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FRANDly Patent Licensing

By Charl Goussard – NAIP Legal Research
and Jeffrey Chang – NAIP Editorial


Imagine a single product: the myriad technologies involved, the swarm of patent rights holders, and the sea of comparable, alternative technologies. With so many complex and conflicting issues, it seems unlikely that an easy to use, functional product can ever reach the consumer. Yet, cell phones have become everyday objects. Dozens of companies put out hundreds of models that can be used interchangeably (for the most part) with different networks across the globe. This has been the power of FRAND patent licenses.

"FRAND" (Fair, Reasonable and Non-Discriminatory) is an acronym used to describe patent licensing terms. Despite an ambiguous nature, FRAND terms are a legal obligation imposed on IPR holders by certain standard setting organizations (SSOs). In exchange for providing FRAND terms to licensees, the IP is often made or included in an industry standard.

In this light, the FRAND concept has much significance for IPR holders, licensees, entire industries and even society. An IPR holder who successfully has his patent incorporated into a standard effectively guarantees a revenue stream. A licensee, often a manufacturer, is provided with a product roadmap of sorts, as well as a guaranteed market. The industry is able to simplify and consolidate its efforts behind a single technology to speed up adoption, and as a result, speed up the development and advancement of society.

But each advantage is countered by a disadvantage, and the ambiguousness of words like "fair" and "reasonable" too easily leads to dissenting interpretations. Controversy over FRAND has only increased—as evident in famous cases like Broadcom vs. Qualcomm and most recently Nokia vs. IPCom. What are the issues? What is at stake? In this paper we will attempt to address these topics and hopefully, clear up some of the confusion about FRAND.

Understanding FRAND

FRAND is inherently a controversial concept. What are fair, reasonable and non-discriminatory licensing terms? Considering the complexity and subjectivity of IP/patent valuation, FRAND terms may be vastly different for the licensor and licensee. Why even bother with FRAND then? Why not simply allow the forces of the (mostly) free markets to decide? To begin understanding FRAND, let us first look at some of the more tangible elements of its history, purpose and definition.

FRAND is a concept that first became prominent in the 1970s and 1980s amid the promising developments in networking/telecommunications technologies. Like the standardization of railroad track sizes or measurement systems, world and businesses leaders saw great opportunity for growth and advancement of society in these technologies.

But at the same time, increasing commercialization of patents led them to fear that the business and politics of patents would hinder this growth. SSOs were established as a way evaluate and choose between competing technologies and facilitate their propagation. One of the tools developed to deal with concerns of IPR holders and potential licensors was the concept of FRAND terms.

    Purpose & Function
FRAND's function and purpose varies only slightly in each context, but these differences result in widely differing expectations and definitions for FRAND. For this paper we’ll look primarily at FRAND in context of standard setting.

As an integral part of SSOs' agreements, the general consensus is that FRAND serves to:
    1. Provide contributors incentive to reveal and contribute technologies (through opportunities to maximize and optimize market price and volume).
    2. Allow SSOs to select and implement the best available technologies.
    3. Ensure a competitive outcome in a potentially monopolistic/oligarchic market that might result from the setting of a standard.

From these general principles, FRAND can be seen as a mechanism that attempts to allow an optimal competitive market to develop for the benefit of all the participants and society in general. Although individual parties may claim otherwise, this purpose and function seems to be most in line with the background and "spirit" of FRAND.

The exact origins of the phrase "fair, reasonable and non-discriminatory" have not been documented, but it likely gained prominence due to its inclusion in the IPR policy of the European Standard Setting Organization (ETSI), established in 1988. Today nearly every major standards organization has implemented FRAND obligations in one form or another.

In the ETSI Rules of Procedure, Annex 6: IPR policy, FRAND appears in Clause 6.1:

When an ESSENTIAL IPR relating to a particular STANDARD or TECHNICAL SPECIFICATION is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable and non-discriminatory terms and conditions under such IPR to at least the following extent:

● MANUFACTURE, including the right to make or have made customized components and sub-systems to the licensee's own design for use in MANUFACTURE;
● sell, lease, or otherwise dispose of EQUIPMENT so MANUFACTURED;
● repair, use, or operate EQUIPMENT; and
● use METHODS.

For any IPR to be included in an ETSI-backed standard, the IPR holder must agree to Clause 6.1 in the ETSI IPR Licensing Declaration Form.

    "Defining" FRAND
As is evident from above, FRAND is purposely left ambiguous and defining it is very much a case of circumstances. However, that hasn't stopped people from attempting. In court cases such as Nokia vs. Qualcomm, parties have sought to request judges to narrow down the meanings of FAIR, REASONABLE and NON-DISCRININATORY. But up to now, no judge has had the universal wisdom to put a foolproof meaning to these generic terms.

The fact is FRAND is merely a guideline that should be interpreted within the scope of its technical, cultural, and business environment. Detailing FRAND terms could have the adverse effect of excluding the freedom to negotiate – having exactly the opposite effect on the purpose and function of FRAND. FRAND should not be used to benefit any one party to the disadvantage of another.

What do FRAND terms offer me?

A good understanding of the benefits and disadvantages of FRAND can assist participants and interested parties to an SSO to evaluate their negotiating strength.

IPR Holders
  • By employing FRAND terms, IPR holders are in a position to attract more licensees and to generate more royalties.
  • Standards (ex. Mobile phone industry), which use FRAND licensing terms are used by huge numbers of manufacturers, increasing the potential royalty income for a holder of an essential patent in that standard.
  • By employing FRAND terms, IP holders are in a position to negotiate cross-licenses with licensees, thereby strengthening their own patent portfolios.
  • Under anti-trust/anti-competition legislation in various countries and/or regions, IPR holders can be forced to license their exclusive patent rights under FRAND terms.
  • The terms of the licensing agreement are restricted by the FRAND limitations.
  • FRAND creates uncertainty – there is no universal guideline as to what FRAND means – every licensing deal should be dealt with separately.

  • FRAND terms provide licensees with the right to demand a license to essential patents – on condition that such patent(s) are essential to the standard.
  • Licensing under FRAND terms has a lower transaction cost than separate licensing.
  • One-stop shopping for licensees – by obtaining licenses to the essential patents of a standard, licensees avoid the time-consuming exercise of searching individual patents which might be infringed by the technology.
  • Decreased risk of infringement.
  • Cross licensing opportunity with IPR holder (if the licensee has essential patents of his own).
  • FRAND terms are uncertain/ambiguous – royalty rates are not clear and "fair and reasonable" is usually not defined.
  • Collusion by IPR holders, who are members of a patent pool or standard setting body, may easily appear.
  • IP holders may manipulate the standard setting process: they may wait for a wide adoption of the standard before disclosing their patent and then charging excessive royalty fees to those who employ the standard.
  • FRAND terms can be used to force a licensee to buy a patent that they don't really need.

  • Standards are open to all who can afford the FRAND terms.
  • Pooling patents and licensing them under FRAND terms can be welfare enhancing.
  • FRAND terms may impact fair trade by monopolizing the market and fixing prices.
  • Quantifying FRAND is very hard – the uncertainty of fair and reasonableness leaves the door open to disputes that are difficult to judge.


FRAND terms can act as a helpful measurement of strength in a fair and competitive market. It can guide participants into collaboration on terms and conditions mutually agreed upon, without adversely affecting third parties or society as a whole. A word of warning though: FRAND terms do not guarantee any specific outcome. The ultimate result of any license negotiations depends on the positions of the parties, market forces and the socio-political and economic environment in which the parties operate.


by Heidi Yeh - NAIP Legal Research

For both local and global pharmaceutical companies, the forthcoming amendments to the Taiwan Patent Act are of utmost importance as they will include substantial changes that will affect the biomedical industry in Taiwan. The Taiwan Intellectual Property Office (TIPO) has invested significant amounts of time in reviewing the current Patent Act and proposed amendments in an effort to bring Taiwan's patent laws in line with global trends. To hear industry opinions on the amendments, TIPO held a public hearing on February 25th, 2009.


In the first quarter of 2009 alone, three major pharmaceutical companies announced mergers with other major pharmaceutical or biotech companies. Pfizer announced on January 26th that it will buy Wyeth for $68 billion USD in cash and stock, making this the largest merger in value to have occurred in the past decade. Merck & Co. later announced on March 9th that it agreed to acquire rival Schering-Plough Corp. in a deal worth $41.1 billion USD. Then on March 12th, Roche announced that it is buying up just less than half (44%) of Genentech for $46.8 billion USD. This is the largest merger by value in Switzerland ever. The main reason for these mega-deals? Every one of these companies, including Pfizer, is facing the same predicament: the impending expiration of patents for major drug products.

The nature of biomedical patents is such that they provide extremely strong and complete market protection for IPR holders during the patent term. Only once a patent term expires may generic versions of a product enter the market. However, the duration of a biomedical patent term is not so easily determined. Generally, time-consuming phase I-III clinical trials are required before a drug product is even authorized to enter the market. These trials can easily last several years, significantly reducing the duration of the patent term in which the IPR holder may capitalize on the patent. As a result, regulations compensate by allowing the patent term for human drugs, antibiotics, or human biological products to be extended according to the delayed regulatory review time span.

In Taiwan, regulations on the sale of generic drugs currently exist only in the Pharmaceutical Affairs Act and provide only broad guidelines regarding the issue. Therefore the promulgated revised Taiwan Patent Act will include updated and more detailed regulations on the sale of generic drugs. To help clarify these new regulations in the revised Patent Act, TIPO held a public hearing on February 25th, 2009 to discuss the changes related to biomedical patents. Below is a summary of the highlights of the discussion.

Explanations of the amendments in Taiwan Patent Act Revision Draft (02/16/2009) are as follows:

Highlights of the Revised Draft of the Taiwan Patent Act
  1. To encourage research and investment, amendments have relaxed the requirements for extension of patent term requests. Currently, applying for patent term extension under the current Patent Act requires having had a minimum two-year delay in entering the market due to government approval procedures. In keeping with the concept of using patent term extensions to compensate for lost capitalization opportunities, the minimum two-year threshold will be eliminated.

  2. *Note: other countries such as Japan, Korea, the United States, Germany and the United Kingdom have no minimum delayed time period requirement.

  3. A pharmaceutical product, i.e. a drug or an agricultural product, may often have more than one application. However, to prevent abuse of the system—by continually applying for patent term extensions for different applications—an extension of patent term may now officially only be granted once and valid only for the application specified. For example, when an invention includes two claims, as an antiseptic and as an insecticide, if the patent term of the antiseptic is granted an extension with an agricultural permit, protection for the invention’s application as an insecticide may NOT be extended.

  4. Extension of patent terms may now no longer be accepted for veterinary drugs.

  5. Research on a generic drug does not violate the patent rights of the corresponding brand-name drug's IPR holder. In addition, so-called "listing trials" are not considered a form of research and not required for approval of a market license.

  6. In order to cope with international emergencies, or to make non-profit-seeking use of a patent for enhancement of public welfare for developing countries and least developed developing countries that may not manufacture drugs within their countries, the Patent Authority may, upon an application, grant a right of compulsory licensing to the applicant to put the patented invention into practice; provided that such practicing shall be restricted mainly to the purpose of satisfying the requirements of the specific market with limited quantities.

Of the proposed amendments, one of the most controversial has been the exemption of "research" on generic drugs from the scope of patent protection. Generic drug pharmaceutical companies prefer that their products enter the market as soon as possible; the international pharmaceutical companies, on the other hand, prefer to maximize their rights in all interpretations. The amended Patent Act attempts to compromise between the two parties by permitting research on generic drugs during the patent term, but excluding steps such as listing trials from the scope of "research". Yet listing trials, though not required for a market license, are generally required by hospitals to test the efficacy of the generic drugs. This effectively blocks the generic drug maker from the market until expiration of the patent.

During the public hearing, representatives from both sides expressed their comments and concerns. But due to the aforementioned reasons, the amendments related to biomedical products, and to which extent should the government explain them, still remain under debate.


TIPO has clearly stated that the main purpose of the amendments to the Patent Act are the elimination of the minimum two-year threshold, the clearer interpretation of the restrictions on extension of patent terms, adding compulsory licensing provisions, and introducing the concept of exemption on research for generic drugs. Although the wordings of the amendments were criticized at the hearing and requests for another hearing on the same subject matter have been made, TIPO has not yet announce a decision.


03/13/2009 IP News & Blog Round-Up

  • Forget Patent Trolls, we should be worrying about Troll Patents. - The term "patent troll" is now so toxic that even the man who coined the term prefers not to use it. The solution? Shift the definition to the patents. Will it catch on? (from Patently-O)
  • Who's scared of IPR in China? Well, Multinational Companies are. Of over 100 multinationals surveyed, nearly three-fourths cited IPR issues as a major concern. They have also noted "incremental" improvements in this aspect by the Chinese government, but with the economic downturn, whether that trend continues remains to be seen. The survey results can be found here. (from IP Dragon)
  • Here's why these companies are scared. A brief recount of a conversation between an American company and a law firm about how the company's entire million-dollar investment in China just upped and disappeared over night. And thanks to unwise practices, the American company has no legal recourse. Plus other stories about IPR theft in China. (from China Law Blog)
  • Study: free markets superior to patent monopolies. A fascinating study published by Science magazine in which an optimization/maximization experiment was assigned to students with two reward model: one analogous to the patent system, one to the free market. The results were close, but the Free Market model slightly edged the patent model for best results. The paper can be downloaded (account required) here. (from Ars Technica)


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