The FRAND commitment: a contract

A technical standard is not a mere engineering preference. When it structures an ecosystem, it organises a dependence: a handset that does not implement the cellular standards is out of the market, whatever its technical quality. That dependence gives rise to an expectation that the standardised technology will be accessible.

But an expectation, however legitimate and however widely shared across an industry, is not a right. Nothing in the fact that a technology is standardised legally obliges its proprietor to grant its use. A mechanism is needed to convert the expectation into an enforceable obligation. That mechanism is neither the standard itself nor the standards body’s policy taken in isolation: it is the declaration by which the proprietor commits.

Clause 6.1: the promise

ETSI’s intellectual property rights policy, Annex 6 to its Rules of Procedure, provides in clause 6.1 that, when an essential intellectual property right is brought to the institute’s attention, the Director-General requests the proprietor to give within three months a written and irrevocable undertaking that it is prepared to grant irrevocable licences on fair, reasonable and non-discriminatory terms. The text specifies the minimum scope of that undertaking: manufacture, including the right to have custom components and sub-assemblies made, sale and supply of the equipment so manufactured, repair, use and operation of that equipment, and use of methods.

Three features matter. The undertaking is written : it is dated, identifiable, and can be produced in evidence. It is irrevocable : its author cannot withdraw it, and it follows the patent on assignment, and it bears on a willingness to license, not on a licence already formed.

Clause 12: the governing law

Clause 12 of the same policy provides that the policy is governed by the laws of France. This is not a drafting detail. It follows that the source, the nature, the scope and the performance of a FRAND undertaking given to ETSI fall to be assessed under French law of obligations, whatever the forum seised of the infringement dispute.

That is why foreign courts are regularly required to apply, or to have proved, French contract law in order to establish what an SEP holder has promised, and it is why an SEP dispute almost always has a French component, even where none of the parties is French.

The commitment still has to be characterised. It is addressed to ETSI. Those who invoke it are third parties who were not party to the instrument and were not identified when it was given. French law has exactly the right figure: the stipulation pour autrui (stipulation for the benefit of a third party), governed by Articles 1205 to 1209 of the code civil as worded by Order no. 2016-131 of 10 February 2016.

The construction reads term by term. The patent proprietor promises. ETSI stipulates. The implementers of the standard are the beneficiaries. The beneficiary of a stipulation pour autrui may be a future person, provided it can be determined when the promise is performed: that is precisely the situation of implementers, undetermined on the day of the declaration but perfectly identifiable when the standard is implemented. The beneficiary holds a direct right against the promisor, which explains how an implementer can rely on a commitment to which it was not a party. The stipulator, finally, may itself demand performance of the commitment given to the beneficiaries.

That characterisation is an analysis, not a statutory text: it is put forward by academic writing and argued before the courts. Its strength lies in accounting, without artifice, for all the effects that can be observed.

The costliest confusion is to treat the FRAND commitment as if it were a licence. It is nothing of the kind. The commitment sits upstream. The licence is the instrument by which it is ordinarily performed, downstream. No licence arises automatically from the declaration: what arises is a right to demand that access be made available on compliant terms.

The practical consequence is clear. An implementer that practises the standard without a licence derives no licence from the commitment alone and remains an infringer, subject to the limits that competition law places on injunctive relief. Symmetrically, a court seised of a FRAND dispute gives operational content to a pre-existing commitment whose terms are contested, rather than creating an obligation.

Substance

The requirement of reasonableness disciplines the attribution of value: what is remunerated is the patent’s technical contribution, not the lock-in effect that standardisation confers on it. The fairness prevents the extraction excluded from the rate from being reintroduced through ancillary mechanisms: scope, duration, no-challenge clauses, tying, grant-back obligations. The non-discrimination targets unjustified disparities between licensees in comparable positions, without hardening into a most-favoured-nation rule that would forbid any differentiation at all.

Conduct

The obligation also governs how each side negotiates. The sequence set out by the Court of Justice in Huawei v ZTE (notice of infringement, expression of willingness to contract, written offer with figures, diligent counter-offer, provision of security) supplies serious indicators, not an algorithm. It sanctions conduct, it does not calculate a rate.

The unifying criterion is a heightened good faith, which works both ways: the proprietor may not exploit the dependence created by the standard. The implementer may not invoke FRAND to justify strategic delay. The Hold-out and hold-up are two breaches of the same standard.

Huawei v ZTE (CJEU, 16 July 2015, C-170/13) frames the exercise of injunctive relief by the owner of a standard essential patent in a dominant position. It does not say where the FRAND obligation comes from, nor who its creditor is, nor what it contains. Competition law disciplines the exercise of a right. It is not its source. Patent law, for its part, explains exclusivity but not why its owner is bound to third parties who never negotiated with it.

Treating FRAND as a pure competition question leads to two symmetrical dead ends: either the court becomes the regulator of technology markets, or the commitment dissolves into a defence with no content of its own. The contractual reading avoids both, by letting each discipline operate at its own level.

For the owner. The ETSI declaration is a legal act, not an administrative formality: its date, its scope and its reach shape any later dispute. Assignment of the portfolio does not erase the commitment. The offer made to the implementer must be justifiable in its structure, not only in its amount.

For the implementer. The direct right arising from the stipulation makes it possible to act without waiting to be sued, and to bring before a French court a dispute whose contract is governed by French law. One must still have met the conduct requirements oneself: a quantified, reasoned and diligent counter-offer is the first item in the file.

For both. The evidential forum and the contractual forum are not the same question. An infringement action before the Unified Patent Court can coexist with French contractual proceedings on the undertaking itself.

FRAND litigation also knows withdrawal strategies. In its war with Nokia, OPPO withdrew its products from the German market even before an injunction was enforced: see our analysis of that strategy.

• The FRAND undertaking arises from the written, irrevocable declaration required by clause 6.1 of the ETSI IPR Policy.
• That policy is governed by French law (clause 12), whatever the forum seised of the infringement.
• Characterisation as a stipulation for the benefit of a third party (art. 1205 to 1209 of the code civil) accounts for the implementers’ direct right.
• The commitment opens a right to demand access, rather than a licence or an acquired right of use.
• The obligation has substantive content (value, coherence, non-discrimination) and conduct content (intensified good faith, running both ways).
• Huawei v ZTE frames the injunction. It does not found the obligation.

Before debating the rate, one must know who owes what, to whom and under which instrument. For an undertaking given to ETSI, the answer lies in French contract law: the declaration provided for by clause 6.1 of the IPR Policy is a stipulation for the benefit of a third party, which gives implementers a right to demand access without amounting to a licence. This prior question lies at the heart of an analysis by Matthieu Dhenne published on the Kluwer Patent Blog.