Speaking at a recent conference in London about patents and competition law, Sir Richard Arnold, the High Court Judge in charge of the Patents Court in England and Wales since April 2013, suggested that arbitration may be a sensible way forward in disputes as to the fair, reasonable and non-discriminatory licensing of patents.
Background and Sir Richard’s View
Where a patent becomes part of the industry standard, the patent holder must licence it on terms that are fair, reasonable and non-discriminatory (sometimes known as “Frand”). This often leads to negotiations over what terms are Frand. These negotiations and the disputes that arise out of them can become difficult to manage as often companies holding patents that have become industry standard own large portfolios of similar patents. Some of these may be ruled to be industry standard while others may not. In these cases it can be difficult to determine whether the terms of an offer to licence the whole portfolio is Frand.
Sir Richard recognised that this issue presents a challenge for the courts as they seek to split the cases into manageable chunks. He asked “If one takes the view…that there is more than one set of terms and conditions that can be labelled Frand, then how do you compare the different alternatives?” For example, “How do you compare a Frand offer with respect to a portfolio, with a Frand offer in respect to those patents that are currently held to be valid and essential?”
He said that this presents difficult issues but that one “rational answer” is arbitration as, in these circumstances, it might present fewer case management issues. In particular, he suggested a variation on “baseball arbitration”.
Classic “baseball arbitration” involves each party submitting a proposed monetary award to the arbitrator. After considering the matter, the arbitrator chooses one of the two submitted proposals without modification and awards this sum. In Sir Richard’s variation, the patent holder and the prospective licensee could each make an offer including the terms and conditions under which the patent would be licenced. The arbitrator would then decide which of these two offers is closest to Frand. This has the advantage that it incentivises each of the parties to make a realistic offer.
This intervention by a senior patent judge is welcome. While arbitration cannot replace the court process altogether, there are many situations where it is more likely to lead to a commercially robust solution for both parties. This issue is just one example of how arbitration can use innovative procedures to find solutions. As more parties recognise this and see arbitration as a realistic alternative to the court, these procedures can adapt to meet their needs.