FRAND rate and comparable licences

A FRAND royalty must comply with the commitment to license on fair, reasonable and non-discriminatory terms. There is no universal tariff per standard or patent. A defensible analysis identifies the rights, royalty base, period and evidence: a percentage alone cannot make two offers comparable.

Three approaches to distinguish

• Comparable licences: use agreements actually concluded and explain the adjustments needed.
• Top-down: establish an evidenced aggregate royalty burden for the standardised technology and allocate a share to the portfolio. This may provide a cross-check.
• Bottom-up: assess the economic contribution of the patented technology, including alternatives available before adoption. This differs from simply comparing contracts.

Pool tariffs may offer a benchmark, but portfolio scope, coverage and contractual obligations must be examined. No method replaces an assessment of essentiality, territorial coverage and remaining patent life.

What makes a licence comparable?

Compare the standard and generation, products, territories, volumes, duration and negotiation date. Examine patent families, expiries, future rights, discounts, caps, releases for past use and settlement circumstances. A worldwide agreement or cross-licence cannot be read as a national cash-only licence.

In Unwired Planet v Huawei, the Supreme Court describes the uncertainty involved in unpacking agreements; it records that comparables were the principal method and top-down a cross-check (2020, paragraphs 40–47). The judgment does not establish a transferable rate for every technology.

Unpacking lump sums and cross-licences

Converting a lump sum into a per-unit royalty requires identifying the consideration for the relevant products and period, and the corresponding units. A percentage requires the contractually relevant sales revenue. For future sales, distinguish forecasts available when the agreement was negotiated, any discounting and later actual sales.

In a cross-licence, the net payment may not represent the portfolio’s gross value: rights received in exchange also require assessment. Where data are missing, explicit alternative assumptions are preferable to spurious precision.

Royalty base, rate and apportionment

Arithmetic illustration only, not a FRAND benchmark: 1% of a €100 base and 0.2% of a €500 base both produce €1 per unit. This does not establish which base is legally appropriate. The licensing level within a supply chain is a separate question from the royalty base.

Apportionment isolates value attributable to the licensed inventions rather than indiscriminately capturing the product’s unpatented functions. Ericsson v D-Link (Federal Circuit, 2014, pp. 51–56) addresses this in US damages litigation; it is not a universal rule prescribing one base for every contract.

Documents needed before discussing a range

Gather complete agreements and schedules, dated portfolio lists, sales by product and territory, expiry dates, essentiality evidence and economic assumptions. Protect confidential comparables. A useful assessment gives a conditional range, adjustments and sensitivity analysis, distinguishing licence pricing, consideration for past use and court-awarded damages.

Sources

Unwired Planet v Huawei, [2020] UKSC 37, paragraphs 40–47; Ericsson v D-Link, 4 December 2014, pp. 51–56.

Related concepts

Top-down approach · Royalty stacking · Patent hold-out