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Rarely must patent infringers demand their right to pay
royalties. But several multinational manufacturers have gone to
court to insist that they – and not other participants in the
supply chain – make payment of any patent royalties. From a
contractual perspective, judicial analysis of such claims has
focused on the non-discrimination prong of the fair, reasonable,
and non-discriminatory (“FRAND”) patent licensing
commitment. In other words, some manufacturers have argued, and
some courts and administrative agencies have agreed, that a
patentee’s refusal to provide FRAND licenses at all levels of
the supply chain constitutes discrimination and, as such, violates
the patentee’s contractual obligation to license their patents
in a nondiscriminatory manner.1 This Essay argues that
such claims are misplaced – the principle of
nondiscrimination provides no easy framework for analyzing such
selective licensing of the supply chain. Rather, such questions
must be examined through the more complex empirical, legal, and
economic factors in specific circumstances.
I. Standards & Supply Chains
Patentees most often make FRAND commitments in the context of
technological standard-setting. To take a common example, firms may
hold patents that are “essential” for the implementation
of cellular telecommunication standards. Manufacturers will not
produce equipment for such telecommunication standards unless they
can be sure of obtaining a license to such patents. On the other
hand, patentees want to be sure they obtain fair compensation for
their efforts in the research and development of the standard.
Industry has typically tried to balance these conflicting interests
by requiring patentees to license their standard-essential patents
(often abbreviated as SEPs) pursuant to terms that are “fair,
reasonable and non-discriminatory”.2
But supply chains for the manufacture of standard-compliant
equipment are often complex, and can involve several levels of
manufacturing and integration.3 Current legal doctrine
provides that patentees can only require a license from a single
firm in such chains of manufacture, and that firms positioned later
in the chain do not need additional licenses.4 As such,
patentees must choose upon which element of the supply chain to
bestow their licensing grace – and patentees have often
chosen to maximize licensing revenue by choosing the last link of
the chain. Patentees have reasoned that end manufacturers (often
referred to as original equipment manufacturers or OEMs) sell their
products at the highest price and, as such, are best placed to
reward the patentee with the highest royalty
payments.5
Firms in intermediate positions in the supply chain have
attacked the choice of FRAND-committed patentees to license only
the final, OEM entity. Debates over such practices have looked at
their economic impact, as well as possible alternative arrangements
in which the patentee neither snubs the intermediate manufacturers
nor provides an actual license.6 Courts and commentators
have also asked the more factual questions of whether intermediate
components actually infringe FRAND-encumbered patents, and whether
the language of any specific FRAND commitment addresses
intermediate components.7 In practice, however, courts
have defaulted to the perhaps simpler argument that ignoring
intermediate manufacturers violates the contractual FRAND
nondiscrimination commitment – that a patentee discriminates
against intermediate supply links when it refuses to license those
firms. This Essay argues, however, that the principle of
nondiscrimination provides no easy response to the demand for
component-level licensing, and that nondiscrimination cannot be
used as a simple proxy to elide analysis of the more complex
economic, legal and factual questions.
II. Nondiscrimination
Caselaw has used the nondiscrimination prong of the FRAND
commitment to require the licensing of SEPs at all levels of the
supply chain. For example, in the recent case of FTC v. Qualcomm,
the Federal Trade Commission (FTC) asserted that Qualcomm was
required to license its patents covering wireless
telecommunications standards to all levels of the supply
chain.8 Qualcomm, in contrast, argued that its FRAND
commitments extended “only to device suppliers and not modem
chip suppliers”, the latter occupying a different rung on the
supply chain.9 The district court dismissed
Qualcomm’s position, asserting that these distinctions along
the supply chain violated Qualcomm’s FRAND non-discrimination
obligations.10 The court further held that
Qualcomm’s refusal to grant licenses to all entities in the
supply chain constituted “an example of discriminatory
conduct.”11 However, aside from summary statements
that Qualcomm’s alleged discrimination against modem chip
suppliers would have allowed Qualcomm to “achieve a
monopoly” and “limit competing implementations,” the
court did not actually examine whether this interpretation of the
nondiscrimination commitment would indeed quash economic
inequalities in the royalty burdens borne by modem chip
suppliers.12
The Qualcomm interpretation of the nondiscrimination
commitment was quickly brandished by plaintiffs in the recent case
of Continental v. Avanci.13 Avanci is a patent
pool that provides licenses to cellular standards for use in
automotive vehicles.14 Avanci generally restricts the
grant of FRAND licenses to automotive original equipment
manufacturers (OEMs) – the final link in the automotive
supply chain – and does not grant FRAND licenses to
intermediate component manufacturers.15 Continental, a
supplier of components to automotive OEMs, argued that this
practice breached contractual FRAND commitments and violated
antitrust law. Specifically, the plaintiff argued that in refusing
to license intermediate component suppliers, Avanci (and its
members) discriminated between potential licensees and violated the
contractual nondiscrimination requirement of the FRAND
commitment.16
The court in Innovatio IP Ventures used similar logic
in establishing FRAND royalties.17 In that case, the
plaintiff brought a patent infringement suit against a wide range
of commercial end users of the Wi-Fi technology standard. The
plaintiff argued that any FRAND royalty awarded by the court should
be calculated as a percentage of the value of the end use product
that included wireless functionality, such as “laptops, tablet
computers, printers” and wireless “access
points.”18 The court, however, held rather that the
royalty rate should rather be based on the value of an intermediate
component – the wireless chip incorporated within the end
products – that actually provided the infringing wireless
functionality.19 The court reasoned that this focus on
the value of the smaller semiconductor component would serve the
FRAND goal of non-discrimination, since the resulting FRAND royalty
rate would be identical for all end products that incorporated the
wireless chip.20 While the court was not called upon to
determine whether a FRAND commitment required a patentee to provide
component-level licensing, the court did make the economically
similar holding that the FRAND nondiscrimination requirement
required the calculation of royalties to be made at the level of
those components.21
The nondiscrimination requirement has also been employed by
standards organizations looking to include component-level
licensing requirements within the organization’s intellectual
property policy. For example, in 2015 the Institute of Electrical
and Electronic Engineers (IEEE) implemented changes to its patent
policy which expressly required SEP holders to commit to licensing
“components” and “sub-assemblies” of
products.22 As a result of these changes, SEP holders
subject to the IEEE patent policy may not limit FRAND licenses to
the end user product, but must also provide FRAND licenses at
intermediate points along the supply chain. 23 The IEEE
justified the change requiring component-level licensing by noting
that the new language provided “greater clarity on
discrimination”, by making clear that any implementer along
the supply chain could “invoke the benefits” of the FRAND
commitment.24
III. Discrimination and Differences
The consequences of employing the principle of nondiscrimination
to require component-level licensing are not clear. First,
demanding that patentees license all levels of the supply chain is
unlikely to result in all intermediate manufacturers paying
identical royalties. The limited United States case law on point
has held that FRAND royalty rates need not be indistinguishable
across licensees.25 Similarly, scholarship has generally
agreed that the non-discrimination requirement does not demand that
all manufacturers be subject to identical royalty
payments.26 Some commentators have further argued that
imposing identical FRAND royalty payment obligations on all
manufacturers could itself be unfair.27
Indeed, component manufacturers can themselves be expected to
advocate for differential royalty terms and structures. Each
manufacturer comes with its own unique risk preferences and
particular costs of capital and production.28 Those
manufacturers with more cash on hand may appeal for higher up-front
payments, while manufacturers in a cash crunch may seek to delay
payments by structuring royalties as a percentage of sales. Other
manufacturers may be able to reduce their royalty payments by
providing some consideration in the form of cross-licenses of their
own intellectual property. Given these differences between the
royalty structures that manufacturers are able to bear and the
consideration they are able to pay, each individual manufacturer is
likely to press for tweaks in the FRAND royalty structure.
In an ironic contrast, limiting FRAND licensing to the end
device level will often mean the application of identical royalty
amounts and structures to all standard-implementing intermediate
components. End device licenses generally do not distinguish
between the various manufacturers of the components included in
that end device.29 For example, FRAND licenses that are
publicly available30 generally impose identical
royalties on all products that implement an SEP, without
distinguishing between the origin of the components within the
product.31 Court-determined FRAND license agreements
have adopted language similar to industry-negotiated contracts, and
also calculate royalties based on whether a product has infringed
an SEP, without discriminating between the various manufacturers of
a product.32 The Ninth Circuit in the Qualcomm court
itself noted that Qualcomm’s FRAND licenses were “chip
supplier neutral”—in that the royalties payable by end
device manufacturers were independent “of which company they
choose to source their chips from.”33
In sum, current industry practices suggest that requiring
patentees to license intermediate component manufacturers will not
eliminate inequalities in the economic licensing burden borne by
such manufacturers. Rather, requiring the licensing of intermediate
levels of the supply chain can be expected to result in a broader
range of royalties and other arrangements for component
manufacturers, as both sides of the FRAND licenses jockey for
commercial advantage in each separate licensing transaction. In
other words, demanding component-level licensing may limit a
theoretical form of vertical discrimination between levels of the
supply chain, but it also risks an increase in horizontal
discrimination between firms situated in the same position within
the supply chain.
IV. Discrimination and Disadvantage
Much of the likely impact of component level licensing,
including the practical effect that component-level licensing will
have on differential licensing terms, has perhaps been obscured by
the identities of the current parties to these disputes. In the
telecommunications industry, for example, advocates for
component-level licenses have often been large semiconductor chip
manufacturers and larger end device producers.34
Similarly, in the automotive field, supporters of component
licensing have generally been large Tier 1 automotive
suppliers.35 In both situations, proponents of
component-licensing requirements have been well-capitalized
companies with worldwide footprints. Smaller and less sophisticated
companies have largely been absent from the judicial debates.
Given that smaller firms have fewer resources to participate in
transnational patent litigation, this judicial focus on large
industry participants is unsurprising. However, the consequences of
component-level licensing requirements are unlikely to be limited
to only the largest and most sophisticated elements of the supply
chain. For example, in the automotive field, industry practice has
generally required all suppliers to deliver components free of all
intellectual property infringement claims – in other words,
each automotive supplier has been responsible for obtaining patent
licenses for the components that it supplies.36 However,
to the extent that patentees have only offered FRAND licenses to
original equipment manufacturers, such licenses simply have not
been available to the smaller companies populating the lower levels
of the supply chain. However, if FRAND licenses must be provided to
all links in the supply chain, then automotive suppliers are likely
to follow industry practice in requiring all such links –
including the smallest chipset suppliers – to themselves
obtain the FRAND licenses and make payment of FRAND royalties.
Smaller chipset companies, however, will generally be at a
disadvantage in negotiating FRAND license agreements. For example,
smaller firms will generally have less negotiating leverage, will
be less able to afford sophisticated legal counsel, and may have
less visibility into the royalty payments made by other industry
participants.37 Moreover, such firms will generally have
smaller patent portfolios and, as such, will be less able to lower
their FRAND licensing burden through cross-licensing their own
intellectual property.38 As such, there is no guarantee
that demanding intermediate level licensing will serve the goal of
nondiscrimination between component suppliers. Rather, such a
requirement could instead reinforce the disadvantages of smaller
firms and increase inequities in those markets.
V. Conclusion
Notwithstanding the ongoing debate regarding the practical
interpretation of the FRAND nondiscrimination commitment, there
remains less controversy regarding its substantive goals –
the commitment generally serves as a pledge not to distort market
competition, and as a bulwark against charging unreasonable
royalties.39 But there is less consensus when the
nondiscrimination principle is applied between firms at different
positions on the supply chain. Instead, in the context of
component-level licensing, the application of the nondiscrimination
commitment devolves into a debate regarding the principle’s
substantive objectives. In what sense is it unreasonable to charge
differential royalty rates between products that provide different
end uses? 40 How does nondiscrimination prevent the distortion of
competition between two firms that in any event do not directly
compete?41 Given these debates, the FRAND
nondiscrimination commitment should not be used as a proxy to
obscure the underlying substantive controversies. Rather, any
examination of component-level licensing requirements must look
instead to the practical consequences of such licensing
obligations, and the normative objectives they are intended to
achieve in the specific circumstances of each situation.
Footnotes
* Partner, Yigal Arnon & Co.,
Jerusalem, Israel; J.D., Yale Law School; M.S., Columbia
University; Adjunct Faculty, Herziliya Interdisciplinary
Center.
1. See infra text accompanying
notes 8–24.
2. See generally Mark A. Lemley
& Carl Shapiro, A Simple Approach to Setting Reasonable
Royalties for Standard-Essential Patents, 28 Berkeley Tech.
L.J., 1135, 1137 (2013).
3. For example, questions of
intermediate-level licensing have arisen with respect to the
automotive supply chain. See, e.g., Cont’l Auto. Sys.
v. Avanci, LLC, 2019 U.S. Dist. LEXIS 214608 (N.D. Cal. Dec. 11,
2019) (summarizing plaintiff’s claims that the Avanci patent
pool and its members only offered licenses to “manufacturers
at the very end of a supply chain, like car OEMs”). For a
description of the complexity of the automotive supply chain, see
Omri Ben-Shahar & James J. White, Boilerplate and Economic
Power in Auto Manufacturing Contracts, 104 Mich. L. Rev. 953,
955–56 (2006).
4. See Jorge L. Contreras &
Anne Layne-Farrar, Non-Discrimination and FRAND
Commitments, in I The Cambridge Handbook of Technical
Standardization Law: Competition, Antitrust and Patents 201 (Jorge
Contreras, ed., 2018) (noting that “once a license is granted
to any link in the supply chain, the patent holder could be
prevented . . . from suing or extracting any royalties from any
subsequent downstream purchaser”).
5. Id. (asserting that licensing
at the end of the supply chain allows a patentee to “receive a
royalty based on the relatively higher end product
price”).
6. See, e.g., Damien Geradin,
SEP Licensing After Two Decades of Legal Wrangling: Some Issues
Solved, Many Still to Address, Competition Pol’y.
Int’l (Mar. 24, 2020),
https://www.competitionpolicyinternational.com/sep-licensing-after-two-decades-of-legal-wrangling-some-issues-solved-many-still-to-address/
[https://perma.cc/FE3J-VGL7] (discussing the different positions on
component-level licensing requirements); Jorge Padilla & Koren
W. Wong-Ervin, Portfolio Licensing to Makers of Downstream
End-User Devices: Analyzing Refusals to License FRAND-Assured
Standard-Essential Patents at the Component Level, 62
Antitrust Bull. 494, 500 (2017) (analyzing whether refusals to
provide component-level licenses should constitute an antitrust
violation); Anne Layne-Farrar & Richard J. Stark, License
to All or Access to All? A Law and Economics Assessment of Standard
Development 2 Organizations’ Licensing Rules, Geo. Wash.
L. Rev. (forthcoming 2020),
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3612954#
[https://perma.cc/N7SK-PF5C] (analyzing whether “all entities
in the chain of production require licenses to SEP . . .
.”).
7. See generally Layne-Farrar
& Stark, supra note 6.
8. FTC v. Qualcomm Inc., 2018 U.S. Dist.
LEXIS 190051 (S.D. Cal. Nov. 6, 2018). The Qualcomm decision was
vacated on appeal by the Ninth Circuit. The appeals court did not
examine the merits of the district court decision, but rather held
that district court’s contractual interpretation of the FRAND
commitment was moot given the appellate courts reversal on matters
of antitrust law. Fed. Trade Comm’n v. Qualcomm Inc., 969
F.3d 974, 1005 (9th Cir. 2020). Competition agencies in several
other countries have opened similar investigations. See
Padilla & Wong-Ervin, supra note 6, at 495.
9. Qualcomm, 2018 U.S.
Dist. LEXIS 190051, at *45.
10. Id. Beyond the
ambiguous commitment to “nondiscrimination”, the texts of
the specific FRAND commitments at issue in Qualcomm did
not contain any express component-level licensing requirements. At
least one other standard-setting organization has made clear that
its own FRAND commitments do require component-level licensing.
See infra text accompanying notes 21–23 (describing
changes to the IEEE patent policy). The interpretation of the texts
of other FRAND commitments may be highly contested.
Compare Karl Heinz Rosenbrock, Why the ETSI IPR Policy
Requires Licensing to All (2017),
https://www.fair-standards.org/wp-content/uploads/2017/08/Why-the-ETSI-IPR-Policy-Requires-Licensing-to-All_Karl-Heinz-Rosenbrock_2017.pdf
[https://perma.cc/7XB3-6GES], with Bertram Huber, Why the
ETSI IPR Policy Does Not and Has Never Required Compulsory
“License to All”: A Rebuttal to Karl Heinz Rosenbrock
(2017), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3038447
[https://perma.cc/RW25-A54X].
11. Qualcomm, 2018 U.S.
Dist. LEXIS 190051, at *40.
12. Id. at *41. Aside from the
question of nondiscrimination, the Qualcomm parties advanced other
arguments regarding the interpretation of the FRAND commitments at
issue, including whether such commitments demanded the provision of
FRAND licenses for device components that did not implement an
entire standard. Id. at *45–46. Such arguments are
beyond the scope of this article.
13. Cont’l Auto. Sys. v. Avanci,
2020 U.S. Dist. LEXIS 173799 (N.D. Tex. Sept. 10, 2020).
14. For a general description of
Avanci’s business, see Business Review Letter from Makan
Delrahim, Assistant Att’y Gen., U.S. Dep’t Just. to Mark H.
Hamer, Counsel for Avanci LLC, Baker McKenzie (July 28, 2020),
https://www.justice.gov/atr/page/file/1298626/download
[https://perma.cc/KM9U-DSPU].
15. Id. at 18 (noting that
Avanci generally limits its licensing to “connected vehicles
and not other components in the supply chain, such as telematics
units . . .”). See also Cont’l Auto. Sys. v.
Avanci, LLC, 2019 U.S. Dist. LEXIS 214608, at *8 (N.D. Cal. Dec.
11, 2019) (summarizing plaintiff’s assertions that Avanci
members restricted the patent pool to licensing only the “very
end of a supply chain”).
16. Complaint at ¶ 13–14,
Cont’l Auto. Sys., Inc. v. Avanci, LLC, No. 5:19-cv-02520 (N.D.
Cal. May 10, 2019) (asserting that a policy against licensing
standards to “categories of implementers” violates FRAND
nondiscrimination requirements); id. at ¶ 146
(asserting that defendants’ policy against component-level
licensing violates the FRAND requirement to grant licenses to
“all users of [cellular] standards.”). The district court
declined to exercise jurisdiction over the state-law contractual
claims against Avanci, after holding that such allegations of
discrimination did not raise claims under the federal antitrust
laws. Cont’l Auto. Sys., 2020 U.S. Dist. LEXIS 173799, at
*36–37. Continental’s antitrust and unfair competition
claims against Avanci are beyond the scope of this article. Similar
complaints regarding the automotive industry have been filed in
German courts and with the European Union Directorate-General for
Competition. See generally Geradin, supra note
6.
17. In re Innovatio IP Ventures,
LLC, 2013 U.S. Dist. LEXIS 144061 (N.D. Ill. Oct. 3, 2013).
18. Id. at *74.
19. Id. at *164.
20. Id. (noting that FRAND
licensors “cannot discriminate between licensees on the basis
of their position in the market”).
21. It is unclear whether
Innovatio had also licensed intermediate chipset
manufacturers or only pursued OEMs. The court noted testimony that
“three major Wi-Fi chip manufacturers” were licensed
under Innovatio‘s patents. Id. at *164.
However, some commentators have asserted that such licenses were
actually cross-licenses entered into by the prior owner of the
patents. See David J. Teece & Edward F. Sherry, A
Public Policy Evaluation of RAND Decisions in the U.S. Courts,
1 Criterion J. Innovation 113, 149 n.230 (2016).
22. IEEE Standards Board Bylaws §
6.1 (2019),
https://standards.ieee.org/content/dam/ieee-standards/standards/web/documents/other/sb_bylaws.pdf
[https://perma.cc/2SLR-7TQ7] (defining a “Compliant
Implementation”, to which an SEP holder must grant a license
pursuant to the Bylaws, as including a “component,
sub-assembly, or end-product”).
23. At least one court found that an
earlier version of the IEEE patent policy did not require
component-level licensing. See, Ericsson Inc. v. D-Link
Sys., 2013 U.S. Dist. LEXIS 110585, at *80–82 (E.D. Tex. Aug.
6, 2013), aff’d in part, rev’d in part, 773 F.3d
1201 (Fed. Cir. 2014). The court’s holding was in part based on
the fact that Ericsson had made clear within its contractual FRAND
commitment that it would not provide component-level licensing, and
in part on the similar policies of other patentees to only license
end products. These issues were not addressed on
appeal.
24. Letter from Michael A. Lindsay, Esq.,
Dorsey & Whitney LLP, to Hon. William J. Baer, Assistant
Att’y Gen., U.S. Dep’t Just., (Sept. 30, 2014),
http://www.justice.gov/atr/public/busreview/request-letters/31
1483.pdf [https://perma.cc/74MM-QTMS] (requesting a Business Review
Letter on the new IEEE policy from the United States Department of
Justice).
25. TCL Commc’n. Tech. Holdings, Ltd.
v. Telefonaktiebolaget LM Ericsson, 2017 U.S. Dist. LEXIS 214003,
at *177 (C.D. Cal. Nov. 8, 2017), rev’d in part, vacated in
part, 943 F.3d 1360 (Fed. Cir. 2019) (holding that
“different rates offered to different licensees may well be
FRAND given the economics of the specific license”); St.
Lawrence Commc’ns. LLC v. Motorola Mobility LLC, 2018 U.S.
Dist. LEXIS 25229, at *20 (E.D. Tex. Feb. 15, 2018) (holding that a
patentee does not engage in patent misuse “by negotiating
different rates and terms for different licensees when presented
with different circumstances”); In re Certain
Wireless Devices with 3G Capabilities and Components Thereof, Inv.
No. 337-TA-800, USITC Pub. 4475 (June 2014) (final), 432 (“The
FRAND nondiscrimination requirement . . . does not require uniform
treatment across licensees, nor does it require the same terms for
every manufacturer or competitor.”).
26. Daniel A. Crane, Patent Pools,
RAND Commitments, and the Problematics of Price
Discrimination, in Working Within the Boundaries of
Intellectual Property: Innovation Policy for the Knowledge Society
371, 373 (Rochelle C. Dreyfuss et al. eds. 2010); Richard J.
Gilbert, Deal or No Deal? Licensing Negotiations in Standard
Setting Organizations, 77 Antitrust L.J. 855, 875 (2011)
(asserting that “non-discrimination . . . does not have to be
interpreted rigidly”).
27. See, e.g., Gilbert,
supra note 26, at 875 (arguing that requiring the payment
of identical lump sum patent fees could discriminate against firms
with low output).
28. See, e.g., Kimble
v. Marvel Ent., LLC, 576 U.S. 446, 453 (2015) (noting that extended
royalty payments at a lower rate “may bring the price the
patent holder seeks within the range of a cash-strapped
licensee” or “better allocate the risks and rewards”
between the parties); Lucent Techs., Inc. v. Gateway, Inc., 580
F.3d 1301, 1326 (Fed. Cir. 2009) (discussing how royalty structures
differ depending on the risk preferences of the parties).
29. Padilla & Wong-Ervin,
supra note 6, at 506 (asserting that most SEP holders
“offer FRAND terms to downstream manufacturers irrespective of
the supplier of their components”).
30. Unfortunately, many FRAND licenses
remain confidential and are not made publicly available.
Scholarship has criticized such confidential treatment as
facilitating violations of the FRAND nondiscrimination commitment.
See Mark R. Patterson, Confidentiality in Patent
Dispute Resolution: Antitrust Implications, 93 Wash. L. Rev.
827, 832 (2018) (noting the FRAND problems with confidentiality
terms that make “it difficult for participants in these
markets to determine the license terms that have been granted to
others”).
31. Norman V. Siebrasse & Thomas F.
Cotter, Judicially Determined FRAND Royalties, in
Cambridge Handbook of Technical Standardization Law: Antitrust and
Patents 366, 376 (Jorge L. Contreras ed. 2017) (noting that
“many real world licenses use the end product as the royalty
base”). Similarly, template agreements made available by
patent pools that license SEPs typically use the end product as the
royalty base. For example, the template AVC Patent Portfolio
License of the MPEG-LA patent pools calculates royalties on end
products based on whether such products encode or decode videos
that used the AVC video standard. See AVC Patent Portfolio
License, § 3.1 (providing that royalties are payable on
products incorporating an “AVC Encoder,” “AVC
Decoder” or “AVC Codec”).
32. In TCL v. Ericsson, the
district court issued an injunction that essentially imposed a
detailed license agreement with running royalties between the
parties. The injunction stated that TCL would pay royalties on all
“End User Terminals” compliant with certain wireless
standards. TCL Commc’n. Tech. Holdings, Ltd. v.
Telefonaktiebolaget LM Ericsson, 2017 U.S. Dist. LEXIS 214003, at
*177 (C.D. Cal. Nov. 8, 2017), rev’d in part, vacated in
part, 943 F.3d 1360 (Fed. Cir. 2019). The identity of
the manufacturers of the components included in the End User
Terminals was irrelevant to the calculation of the royalties.
Similarly, in the Unwired Planet decision in England, the High
Court imposed a patent license agreement which provided that Huawei
would make payment of ongoing royalties on “End User
Devices” compliant with wireless standards, again without
distinguishing between the origin of the components of those
devices. See Unwired Planet Int’l Ltd. v. Huawei Tech.
Co. Ltd. [2017] EWHC 3083 (Pat).
33. FTC v. Qualcomm Inc., 969 F.3d 974,
985 (9th Cir. 2020).
34. In the Qualcomm decision,
the district court’s analysis of Qualcomm’s refusal to
license intermediate-level manufacturers focused on the harm to
several “rival modem chip suppliers”, all of which were
large multinational companies. FTC v. Qualcomm Inc., 411 F. Supp.
3d 658, 744–51 (N.D. Cal. 2019).
35. The litigation between Continental
and Avanci, for example, does not involve lower Tier 2 or Tier 3
automotive suppliers.
36. Geradin, supra note 6
(“[V]ehicle manufacturers expect their parts to be free of
third party rights.”).
37. Patterson, supra note 30, at
864 (asserting that in FRAND licensing, differential pricing could
be the result of “lack of access to royalty information”
or the ‘parties’ relative bargaining power”).
38. See, e.g., Mark A.
Lemley & Carl Shapiro, A Simple Approach to Setting
Reasonable Royalties for Standard-Essential Patents, 28
Berkeley Tech. L.J. 1135, 1141 (2013) (asserting that a
cross-license can be an “alternative licensing
arrangement” permitted under FRAND); Carl Shapiro,
Navigating the Patent Thicket: Cross Licenses, Patent Pools,
and Standard Setting, 1 Innovation Pol’y & Econ. 119,
133 (2000) (noting that cross-license arrangement can
“represent efforts by powerful firms to . . . make it more
difficult for upstarts to challenge” their dominance); see
also FOSS Patents, Huawei’s automotive component-level
patent license deal with Sharp reduces Daimler’s
injunction-related exposure by 86%, July 24, 2020 (speculating
that, in contrast to other implementers, Huawei was able to obtain
a component-level licensing agreement from Sharp, since
Huawei’s patent portfolio constituted a strong “bargaining
chip”); Teece & Sherry, supra note 24
(speculating that certain chipset manufacturers may have obtained
cross-licenses to Innovatio’s patents).
39. See, e.g., Contreras &
Layne-Farrar, supra note 4, at 188–89 (discussing
rationales for FRAND nondiscrimination requirements).
40. Eli Greenbaum, Nondiscrimination
in 5G Standards, 94 Notre Dame L. Rev. Online 55 (2019),
https://scholarship.law.nd.edu/ndlr_online/vol94/iss2/1/
[https://perma.cc/S262-89AD] (discussing debates regarding charging
differential FRAND royalty rates for different uses).
41. Layne-Farrar & Stark,
supra note 6 (discussing the application of antitrust law
to component-level licensing requirements).
Originally published by Illinois Law Review.
The content of this article is intended to provide a general
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