Need for Fair, Reasonable & Non-Discriminatory (FRAND) Approach on IPR issues

Need for Fair, Reasonable & Non-Discriminatory (FRAND) Approach in IPR Issues for Equitable Growth

Policy Discussion Paper for Agriculture, Biotechnology & Information Sector

By:

Vijay Sardana

Disclaimer: Views are personal.

Constitutions and global trade laws stress the need for a fair and equitable trading regime for all, the modern days’ technological approach is working against these principles. It is high time we must explore the options how to address these challenges and address the changing aspiration and desires of society and ensure fair and equitable opportunities for all.

It is important for the policymakers to ensure that there is fair and equal opportunity for all and no monopolistic power can disrupt these balances.

Reasonable and non-discriminatory terms (RAND), also known as fair, reasonable, and non-discriminatory terms (FRAND), denote a voluntary licensing commitment that standards organizations often request from the owner of an intellectual property right (usually a patent) that is, or may become, essential to practice a technical standard. WE should adopt the term FRAND, to ensure legal justice and facilitate court interpretations.

What is Fair Technology Policy?

According to competition laws and anti-trust laws, fair means terms which are not anti-competitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this fair commitment are:

1. Requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want or requiring licensees to take licenses to certain unwanted or unneeded patents to obtain licenses to other desired patents (bundling);

2. Requiring licensees to license their own IP to the licensor for free (free grant backs); and

3. Including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).

What is Reasonable Terms of Trade?

According to various court orders and legal provisions, the reasonable rate is a rate charged on licenses that would not result in an unreasonable aggregate rate if all licensees were charged a similar rate.

In absence of a reasonable approach, the aggregate rates would significantly increase the cost to the industry and consumers. This will make the local industry uncompetitive and will be unreasonable. At the same time, a reasonable licensing rate must reward the licensor with adequate compensation for contributing its essential patents to a standard. Compensation is adequate if it provides the licensor with the incentive to continue investing and contributing to the standard in future time periods.

It is worth noting that a licensor who has several different licensing packages might be tempted to have both reasonable and unreasonable packages.

Bundling of Royalty should also be reasonable:

However, having a reasonable "bundled" rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.

Non-discriminatory The approach is key for equitable development:

Non-discriminatory relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms can’t change dependent on the volume and creditworthiness of the licensee. However, it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors and to ensure that potential new entrants are free to enter the market on the same basis.

Role of Industry standard-setting body is key

It is the duty of the standard-setting body to look and useful technology and approve its use. A patent becomes standard-essential when a standard-setting organization sets a standard that adopts the technology that the patent covers. At the same time, it should be the duty of the standard-setting bodies to ensure that the approval process is not misused to create discrimination between industry members and create distortions in the market.

A standard-setting organization is an industry group that sets common standards for its particular industry to ensure compatibility and interoperability of devices manufactured by different companies. This applies in all technologically oriented industries like a seed, pharmaceutical as well as chemicals because most of these products are also covered under standard product laws.

How standard-setting bodies can ensure fair trade practices?

Most countries' legal regimes, grants its inventor an exclusive right to use the covered technology, a standard-setting organization generally must obtain permission from the patent holder to include a patented technology in its standard. Standard-setting bodies and approval bodies should request the patent holder to clarify its willingness to offer to license its standard-essential patents on FRAND terms. If the patent holder refuses upon request to license a patent that has become essential to a standard, then the standard-setting organization must exclude that technology from standard terms and all taxation and other subsidy support cannot be extended to such technologies. Such technologies should also attract extensive labelling requirements to ensure people are getting full information to make an informed choice.

When viewed in this light, the FRAND commitment serves to harmonize the private interests of patent holders and the public interests of standard-setting organizations.

Must develop National Technology Policy regime under FRAND Obligation:

It is high time that standard-setting organizations and approval authorities include the FRAND obligation in their bylaws primarily as a means of enhancing the pro-competitive character of their industry. The essential sectors like Agriculture, food, pharma and communication is becoming complex due to growing trade and exchange of information due to the internet.

Without a sensible technology policy regime, there is a tendency to exploit the market at the cost of social development and employment creation.

Why National Agriculture Technology Policy is important in the modern world?

There may be a tendency by patent holder in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property rights (IPR) included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone (wishing to access the standard), not necessarily only members of the organization. Without such commitment, members could use monopoly power inherent in a standard to impose unfairly, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position and in turn, may harm the balance development and social justice.

The inventor must get Royalty:

These are fair expectations and must be the incentive for others to contribute and at the same time keep the royalty cost reasonable to ensure social good. FRAND commitment also serves to ensure that the holder of a patent that becomes essential to the standard will receive royalties from users of the standard that adequately compensate the patent holder for the incremental value that its technology contributes to the standard. The development of a patented technology typically requires significant investment in research, and contributing that technology to a standard is not the only option by which a patent holder can recoup that investment and thus monetize its invention. For example, a patent holder has the option to monetize that invention through exclusive use or exclusive licensing. Technology owners might have insufficient incentives to contribute their technologies to a standard-setting organization without the promise of an adequate royalty. The promise of a FRAND royalty address that problem, the patent holder will typically agree to contribute its technology to the standard, thus forgoing the exclusive use or the exclusive licensing of its technology, in exchange for the assurance that it will receive adequate compensation in reasonable royalties.

This is high time that all policymakers must develop a balanced approach between social equity and technological innovation.

What should be the reasonable licensing price?

The most controversial issue in FRAND licensing is whether the "reasonable" license price should include the value contributed by the standard-setting organization's decision to adopt the standard. Technology is often more valuable after it has been widely adopted than when it is one alternative among many; there is a good argument that a license price that captures that additional value is not "reasonable" because it does not reflect the intrinsic value of the technology being licensed.

At the same time, the adoption of the standard may signal that the adopted technology is valuable, and the patent holder should be rewarded accordingly. That is particularly relevant when the value of the patent is not clearly known before the adoption of the standard.

Some interpretations of "non-discriminatory" can include time-oriented licensing terms such as an "early bird" license offered by a licensor were terms of a FRAND license is better for initial licensees or for licensees who sign a license within the first year of its availability.

In cases like agriculture and pharma, it should be based on per unit consumption with an option of reviewing the licensing condition every year so that one can understand the cost of technology for the whole country. High population countries may have the option to pay less because of huge cash outflow in the name of royalties. Let us take an example, cash outflow from a country with 1% technology fee or royalty for a The 10-million-hectare land country is at par with 10% technology fee for a country with One million hectares’ land under cultivation. That is why large area countries must be careful with technology policies in order to save national wealth and foreign exchange outflow.

There can be a proper formula that can be developed. This will help even the small companies with less bargaining power to get the technology at a reasonable price and will improve better and equitable distribution of resources and technology.

It is like in telecom services. More the use, lesser the per unit charge. This will ensure reasonable and better technology adoption should also be faster and at a low cost.

Conditions related to Licenses and Agreements

Conditions related to FRAND licenses can be FRAND-Z (FRAND with zero royalty) or FRAND-RF (FRAND Royalty Free) licensing, in which a company promises to license the technology at no charge, but implementers still have to get the licenser's permission to implement or trade the product made out of these technologies like trading of corn produced out of GM technology. The licenser may not make money off the deal but can still stop some type of products from the trade or require some type of reciprocity or payments or do subtle things like an exclusive inspection at a high fee, distribution rights of the products from technology or drag out the licensing process. Such practices should also be part of policy note.

This form of discrimination can be similarly caused by common license terms such as only applying to complete implementations of the licensed standard, limiting use to particular fields, or restricting redistribution, these are inherently discriminatory.

While developing a Technology Policy Regime, policymakers should be careful while making these laws. These should simple so that there is no issue of misinterpretation or tendency to create external linkages by anyone.

The Way Forward:

Technology can act as a major disruptor and have a tendency to create a serious divide between haves and have-nots. Policy makers must ensure that technology should be available to all stakeholders as per the Need and licensing system should be Fair, Reasonable, and Non-Discriminatory (FRAND) for Equitable Growth.

Feel free to contact me for further discussion and do share your feedback as well.

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