Rationalizing FRAND Royalties: Can Interpleader Save the Internet of Things?

By Bartlett, Jason R.; Contreras, Jorge L. | The Review of Litigation, January 1, 2017 | Go to article overview

Rationalizing FRAND Royalties: Can Interpleader Save the Internet of Things?


Bartlett, Jason R., Contreras, Jorge L., The Review of Litigation


I. STANDARDS, PATENTS AND REASONABLE ROYALTIES..........286

A. Patents and Standards....................287

B. SDOs and FRAND Commitments....................290

C. Reasonable Royalties, Incremental Value and Apportionment....................292

D. The Bottom-Up Approach-A Recipe for Inconsistency....................293

II. WEAKNESSES OF BOTTOM-UP APPROACHES TO FRAND ROYALTY CALCULATION....................295

A. Royalty Stacking....................297

B. Evidentiary Deficits.....................300

1. Over-Declaration of SEPs....................300

2. Blanket Disclosure and Unknown SEPs....................302

3. Evidentiary Burden on the Defendant....................302

C. Ad Hoc Analytical Methodologies: Ranking Patents....................304

D. Advisory Opinions....................305

E. A Better Way: Top-Down Determination of Aggregate Royalties....................306

III. USING INTERPLEADER TO IMPLEMENT A TOP-DOWN APPROACH TO FRAND ROYALTY DETERMINATIONS....................310

A. History of Statutory Interpleader....................310

B. Applying Interpleader to FRAND Royalty Determinations....................313

1. Single Obligation....................314

2. Adverse Claims....................316

3. Leveling the Playing Field....................319

4. Privity.....................320

C. Interpleader Mechanics.....................321

1. Initiating Suit.....................321

2. Depositing a Bond.....................322

3. Serving Process and Preliminary Injunction.....................323

4. Litigating Apportionment.....................325

a. Presenting the Best Evidence.....................325

b. Adjudicatory Authority: Judge, Jury or Special Master.....................326

c. The Petitioner's Incentive to Remain Involved.....................327

5. Judgment, Permanent Injunction, Finality.....................328

D. Other Considerations.....................330

1. Statutory Interpleader versus Joinder Mechanisms under the FRCP.....................330

2. Waking the Sleeping Dogs.....................332

IV. CONCLUSION.....................333

Interpleader possesses on first acquaintance an attractiveness which is not exceeded by any other remedy known to the law.

Professor Zechariah Chafee, Jr. (1921 )*

I. STANDARDS, PATENTS AND REASONABLE ROYALTIES

Technical interoperability standards such as Wi-Fi,2 Bluetooth, HTTP, and LTE enable products manufactured by different vendors to interact reliably and in a manner that is largely invisible to the consumer. The existence of such standards, and the widespread product interoperability that they enable, can reduce product development and manufacturing costs, increase consumer utility and produce significant market efficiencies known as "network effects."3

Most of the technical standards currently deployed in products around the world were developed by market participants collaborating within voluntary associations known as standards-development organizations (SDOs).4 Because of the significant market and consumer benefits that technical standards can confer, this degree of cooperation among competitors has long been viewed favorably by antitrust and competition law agencies, who might ordinarily be wary of such large-scale coordination efforts.5 The importance of technical interoperability standards continues to grow in today's interconnected global economy. Efforts are under way to develop the next generation of mobile broadband communications standards known as "5G",6 as well as standards that will link a bewildering array of devices in vehicles, buildings and the environment known as the "Internet of Things."7

A. Patents and Standards

It is well-documented that hundreds, if not thousands, of patents cover many important interoperability standards. …

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