FRAND
Also called fair, reasonable and non-discriminatory, FRAND commitment, FRAND licensing, FRAND undertaking, FRAND terms
FRAND means fair, reasonable and non-discriminatory. It is the licensing commitment that a holder of a standard essential patent gives to a standards body: an undertaking that it is prepared to grant licenses on such terms1,2.
At ETSI, the Director-General requests this undertaking in writing, to be given within three months, once an essential IPR is brought to ETSI's attention (clause 6.1)1. ETSI states that specific licensing terms and negotiations are commercial matters between the companies and are not addressed within ETSI3. See Standard essential patent for the patents the commitment applies to.
What the commitment covers at ETSI
Under clause 6.1 of the ETSI IPR Policy, the undertaking is to grant irrevocable licenses under the essential IPR to at least the following extent1,5:
- Manufacture, including the right to make or have made customized components and sub-systems to the licensee's own design for use in manufacture1.
- Sell, lease or otherwise dispose of equipment so manufactured5.
- Repair, use or operate equipment5.
- Use methods5.
The undertaking may be made subject to the condition that those who seek licenses agree to reciprocate5. An undertaking for one member of a patent family applies to all existing and future essential IPRs of that family, unless specified IPRs are explicitly excluded in writing when it is made (clause 6.2)5. See Patent family.
ETSI also provides that FRAND undertakings shall be interpreted as encumbrances that bind all successors-in-interest (clause 6.1bis), while recognizing that this interpretation may not apply in all legal jurisdictions5. A declarant that transfers ownership of an essential IPR must include provisions in the transfer documents to bind the transferee5.
What FRAND means, and who decides
The ETSI Policy states the commitment but does not set terms. ETSI says it takes no position on the correct interpretation of its IPR policy3. The European Commission wrote in 2017 that licensing was hampered by unclear and diverging interpretations of FRAND, and that the parties are best placed to reach a common understanding of fair licensing conditions through good faith negotiations2. It also states that there is no one-size-fits-all solution: what is fair and reasonable differs from sector to sector and over time2.
| Element | What the sources say |
|---|---|
| Good faith | The Commission says both parties must be willing to engage in good faith negotiations2. |
| Fair and reasonable | The Commission says licensing terms have to bear a clear relationship to the economic value of the patented technology, which in principle should not include any element resulting from the decision to include the technology in the standard. To avoid royalty stacking, an individual SEP cannot be considered in isolation2. |
| Non-discriminatory | The Commission says rightholders cannot discriminate between implementers that are similarly situated2. |
| Effect of the undertaking (EU) | The Court of Justice held that an undertaking to grant licenses on FRAND terms creates legitimate expectations on the part of third parties that the proprietor will in fact grant licenses on such terms, and that a refusal to do so may, in principle, constitute an abuse under Article 102 TFEU4. |
The Communication is guidance. It states that it is not intended to represent a statement of the law2.
Seeking an injunction in the EU: the Huawei v ZTE steps
This section covers EU law only. In Huawei v ZTE, the Court of Justice held that the proprietor of a SEP that has given an irrevocable FRAND undertaking to a standardization body does not abuse its dominant position under Article 102 TFEU by bringing an action for an injunction or product recall, as long as the two conditions in the operative part are met, which are reflected in steps 1 to 44. Steps 5 to 7 come from the Court's reasoning4. The ruling applies to a holder in a dominant position. In the case, dominance was not contested, so the Court examined only abuse4.
- The holder alerts the alleged infringerBefore bringing the action, the proprietor alerts the alleged infringer of the infringement complained about, designating the patent and specifying the way in which it has been infringed4.
- The alleged infringer expresses willingnessThe alleged infringer expresses its willingness to conclude a licensing agreement on FRAND terms4.
- The holder makes a specific written offerThe proprietor presents a specific, written offer for a license on FRAND terms, specifying in particular the royalty and the way in which it is to be calculated4.
- The alleged infringer responds diligentlyThe alleged infringer must respond diligently to the offer, in accordance with recognized commercial practices in the field and in good faith, with no delaying tactics4.
- The alleged infringer makes a counter-offerIf it does not accept the offer, it may rely on the abusive nature of the action only if it has promptly submitted a specific counter-offer in writing that corresponds to FRAND terms4.
- SecurityIf the alleged infringer uses the patent before a license is concluded, it must from the point its counter-offer is rejected provide appropriate security, for example a bank guarantee or a deposit4.
- Third-party determinationIf no agreement is reached on the FRAND terms, the parties may by common agreement ask an independent third party to determine the royalty4.
These steps concern actions for an injunction or product recall. For actions seeking the rendering of accounts or damages for past use, the Court held that, in circumstances such as those in the main proceedings, they cannot be regarded as an abuse under Article 102 TFEU4. The alleged infringer may also challenge validity or essentiality in parallel with the negotiations4.
Drawing on national case law, the Commission adds that to assess a FRAND offer and make an appropriate counter-offer, clear explanations are necessary on essentiality for the standard, the allegedly infringing products, the proposed royalty calculation and the non-discrimination element of FRAND2.
FRAND vs standard essential patent
| Term | What it is |
|---|---|
| Standard essential patent | The patent: it protects technology essential to a standard2 |
| FRAND | The commitment: an undertaking to grant licenses on fair, reasonable and non-discriminatory terms1 |
| Huawei v ZTE steps | EU case law on when a holder that has given the commitment may seek an injunction without abusing a dominant position4 |
Seen in the record
The Court of Justice judgment below answers questions referred by a German court on how Article 102 TFEU applies to an infringement action by a SEP holder. It says nothing about either party beyond what the judgment itself states.
Huawei Technologies v ZTE, Case C-170/13
Reference for a preliminary ruling from the Landgericht Düsseldorf. The Court set out the conditions under which a SEP holder that has given a FRAND undertaking does not abuse a dominant position by seeking an injunction or recall. It left it to the referring court to determine whether the criteria were satisfied in the case4.
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Does FRAND mean a fixed royalty rate?
No. The Commission states that there is no one-size-fits-all solution to what FRAND is, and that what is fair and reasonable differs from sector to sector and over time2. ETSI says specific licensing terms are commercial matters between the companies3.
Does a FRAND commitment stop the SEP holder from suing?
No. The Court of Justice held that the undertaking cannot negate the substance of the rights guaranteed to the proprietor by Articles 17(2) and 47 of the EU Charter of Fundamental Rights, but justifies specific requirements when the proprietor brings an action for an injunction or recall4. In the EU, where the holder is in a dominant position, such an action is not an abuse under Article 102 TFEU as long as the Court's conditions are met4.
Who decides what is FRAND?
Not ETSI. It states that specific licensing terms and negotiations are commercial matters between the companies and are not addressed within ETSI3. The Commission says the parties are best placed to agree through good faith negotiations2. In litigation, the court applies the criteria. In Huawei v ZTE the Court of Justice left it to the referring national court to determine whether they were satisfied4. Where no agreement is reached, the Court of Justice noted that the parties may by common agreement ask an independent third party to determine the royalty4. In the United Kingdom, the Supreme Court has considered whether the English courts may determine the terms of a global FRAND license (Unwired Planet v Huawei, 2020 UKSC 37)6. This list is not exhaustive.
Does a FRAND commitment bind a new owner of the patent?
Under the ETSI Policy, yes. The Policy says FRAND undertakings shall be interpreted as encumbrances that bind all successors-in-interest, and it requires a transferring declarant to include provisions in the transfer documents. The Policy adds that the undertaking shall be interpreted as binding on successors-in-interest regardless of whether such provisions are included in the transfer documents. ETSI recognizes that this interpretation may not apply in all legal jurisdictions5.
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