Fair, Reasonable and Non Discriminatory terms
Encyclopedia
Fair, reasonable, and non-discriminatory terms (FRAND) are a licensing obligation that is often required by standard-setting organizations
(SSOs) for members that participate in the standard-setting process. Standard-setting organizations are the industry groups that set common standards for a particular industry in order to ensure compatibility and interoperability of devices manufactured by different companies.
Standard-setting organizations commonly have rules that govern the ownership of patent rights that apply to the standards they adopt. One of the most common rules is that a patent that applies to the standard must be adopted on "reasonable and nondiscriminatory terms" (RAND) or on "fair, reasonable, and nondiscriminatory terms" (FRAND). The two terms are generally interchangeable; FRAND seems to be preferred in Europe and RAND in the U.S.
Standard-setting organizations include this obligation in their bylaws as a means of enhancing the pro-competitive character of their industry. They are intended to prevent members from engaging in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property
rights (IPR) included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone, not necessarily members of the group. Without such commitment, members could use monopoly
power inherent in a standard to impose unfair, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position. While there are no legal precedents to spell out specifically what the actual terms mean, it can be interpreted from the testimony of people like Professor Mark Lemley
from Stanford University
, in front of the United States Senate Committee on the Judiciary
that the individual terms are defined as follows:
Fair relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law
; fair terms means terms which are not anticompetitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are; requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want (bundling), requiring licensees to license their own IP to the licensor for free (free grant backs) and including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).
Reasonable refers mainly to the licensing rates. A reasonable licensing rate is a rate charged on licenses which would not result in an unreasonable aggregate rate if all licensees were charged a similar rate. Clearly aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. It is worth noting that a licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable “bundled” rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.
Non-discriminatory relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms can’t change dependent on the volume and creditworthiness of the licensee. However it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors and to ensure that potential new entrants are free to enter the market on the same basis.
The most controversial issue in FRAND licensing is whether the "reasonable" license price should include the value contributed by the standard-setting organization's decision to adopt the standard. A technology is often more valuable after it has been widely adopted than when it is one alternative among many; there is a good argument that a license price that captures that additional value is not "reasonable" because it does not reflect the intrinsic value of the technology being licensed.
Standards organization
A standards organization, standards body, standards developing organization , or standards setting organization is any organization whose primary activities are developing, coordinating, promulgating, revising, amending, reissuing, interpreting, or otherwise producing technical standards that are...
(SSOs) for members that participate in the standard-setting process. Standard-setting organizations are the industry groups that set common standards for a particular industry in order to ensure compatibility and interoperability of devices manufactured by different companies.
Standard-setting organizations commonly have rules that govern the ownership of patent rights that apply to the standards they adopt. One of the most common rules is that a patent that applies to the standard must be adopted on "reasonable and nondiscriminatory terms" (RAND) or on "fair, reasonable, and nondiscriminatory terms" (FRAND). The two terms are generally interchangeable; FRAND seems to be preferred in Europe and RAND in the U.S.
Standard-setting organizations include this obligation in their bylaws as a means of enhancing the pro-competitive character of their industry. They are intended to prevent members from engaging in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
rights (IPR) included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone, not necessarily members of the group. Without such commitment, members could use monopoly
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
power inherent in a standard to impose unfair, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position. While there are no legal precedents to spell out specifically what the actual terms mean, it can be interpreted from the testimony of people like Professor Mark Lemley
Mark Lemley
Mark A. Lemley is the director of the Stanford University program in Law, Science & Technology. He teaches intellectual property, computer and Internet patent and antitrust law. He is a widely cited expert on the impact of patents on innovation and what the appropriate requirements for granting...
from Stanford University
Stanford University
The Leland Stanford Junior University, commonly referred to as Stanford University or Stanford, is a private research university on an campus located near Palo Alto, California. It is situated in the northwestern Santa Clara Valley on the San Francisco Peninsula, approximately northwest of San...
, in front of the United States Senate Committee on the Judiciary
United States Senate Committee on the Judiciary
The United States Senate Committee on the Judiciary is a standing committee of the United States Senate, of the United States Congress. The Judiciary Committee, with 18 members, is charged with conducting hearings prior to the Senate votes on confirmation of federal judges nominated by the...
that the individual terms are defined as follows:
Fair relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
; fair terms means terms which are not anticompetitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are; requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want (bundling), requiring licensees to license their own IP to the licensor for free (free grant backs) and including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).
Reasonable refers mainly to the licensing rates. A reasonable licensing rate is a rate charged on licenses which would not result in an unreasonable aggregate rate if all licensees were charged a similar rate. Clearly aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. It is worth noting that a licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable “bundled” rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.
Non-discriminatory relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms can’t change dependent on the volume and creditworthiness of the licensee. However it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors and to ensure that potential new entrants are free to enter the market on the same basis.
The most controversial issue in FRAND licensing is whether the "reasonable" license price should include the value contributed by the standard-setting organization's decision to adopt the standard. A technology is often more valuable after it has been widely adopted than when it is one alternative among many; there is a good argument that a license price that captures that additional value is not "reasonable" because it does not reflect the intrinsic value of the technology being licensed.
Further reading
- Pat Treacy and Sophie Lawrance, "FRANDly fire: are industry standards doing more harm than good?", Journal of Intellectual Property Law & PracticeJournal of Intellectual Property Law & PracticeThe Journal of Intellectual Property Law & Practice is a monthly peer-reviewed law journal covering intellectual property law and practice, published by the Oxford University Press. The journal has been published since November 2005. The editor is Jeremy Phillips ....
, 2007, doi:10.1093/jiplp/jpm212