Delaware Court is Asked to Define “FRAND” — And Another Reason to Call for Ex Ante

As I've often noted before (see, for example, Microsoft, Adobe and the Murky World of "RAND" ), the exact meaning of the simple phrase "reasonable and non-discriminatory" is anything but universally acknowledged.  This leaves plenty of room for game playing, and can even lead to litigation — as happened this week when Nokia filed the latest in a series of lawsuits ricocheting between it and Qualcomm.  All of those suits relate to mobile handsets built by Nokia that implement  a standard issued by ETSI, the European Telecommunications Standards Institute.   


Qualcomm alleges that anyone implementing the ETSI standard will infringe Qualcomm's patents, and would therefore require Qualcomm license. Qualcomm is willing to offer such a license (and has already granted licenses to others) on what it says are "fair, reasonable and non-discriminatory" (or FRAND, the European variant that means the same thing as RAND), as required by ETSI. 

Nokia, however, has thus far refused to pay up, leading Qualcomm to bring three different actions against Nokia (in the US, the UK, and before the U.S. International Trade Commission), seeking injunctions that would prevent Nokia from selling any products based on the ETSI standard unless it rolls over and obtains a license from Qualcomm.

Now, Nokia has counterattacked, announcing last Wednesday that it has sued Qualcomm in the Delaware Court of Chancery (which exclusively hears business cases).  Nokia admits in the press release that the suit is intended as a defensive measure, and seems to concede that its products do indeed infringe Qualcomm's patent.  But it also asserts that Qualcomm is requiring license terms that are not in fact "FRANDly" (as it were).

Nokia hopes that this gambit will serve to outflank Qualcomm, forcing its opponent to negotiate (rather than impose) royalties for its patents, and at the same time allowing Nokia to continue to sell its products.  Or, as stated in the brief Nokia press release:

 Nokia is asking the Court to order Qualcomm to abide by its written contractual obligations to international standards setting organizations to license intellectual property essential to GSM and UMTS technology standards on fair, reasonable, and non-discriminatory (FRAND) terms. Additionally, Nokia is seeking a Court order to affirm that Qualcomm is not entitled to injunctive relief in relation to alleged infringement of patents declared essential to a standard.

This suit is of interest to more than just the combatants themselves, because Nokis is asking the Court to decide exactly what FRAND really means, at least in the context of the ETSI process.  As the press release has it:

Additionally, Nokia is asking the Court to affirm the key elements of FRAND, where the two companies to-date have had differing views, to solidify a framework for future intellectual property licensing negotiations.   This action seeking resolution through the Court follows the European Telecommunications Standardization Institute (ETSI) dispute resolution process.

This isn’t the first time that the vagueness of F/RAND has led parties to come to blows, but it is rare for a court to issue an opinion on exactly what it means.  Unfortunately, though each court that issues a ruling on what F/RAND means helps further develop the legal meaning of F/RAND in a general sense, any opinion of the Court of Chancery would not be binding on the courts of other countries (or even of other US states).  Depending on its wording, any ruling might also be sufficiently specific to the policies and procedures of ETSI that it may prove to be of questionable guidance in the context of the rules of other standard setting organizations (SSOs).

As a result, while any decision that the Court of Chancery might issue would be of great interest, it would hardly resolve what F/RAND means, once and for all.  Only a Supreme Court opinion would be binding on all US courts, and would be at best be of interest to courts abroad.

This continuing ambiguity and lack of certainty about F/RAND led some high tech companies last year to begin pushing SSOs to amend their rules to permit, or even require, that exact licensing terms be disclosed early in the process (or “ex ante,” as that practice is referred to), so that SSO participants will know what they are getting into before they commit to a standard.  It’s no coincidence that one of the SSOs where these discussions are proceeding is ETSI itself (the IEEE is another).

This latest suit follows closely on the heels of two other pieces of litigation news that underline the significant value that ex ante disclosure could provide.  Each of these stories broke two weeks ago, with one attracting great attention, and the other almost none. 

The high profile story was the release by the US Federal Trade Commission (FTC) of its long-awaited decision in its action against Rambus, Inc.   Two years ago, an FTC Administrative Law Judge (ALJ) had found strongly in favor of Rambus, allowing the semiconductor technology company to assert patents it had not disclosed in an SSO standard setting process.   Now, the full board of FTC Commissioners has unanimously held that Rambus created an illegal monopoly in some respects, and may strip it of its right to receive any royalties at all on the patents at issue.

Also of significance (although of no apparent interest to the media), a Silicon Valley company called Foundry Networks brought a “Son of Rambus” law suit against French telecommunications giant Alcatel the day before the FTC announced its decision.  The Foundry suit will be heard in a Federal court, also in Delaware.  The link between these three stories is the fact that Nokia also claims that Qualcomm did not make timely disclosure of its patents, according to Bill Plummer, VP of External Affairs for Nokia, as quoted in RCR Wireless News:

Qualcomm belatedly declared certain patents as essential after standards had been set and significant investments had already been made within the industry. Qualcomm violated its ETSI obligations by refusing to negotiate a FRAND license royalty for the use of declared essential IPR, but instead sought to exclude Nokia from using the IPR through court actions seeking injunctions and exclusionary relief.

As these (and who knows, perhaps other) new actions proceed, look for ex ante disclosure to become a topic of greater discussion in more venues, both in the press, as well as within additional SSOs besides ETSI and IEEE.  If you’d like to learn more about these issues,  see the July issue of the Consortium Standards Bulletin, which I dedicated to The Great Ex Ante Debate.   

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