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31 July 2017

Standards essential and mandatory licensing – on what terms?

At the beginning of April 2017 the High Court handed down judgment in a FRAND case concerning telecommunications standards (Unwired Planet International Ltd v. (1) Huawei Technologies Co. Ltd and (2) Huawei Technologies (UK) Co. Ltd (Unwired Planet LLC, Tenth Party) [2017] E.W.H.C,
711 (Pat), Birss J.). This is the first UK judgment to tackle the issue of how patent owners who have patents which are essential to a standard, which everyone must follow, are expected to behave.

The ethos, arising from the law of competition, that no person in a dominant position may abuse that position, is that since these patent owners have more market power (because they are essentially gatekeepers to a bottleneck) then that additional market power arising over and above the market power which all patent owners have is not one which the patent owner is allowed to take advantage of. In order to ensure this, the patent owner must allow access to his technology – he has no choice.

There are a multitude of cases which deal with the situation where a person derives power from being in charge of an essential facility which is difficult or impossible to replicate for any number of reasons such as barriers which are physical, legal, economic, financial, economic or regulatory. Indeed the earliest competition case in the world concerned tolls chargeable at railway bridges or other means of access by rail to St Louis in the US. The similarity to patent cases where standards are involved is not difficult to see. In such situations the law of competition says that access must be permitted but not so that the licensee free-rides; he must pay something. How is that fee to be calculated? The first set of general rules for calculating the fee derive from an assumption that the parties have equal bargaining power in a situation which would attain but for the bottleneck in question, that each term of the access licence must stand to reason and that all potential licensees of sufficient standing are entertained by the licensor. In other words the licence terms which must exist are those which would have been negotiated fairly, standing to (objectively justifiable) reason and that there has been no unjustified discrimination against any particular licensee. Of course these rules quickly fall into disarray when one considers reality. For instance no licence ought to be granted where there is clear evidence that the licensee is teetering on the verge of insolvency or where resources are scarce or limited (as one might find in a harbour for instance) and have already been allocated. Hence the acronym FRAND or fair, reasonable and non discriminatory.

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