Estimate September Royalty Rates
While the SEP holder is obligated to offer licensing on FRAND terms, there are no definitive guidelines to monitor the process. Since patent holders are not obligated to license the product, the final decision on the matter is theirs. The royalty rates, if the SEP holder chooses to license the product, vary based on the terms. The IP portfolio, parties involved, expected sales, and expected cross-licensing are some of the factors that determine the royalty rates .
There are two common methods used to estimate a fair royalty rate that would be satisfactory to both parties:
The top-down approach assesses the aggregate value of the standard, which is then apportioned by the value attributable to the implemented standard. It thus works by assessing the collective value of standards, rather than calculating the value of individual patents. Once a royalty percentage is determined, it is then allocated to the SEP owner Colombia Phone Number Material based on that SEP’s proportionate contributions to the standard. In mathematical terms, the numerical ratio used to determine the SEP holder’s share is the number of SEPs the SEP holder covers divided by the total number of SEPs that cover the standard. Thus, if a standard contributes 20% of the value of a product, 40% of the value of each such product would be allocated to a patent owner who controls 2% of all SEPs to that standard.
The bottom-up approach assesses the value of individual SEPs independently of other essential patents. This assessment generally follows the modified Georgia-Pacific factors set out by Justice Robart in Microsoft v Motorola:
Using comparable licenses to determine FRAND licensing rates
The value of patented technology rather than the standard
Total contribution of the patent to the standard
The contribution of the patented technology to the product without taking into account the value of the standard.
This approach only applies when a comparable license is available that can be used as a reference. This reference license must be comparable from a technological and economic perspective for the method to be valid.
Bottom-Up vs. Top-Down Approach
Both approaches have their share of praise and criticism. Here are some of the advantages and disadvantages of each:
The Bottom-Up approach is seen as central to preventing the accumulation of monopoly power in the hands of SEP holders and to fostering a competitive market. It thus helps to reduce patent retention and royalty stacking. However, this approach suffers from some serious flaws. It is often difficult to determine comparable licenses, as each company strives to make distinctive products with both legacy and new features. For licenses to be truly comparable, conditions such as the bargaining power of the parties, the terms and conditions of the comparable license, etc., must be considered. It is also difficult to separate the value of a technology from the value of the standard in which it operates.
The top-down methodology has been popular in SEP royalty calculations. Since the aggregate royalty is explicitly determined, the top-down method avoids the royalty stacking problem. This approach was used to calculate the FRAND royalty rate in TCL v. Ericsson but was later reversed by the Federal Circuit. While this approach may yield consistent results, it is subject to the accuracy of the inputs. That is where the main problem arises. There is no way for researchers to accurately determine the aggregate one-way royalty rates for all SEP readings of any given standard since this information is largely confidential. Similarly, there can be variations in the royalty base and the total number of actual SEPs required.
Conclusion
As litigation in FRANCE decides to increase rates, there is a need for standardization. Both current approaches have their advantages and disadvantages. The solution that could be possible is to combine the two to create a hybrid model that could correct the current flaws and reveal a solution that would be more acceptable to both sides regarding licensing issues.