WIPO Builds a FRAND Arbitration Business (but will they come?)

Bob Stein Field, courtesy of Zach J. Beavers/Wikimedia Commons - Creative Commons Attribution-Share Alike 3.0 Unported license.Ever since Apple set off the mobile platform wars by suing Samsung for what Steve Jobs believed were egregious borrowings of patented Apple smartphone innovations, the courts have been busy processing the disputes.  One of the most effective weapons the combatants made use of has been the so-called “standards essential patent” (SEP). And the armament of SEPS is very large, because each mobile device which implements many hundreds of standards. For example, if a company owns a SEP necessary to include a camera, wireless function or other key feature, the owner of the SEP can its price to license it, or even refuse to license it at all.

That is, of course, unless the SEP owner was part of the standards setting organization (SSO) that developed the standard in question, and had made a commitment to license that SEP on fair, reasonable and non-discriminatory (FRAND) terms.

But what does FRAND really mean? When parties can’t agree, it can take millions in legal fees and weeks of court testimony to answer the question.  And regulators around the world aren’t happy about that.

In October of 2012, the U.S. Department of Justice’s Renata Hesse delivered a key talk at an ITU-T meeting in Geneva, Switzerland, titled Six “Small” Proposals for SSOs Before Lunch. The included suggestions were directed at solving some of the underlying problems allowing SEPs to be used so aggressively.  One of those suggestions was to “lower the transaction cost of determining F/RAND licensing terms.”

More specifically, Hesse suggested:

Standards bodies might want to explore setting guidelines for what constitutes a F/RAND rate or devising arbitration requirements to reduce the cost of lack of clarity in F/RAND commitments.

In principle, that sounds like a logical idea that SSOs would want to take on board.  The World Intellectual Property Organization (WIPO) Center, which offers arbitration as one of its key services, thought so too, and set to work devising a program tailored to just this type of dispute. This week, WIPO posted the details under which it would offer FRAND dispute mediation as well as arbitration, with arbitration being available on an expedited as well as a less urgent basis.

As part of the service offering, the WIPO Center is offering model submission agreements, which include FRAND-specific sections on top of the usual WIPO text. Mediation and arbitration would each proceed under the usual rules and procedures that the Center has developed and operated under for many years. Text from the agreements can also be excerpted for inclusion in SSO Intellectual Property Policies so that SSOs can direct disputes specifically into the WIPO process if they wish (and as the WIPO Center doubtless hopes they will).

Now that the field has been prepared, however, how likely is it that anyone will arrive to play upon it?

Unlike some of the other suggestions offered by Ms. Hesse (such as ensuring that FRAND commitments travel with SEPs when they are transferred), arbitration – and particularly mandatory arbitration – has not attracted great enthusiasm in most quarters. There are a number of reasons for this, but perhaps chief among them is the fact that when a participant agrees to arbitration, it must give up many of the strategic options that it can exercise in unrestricted litigation.

Stated another way, until a dispute arises, a party that both owns and licenses SEPs can’t know whether it would be better or worse off in arbitration than in court, and hence may not want to tie its hands in advance. As a result, only two SSOs to date are generally known to include mandatory arbitration in their IPR policies: VITA and the DVB Forum. And both added these terms before the current patent wars erupted.

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The attraction of including a mandatory arbitration clause is somewhat tied to the possibility of obtaining an injunction to bar the sale of a competitors products where the vendor has refused to enter into a license. If injunctive relief is available (Ms. Hesse, along with many other commentators, has suggested that it should not, unless a party refuses to negotiate at all), then mandatory arbitration would become much more attractive to a SEP user than this alternative.

But if the courts, or an SSO in its IPR Policy, states that injunctive relief will not be available, then this particular incentive disappears. Since an IPR policy can only bind members, however, restricting injunctive relief in the case of SEP assertion can’t be accomplished by an IPR policy alone, leaving the ball in the court of the courts and the regulators.

And in fact, regulators in the US have already stepped up to this plate.  When Google (which purchased the relevant SEPS from Motorola Mobility) recently agreed to a settlement with the Federal Trade Commission, the consent decree required Google to not only give up the right to seek an injunction if a SEP user claimed Google’s price was too high and refused to pay up, but to enter into arbitration with the party in question as well.

Turning back to SSOs, that leaves voluntary recourse to arbitration, and the question of whether including reference to a voluntary action merits inclusion in an IPR policy at all? After all, parties can always voluntarily agree to arbitrate, whether an IPR policy mentions the option or not.

It will be interesting to see whether any SSOs decide to pick up on the WIPO Center’s offer to include text in their policies, and also whether any combatants in fact make use of the service. Given that FRAND litigation was in fact quite rare before Apple sounded the first battle trumpets in the mobile platform wars, it may be that the WIPO service may turn out to be but a business opportunity dream as life in the trenches (hopefully) returns to normal.

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