Baseball has the Best Rules: Using Arbitration to Solve FRAND Disputes
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How to calculate Fair, Reasonable and Nondiscriminatory (FRAND) royalties seems like one of the most intractable problems firms, standard setting organizations and the courts are grappling with. No wonder, there is sparse authority and relatively few litigated cases.
Two of the most thoughtful scholars on antitrust intellectual property issues — Professors Mark Lemley and Carl Shapiro — have weighed in and issued a paper outlining an interesting solution to the FRAND licensing problem and it provides a clarion call for how to grapple with the problem.
The FRAND licensing problem seems complex: When a standard setting organization (SSO) creates a technology standard that includes patented technologies they will require the patentees to agree to license those patents on FRAND terms. The problem is that FRAND is poorly defined. This can result in abuses by both patentees and potentially licensees, and ultimately result in drawn out court battles where judges have to determine what the FRAND rate actually is. The stakes for these court battles are high, creating an incentive for firms to battle from the extremes — to build a case for an extremely high rate or an extremely low rate knowing that a judge will pick something in between.
Lemley and Shapiro provide a simple and thoughtful approach by suggesting that SSOs require binding baseball-style arbitration as a part of FRAND commitments. In baseball-style arbitration each party presents one number and the arbitrator is only tasked with choosing which number is a more accurate representation of the FRAND licensing rate.
Read original articleTags: Carl Shapiro, FRAND, standard setting organizations
