' Ryan Rypka | MTTLR

FRAND Royalties will Impact the Cost of Your Next Smart Phone

The 5th generation of cellular networks, commonly referred to as 5G, is expected to be released in 2020. 5G will use a higher frequency band that will allow peak speeds twenty times faster than today’s 4G network and that will be able to support more devices at a time. With these advances, there will be a new series of legal issues. Specifically, there will be another round of litigation surrounding standard essential patents (“SEPs”) and licenses on fair, reasonable and non-discriminatory (“FRAND”) royalty rates. Technology standards like 5G or Wi-Fi are created by organizations like the Institute of Electrical and Electronic Engineers, the International Telecommunication Union and the European Telecommunications Standard Institute, commonly referred to as standard-setting organizations (“SSOs”). Before an SSO adopts a standard, it requires the members of the organization, typically technology companies, to license any SEPs on FRAND terms. Any patent that is required for the standard to work is an SEP. Determining FRAND terms has been a major and much-litigated issue. Huawei v. InterDigital (China, 2013), Unwired Planet v. Huawei (UK, 2017), and TCL v. Ericsson (U.S., 2017) all determined FRAND rates for 2G, 3G, and 4G cellular SEPs. FRAND rates have been determined by two approaches: bottom-up and top down. In a bottom-up approach, courts try to determine the reasonable royalty of the SEP based on the value of patented technology and by looking at comparable licenses. The bottom-up approach was used by Judge Robart in deciding one of the first FRAND cases, Microsoft v. Motorola. He used modified Georgia-Pacific factors to determine a reasonable royalty bases on compatible licenses. The top-down approach requires...