32 Berkeley Tech. L.J. 1381 (2017)
Why Incentives for Patent Holdout Threaten to Dismantle FRAND, and Why It Matters

handle is hein.journals/berktech32 and id is 1435 raw text is: 







     WHY INCENTIVES FOR PATENT HOLDOUT
 THREATEN TO DISMANTLE FRAND, AND WHY IT
                                MATTERS

                Richard   A. Epsteint &  Kayvan   B. Noroozitt




                                 ABSTRACT
    An increasing number of judges, legislators, and scholars, particularly in the United
States, have wrongly come to believe that the commitment that standard-essential patents
be licensed on fair, reasonable, and nondiscriminatory terms (FRAND) was principally
created to advance the interests of technology implementers, and have too often given a
preference toward implementers' interests in interpreting FRAND agreements. That
premise has led American courts to take a categorically hostile view toward awarding
injunctions against implementers who infringe valid standard-essential patents, fearing that
the injunctive remedy would give innovators undue leverage. Indeed, American courts
have been so unilaterally concerned with innovators' conduct that some have even allowed
implementers to sue innovators simply for making an opening licensing offer that is later
deemed  too high, even if the implementer refused to make any counteroffer at all. An
implementer-centric view of FRAND   has also caused several courts to conclude that
innovators are not entitled to any share of the commercial benefits arising from the
standardization of their technologies, and that all such benefits must go to implementers
alone.
    This Article argues that an implementer-centric view of FRAND's   origins and
purposes is false. FRAND is a contractual agreement that reflects a voluntary reciprocal
exchange of benefits and obligations driven by the need to solve significant coordination
problems in the face of otherwise prohibitive transaction costs. As part of that bargain,
innovators agree to disclose their latest, confidential discoveries to standard-development
organizations and to waive  their injunction rights as to eventual patents on those
discoveries, in exchange  for contractual protection against patent holdout by
implementers. Those implementers are then permitted to use standard-essential patents on
the condition that they agree to pay fair and adequate royalties for that use, with the royalty
amount  to be set through mutual good-faith negotiations.



      DOI: https://doi.org/10.15779/Z38WD3Ql9B
      C 2017 Richard A. Epstein and Kayvan B. Noroozi.
      f Laurence A. Tisch Professor of Law, New York University School of Law; Peter
 and Kirsten Bedford  Senior  Fellow, The  Hoover  Institution; James Parker Hall
 Distinguished Service Professor of Law Emeritus and Senior Lecturer, University of
 Chicago Law School.
     tt  Principal at Noroozi PC and CEO of Koios Pharmaceuticals LLC. The author is
 trial counsel to Core Wireless Licensing S.a.r.l. in litigation against LG Electronics and
 Apple with respect to FRAND-committed standard-essential patents. The views expressed
 in this Article, however, are entirely the author's and were not discussed with or supported
 by any client or company.
     The authors thank Bijan Aboutorabi, Philip Cooper, Jeremy Rozansky and  John
 Tienken of the University of Chicago Law School for their excellent research assistance.

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