FRAND Explained

FRAND Explained – Fair, Reasonable, and Non-Discriminatory

With Samsung being targeted by the European Commission, and the US FTC calling Motorola’s attack on Apple a “Hold-Up,” I thought it would be a good idea to review my earlier FRAND post.

To understand the claims and counter claims of these law suits, it is imperative to understand this one concept. It really is not difficult. For cell phone systems to work (and other electronic communications systems as well) there needs to be agreement in advance as to the technicalities of how they all will work, e.g. the electronic protocols by which the phone will communicate with the tower and back again.

All these methods of electronic communications involve many inventions by various companies. In order to create one and only one methodology, the companies participate in Standards Committees, which decide on the definition of a particular communications system – the technical details of how it will work. These Standards Committees look over various proposals for a given technology (such as the new fourth generation LTE) and create a set of definitions that all agree on to make the new system work.

This set of technological  definitions typically uses inventions or Intellectual Property (IP) from several different companies. Once adopted, an individual patent becomes part of the standard, or a Standards Essential Patent (SEP). Obviously, once the standard is implemented (towers are built, communications chips are designed and built) any device manufacturer (OEM) will need to license each of the patented technologies that is part of the new system. There is a potential problem here.

Theoretically, any single company that has SEPs could turn around and “hold hostage” any other company that wanted to use the new standard. This would cause chaos in the industry, which would not be good for anyone. Therefore, to make sure that this does not happen, the standards committees have a policy. If you own patented technology that you want incorporated into the standard, then you must agree to license that technology, that IP, according to FRAND:  On a Fair, Reasonable And Non-Discriminatory basis. In other words, you cannot gouge one customer just because you do not like them. The technology needs to be licensed to all on an equal footing.

So, Apple is saying: “You Samsung, have infringed our patents that have to do with totally independent inventions that have nothing to do with any standards agreements,” but Samsung is saying “You Apple are refusing to pay our outlandish, and illegal demands on patents that we have already agreed to license on FRAND terms.” (At least this is Apple’s contention.) So, basically, Apple’s contention is that Samsung is trying to use FRAND patents to extort free usage of Apple’s unencumbered patents. Or in Apple’s words:

  • “[The rules of a standard-setting organization] are designed to protect the telecommunications industry from the sort of anticompetitive ambush Samsung has perpetrated here.”

The suits by Samsung in Europe have been dropped, but the European Commission is not letting Samsung off the hook. An attempted “hold up” was still an attempt to wield monopoly power granted to the SEPs, and so will not be swept under the rug. In the Motorola vs Apple case in the U.S., the FTC filed a brief backing the courts decision to NOT allow injunction against Apple products. Their press release states:

The brief explains how, in general, the owners of SEPs can use the threat of injunctions to distort competition by insisting on high royalties and other favorable licensing terms that they could not have credibly demanded before the standard was set.  This distortion is called “patent hold-up.”

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