The non-discriminatory (ND) limb of FRAND does not mean every licensee is entitled to the same rate, even for similarly situated competitors.
In 2017, the UK High Court in Unwired Planet v Huawei held that the non-discrimination (ND) limb of FRAND is not “hard-edged”, meaning a licensee can’t challenge an existing license merely because another similarly-situated licensee was granted a licence at a lower rate. The judge, Mr Justice Birss, explained that competition law doesn’t prohibit different prices being charged to different customers.
The background is that Samsung, which was a co-defendant in the same case, had settled shortly before trial, when Unwired Planet was financially distressed and had just been acquired by a third party. Given the circumstances, the parties had negotiated a licence at a much lower rate.
Mr Justice Birss observed insightfully that the notion of ‘hard-edged’ non-discrimination would be a factor that individual licensees could use to reduce a royalty rate which would otherwise have been regarded as FRAND. He helpfully explained this as follows:
“In that sense it is useful to characterise a royalty rate as FRAND rather than try to distinguish between something which is merely fair and reasonable as opposed to fair, reasonable and non-discriminatory. The argument about non-discrimination treated it as a concept which would apply to reduce a royalty rate even if that rate was otherwise “FR”.”
The case went to appeal and in 2018, the UK Court of Appeal, agreed with the lower court that the ND limb of FRAND is NOT hard-edged, accepting that differential pricing is not objectionable in its own right. Rather, an effects-based approach to non-discrimination is more appropriate. The court explained:
“Once the hold-up effect is dealt with by ensuring that the licence is available at a rate which does not exceed that which is fair and reasonable, it is difficult to see any purpose in preventing the patentee from charging less than the licence is worth if it chooses to do so.”
The UK Court of Appeal went on to say that a hard-edged non-discrimination rule has the potential to harm the technological development of standards if it has the effect of compelling the SEP owner to accept a level of compensation for the use of its invention which does not reflect the value of the licensed technology.
The Court of Appeal also found that a hard-edged approach would give unwarranted primacy to the ND limb, because a licence granted at a lower rate, no matter how low, would always trump the benchmark fair and reasonable rate. It would not be dissimilar to a “most-favoured licensee clause”.
More recently, in May 2020, in the case of Sisvel v Haier the German Federal Court of Justice also found that discrimination is not hard-edged. An offer to a licensee at a higher rate than that paid by another licensee is not necessarily discriminatory. An issue at the heart of that case was that Sisvel offered a lower rate to a Chinese consumer electronics maker. The presiding judge, Peter Meier-Beck, acknowledged that Sisvel was under pressure from the Chinese government to offer a lower rate, and that Sisvel was not obliged to offer a similar rate to Haier.
Drawing from Mr Justice Birss’s ruling in Unwired Planet v Huawei, the Federal Court of Justice’s written justification says implementers must actively engage in fair, reasonable and non-discriminatory (FRAND) negotiations and accept a FRAND offer from the licence holder, even if a lower FRAND rate has been offered to a competitor.
The bottom line of all this is that different licensees can end up paying different rates without it being discriminatory under FRAND.