FRAND offer and counter-offer

The FRAND offer is the written licence proposal that the holder of a essential patent for a standard must send to the manufacturer before seeking an injunction, in accordance with the framework set by the Court of Justice of the European Union in the Huawei v ZTE judgment. The counter-offer is the response of the manufacturer that rejects this offer. The FRAND offer and the counter-offer are the two central documents of any FRAND case: the judge examines them to assess the good faith of the parties and to decide on theinjunction.

The content of the FRAND offer

First, the offer must be written and specific: it states the royalty, its base, its method of calculation and the scope of the licence, generally the holder’s worldwide portfolio for the standard concerned. Next, it must be explained: the holder must enable the manufacturer to understand why the proposed terms are fair, reasonable and non-discriminatory, which in practice leads to disclosing, under a confidentiality agreement, the comparable licences already concluded. Finally, it must come after a notice identifying the patents and products concerned, often accompanied by claim charts against the standard.

The manufacturer’s counter-offer

A manufacturer that rejects the offer must respond diligently, in accordance with recognised commercial practices and in good faith, without delaying tactics. Its counter-offer must be written, specific and itself compliant with FRAND terms: a token rate or an offer limited to a few patents is not enough. If the holder rejects the counter-offer, the manufacturer must provide appropriate security, for instance a bank guarantee or a deposit, covering past and future acts of use, and render an account of those acts. Prolonged silence, repeated requests for information already provided or systematic challenges to all patents are analysed as signs of patent hold-out.

Key points

In practice, the quality of the FRAND offer and of the counter-offer is judged on the documents, months or years after the exchanges. Each party must build a consistent, dated and documented negotiation file, anticipating that a judge will read it. Response times, transparency on comparables and the provision of security are the most debated points. The firm advises holders and manufacturers in conducting these negotiations, as presented on the page FRAND and standard essential patents counsel.