A Contractual Theory of FRAND

Matthieu Dhenne’s book, “A Contractual Theory of FRAND. From Private Normativity to Legal Obligation in Technical Standardization”, is published by Wolters Kluwer, in hardcover and as an eBook.

The question

The holder of a standard essential patent undertakes, before the standard setting organisation, to grant licences on fair, reasonable and non-discriminatory (FRAND) terms. Yet courts rarely address the legal nature of that undertaking head on. They mostly approach it through competition law, in the wake of the judgment delivered by the Court of Justice of the European Union in Huawei v ZTE on 16 July 2015.

A contractual reading

The book puts forward a contractual reading of the undertaking. Since the ETSI intellectual property rights policy is governed by French law, the FRAND undertaking is analysed as a stipulation pour autrui, a contract for the benefit of third parties: the patent holder undertakes towards the standard setting organisation for the benefit of the users of the standard, who are its beneficiaries. The undertaking then ceases to be a mere statement of intent and becomes a legal obligation, whose scope is measured with the tools of contract law.

Practical consequences

This characterisation sheds light on several decisive questions in standard essential patent litigation.

• Who may rely on the undertaking: the user of the standard derives from the stipulation pour autrui a direct right of its own against the patent holder, even though it was not a party to the undertaking given to ETSI.
• Under which rules: the undertaking is construed under French contract law, which provides a framework for the notions of a FRAND offer, good faith negotiation and non-discrimination.
• Before which court: the user has an action based on the undertaking itself, distinct from a mere defence raised against an infringement action.
• With which sanctions: breach of the undertaking triggers the contractual liability of the patent holder and weighs on the assessment of any injunction it seeks on the basis of the patent.

For holders and users of standard essential patents alike, this reading changes how licence negotiations are prepared, how evidence of each party’s conduct is preserved and how the forum is chosen, in particular between national courts and the Unified Patent Court.

Further reading

The book is available on the publisher’s page. European and international FRAND case law is tracked in the FRAND Litigation Watch of Dhenne Avocats.