FRAND Licensing

FRAND stands for Fair, Reasonable, and Non-Discriminatory. It describes the licensing terms that holders of standard-essential patents (SEPs) commit to offer when their patents are incorporated into technology standards like Wi-Fi, LTE, 5G, Bluetooth, and USB. How FRAND commitments arise: standard-setting organizations (SSOs) — like ETSI (European Telecommunications Standards Institute, which sets 4G/5G standards), IEEE (Wi-Fi/Bluetooth), and ITU (international telecom) — require companies that contribute patented technology to a standard to disclose their relevant patents and commit to license them on FRAND terms to any company that wants to implement the standard. Without FRAND commitments, a SEP holder could demand any royalty it wanted from companies that MUST use the standard to build compatible products — creating 'patent hold-up.' What FRAND means in practice: Fair — the royalty must reflect the value of the patented technology itself, not the value created by the standard's adoption or the entire product incorporating the standard. Reasonable — the royalty must be consistent with what the technology would have commanded in an arm's-length negotiation before the standard was adopted (the 'ex ante' value, before lock-in). Non-discriminatory — similarly situated licensees must receive offers on similar terms; a SEP holder cannot demand substantially higher royalties from some licensees than others for the same portfolio without objective justification. FRAND rates are not fixed numbers — courts determine them when parties cannot agree. The rate depends on the specific SEP portfolio's strength, the relevant standard, the technology's contribution to the standard relative to alternatives available at the time of adoption, comparable licenses in the industry, and the licensee's product and geographic sales.

FRAND royalty rates are determined through negotiation between SEP holders and implementers, and — when those negotiations fail — by courts. Courts in the United States, United Kingdom, Germany, France, and China have all set FRAND rates. The main methodologies used by courts: (1) Comparable license analysis (most widely used): examines licenses the SEP holder granted to other similarly situated licensees for the same portfolio. If Ericsson licensed Nokia on certain terms for 5G SEPs, a court will look at that license as a comparable when setting Ericsson's rate for Apple. The challenge is that licenses are often confidential and comparable licenses may not be truly comparable — different portfolio sizes, different products, different geographies, or different negotiating circumstances. (2) Top-down approach (widely used in UK/Europe): starts with an estimate of the aggregate royalty burden for all SEPs that read on a standard (e.g., all 5G cellular SEPs). Then it assigns the patent holder's pro-rata share based on its percentage of essential SEPs. If the aggregate FRAND rate for all 5G SEPs is estimated at 5% of device value, and a company holds 10% of essential 5G SEPs, its FRAND rate would be 0.5%. The UK Supreme Court endorsed this methodology in Unwired Planet v. Huawei. (3) Apportionment to smallest salable patent-practicing unit (SSPPU): the royalty base should be the smallest component that practices the patent, not the entire end product. For a Wi-Fi chip SEP, the base would be the Wi-Fi chip price (~$5) rather than the smartphone price (~$800). Courts in the US (Ericsson v. D-Link) and increasingly in Europe apply this principle. (4) Modified Georgia-Pacific factors: US courts apply the standard 15-factor reasonable royalty framework modified to account for the FRAND context — particularly the fact that the patent's value partly derives from its standard adoption rather than purely its technical merit, and that the SEP holder's negotiating position is constrained by its FRAND commitment. In practice, comparable license analysis dominates because courts want market-based evidence. The Ericsson v. D-Link Federal Circuit decision (2014) is the leading US case establishing these methodologies. Unwired Planet v. Huawei (UK Supreme Court, 2020) is the leading UK/global case.

Obtaining an injunction for infringement of a standard-essential patent is significantly harder than for a non-SEP patent, and the standards differ across jurisdictions. United States: the eBay Inc. v. MercExchange (S.Ct. 2006) four-factor test for injunctions applies. The FRAND commitment makes it much harder to prove 'irreparable harm' — if you committed to license on FRAND terms to all comers, courts reason you cannot claim irreparable harm from an implementer's use of the standard. Apple Inc. v. Motorola (Fed. Cir. 2014, Posner opinion) confirmed injunctions are presumptively unavailable for FRAND-committed SEPs but not categorically barred. The ITC (International Trade Commission) is a different venue — exclusion orders are ITC's primary remedy and don't follow the eBay standard — but the ITC Presidential Policy Statement (2013, 2021 updates) indicates exclusion orders should be withheld when the implementer is willing to take a FRAND license. Practically: a willing licensee (one who commits to take a court-set FRAND license) almost certainly cannot be enjoined on FRAND-committed SEPs in the US. Germany: historically more favorable to SEP holders for injunctions. The BGH (Federal Court of Justice) Sisvel v. Haier decision (2021) and the OLG Düsseldorf Sisvel cases set conditions: the SEP holder must send a first written notice to the alleged infringer identifying the SEPs and explaining the infringement; the implementer must respond promptly and in good faith; if the implementer is a 'willing licensee' (offers a security deposit or otherwise commits to accept a court-set rate), injunctions should not issue. German courts remain more willing to issue injunctions than US courts. EU: the EU Court of Justice Huawei v. ZTE (2015) established that a dominant SEP holder that fails to follow the required steps (notice → offer → counter-offer → security) before seeking an injunction may be abusing its dominant position under Article 102 TFEU. The framework creates sequential obligations on BOTH the SEP holder and the implementer before injunctive relief is appropriate. UK: the UK Supreme Court Unwired Planet confirmed UK courts can grant injunctions conditioned on refusal to take a court-set global FRAND license — Huawei had to take the license on UK court-set terms or face a UK injunction. Bottom line: whether a SEP holder can get an injunction depends heavily on whether the implementer is a 'willing licensee' — a willing licensee who commits to accept court-set FRAND terms has strong protection against injunction in most major jurisdictions.

One of the most contested issues in SEP licensing is at what level of the supply chain the SEP holder must offer a FRAND license — and whether it matters for the royalty calculation. The 'level of the licensing chain' debate has two main sides: SEP holder position (device-level licensing): major SEP holders like Ericsson, Nokia, Qualcomm, and InterDigital prefer to license at the smartphone or device OEM level (e.g., Apple, Samsung, LG Electronics) rather than the chip manufacturer level (e.g., Qualcomm, MediaTek, Intel). Their rationale: (a) cellular connectivity SEPs read on the entire device's ability to communicate, not just the chip; (b) device-level licensing enables the royalty base to reflect the entire product's value from the connected technology; (c) administratively simpler (fewer large licensees than chips). Implementer position (chip-level licensing): many automotive and IoT manufacturers (like Continental, Daimler, and BMW) argue that FRAND commitments require offering licenses at the component level (the cellular chip) to avoid paying twice — once when the chip maker pays (if it licenses), and again when the OEM pays. The non-discrimination principle, they argue, requires the SEP holder to offer FRAND licenses to ALL similarly situated implementers, including chip makers. Key cases: Continental Automotive v. Avanci — an automotive OEM sued a patent pool arguing it was entitled to a component-level FRAND license; dismissed. Daimler v. Nokia — German courts addressed whether Nokia had to offer a chip-level license to Daimler's suppliers. The EU draft SEP Regulation (proposed 2023, pending) and the US DOJ/FTC/NIST joint policy statement (2019, withdrawn 2021, replaced with 2022 statement) have both addressed this question without fully resolving it. Royalty base implications: if licensing at the device level, the royalty base (the revenue the royalty is calculated against) is the device price ($500–$1,500 for smartphones). If licensing at the chip level, the base is the chip price ($5–$30). Even if the percentage rate is proportionally different, the absolute royalty per product differs substantially — and this is precisely why the debate is so commercially significant.

When a company receives a SEP licensing demand — typically a notice letter from Ericsson, Nokia, Qualcomm, InterDigital, or a patent pool like Avanci — the steps to take are: (1) Engage patent litigation counsel immediately: SEP licensing involves complex technical and legal analysis across multiple jurisdictions. The demand likely comes with a specific royalty proposal; the initial response sets important legal precedent. Do not respond without counsel. (2) Evaluate whether you are actually implementing the asserted standard: the first question is whether your products actually implement the standard at issue (e.g., 4G LTE, 5G NR, Wi-Fi 6). If your product uses licensed chips from a major semiconductor company that has already licensed the SEP portfolio, you may have a licensed-component defense or exhaustion argument. (3) Request the SEP list and claim charts: before any negotiation, request the SEP holder's list of asserted patents and claim charts mapping specific patent claims to specific elements of the relevant standard. A FRAND commitment requires the SEP holder to provide enough information for the implementer to evaluate the license. Agreements on asserted SEPs, their geographic scope, and their actual essentiality significantly affect the royalty value. (4) Respond in good faith but do not accept the initial offer: under the Huawei v. ZTE (EU Court of Justice, 2015) framework and US case law, you must respond to the offer and engage in good-faith negotiations. Not responding can support a 'hold-out' characterization that weakens your legal position. But the initial demand is typically a starting position, not a FRAND offer. (5) Conduct your own FRAND analysis: retain a technical expert to assess actual essentiality of the asserted patents (many declared SEPs are not actually essential), and a licensing/damages expert to analyze comparable licenses and FRAND range. (6) Make a counter-offer in writing: document your counter-offer and the basis for it. Under most FRAND frameworks, demonstrating you made a good-faith counter-offer is important for both litigation defense and injunction avoidance. (7) Evaluate whether to license through a pool: if the SEP holder participates in a patent pool (like Avanci for automotive 5G/4G, Via Licensing for IEEE, or OneVia for audio codecs), taking a pool license can be efficient. Evaluate the pool license terms against bilateral negotiation alternatives. (8) Consider jurisdiction risk: if you have sales in the UK, Germany, or France, those jurisdictions can set global FRAND rates — a UK judgment can force you to take a global license. Evaluate whether UK litigation in defense of a UK claim is preferable to allowing it to proceed by default.