As explained in our Position Paper of 24 June 2016, today’s increasingly connected world demands cooperation and interoperation among many different products. To ensure widespread adoption of common standardized interfaces, Standards Setting Organisations (SSOs) obligate contributors to license Standards Essential Patents (SEPs) on Fair, Reasonable and Non-discriminatory (FRAND) terms. However, some SEP holders are failing to comply with the Non-discriminatory requirement of FRAND and are refusing to license subsystems manufacturers. Such practices have a negative impact on the product ecosystem and on consumers.
The principle that FRAND SEP licenses must be available to all entities, regardless of their role within the product supply chain, is reflected in the European Commission’s Horizontal Cooperation Guidelines. FRAND requires licensing to “all third parties”.
The Intellectual Property Rights (“IPR”) Policy of the European Telecommunications Standards Institute (“ETSI”), in particular those sections that relate to the undertaking to license SEPs on fair, reasonable and non-discriminatory (“FRAND”) terms, confirms this principle.
In an effort to bring further clarity on this point, the FSA publishes a paper, prepared by Mr. Karl Heinz Rosenbrock, who has served as the Director-General of ETSI during the period that the IPR Policy was drafted, debated and finalized. Mr. Rosenbrock is honoured as the Life-long Honorary Director-General of ETSI, and highly knowledgeable about the creation and application of the ETSI IPR Policy as intended by ETSI.
In his paper, Mr. Rosenbrock addresses the formation and application of the ETSI IPR Policy and its requirement that, once a FRAND undertaking is given, all interested parties and potential licensees must be licensed on FRAND terms and conditions. In particular, the Paper explains that:
- The ETSI IPR Policy allows every company that requests a license to obtain one, regardless of where the prospective licensee is in the chain of production and regardless of whether the prospective licensee is active upstream or downstream;
- The obligation to license under the ETSI IPR Policy, once a FRAND undertaking is given, is not limited to end-products like handsets, but includes also components like chipsets;
- The wording of Article 6 of the IPR Policy must be interpreted to entitle a manufacturer who so requests a license to “make, sell and use” the licensed product;
- A “forbearance policy” is not consistent with, and does not satisfy, obligations to license on FRAND terms and conditions, once a FRAND undertaking is given;
- The cross-grant provisions in a license should be on FRAND terms and conditions for both licensor and licensee; and
- Unless both parties agree otherwise, the license must not bundle SEPs and non-SEPs.
Most fundamentally, Mr. Rosenbrock explains why the ETSI IPR Policy requires that licenses remain available to all ETSI Members and third parties, regardless of their location within the supply chain. Indeed, the ETSI Directives – which include a Guide on Intellectual Property Rights (the “ETSI IPR Guidelines”) – expressly state that all ETSI Members and all third parties will have the right to obtain a FRAND license (ETSI IPR Guidelines, at § 1.4).
The FSA previously raised concerns over any effort to restrict the scope of companies that are entitled to benefit from the FRAND promise (see here). Tolerating discriminatory refusals to license SEPs threatens to undermine incentives for a wide variety of standard-setting participants. Unfair and unreasonable SEP licensing practices – of the type shown by Mr. Rosenbrock to be contrary to the requirements of the ETSI IPR Policy – pose a significant risk to the innovation eco-system, create barriers to entry for new market players, threaten to stifle the full potential for economic growth across major industry sectors, and ultimately harm consumer choice.