| Licensing of patents |
|---|
| Overviews |
| Licensing · Royalties |
| Types |
| Compulsory licensing · Cross-licensing Defensive Patent License Defensive termination Fair, reasonable, and non-discriminatory (FRAND, RAND) Shop right |
| Strategies |
| Catch and release Defensive patent aggregation Patentleft · Patent pool · Stick licensing |
| Clauses in patent licenses |
| Field-of-use limitation |
Reasonable and non-discriminatory terms (RAND), also known as fair, reasonable, and non-discriminatory terms (FRAND), are a licensing obligation that is often required by standard-setting organizations for members that participate in the standard-setting process.[1] Standard-setting organizations are the industry groups that set common standards for a particular industry in order to ensure compatibility and interoperability of devices manufactured by different companies.
Contents |
Standard-setting organizations commonly have rules that govern the ownership of patent rights that apply to the standards they adopt. One of the most common rules is that a patent that applies to the standard must be adopted on "reasonable and non-discriminatory terms" (RAND) or on "fair, reasonable, and non-discriminatory terms" (FRAND). The two terms are generally interchangeable; FRAND seems to be preferred in Europe and RAND in the U.S.[1]
Standard-setting organizations include this obligation in their bylaws as a means of enhancing the pro-competitive character of their industry. They are intended to prevent members from engaging in licensing abuse based on the monopolistic advantage generated as a result of having their intellectual property rights (IPR) included in the industry standards. Once an organization is offering a FRAND license they are required to offer that license to anyone, not necessarily members of the group.[2][1] Without such commitment, members could use monopoly power inherent in a standard to impose unfair, unreasonable and discriminatory licensing terms that would damage competition and inflate their own relative position.
While there are no legal precedents to spell out specifically what the actual terms mean, it can be interpreted from the testimony of people like Professor Mark Lemley from Stanford University, in front of the United States Senate Committee on the Judiciary that the individual terms are defined as follows:
Fair relates mainly to the underlying licensing terms. Drawing from anti-trust/competition law; fair terms means terms which are not anti-competitive and that would not be considered unlawful if imposed by a dominant firm in their relative market. Examples of terms that would breach this commitment are; requiring licensees to buy licenses for products that they do not want in order to get a license for the products they do want (bundling), requiring licensees to license their own IP to the licensor for free (free grant backs) and including restrictive conditions on licensees’ dealings with competitors (mandatory exclusivity).
Reasonable refers mainly to the licensing rates. According to some, a reasonable licensing rate is a rate charged on licenses which would not result in an unreasonable aggregate rate if all licensees were charged a similar rate. According to this view, aggregate rates that would significantly increase the cost to the industry and make the industry uncompetitive are unreasonable. It is worth noting that a licensor which has several different licensing packages might be tempted to have both reasonable and unreasonable packages. However having a reasonable “bundled” rate does not excuse having unreasonable licensing rates for smaller unbundled packages. All licensing rates must be reasonable.
Non-discriminatory relates to both the terms and the rates included in licensing agreements. As the name suggests this commitment requires that licensors treat each individual licensee in a similar manner. This does not mean that the rates and payment terms can’t change dependent on the volume and creditworthiness of the licensee. However it does mean that the underlying licensing condition included in a licensing agreement must be the same regardless of the licensee. This obligation is included in order to maintain a level playing field with respect to existing competitors and to ensure that potential new entrants are free to enter the market on the same basis.
The most controversial issue in RAND licensing is whether the "reasonable" license price should include the value contributed by the standard-setting organization's decision to adopt the standard. A technology is often more valuable after it has been widely adopted than when it is one alternative among many; there is a good argument that a license price that captures that additional value is not "reasonable" because it does not reflect the intrinsic value of the technology being licensed. On the other hand, the adoption of the standard may signal that the adopted technology is valuable, and the patent holder should be rewarded accordingly. That is particularly relevant when the value of the patent is not clearly known before the adoption of the standard.[3]
Related to RAND licenses are RAND-Z (RAND with zero royalty) or RAND-RF (RAND Royalty Free) licensing, in which a company promises to license the technology at no charge, but implementers still have to get the licenser's permission to implement. The licenser may not make money off the deal but can still stop some type of products or require some type of reciprocity or do more subtle things like drag out the licensing process.[4][5][6]
Almost all free software licenses are on reasonable and non-discriminatory (RAND) terms, but a RAND license is not necessarily compatible with free software licenses. If a standards body requires the use of a RAND license, free software developers must check the terms of the specific license chosen by the rights holder in order to determine if the standard may be used in free software. A particular RAND license could be incompatible with free software in several ways, such as requiring licensing fees, only applying to complete implementations of the licensed standard, limiting use to particular fields, or restricting redistribution. Some free software advocates argue that standards bodies should use a different term, such as "uniform fee only" (UFO), because they believe a license that charges for a patent license is inherently non-reasonable, and thus the term RAND is misleading.[7]