

MANUFACTURE; sell, lease, or otherwise dispose of EQUIPMENT so

MANUFACTURED; repair, use, or operate EQUIPMENT; and use

METHODS.

•

The above undertaking may be made subject to the condition that those

who seek licences agree to reciprocate.

II.The risks of patent holdup and FRAND

holdup

•

1.What’s patent holdup and FRAND holdup

•

Patent holdup means  a SEP holder unreasonably exercises its

SEP rights with FRAND commitments to obtain excessively high

royalties.

•

FRAND holdup means a SEP implementer strategically and

unreasonably deploys uncertainty and ambiguity of FRAND to

pay excessively low royalties or even not to pay any royalties to

a SEP holder.

•

FRAND holdup is often called reverse holdup.However,because

the uncertainty and ambiguity of FRAND are one of the most

important reasons why reverse holdup take place,this paper

calls reverse holdup as “FRAND holdup”.

•

(Case C-170/13, I-8(Huawei Technologies Co.Ltd v.ZTC Corp.and

ZTC Deutschland GmbH).

•

2.The risks of patent holdup and FRAND holdup

     (1)The risks of patent holdup:To hinder utilization

of SEP and damage consumer’s welfare.

(i)“enables a holder of an SEP to demand more than the

value of its patented technology and to attempt to capture

the value of the standard itself…The threat of holdup

increases as the standard becomes more widely

implemented and firms make sunk cost investments that

cannot be recovered if they are forced to forego

implementation of the standard or the standard is charged.

•

(ii)Holdup can threaten the diffusion of valuable standards

and undermine the standard-setting process…

•

(iii)holdup also harms consumers to the extent

that those excess costs are passed onto them.

•

(iv)Holdup by one SEP holder also harms other

firms that hold SEPs relating to the same

standard because it jeopardizes further adoption

of the standard and limits the ability of those

other holders to obtain appropriate royalties on

their technology.”

•

[Microsoft Corp.v.Motorola,Inc.,Order 21-

22,2013 U.S.Dist.LEXIS

60233(W.D.Wash.Apr.25,2013)]

•

(2)The risks of FRAND holdup:To hinder innovation  and

damage consumer’s welfare.

•

(i)“could make innovators active in standardized fields face significant

risks of being undercompensated and thus become the victims of reverse

holdups.” 

[Dimien Geradin,Reverse Holdup:The(Often Ignored)Risks

Faced by Innovators in Standardized Areas.SSRN Electronic Journal

11/2010;Dol:10.2139/ssrn.1711744]

•

(ii)an implementer’s best strategy would be to infringe the SEPs and

litigate FRAND terms,delaying the execution of a licensing agreement

and

•

(iii)burdening the courts and

•

(iv) diminishing the incentives for an SEP holder to contribute future

technologies to the standard  in the meantime.”

•

[Gregory Sidak,the Meaning of FRAND,Part II:Injunctions,Journal of

Competition Law and Economics,11(1),at 268-269.]

III.The reasons why FRAND holdup

happen.

•

1.The risks of patent holdup is grossly

exaggerated.

•

(i)“no empirical evidence that any industry

standard has been significantly harmed by

‘holdup’.”

•

[Damien Geradin,Reverse Hold-

ups:The(Often Ignored)Risks Faced by

Innovators in Standardized Areas.]

•

(ii)“The patent holdup is theoretically possible but

rarely occurs in practice. ”

•

[Commissioner Joshua Wright of FTC observed in 2013

that,depite the amount of attention patent holdup has

drawn from policymakers and academics,there have been

relatively few instances of litigated patent holdup among

the thousands adopted and empirical evidence of patent

holdup is unremarkable.Josha D.Wright,Comm’r,Fed.

Trade Comm’n,Remarks at the Center for the Protection of

Intellectual Property Inaugural Academic Conference:The

Commercial Function of Patents in Today’s Innovation

Economy 20(Sept.12,2013). http://cpip.gmu.edu/wp-

content/uploads/2013/06/Program-Schedule.pdf.]

•

(iii)holdup is unlikely when SEP implementer

believes in any time that the licensing royalty

offered by SEP holder is against FRAND and

exercises the right to challenge the offered

licensing terms.

•

[Dennis W.Carlton and Allan

Shampine,Identifying Benchmarks for

Applying Non-Discrimination in FRAND,8

Competition POL’INT’L 1,5(2014).]

•

(iv)even if patent holdup could arise,there is no

reason to assume the SEP holder will use

injunction as a tool to hold up infringer. SEP

holder can seek injunction for some legitimate

purposes,for instance,against  an infringer

unwilling to pay FRAND royalties,to force SEP

implementer to negotiate with it in good faith.

•

[Gregory Sidak,The Meaning of FRAND,Part

II:Injunction,Journal of Competition Law and

Economics,11(1),2015,at 233-234.]

•

(v)there is no reason to assert that the

royalties negotiated under the threat of

injuncition will be beyond FRAND royalties.

•

[Gregory Sidak,The Meaning of FRAND,Part

II:Injunction,Journal of Competition Law and

Economics,11(1),2015,at 234.]

•

(vi)there is also not empirical data to back

the idea that patent holdup has harmed  the

setting and implementation of standards.

•

[The World in 2013:ICT Facts and Figures,

http://www.itu.int/en/ITU-

D/Statistics/Documents/facts/ICTFactsFigure

s2013-e.pdf.]

•

Summary:

•

grossly exaggeration of risks of patent holdup has led to all kinds of

proposals explicitly or implicitly designed to prevent and eliminate

patent holdup,for example, collective negotiation of royalties,depriving

the ability of SEP holder to seek injunctive relief and to reinterpret

FRAND as a tool to limit the ability of SEP holder to monetize innovation,

have been or being made full use of tactically by SEP implementer to

force SEP holder to excessively reduce royaltyies,in another

word,reversely hold up SEP holder.

      [Damien Geradin,Reverse Hold-ups:The(Often Ignored)Risks Faced by Innovators in Standardized

Areas..]

•

[Einer Elhauge’s analysis shows that holdup and stacking problems does not bring about

systematically excessive royalties,to the contrary,the royalty rates predicted by the holdup

models are often below the true optional rate.Further,those predicted royalty rates are

overstated because of incorrect assumptions about constant demand,one-shot bargaining,and

informational symmetry. Einer Elhauge,Do Patent holdup and Royalty Stacking lead to

systematically excessive royalties?Journal of Competition Law and Economics,4(3),535-570.]

•

2.The uncertainty and ambiguity of FRAND

•

In order to determine FRAND royalty,IP circle has

made a great deal of attempt and put forward many

approaches as well.However,

•

“the actual scope and contours of FRAND licenses

have puzzled lawyers,regulators and courts for

years,and past efforts at clarification have never been

very successful.”

•

[ Jorge L.Contreras,The February of

FRAND,Mar.6.2012,Patently-O Patent Law Blog,at

http:www.patentlyo.com/patent/2012.03.february-

of-fraud.html.]

•

(1)The Doctrine of SEP Contribution

•

The doctrine of SEP contribution includes two specific

practices.(i)The first doctrine of SEP contribution was

adopted by the judgement of Microsoft v.Motorola.In this

judgement,the contribution refered to 

the contribution of

the patent to the technical capabilities of the standard and

the contribution of those relevant technological capabilities

to the implementer’s products using the standard.

•

[Microsoft Corp.v.Motorola,Inc.,Order 10,2013 U.S.Dist.LEXIS

60233(W.D.Wash.Apr.25,2013).,Order40-41,Order 104.”With the aforementioned framework for

determining a RAND royalty rate set forth,the court conducts a hypothetical negotiation for

Motorola’s 802.11 and H.264 SEPs.First,the court examines Motorola’s H.264 and 802.11 patent

portfolios to determine each portfolio’s importance to its respective standard as well as the

importance to Microsoft’s product….To determine a reasonable royalty for Motorola’s H.264 SEP

portfolio,the court provides background on the H.264 and then examine the importance of

Motorola’s patent portfolio to the H.264 Standard and to Microsoft products using the

standard.””The court now determine the importance of Motorola’s 802.11SEPs to both the

802.11 Standard and to the Microsoft products.”]

•

(ii)The second doctrine of SEP contribution was

adopted by the judgement of Apple.Japan

v.Sumsung.In this case

,the contribution was limited to

the contribution of the specific component complying

with standard in a terminal product  to  sale of the

terminal product  and the rate of SEP in the

contribution of the specific component complying

with standard in a terminal product to sale of the

terminal product.

•

[

平成２５年（ネ）第１００４３号 債務不存在確認請求

控訴事件

.

http://www.courts.go.jp/app/files/hanrei_jp/209/08

4209_hanrei.pdf,at 137-142.]

•

 It should be said that determining FRAND royalty through

the technical or sales contribution complies with 

“the

proportionate principle ”

, but the approach determines

FRAND royalty rates by substantively examining the

importance of the SEPs to a standard and the importance of

the SEPs to the products or sale of the product at

issue.Unfortunately, it is very hard and even unlikely to

quantify

 the technical contribution of patent  to a standard

and to the implementer’s terminal products or sales of the

products.

[Proportionality principle means that “The size or scope of an IP right ought to be proportional to the

value or significance of the work covered by the right”and “an IPR must not confer on its holder

leverage or power that is grossly disproportionate to what is deserved in the situation. If an IPR

would effectively confer power or control over a much more vast market or set of markets than

what is actually deserved, in light of the work covered by the IP right,that right must be limited in

some way.”

 Robert P.Merges,“Justifying IP”,Harvard University Press,2011.p150,p162.]

•

 Even if it’s possible to precisely quantify the technical

contribution of patent  to a standard and to an

implementer’s terminal products or the sales of these

products,

the

method still disregards 

the patentee’s

investment cost, the expected profits ,the R&D risks,

the litigation cost and the risk of whether the relevant

patents could be incorporated within certain

standards by SSOs while calculating the royalty, the

royalty by estimation is likely in conflict with the

FRAND principle.

•

[Roger G.Brooks,Patent “holdup”,Standards-Setting

Organizations,and the FTC’S Campaign Against

Innovators,39 AIPLA Q.J.at 465.]

•

(2)Comparison Approach

•

This approach was adopted in case Huawei v.IDC by

Shenzhen Intermediate People’s Court and Guangdong

Higher People’s Court. The two courts all emphasized that

,although a SEP holder has different licensing royalty

models,under roughly the same transaction terms,the

licensor(SEP holder) should grant all licensees  license to

implement SEPs on roughly the same licensing

royalty,otherwise the SEPs licensing royalty is against

FRAND.In this case,Huawei and Apple were under the

roughly the same transaction terms,the royalty that IDC

tried to seek from Huawei should be roughly the same as

the royalty it had sought from Apple.

•

[(2013)No.305 YueGaofa Minsan Zhongzi.]

•

Although 

comparison approach is the best way to determine

what’s non-discriminatory royalty

,it’s not applicable to this case.

In the case ,a very clear fact was that Apple’s patents from which

IDC sought royalty included SEPs and NON-SEPS covering iphone

and some future mobile phones in the global market,but Huawei

only requested for license of IDC’s Chinese SEPs within China.The

Chinese courts made no difference between Apple’s license and

Huawei’s license when to employ comparison approach to

determine FRAND royalty.

•

Considering Huawei’s request for IDC’s license, a possibility is that

the royalty(0.019%) exceeded greatly the FRAND royalty that

Huawei should have paid to IDC and thus thoroughly violated

FRAND principle. As such,the Chinese courts determined a royalty

through comparision,but 

it seems that the royalty has not so

much with “SEP” and “FRAND”,it’s only a general licensing royalty.

•

A possible result that the uncertainty and ambiguity of

FRAND itself may lead to is that SEP implementer

•

”is able to shift the risk involved in patent negotiation to

the patent holder.There is no risk to the exploiter of the

technology in not taking a license before they exhaust

their litigation options if the only risk to them for violating

the agreement is to pay a FRNAD based royalty or fee.This

puts the risk of loss entirely on the side of the patent

holder.”

•

[Sandra Badin,Mike Renaud and James Wodarski,”Patent

Hold-up or Patent Hold-out?Judege Essex Adds His Voice

to the SEP-FRAND Debate.”

http://www.mintz.com/newsletter/2014/Advisories/4096

-0714-NAT-IP/index.html.]

•

3.One-sided denial of injunction

•

Seen from existing documents,although

vehement debates over whether FRAND

commitment-encumbered SEP holder has

right to seek injunction still exist,the

dominant opinion is to deny FRAND

commtiment-encumbered SEP holder’s right

of remedy of Injunction(including exclusion

order)

•

(1)U.S.:”

royalty is adequate compensation ”;”Waiver of

injunction”.

•

Although the U.S. Supreme Courts in eBay v.MercExchange held that

whether to grant injunctive relief or not must be tested by traditional

equitable four factors, at least from the perspective of practices,in these

cases related to FRAND -encumbered SEPs,to deny SEP holder’s

injunction relief seems have been a main stream.

•

The four factors include:(1)the plaintiff has suffered an irreparable

injury;(2)remedies available at law,such as monetary damages,are

inadequate to compensate for plaintiff’s injury;(3)considering the balance

of hardships between the plaintiff and defendant, a remedy in equity is

warranted;(4)the public interest would not be disserved by a permanent

injunction.eBay,Inc.v.MercEcchange,L.L.C.,547 U.S.388(266).

•

(2)Japan:”misuse of right”

•

Sumsung’s claim for injunction prohibiting

Apple from infringing Sumsung’s SEPs with

FRAND commitments harmed Apple’s interest of

reliance on FRAND commitments as a SEP user

and thus constituted misuse of right and

dismissed Sumsung’s claim for injunction.

•

知財高判平成２６年・５・２６平成２５

(

ネ

)

１００４３

債務不存在確認請求控訴事件。

   (3)Situations of injunction in China:

•

(i)Court’s attitude:lack of judgement,unclear.

•

(ii)SIPO’s position: implied license.

•

Article 82 of “Notice for Soliciting Public Opinions

on the Draft Amendment of Patent Law of the

People' s Republic of China”:“A  patent right owner,

who participates in the national standard making

but  fails to disclose the standard essential patent

owned by it, is deemed to  allow the user of the

concerned standard to use its patented

technologies. … ”

      Summary:

•

keeping patent holder from seeking injunctive relief or exclusion

order would be give SEP implementers “a safe haven,where they are

free to avoid their own obligations under the[SSO]agreements,can

manufacture potentially infringing goods without license or

consequence,can seek to invalidate the IPR in question,and yet are

free from the risk of remedy under 19 USC 1337.”

•

[Sandra Badin,Mike Renaud and James Wodarski,”Patent Hold-up or

Patent Hold-out?Judege Essex Adds His Voice to the SEP-FRAND

Debate.” http://www.mintz.com/newsletter/2014/Advisories/4096-

0714-NAT-IP/index.html.]

•

•

4.The information asymmetry

•

In the process of negotiation of FRAND SEP

licensing royalty,SEP holder usually refuses to

disclose licensing agreements already concluded

with other competitors to the SEP implementer

in the name of trade secrets protection.In the

lack of comparable licensing royalties,it’s very

difficult for SEP implementer to judge whether

the royalty offered by SEP holder to it is  non-

discriminatory or not.

•

Affected by an idea originating from the information

asymmetry that goes like “the SEP holder is bound to

misuse its dominant positon to excessively extract

licensing royalty”, the SEP implementer is always

inclined to hold that the SEP holder definitely violates

the FRAND principle no matter how much it quotes,

and thus negotiates with SEP holder in bad faith to

delay or prolong negotiation on purpose or directly

files a lawsuit against the SEP holder with a view to

relying upon the court ruling to pay the SEP holder as

low licensing royalty as possible.Information

asymmetry has become a very important reason

causing FRAND holdup.

•

Summary of Part II:

Grossly exaggerating the risks of patent

holdup , suspension of FRAND royalty, limiting

or eliminating the availability of injunction, and

the information asymmtry  have resulted in SEP

implementer’s opportunistic behavior,FRAND

holdup has become a serious issue  perplexing

SEP holder.

IV.Solutions to FRAND holdup(and

patent holdup at the meantime)

•

1.Unavoidableness of patent holdup and FRAND

holdup

•

(1)an ex ante unilateral disclosure of a fixed licensing royalty?

•

In order to deter patent holdup and FRAND holdup and to determine

FRAND royalty at the meantime, to require all standard participants

unilaterally to disclose  an ex ante  licensing royalty to all would-be SEP

implementers at the time their patents are incorporated into relevant

standard by SSOs is perhaps a choice.For the NPEs(Non-Practicing

Entities), an ex ante unilateral disclosure of a fixed licensing royalty may

be practicable.However,it’s likely to  violate market discipline(the price

fluctuates with market) to require all SEP holders engaging in

manufacturing,selling,using,offering to sell,importing and exporting to

unilaterally disclose an ex ante fixed licensing royalty to all potential

licensee and thus impracticable.

•

(2) Ex ante multilateral licensing negotiations?

•

Ex ante multilateral licensing negotiations between

IP holders and the group of SSO members is often

recommended to mitigate patent holdup and

FRAND holdup as well. multilateral licensing

negotiations are strictly prohibited by many SSOs

because it could potentially bring about antitrust

liability ,increase the costs of participation and

hinder the standard-setting process.

•

[Scott K. Peterson, Patents and Standard-Setting Processes (Apr.

18, 2002 Hr'g R.) at 9-10,

http://www.ftc.gov/opp/intellect/020418scottkpeterson.pdf .]

•

•

(3)To depend on the court’s determination?

     Court is not the market player,it’s very

difficult for court to decide a convincing FRAND

royalty.Besides,judge may be unfamiliar with

SEP.

•

(4)Unavoidableness of patent holdup and

FRAND holdup

•

The above situation shows that in most

circumstances the determination of FRAND SEP

licensing royalty has to depend on bilateral

bargaining between SEP holder and SEP

implementer.As long as bilateral negotiation is

indispensable for determining  FRAND licensing

royalty,patent holdup and FRAND holdup may

unavoidably happen.

•

2.Four tasks of any possible solutions.

•

(1)to solve the possibility of injunction

•

(2)to realize disclosure of the comparable royalties.

•

(3)to stimulate SEP holder and SEP implementer to

successfully negotiate  FRAND royalty as possible.

•

(4)to provide guideline for court to decide FRAND

royalty in case of negotiation failure.

•

A mechanism that can undertake the four tasks at the

meantime is perhaps  a set of ex ante just rule called

as “Notice and Counter-Notice”.

•

3.A comment on CJEU’s newest

judgement(Huawei v.ZTE.Case C-170/13).

•

(1)The core of the judgement:

•

Holds that SEP holder does not abuse its

dominant position by bringing an action for

infringement seeking an injunction as long as:

•

prior to bringing that action, the proprietor has, first,

alerted the alleged infringer of the infringement

complained about by designating that patent and

specifying the way in which it has been infringed, and,

secondly, after the alleged infringer has expressed its

willingness to conclude a licensing agreement on

FRAND terms, presented to that infringer a specific,

written offer for a licence on such terms, specifying,

in particular, the royalty and the way in which it is to

be calculated, and

•

where the alleged infringer continues to use the

patent in question, the alleged infringer has not

diligently responded to that offer, in accordance

with recognised commercial practices in the

field and in good faith, this being a matter which

must be established on the basis of objective

factors and which implies, in particular, that

there are no delaying tactics.

•

(2)comment

•

(i)comparable royalties?

•

Although the judgement makes it clear that

under what circumstances can the SEP holder

seek injunction against SEP implementer,it does

not clear these questions whether the SEP

holder should disclose the comparable royalties

to the SEP implementer,whether the SEP holder

should specify the SEPs that SEP implementer is

using  and the reasons,SEP implementer still

can’t judge whether it is discriminated.

•

(ii)providing appropriate security?

•

Where the alleged infringer is using the teaching of

the SEP before a licensing agreement has been

concluded,it is for that alleged infringer,from the

point at which its conter-offer is rejected,to  provide

appropriate security,in accordance with recognised

commercial practices in the field,for example by

providing a bank guarantee or by placing the amounts

necessary on deposit.

•

Before FRAND royalty is determined,is it practicable

to require SEP implementer to do so?

•

Objected by SEP implementer?

•

4.Rule of Notice and Counter-Notice

•

(1)Notice

•

before exercising SEP rights(include seeking

injunction relief and compensation/royalty),a

SEP holder should send a notice to a SEP

implementer,even if the SEP has already

been used by the SEP implementer.The

effective notice should include the following

contents:

•

  (i) A physical or electronic signature of a SEP holder.

•

  (ii) The SEPs claimed to have been infringed and  the reasons why

they are SEPs.

•

  (iii) The specific way in which the SEPs have been infringed.

•

  (iv)The amount of  royalty,in particular,the way in which the

royalty is to be calculated and the comparable licensing

royalty.Correspondingly,declaration to request a SEP implementer

to keep the comparable licensing royalty secret.

•

  (v) Information reasonably sufficient to permit the SEP

implementer to contact it, such as an address, telephone number,

and, if available, an electronic mail address at which the SEP

holder  may be contacted.

•

  (vi) A statement that the SEP holder has a good faith belief that

use of the SEP in the manner complained of is not authorized by

the SEP holder, its agent, or the law.

•

(vii)A statement that,where no agreement is

reached on the details of the FRAND terms

following the counter-notice by SEP

implementer,the parties may,by common

agreement,request that the amount of the

royalty be determined by an independent  third

party,by decision without delay.

•

 (viii) A statement that the information in the

notification is accurate, and under penalty of

perjury.

•

(2) Counter-Notice

•

After receiving SEP holder’s notice,as CJEU’s

judgement holds,SEP implementer

•

should diligently respond to the notice,in

accordance with recognized commercial

practices in the field and in good faith.

Corresponding to SEP holder’s notice,SEP

implementer’s counter-notice should include

the following contents:

•

 (i) A physical or electronic signature of a SEP implementer.

•

 (ii) The SEPs claimed by SEP holder are not SEPs and the

reasons.

•

 (iii) A statement  not to infringe SEP holder’s SEP and the

reasons.

•

 (iv)specifying why SEP implementer rejects the amount of

royalty offered by SEP holder and the way in which the

royalty is to be calculated,in particular,the comparable

licensing royalty.Correspondingly,declaration  to keep

comparable licensing royalty secret.

•

(v)The amount of royalty that SEP implementer thinks

FRAND and the way in which the royalty is to be calculated.

•

 (vi)If the SEP implementer is using SEPs before a licensing agreement

has been concluded,the number of the SEPs being used,the products

using SEPs and the number of the products, the area using SEPs and the

sales number of the products.

•

 (vii) A statement that it will pay FRAND royalty to SEP holder in

accordance with recognised commercial practices in the field and in good

faith,in particular,without no delaying tactics.

•

 (viii) A statement that,where no agreement is reached on the details of

the FRAND terms following the notice by SEP holder,the parties may,by

common agreement,request that the amount of the royalty be

determined by an independent  third party,by decision without delay.

•

  (ix) Information reasonably sufficient  to permit the SEP holder to

contact it, such as an address, telephone number, and, if available, an

electronic mail address at which the SEP implementer  may be

contacted.

•

  (x) A statement that the information in the notification is accurate, and

under penalty of perjury.

•

(3) Consequences against  the rule of Notice and

Counter-Notice

•

To ensure the parties strictly to respect  and comply

with the rule of Notice and Counter-Notice,in the

meantime to avoid the trouble of evaluating which

element in the Notice or Counter-Notice is more

important for determining FRAND royalty than

other,this paper supposes every element in the

Notice and Counter-Notice shares the same

importance.

According to the suppose,an effective

Notice or an effective Counter-Notice should embrace

all the listed elements, lack of any element means the

Notice or Counter-Notice is not effective.

•

(i)As such,for the SEP holder,failing to send an

effective Notice to the  SEP implementer shows

that it is unwilling and in bad faith to negotiate

FRAND royalty with SEP implementer and is

trying to do patent holdup,the SEP implementer

has the right to refuse the royalty offered by SEP

holder and meanwhile to require directly the

independent third party(court or arbitration

organization)to  determine a royalty in favor of

it(the royalty should be regarded as FRAND ).

•

(ii)For the SEP implementer,failing to send an

effective Counter-Notice to the SEP holder

shows that it is unwilling and in bad faith to

negotiate FRAND  royalty and is trying to do

FRAND holdup,the SEP holder has the right to

file a suit for seeking injunction against  SEP

implementer and meanwhile to require directly

the independent third party(court or arbitration

organization)to  determine a royalty in favor of

it(the royalty should be regarded as FRAND ).

V.Conclusion

•

Based on all the foregoing analysis,the following

conclusions may be drawn:

•

1. To absolutely negate injunction will lead to

FRAND holdup and is adverse to balancing the

interests between SEP holder and SEP

implementer.

•

2.Disclosure of SEP holder’s comparable

royalties to SEP implementer is necessary for

determining what’s Non-discriminatory royalty

and avoiding FRAND holdup.

•

3.In order to decrease transaction costs,it’s necessary to

design a set of ex ante rule(for example,rule of Notice and

Counter-Notice)to determine whether  the SEP

implementer negotiates royalty  with SEP holder in good

faith and whether the SEP implementer is trying to do

FRAND holdup.

•

4.In view of the uncertainty and ambiguity of FRAND, it’s

necessary to design a set of ex ante rule(for

example,Notice and Counter-Notice)to stimulate SEP

holder and SEP implementer to successfully negotiate

royalty in place of looking for substantive FRAND licensing

royalty.

•

5.Any topic on SEP with FRAND commitment is not so

easy to solve,Notice and Counter-Notice is only a try!

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Questions and Discussion

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28  Sept.2015

•

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 Invited researcher and Professor of

Shenzhen University School of Law