FRAND rate and comparable licences

The FRAND rate is the royalty level that satisfies the undertaking given by the holder of a essential patent for a standard to grant licences on fair, reasonable and non-discriminatory terms. No text sets this rate. It results from negotiation or, failing that, from a court decision or an arbitral award. Determining a FRAND rate combines several methods, none of which is exclusive.

Comparable licences

The most widely used method starts from the licences already concluded by the holder, or by third parties, on the same portfolio or on comparable portfolios for the same standard. First, genuinely comparable licences must be identified: same standard, same technology generation, similar products, close period. Next, they must be adjusted: conversion of lump sums into rates, account taken of cross-licences, dispute settlements and volume discounts. Finally, account must be taken of the fact that these licences are confidential, which requires protective measures before the judge. Comparables are also the first means of verifying non-discrimination.

The top-down approach and other methods

Thetop-down approach starts from a reasonable aggregate royalty for the whole standard, then allocates to the holder a share proportionate to its weight in the patents that are actually essential. It responds to the risk ofroyalty stacking. Other methods assess the technical contribution of the invention compared with the alternatives available before standardisation, or rely on patent pool royalties. British, German, Chinese, American courts and, since 2024, the Unified Patent Court have issued decisions setting or assessing FRAND terms, with varying methods and results.

The royalty base and form

The FRAND rate can only be understood together with its base: price of the end product, price of the component implementing the standard, or lump sum per unit. The debate on component-level licensing is its expression. The royalty may be proportional, a lump sum per unit, capped or combined with an upfront payment. In practice, determining a FRAND rate is as much an economic as a legal exercise, relying on experts and on access to comparable licences. The firm acts in these negotiations and disputes, as presented on the pages FRAND and standard essential patents counsel and patent arbitration.