Non-discrimination (FRAND)

Non-discrimination is the third component of the FRAND undertaking, alongside fairness and reasonableness. The holder of a essential patent for a standard who has given an undertaking to a standardisation body must grant licensees in a comparable situation comparable terms. Non-discrimination protects competition between manufacturers of standard-compliant products: a manufacturer paying royalties far higher than its competitors would be excluded from the market.

The content of the non-discrimination obligation

First, non-discrimination does not mean identical terms. Differences justified by volume, duration, territorial scope, the existence of a cross-licence or the settlement of a dispute are accepted. Next, the comparison is made between licensees in a comparable situation, which requires identifying the right terms of comparison. Finally, non-discrimination concerns all the terms of the licence and not only the rate: royalty base, form of royalty, warranties, termination clauses.

Debates on its scope

Two readings are opposed. A strict reading requires the holder to offer every new licensee the most favourable terms granted to a comparable licensee. A flexible reading, adopted by the British courts, considers that non-discrimination is satisfied as long as the proposed rate falls within a reasonable range, a difference in treatment being sanctioned only if it distorts competition. Competition law provides an additional basis: a dominant holder applying dissimilar conditions to equivalent transactions may commit an abuse. The comparable licences method is the natural instrument of proof.

Key points

In practice, non-discrimination is a powerful argument for a manufacturer negotiating or being sued, provided it can access the holder’s comparable licences, which requires confidentiality measures before the judge or arbitrator. It is also a constraint on the holder, who must ensure the consistency of its licensing programme. The firm handles these issues, as presented on the page FRAND and standard essential patents counsel and on the entry FRAND license.