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“RAND” — Reasonable and Non-Discriminatory — is a term often used in standards contexts to describe or set expectations of fairness in patent licensing related to standards.

But what does the term “RAND” really mean?  As one well-known commentary on standard-setting, patents, and hold-up states:  “few SSOs [standard-setting organizations] define the term ‘reasonable and nondiscriminatory’ or have mechanisms to resolve disputes about its interpretation”.

The American Bar Association, Section of Science & Technology Law, has filed a comment to the US FCC about the CUT FATT petition on patent overreaching in the US DTV system, acknowledging that:

“international royalty rates for comparable patents and standards may be a useful factor to consider in determining whether U.S. royalty rates are RAND.”

As excerpted below, the Section makes this comment with appropriate qualifications and call to recognition of the complexities of the issues (“there are many other important factors”), and acknowledges that typical RAND analysis is directed at voluntary standards rather than standards mandated by a regulatory authority.

But the Section comments go on to opine that:

“With respect to the particular factor proposed by CUT FATT (i.e.. patent pools for DVB-T and ISDB), we believe that any consideration of “comparables” should be limited to licenses of comparable patents, both in scope and quantity, for implementation of the same standard (i.e., the ATSC DTV standard, in this case).”

The comments further assume that “[c]omparable patents are likely limited to foreign counterparts of the US patents in question.”

Surely, the Section is not suggesting that the only relevant factor to consider should be limited to whether the ATSC standard adopted in the US is offered at a discount in international markets, perhaps to meet price competition from other standards like DVB-T, ISDB, or others, and then only to a comparison of the “US” ATSC royalty price to the “international” ATSC royalty price?  All things being equal, would that be “reasonable”, or just “discriminatory”?

References

Selected excerpts from filing by American Bar Association (“ABA”), Section of Science & Technology Law in CUT FATT proceeding (emphasis added):

“These views are being presented on behalf of the Section only and have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and should not be construed as representing the position of the Association.

Section takes no position on whether or not the Commission should assume any role as requested by the Petition or modify any policies regarding DTV patent licensing but rather comments here on the complex and factual considerations that would be implicated by CUT FATT’s request that the  Commission.

One of the issues before the Commission – RAND royalties in the context of a standard mandated by a regulatory authority — has not been widely discussed or analyzed in the literature, which has traditionally focused the RAND analysis on voluntary standards. While the ABA Manual “is not directed to standards whose policies are prescribed by governments …the information may be useful in assessing the terms associated with such activities.”

Depending on the circumstances, international royalty rates for comparable patents [7] and standards may be a useful factor to consider in determining whether U.S. royalty rates are RAND. We respectfully submit that there are many other important factors that the Commission should consider in connection with its review of the Petition.

Specifically, CUT FATT suggests that “international comparable” royalty rates should be treated as “benchmarks” [8] when  assessing the reasonableness of a RAND licensing commitment.  With respect to the particular factor proposed by CUT FATT (i.e.. patent pools for DVB-T and ISDB), we believe that any consideration of “comparables” should be limited to licenses of comparable patents, both in scope and quantity, for implementation of the same standard (i.e., the ATSC DTV standard, in this case). To the extent that such comparables exist, we believe they should be one of many factors considered in evaluating the reasonableness of a particular royalty rate.

[7] Comparable patents are likely limited to foreign counterparts of the US patents in question.

[8] We do not believe that a “benchmark” is appropriate in this context, as it may imply that undue weight be given to royalties established earlier in time.”

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