Emerging Trend in FRAND/RAND Obligation Litigation?
Members of standard setting organizations have yet to be tested as to how they comply with their RAND/FRAND obligations, but that appears to be steadily changing. More litigation is on the horizon regarding their obligations to offer their patented products or innovations at reasonable rates.
Standard Setting Organizations’ RAND/FRAND Obligations
Almost all technology companies that develop or manufacture products belong to internation standard setting organizations. Technology companies generally have needs for interface standards and communication standards to let components manufactured by different companies to interact with each other. These network inefficiencies make it necessary for there to be a single uniform standard.
Standard setting organizations coordinate members’ needs for standardized technology as well as for intellectual property protections. Thus, while members are allowed to patent innovations that are essential to the standards that are developed or adopted by the membership at large, they are not allowed to use that wide adoption as a play to develop a monopoly.
To balance these concerns, the bylaws of these standard-setting organizations require members to license their patents at reasonable and non-discriminatory rates, or “RAND,” or fair, reasonable and non-discriminatory rates, or FRAND.
Microsoft Inc. v. Motorola, Inc., et al.
Microsoft and Motorola are locked in a trial wherein Microsoft is attempting to enforce the FRAND obligations on Motorola, who requested a royalty far in excess of what the court deemed was a fair royalty rate based upon the value of the patents in question. (Microsft_v_Motorola)
In short, Microsoft requested a rate from Motorola to license certain patented technology relevant to its X-Box’s ability to communicate wirelessly on the internet. Motorola requested a rate of 2.5% per unit sold. The Court determined that the rate was far below that, and Microsoft sued to enforce its rights for Motorola’s violation of the FRAND obligation.
The Take-Away: More Litigation on the Horizon?
This, essentially, breach of contract action puts holders of essential patents on treacherous ground if they violate their RAND/FRAND obligations just by asking for royalty rates from those already practicing the patent, but that prove to be higher than what a court determines is the market rate.
We see this becoming a growing area of litigation that essential patent holders and those practicing essential patents should be cognizant of.