A brief history of frand: analyzing current debates in standard setting and antitrust through a historical lens

• Author: Jorge L. Contreras
• Position: Associate Professor, University of Utah, S.J. Quinney College of Law
• Pages: 39-120

A BRIEF HISTORY OF FRAND: ANALYZING CURRENT

DEBATES IN STANDARD SETTING AND

ANTITRUST THROUGH A HISTORICAL LENS

J

ORGE

L. C

ONTRERAS

*

“[The defendant shall] grant to any applicant there-for absolutely un-

restricted licenses or sublicenses to manufacture, use, and sell without any

conditions except that a reasonable and nondiscriminatory royalty may be

charged . . . .”

United States v. American Bosch Corp. (S.D.N.Y. 1942)

1

“There are no new problems in the law, only forgotten solutions[,] and the

issues which arose yesterday will always arise again tomorrow.”

Shell Oil Co. v. United States (Fed. Cir. 2014)

2

A great deal has been written about the commitments that firms make to

standards-development organizations (SDOs) to license their patents on terms

that are “fair,” “reasonable,” and “non-discriminatory” (FRAND).

3

Over the

* Associate Professor, University of Utah, S.J. Quinney College of Law. The author thanks

Jonathan Baker, Belinda Barnett, Karl Belgum, Matthew Bye, Patricia Griffin, Anne Layne-

Farrar, Christopher Leslie, Gil Ohana, Pat Roach, and Tim Simcoe for their helpful comments,

suggestions, and discussion. This article benefited from feedback and presentation at the 15th

Annual Texas Intellectual Property Law Journal IP Symposium and the University of Houston’s

Institute for Intellectual Property & Information Law (IPIL) Advisory Council. Invaluable re-

search assistance by Yoonhee Kim, Jordan Bledsoe, and Ripple Weistling is gratefully acknowl-

edged. An earlier version of this article was released on SSRN in January 2014.

1

1940–1943 Trade Cas. (CCH ) ¶ 56,253, 1942 WL 82620 (S.D.N.Y. Dec. 29, 1942).

2

751 F.3d 1282, 1284 n.1 (Fed. Cir. 2014) (Wallach, J.) (quoting Jeremy Rabkin & Ariel

Rabkin), Navigating Conflicts in Cyberspace: Legal Lessons from the History of War at Sea,14

C

HI

. J. I

NT

’

L

L. 197, 198 (2013) (quoting Evan J. Wallach, Partisans, Pirates, and Pancho Villa:

How International and National Law Handled Non-State Fighters in the “Good Old Days”

Before 1949 and that Approach’s Applicability to the “War on Terror,”24 E

MORY

I

NT

’

L

L. R

EV

.

549, 552–53 (2010))). Thanks to Hal Wegner for pointing out this apt quotation in his popular

patent law blog, Wegner’s Writings, www.laipla.net/category/wegners-writings/.

3

I use the term FRAND to refer both to “reasonable and non-discriminatory” terms, as well

as “fair, reasonable and non-discriminatory” terms, two competing formulations that do not seem

to have a meaningful difference. See, e.g., U.S. Dep’t of Justice & U.S. Patent & Trademark

Office, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/

RAND Commitments 1 n.2 (2013), www.justice.gov/atr/public/guidelines/290994.pdf (“Com-

39

40

A

NTITRUST

L

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J

OURNAL

[Vol. 80

past few years, FRAND commitments have been the subject of numerous ju-

dicial decisions,

4

agency enforcement actions,

5

and Congressional hearings,

6

as well as countless scholarly articles.

7

Nearly all of the recent analysis reviews these commitments de novo, start-

ing either from the basic economic assumptions and goals underlying the stan-

dard-setting process (efficiency gains and the reduction of opportunism and

patent hold-up) or the presumed understanding of the parties (SDOs and pat-

ent holders) that voluntarily establish FRAND commitments. These analytical

approaches do much to illuminate the rationale for, and contours of, modern

FRAND commitments. Yet there is a long and rich history of patent licensing

mentators frequently use the terms [RAND and FRAND] interchangeably to denote the same

substantive type of commitment.”).

4

Innovatio IP Ventures LLC Patent Litig., 921 F. Supp. 2d 903, 907 (N.D. Ill. 2013); Find-

ings of Fact and Conclusions of Law, Microsoft Corp. v. Motorola, Inc., 2013 U.S. Dist. LEXIS

60233 (W.D. Wash. Apr. 25, 2013); Opinion and Order, Apple, Inc. v. Motorola, Inc., 886 F.

Supp. 2d 1061 (W.D. Wis. 2012). For a summary of all U.S. FRAND-related litigation through

2012, see Jorge L. Contreras, Fixing FRAND: A Pseudo-Pool Approach to Standards-Based

Patent Licensing, 79 A

NTITRUST

L.J. 47, app. A (2013) [hereinafter Contreras, Fixing FRAND]

(cataloging FRAND litigation through 2012).

5

Decision and Order, Motorola Mobility LLC, FTC Docket No. C-4410 (July 23, 2013),

www.ftc.gov/os/caselist/1210120/130724googlemotorolado.pdf [hereinafter FTC Google Order];

Statement of the Fed. Trade Comm’n, Robert Bosch GmbH, FTC File No. 121-0081 (Nov. 26,

2012); Case COMP/M.6381—Google/Motorola Mobility, Comm’n Decision (Feb. 13, 2012),

available at ec.europa.eu/competition/mergers/cases/decisions/m6381_20120213_20310_22774

80_EN.pdf.

6

Int’l Trade Comm’n and Patent Disputes, Hearing Before the Subcomm. on Intellectual

Property, Competition, and the Internet of the H. Comm. on the Judiciary, 112th Cong. (July 18,

2012) (Serial No. 112-143); Abusive Patent Litigation: The Impact on American Innovation and

Jobs, and Potential Solutions, Hearing before the Subcomm. on Courts, Intellectual Property,

and the Internet of the H. Comm. on the Judiciary, 113th Cong. (Mar. 14, 2013) (Serial No. 113-

13).

7

For recent scholarly commentary on the content and substance of FRAND commitments

see, for example, N

AT

’

L

R

ESEARCH

C

OUNCIL

, P

ATENT

C

HALLENGES FOR

S

TANDARD

-S

ETTING IN

THE

G

LOBAL

E

CONOMY

: L

ESSONS FROM

I

NFORMATION AND

C

OMMUNICATIONS

T

ECHNOLOGY

52–69 (Keith Maskus & Stephen A. Merrill eds., 2013) [hereinafter NAS R

EPORT

]; Dennis W.

Carlton & Allan L. Shampine, An Economic Interpretation of FRAND, 9 J. C

OMPETITION

L. &

E

CON

. 531 (2013); Contreras, Fixing FRAND, supra note 4; Joseph Farrell, John Hayes, Carl

Shapiro & Theresa Sullivan, Standard Setting, Patents, and Hold-Up, 74 A

NTITRUST

L.J. 603,

616 (2007); Richard J. Gilbert, Deal or No Deal? Licensing Negotiations in Standard-Setting

Organizations, 77 A

NTITRUST

L.J. 855 (2011); Mark A. Lemley, Intellectual Property Rights and

Standard-Setting Organizations, 90 C

ALIF

. L. R

EV

. 1889 (2002); Doug Lichtman, Understanding

the RAND Commitment, 47 H

OUS

. L. R

EV

. 1023, 1033 (2010); Joseph Scott Miller, Standard

Setting, Patents, and Access Lock-In: RAND Licensing and the Theory of the Firm, 40 I

ND

. L.

R

EV

. 351, 357 (2007); Anne Layne-Farrar, A. Jorge Padilla & Richard Schmalensee, Pricing

Patents for Licensing in Standard-Setting Organizations: Making Sense of FRAND Commit-

ments, 74 A

NTITRUST

L.J. 671 (2007); J. Gregory Sidak, The Meaning of FRAND—Part I: Roy-

alties, 9 J. C

OMPETITION

L. & E

CON

. 931 (2013); Daniel G. Swanson & William J. Baumol,

Reasonable and Non-Discriminatory (RAND) Royalties, Standards Selection, and Control of

Market Power, 73 A

NTITRUST

L.J. 1 (2005).

2015]

A B

RIEF

H

ISTORY OF

FRAND

41

commitments made outside the standard-setting context, years before this ap-

proach was adopted by SDOs, that is seldom mentioned today.

From World War II through the 1970s, courts issued more than one hun-

dred decrees ordering patent holders to license their patents on terms that were

fair, reasonable and non-discriminatory.

8

These orders were typically issued

as remedies in antitrust cases involving the perceived abuse of patents, and

were characteristic of the most aggressive period of U.S. antitrust enforce-

ment.

9

And while the reasoning that led to the imposition of these mid-century

licensing decrees may not reflect current antitrust enforcement policies, the

interpretations given to the licensing commitments themselves by mid-century

courts, agencies, and litigants are relevant to today’s discussion of FRAND

commitments. Yet this history has, for the most part, been lost, and its ramifi-

cations remain largely unexplored.

10

In this article, I trace the historical development of antitrust patent licensing

orders and consider how they inform current debates regarding FRAND com-

mitments in the standard-setting context. I argue that the licensing orders aris-

ing in these cases shed much-needed light on questions only now re-emerging

in the FRAND debate: the degree to which courts should intervene in the

determination of reasonable royalty rates; the appropriateness of arbitration as

a means for determining FRAND royalty rates; the extent to which royalty-

free patent licensing may be “reasonable” in some situations; the effects of a

potential licensee’s refusal to accept a patent holder’s license offer; the appro-

priateness of non-financial licensing terms, such as reciprocity requirements,

in FRAND licenses; and the need to ensure that FRAND licenses are granted

on a uniform and non-discriminatory basis, even when such licenses are

cloaked in confidentiality protections. Thus, while there are clearly differ-

ences between FRAND commitments imposed by judicial decree and those

entered voluntarily by parties to facilitate product standardization, their simi-

larities, and the analysis offered over the years by courts, enforcement agen-

cies and private firms, should not be ignored.

8

See Richard A. Posner, A Statistical Study of Antitrust Enforcement, 13 J.L. & E

CON

. 365,

388–89, tbl.17 (1970) (counting 60 reasonable-royalty decrees issued between 1940 and 1969).

A number of additional decrees were entered after Judge Posner’s compilation was made in

1970. A complete list of remedial patent licensing decrees entered through 2013 is contained

infra Appendix B.

9

See Christina Bohannan & Herbert Hovenkamp, IP and Antitrust: Reformation and Harm,

51 B.C. L. R

EV

. 905, 908–09 (2010) (describing and critiquing expansionist U.S. antitrust en-

forcement policy during this period); Andrew I. Gavil, Moving Beyond Caricature and Charac-

terization: The Modern Rule of Reason in Practice, 85 S. C

AL

. L. R

EV

. 733, 738 (2012).

10

For one welcome, albeit brief, discussion, see Simon Steel, RAND Obligations Outside the

SSO Setting: Some Perspectives from History and Analogy, A

NTITRUST

& C

OMPETITION

P

OLICY

B

LOG

(Oct. 17, 2013), lawprofessors.typepad.com/antitrustprof_blog/2013/10/non-sso-patent-

commitments-and-pledges-symposium-simon-steel-comments.html.