Why Royalties for Standard Essential Patents Should Not Be Set by the Courts

Although Standard Setting Organizations (SSOs) generally require patent holders to agree to license their technologies on Reasonable and Non-Discriminatory (RAND), or Fair Reasonable and Non-Discriminatory (FRAND), terms as a condition of including their technologies in a standard, SSOs have generally declined to accept responsibility for clarifying the meaning of these commitments. Despite this, a consensus has emerged among most commentators as to how F/RAND royalties should be determined for Standard Essential Patents. According to the consensus view, a F/RAND royalty should be the cost of obtaining a license just before the patented invention is declared essential to compliance with an industry standard, which should, in turn, reflect the value of the invention over its best alternative. However, based upon the way in which F/RAND royalties were determined in a number of recent cases, this article argues that courts generally will not have the information needed to implement the consensus view and that, as a result, greater effort should be taken to have these royalties determined before standards are adopted.