Non-Discriminatory Royalties for Standard Essential Patents: Setting the Boundaries

Abstract

Technical standards often implicate patented technologies. This poses a risk of patent hold-up, whereby a standard essential patent (‘SEP’) holder opportunistically exploits its market power conferred by standardization and demands excessive and possibly differential royalties from implementers of the standard. Commitments to license on fair, reasonable, and non-discriminatory (‘F/RAND’) terms imposed on SEP holders are intended to avoid that risk. Nevertheless, the practical implications of the non-discrimination (‘ND’) prong of F/RAND have become a subject of debate and litigation as a matter of contract and antitrust law. This paper seeks to answer the question: ‘To what extent is a F/RAND-committed SEP holder legally allowed to charge differential royalties to different licensees for the patented technology from the U.S. and the EU perspectives?’ It explores the meaning of the ND prong by examining IEEE, (= Institute of Electrical and Electronics Engineers) JEDEC, (= Joint Electron Device Engineering Council) and ETSI’s (European Telecommunications Standards Institute) bylaws, inspecting U.S. and EU antitrust norms, analyzing case law of the U.S. and European courts, and reviewing legal and economic arguments in the academic literature. According to the dominant perception, SEP holders are obliged to license to similarly situated licensees on similar terms. Based on the interpretations in case law and literature, it is possible for a SEP holder to charge differential royalties legally to licensees manufacturing dissimilar devices incorporating the technology, and even to licensees manufacturing similar devices when the needed transactions differ. Discrimination in royalties may also trigger antitrust liability when it is capable of harming competition, although the threshold is significantly lower in EU law than in U.S. law.