Authored By: Abhishek Kumar
National Law University, Delhi
I. Introduction
One licensing dispute in 2017 between Qualcomm and Apple highlighted a fundamental weakness in the global patent licensing system. Qualcomm is a patent pool holding thousands of standard essential patents in cellular technology. Qualcomm allegedly demanded that Apple accept a royalty rate above the market rate in return for chip supplies—a prime example of patent hold-up.1 The dispute led to legal battles across multiple jurisdictions and exposed a structural problem in modern technology markets: patents can create distortions in competitive markets and limit innovation by virtue of being a necessary condition of interoperability.
Standard essential patents (SEPs) are patents covering technology incorporated into a technical standard—such as 4G LTE or Wi-Fi. It is therefore not possible, from a technical standpoint, to implement these standards without using patented technology. To prevent patent holders from exploiting their monopoly power, standard-setting organisations (SSOs) require patent holders to commit to licensing SEPs on Fair, Reasonable and Non-Discriminatory (FRAND) terms.2 This article argues that whilst there is nothing fundamentally objectionable about FRAND licensing in principle, the current system suffers from a lack of legal framework for determining what constitutes a reasonable royalty rate and for determining when injunctive relief is available—both significant weaknesses in patent licensing practice. The article begins with a brief overview of the legal framework, then examines key judicial decisions, and concludes with a critical analysis of patent licensing in practice.
II. The Legal Framework: SEPs, SSOs, and FRAND Obligations
Standard essential patents are those which emerge from the standardisation process of a technology standard. The European Telecommunication Standards Institute (ETSI), the Institute of Electrical and Electronics Engineers (IEEE), and the International Telecommunication Union (ITU) are among the standardisation bodies that formulate technology standards in communications technologies. In this process, member firms declare patents deemed essential to a proposed standard and commit to licensing those patents on FRAND terms to any implementer who wishes to adopt the standard.3
The FRAND commitment is a contractual obligation provided to the SSO as a condition of participation in standardisation. Its precise content, however—particularly with respect to royalty rate determination and injunctive relief—remains undefined under SSO bylaws or any international instrument. The theoretical basis for FRAND commitments intersects critically with competition law. An SEP owner who has made a FRAND commitment but subsequently demands supra-FRAND royalties may, in certain jurisdictions, be found to have abused its dominant market position.
In the European Union, this interface was authoritatively addressed in Huawei Technologies Co. Ltd v. ZTE Corp.,4 wherein the Court of Justice of the European Union held that a patent holder seeking an injunction against a willing licensee could, in principle, abuse a dominant position under Article 102 TFEU. The CJEU laid down a set of procedural requirements that the patent holder must satisfy before seeking injunctive relief. In the United States, the Federal Circuit in Ericsson Inc. v. D-Link Systems, Inc.5 held that royalty rates must be based on the value of the technology rather than its hold-up value. The Ninth Circuit in Microsoft Corp. v. Motorola, Inc.6 similarly held that rates should reflect the intrinsic value of the technology prior to standardisation, effectively rejecting any methodology that permits a patent holder to extract value derived from the mere adoption of the standard.
III. Key Problems: Hold-Up, Royalty Stacking, and Injunctive Relief
Notwithstanding these judicial developments, two structural problems continue to afflict SEP licensing: patent hold-up and royalty stacking. Patent hold-up arises when a holder of a standard-essential patent demands a royalty rate greater than what might have been acceptable before the standard’s implementation. By this means, the patent holder exploits the manufacturer’s technological and commercial dependence on the standard itself. Royalty stacking is a related but distinct problem, arising from the nature of technology standards: a single standard may incorporate hundreds or thousands of patents held by different entities. While each individual royalty rate may itself be reasonable, their aggregate burden may render a manufacturer commercially unviable.7
The FTC v. Qualcomm Inc.8 litigation illustrates both problems in practice. The district court held that Qualcomm’s ‘no licence, no chips’ policy—conditioning chip supply on prior patent licensing—effectively foreclosed competition in baseband chip markets and extracted supra-FRAND royalty rates from device manufacturers. On appeal, however, the Ninth Circuit reversed, holding that a violation of Sherman Act § 2 requires proof of injury to a relevant market, not merely injury to a competitor. This illustrates a significant ambiguity in the law: distinguishing a breach of a FRAND contractual commitment from a violation of antitrust law is not straightforward, and the legal consequences are materially different.
The most powerful and commercially distortive remedy available to SEP holders is injunctive relief. The threat of market exclusion carries enormous commercial leverage. While Huawei v. ZTE9 sought to curtail this leverage by establishing procedural prerequisites to injunctive relief, a valid criticism of that framework is that it is purely procedural in character—establishing when a patentee may seek relief, rather than how a reasonable royalty rate should be determined.10
IV. Critical Analysis: The Indeterminacy of FRAND and the Case for Reform
The central failing of the current system is the absence of a standardised methodology for calculating FRAND royalties. Courts have accepted the general principle that royalties should reflect the ex-ante value of the patented technology, but have applied this principle inconsistently. In Ericsson v. D-Link,11 the Federal Circuit endorsed a comparable licence approach, permitting courts to derive FRAND rates from existing licences. Whilst pragmatic, this approach is ultimately circular: it assumes that those existing licences were not themselves negotiated in the shadow of hold-up. In Apple Inc. v. Motorola, Inc.,12 Judge Posner proposed that FRAND royalties should instead be calculated by reference to the patented invention’s incremental technical contribution. Conceptually elegant, this approach nonetheless proves difficult to apply in practice.
This article submits that the solution lies in the adoption of a two-stage approach. First, courts should ascertain the technical value of the patented invention by reference to its contribution to the standard compared to non-patented alternatives available at the time of standardisation—the so-called top-down approach. Second, that inherent value must be apportioned across all SEPs essential to the relevant standard, ensuring that the aggregate royalty burden is proportionate and commercially sustainable for the implementer.
The UK Supreme Court’s decision in Unwired Planet International Ltd v. Huawei Technologies Co. Ltd13 illustrates the viability of judicial FRAND rate-setting through economic analysis. That decision confirms that courts are not merely empowered but obligated to determine a single FRAND rate rather than a range. This is vital for legal certainty and for removing the SEP holder’s ability to exploit royalty-range ambiguity as a tool of commercial leverage.
With respect to injunctive relief, this article submits that the procedural framework established in Huawei v. ZTE must be supplemented by a substantive presumption against granting injunctions to SEP holders seeking relief against willing licensees. The rationale is grounded in the nature of the FRAND commitment itself: by agreeing to license on FRAND terms, the SEP owner effectively exchanges the right to exclude for the right to be compensated. Injunctive relief should therefore be reserved for cases of bad faith on the part of the implementer—not deployed as a lever in commercial negotiations.
V. Conclusion
Standard essential patents embody a fundamental tension between two foundational legal principles: the inventor’s right to exclusive exploitation and the public interest in open access to technology standards. The FRAND commitment was designed as a compromise between these competing interests—but its efficacy depends entirely on logical and consistent interpretation and enforcement.
As this article has demonstrated, the current system is undermined by methodological inconsistency in royalty calculations and by the availability of injunctive relief as a commercial weapon. What is required is a coherent approach by courts and competition authorities: one that embraces a top-down, proportionate apportionment methodology for FRAND royalty determination and limits the availability of injunctions against willing licensees of standard essential patents.
The consequences of continued failure extend well beyond patent law. They carry significant implications for the competitive structure of the telecommunications industry and for the cost of the associated technology that underpins modern economies. A rational approach to FRAND is not a legal nicety—it is an economic necessity for technological progress.
Bibliography
Cases
Apple Inc. v. Motorola, Inc., 757 F.3d 1286 (Fed. Cir. 2014)
Ericsson Inc. v. D-Link Systems, Inc., 773 F.3d 1201 (Fed. Cir. 2014)
FTC v. Qualcomm Inc., 411 F. Supp. 3d 658 (N.D. Cal. 2019), rev’d, 969 F.3d 974 (9th Cir. 2020)
Huawei Technologies Co. Ltd v. ZTE Corp., Case C-170/13, EU:C:2015:477, [2015] 5 C.M.L.R. 14
Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (9th Cir. 2015)
Qualcomm Inc. v. Apple Inc., 4:17-cv-02398 (S.D. Cal. 2017)
Unwired Planet International Ltd v. Huawei Technologies Co. Ltd [2020] UKSC 37, [2020] Bus. L.R. 2422
Secondary Sources
Contreras JL, ‘A Market Reliance Theory for FRAND Commitments and Other Patent Pledges’ (2015) 4 Utah Law Review 479
Contreras JL and Gilbert RJ, ‘A Unified Framework for RAND and Other Reasonable Royalties’ (2015) 30 Berkeley Technology Law Journal 1451
Geradin D and Rato M, ‘Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-Up, Royalty Stacking and the Meaning of FRAND’ (2007) 3 European Competition Journal 101
ETSI Intellectual Property Rights Policy (2020)
IEEE-SA Standards Board Bylaws, cl. 6.2 (2015)
Footnote(S):
1 Qualcomm Inc. v. Apple Inc., 4:17-cv-02398 (S.D. Cal. 2017).
2 IEEE-SA Standards Board Bylaws, cl. 6.2 (2015); ETSI Intellectual Property Rights Policy, cl. 6.1 (2020).
3 For a detailed account of SSO participation and FRAND declaration obligations, see Contreras JL and Gilbert RJ, ‘A Unified Framework for RAND and Other Reasonable Royalties’ (2015) 30 Berkeley Technology Law Journal 1451, 1455–1460.
4 Case C-170/13, Huawei Technologies Co. Ltd v. ZTE Corp., EU:C:2015:477, [2015] 5 C.M.L.R. 14.
5 Ericsson Inc. v. D-Link Sys., Inc., 773 F.3d 1201 (Fed. Cir. 2014).
6 Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024 (9th Cir. 2015).
7 Jorge L. Contreras, ‘A Market Reliance Theory for FRAND Commitments and Other Patent Pledges’ (2015) 4 Utah Law Review 479, 483.
8 FTC v. Qualcomm Inc., 411 F. Supp. 3d 658 (N.D. Cal. 2019), rev’d, 969 F.3d 974 (9th Cir. 2020).
9 Huawei Technologies Co. Ltd v. ZTE Corp. (n 4) [55]–[58].
10 Damien Geradin and Miguel Rato, ‘Can Standard-Setting Lead to Exploitative Abuse? A Dissonant View on Patent Hold-Up, Royalty Stacking and the Meaning of FRAND’ (2007) 3 European Competition Journal 101, 112.
11 Ericsson v. D-Link (n 5) 1230–1235.
12 Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1315 (Fed. Cir. 2014).
13 Unwired Planet International Ltd v. Huawei Technologies Co. Ltd [2020] UKSC 37, [2020] Bus. L.R. 2422.
