Why EU regulators like ‘FRAND’ and what it means for all IP
The bloc’s Data Act is the latest to reference the familiar Fair, Reasonable and Non-Discriminatory principle—but SEPs serve as a warning against its proliferation, ask Katie Coltart and Bolko Ehlgen of Linklaters.
The EU continues to regulate its digital economy. Most recently, it has adopted Regulation (EU) 2023/2854 on harmonised rules on fair access to and use of data—more commonly known as the “Data Act”.
The Data Act contains several references to “FRAND” (ie, Fair, Reasonable and Non-Discriminatory) in provisions regulating data transactions. The EU’s Digital Markets Act and Data Governance Act also refer to FRAND in various transactional settings. But what does FRAND mean in practice and are we seeing a trend towards FRAND access to IP?
FRAND access in the Data Act
One of the principal policy concerns addressed by the Data Act is that data generated by connected devices (eg, smart fridges, smart assistants etc) is not accessible to users, which stifles innovation in related products and services.
To address this, the Data Act imposes new obligations on those providing connected products in all sectors in respect of the data retrieved from them. If a user asks for this data to be provided to a third party, it must generally be made available to that third party easily, securely, in a machine-readable format, continuously and in real time. It must also be made available under “fair, reasonable, and non-discriminatory” terms.
These terms are not further defined, save that the Data Act says expressly that data holders may not discriminate between comparable categories of data recipients.
FRAND access in the Digital Markets Act and Data Governance Act
The EU’s Digital Markets Act (DMA) imposes significant obligations on big tech “gatekeepers” to ensure competition in digital markets. Gatekeepers are large digital platforms providing core platform services, such as online search engines, social media, app stores and cloud computing.
The DMA contains various references to FRAND in transactional settings, including requirements that gatekeepers grant other online search engine providers “access on fair, reasonable and non-discriminatory terms to ranking, query, click and view data” and that gatekeepers shall apply “fair, reasonable and non-discriminatory general conditions of access for business users to its software application stores, online search engines and online social networking services”.
Among other things, the Data Governance Act (DGA) creates a regulatory framework for data intermediaries, ie companies, like data marketplaces, that create commercial relationships between data holders and data users. The DGA requires access to these services to be “fair, transparent and non-discriminatory”, including with regard to prices and terms of service.
FRAND elsewhere in EU law
FRAND is not a new concept in EU (or international) law. It already appears in EU regulation relating to subject matter from vehicle emissions to payment services. Moreover, FRAND access remedies have been used by the European Commission in both abuse of dominance and merger review cases across a range of sectors.
However, FRAND is most commonly associated with the licensing of standard-essential patents, and it is in this context that its meaning has been most clearly and particularly developed.
In the field of mobile telecommunications in particular, there is a clear need for compatibility and interoperability, so that devices across various networks and geographies can interact. For this reason, standard setting organisations (“SSOs”) exist to prepare technical standards, which specify the requirements (eg, components, systems, or procedures) of key technologies like 5G.
As these standards are typically at the cutting edge of innovation, much of that technology is patent protected. Where compliance with a standard would inevitably infringe a patent, that patent is a standard essential patent (or “SEP”).
Patent holders are typically free to decide whether to license their patented technology and to whom. However, where a patented technology is included in a standard, that gives the SEP holder significant market power over implementers.
To address this imbalance, SSOs typically require any party that wishes to declare its patents essential to a standard to offer all implementers a licence to those SEPs on FRAND terms.
Failure to do so may therefore have consequences under private law and under competition law for abuse of the SEP holder’s dominant position.
Perspectives from the FRAND licensing of SEPs
While there is no binding definition of “FRAND” in the EU, some two decades of jurisprudence relating to SEP licensing have provided some guidance on its meaning in this context:
- FRAND obligations relate to conduct during the negotiation process, not just the resulting licence terms. The CJEU has clarified (Huawei v ZTE, C-170/13) that each party has obligations during the entire FRAND negotiation process (eg, negotiating transparently and in good faith) to indicate its status as a willing licensor or willing licensee.
- There is no single set of FRAND terms. The UK courts (Unwired Planet v Huawei, [2018] EWCA Civ 2344) have held that what is fair and reasonable in any case may be within a range. Provided a SEP holder has offered at least one set of terms that is FRAND, they will have complied with their FRAND obligations. The counterparty is not able to insist on a different set of terms, even if those terms would also be FRAND.
- Comparables can be key to FRAND royalty calculations. FRAND SEP royalty rates are often (but not exclusively) assessed based on comparable licence rates, e.g. those granted by the SEP holder to similarly situated entities in previous negotiations. Where the circumstances are adequately comparable, those licensing rates can be useful points of reference in assessing the reasonableness of the offered licensing rate.
- Different rates can be offered to different licensees. In SEP licensing, while all licensing must be non-discriminatory, European courts have held that this requirement is not “hard edged”, ie, a licensee who was offered a "fair and reasonable" rate was not discriminated against merely because another licensee had been given a lower rate. A fair rate is not necessarily the lowest rate the licensor has offered in the past.
Of course, in the context of the EU digital package, FRAND principles may be applied differently. With SEPs, the licensee is in the position of a potential patent infringer - risking injunctions in jurisdictions where it sells its products if it does not conclude a FRAND licence with the SEP holder (or invalidate every SEP asserted against it in the relevant jurisdiction).
On the other hand, the FRAND provisions in the EU’s digital package deal with access to data (or services). There is no risk of injunction nor any question that a licence might be avoided by invalidating the underlying IP. It therefore remains to be seen whether FRAND determinations under the Data Act will evolve similarly to SEP FRAND determinations.
Are we trending towards FRAND access to IP?
The number of references to FRAND in the EU digital package indicates that EU regulators see this concept as an important and fundamental principle in regulating transactions relating to access to data and other inputs.
However, while we have seen from its current uses that it can be flexible and pragmatic, determining FRAND in practice is not without difficulty.
FRAND principles have been identified in the context of SEP licensing slowly and incrementally over several decades. Even now, almost ten years after the CJEU’s first major FRAND ruling, the FRAND determination framework is still evolving and remains difficult to navigate, particularly when it comes to licensing rates. So much so that the EU has proposed a SEP Regulation which aims to reduce opacity and facilitate agreement on FRAND licences.
It remains to be seen whether negotiations on FRAND access to data can avoid the pitfalls that have been faced in the SEP context and whether FRAND will prove itself to be a workable regulatory solution to this (and other) IP bottlenecks.
Katie Coltart is a partner at Linklaters.
Bolko Ehlgen is partner at Linklaters.
