The document discusses alternative dispute resolution (ADR) mechanisms for standard essential patent (SEP) disputes in industries like telecommunications and information technology. It notes that ADR options like mediation and arbitration can provide global solutions within reasonable timeframes and costs, avoiding multiple litigations in national courts. The telecom industry desires certainty and efficiency in SEP royalty disputes. As technologies like the Internet of Things and Industry 4.0 expand, SEP/FRAND disputes are also likely to increase regarding related standards. Mediation and arbitration are presented as options that could help minimize hold-up risks in this new landscape. The document also examines principles for arbitration and notes ongoing discussions around balancing stakeholder needs in SEP/FRAND disputes.

1. LESI 2017 Annual Conference, Paris
IP Revolution? Scenarios for the future
How to find your way in IP alternative Dispute Resolution?
Part 1: ADR for disputes involving SEPs (Standard Essential Patents)
in the Telecoms and IT sectors.
David Perkins
April 24-25 2017
David Perkins is a WIPO Arbitrator and Mediator. He is also a JAMS Neutral and an arbitrator/mediator on the
panels of the LCIA (London Court of International Arbitration); AAA/ICDR (American Arbitration
Association/International Center for Dispute Resolution); HKIAC (Hong Kong International Arbitration Centre);
SIAC/SIMC (Singapore International Arbitration and Mediation Centres); KLRCA (Kuala Lumpur Regional Centre
for Arbitration); SCIA (Shenzhen Centre for International Arbitration); the ADR Forum (formerly, the National
Arbitration Forum/NAF); PIAC (Pacific International Arbitration Centre); and Chairman of an ICC Dispute
Resolution Board. He is a member of CIArb. (the Chartered Institute of Arbitrators) and has also served as an
arbitrator for the IFTA (Independent Film & Television Alliance).

2. What does the Telecoms Industry want?
• Certainty by means of a single procedure for determining FRAND royalty disputes globally.
• Within a reasonable time frame - say, 12 months.
• From a Tribunal with an understanding of both Patents and the Industry.
• At a reasonable cost (1).
• (1) In the judgment dated 29 April 2016 of Birss J (English Patents Court) in the Unwired Planet saga, costs of the
so-called "non-technical" part of the case - i.e. calculations of FRAND and Counterclaims by Huawei and Samsung
under Arts.101 and 102 TFEU - were estimated as reaching £50 million: Judgment, para.30.
The preceding "technical" part of the case involved some 5 EPs of Ericsson, which had been acquired by Unwired
Planet, declared to ETSI as essential to the GSM (2G), UMTS (3G) and LTE (4G) Standards. The essentiality, validity
and infringement of those patents was dealt with in three trials in 2016. The total cost will, therefore, have been
exceptionally expensive, the more so when there were parallel proceedings before the Patent Court in
Düsseldorf.
Co-Defendants, Google and Samsung settled before the hearing of the "non-technical“ part of the case.
In terms of timing, the infringement case was filed in March,2015 and the non- technical Trial was completed in
January 2017.
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3. How can these Goals/Objectives be achieved?
• Clearly, there must be a better way than multiple litigation in National Courts exemplified by
the Unwired Planet cases.
• One answer is by Mediation. Art.4.3 of the ETSI Guide proposes "friendly mediation".
• WIPO have produced a Model Submission Agreement for Mediation of FRAND disputes
followed, where the mediation fails to produce agreement, by Arbitration. These are formal
procedures, which can be embodied in License Agreements or agreed ad hoc by parties in
place of litigation in National Courts.
• Both procedures can provide a global - as opposed to territorial - solution, at a reasonable
cost, within a reasonable time frame.
• And, under the 1958 New York Convention on the Recognition and Execution of Foreign
Arbitral Awards, a WIPO Award will be enforceable in over 150 countries worldwide.
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4. FRAND disputes in the wider ICT (Information &
Communications Technology) sectors are set to follow from the
IoT (Internet of Things) and Industry 4.0
• First, some definitions.
• IoT: the Internet of things refers to use of sensors, activators and communication technology embedded into
physical objects that enables such objects to be tracked and controlled over networks like the Internet.
• Industry 4.0 (DE); Smart Technology (NL); Catapult (UK); and Industrie du Futur (FR). These are Regional initiatives
in the EU and represent the current trend of automation and data exchange in manufacturing technologies.
• They include cyber-physical systems, the IoT and cloud computing to create what has been called a "smart
factory". Within modular smart factories, cyber-physical systems monitor physical processes, create a virtual copy
of the physical world and make decentralised decisions. Over the IoT, cyber-physical systems communicate and
cooperate with each other and with humans in real time and, via the Internet of Services, both internal and cross-
organisational services are offered and used by participants of the value chain.
• "ICT Standardisation Priorities for the Digital Single Market" COM(2016)176 Final notes that there are already
more than 600 closely related standards in the IoT area.
• In the context of implementation of these developments, inevitably FRAND/SEP disputes will increase.
• Will mediation and/or arbitration best provide the dispute resolution means to minimise/avoid the risk of hold-up
in this new scenario?
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5. More information on the IoT
• A 2013 McKinsey Study estimates the potential economic impact of the IoT to be $2.7 trillion to $6.2 trillion per
year by 2025 with applications in Healthcare; Manufacturing; Power; Urban Infrastructure; Security; Vehicles; and
Agriculture.
• In its Study "How to navigate digitisation of the manufacturing sector" (McKinsey Digital) 2015, Industry 4.0 is said
to comprise 4 technologies, namely:
1. Data, computational power and connectivity;
2. Analytics and intelligence;
3. Human-Machine Interaction (e.g. touch interfaces and augmented reality); and
4. Digital-to-physical conversion (e.g. advanced robotics and 3D printing).
• Lex Innova in its "Internet of Things Patent Landscape Analysis" categorises patents into 4 broad "Level 1"
categories, namely: Networking; Computing; Infrastructure; and Miscellaneous Applications.
• Level 1 is then broken down into Level 2 sub-categories, which are the application areas of each Level 1 category.
Level 3 Patents cover the functional aspects of a Level 2 category.
• Lex Innova then provides a classification of patent subject matter for each of Levels 1 to 3, identifying the main
patent proprietors and the geographical spread of such patent coverage at the present time.
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6. Standardisation in the IoT, Industry 4.0 and
the other European Regional Initiatives
What does the EU Commission say?
• In "ICT Standardisation Priorities for the Digital Single Market" COM(2016)176 Final the Commission
identifies 5 priority domains as the building blocks of ICT standard setting. They are:
o 5G communications, which will provide the essential global infrastructure for communication;
o Cloud computing;
o The Internet of Things, which will provide connectivity;
o Big data technologies, which will provide efficient sharing and exchange of data across national
borders within 'data value chains'; and
o Cybersecurity.
The Commission goes on to say that ICT Standardisation requires a balanced IPR policy, based on FRAND
licensing terms. The publication states:
"A balanced policy should take into account a variety of needs: a fair return on investment to incentivise R&D
and innovation, a sustainable standardisation process, wide availability of technologies in an open and
competitive market, and the difficulties for SMEs to participate."
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7. What does the European Patent Litigation
System offer?
• After some 40 years of diplomatic discussion, we now potentially have the Unified Patent Court (UPC), which is
designed to replace litigating European Patents (EPs) country-by-country across the 28 EU Member States.
• Subject to BREXIT, the UPC is scheduled to come into operation in 2018.
• But, will the UPC really deliver a "one stop" solution for FRAND royalty disputes between SEP holders and
implementers?
o First, the UPC will not include non-EU countries within the EPC (European Patent Convention), for example
Switzerland, Norway, Turkey and others. Nor will Spain participate.
o Second, while the UPC will have exclusive jurisdiction in relation to validity and infringement, it will not have
exclusive jurisdiction in relation to determining essentiality or a FRAND royalty. Both are matters of contract
derived from the ETSI IPR Policy, which is governed by French law.
o Third, there are a number of "unknowns" in the UPC mechanism, which will inevitably lead to at least an
initial period of uncertainty for users. For example, Forum shopping among the UPC Courts of First Instance
(Art.33 UPC Agreement); Opt Out (Art.83(3)); the 7 year Transitional Period, potentially extendable by up to
a further 7 years (Art.83(1)); the quality of the judges etc.. These are reflected in the Allen & Overy Paper
"UPC Benchmarking Study/Reality dawns" (2016).
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8. ADR vs Litigation in National Courts
• In their "Landscaping Study on SEPs" (Pohlmann and Blind) IPLytics GmbH, Technical University of Berlin
(2016), the authors suggest that "essentiality" declarations could be assessed on a non-legally binding
basis by Patent Offices, which have the technological capacity, industry recognition and which might
present a more cost effective way to carry out essentiality checks.
• The Joint Research Centre for Policy Report "Licensing Terms of SEPs" (Pentheroudakis and Baron) of 2017
provides a detailed and comprehensive analysis of FRAND cases in both the United States and Europe. On
pp.152/3 it reads:
“In addition to bilateral negotiations and judicial adjudication, many observers believe that
arbitration is a promising middle way, and proposals to strengthen the role of arbitration have gained
increasing attention. ...... The attractiveness of arbitration resides in its lower cost as compared to
litigation. Nevertheless, unlike an arbitrator, the judicial system has the authority to declare that a
patent is invalid. Such a decision produces a positive externality for other standard implementers
who no longer have to bear licensing costs or judicial fees to seek invalidation of the patent
themselves. The possibility that the failure to agree on licensing terms may result in invalidation of a
patent furthermore exercises downward pressure on royalty requests in bilateral licensing
negotiations..... It is thus not clear that proposals making arbitration mandatory and restricting
access to litigation would result in lower royalties and more efficient licensing negotiations."
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9. ADR v Litigation in National Courts (2)
• In the above extract, Pentheroudakis & Baron ignore the fact that Arbitrators can
declare patents invalid inter partes. Also, that in subsequent arbitrations involving the
same SEPs, the originator will invariably be required to provide disclosure of the earlier
Award as evidence of comparable FRAND royalty rates. They also appear to ignore that
arbitration is not limited in terms of geographical reach, by comparison to the
necessarily limited territorial jurisdiction of National Courts.
• The extract is also somewhat contradictory to section 5.4 "Introducing Dispute
Resolution Mechanisms" on pp.177-184 of an earlier European Commission Study
"Patents and Standards" (2014). In that Study the Commission noted "Efficient SEP
licensing requires efficient mechanisms to resolve disputes where they occur" and
identified mediation and arbitration as appropriate mechanisms.
• However, the Commission went on to note that making arbitration mandatory for
FRAND disputes would need a change in the ETSI IPR Policy. The Study then referred to
the WIPO/ETSI Med/Arb model Submission Agreements, which were then under
preparation and to which I refer later.
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10. ADR v Litigation in National Courts (3)
• The most recent Paper to discuss this is "Facilitating the Fair and Balanced Settlement of Disputes on SEPs" (Fair
Standards Alliance) 15 February 2017.
• Mediation: the Paper suggests that:
"...in order to enhance the efficiency of mediation in SEP-related disputes, it would be helpful to foster the
formation of mediation entities that are highly specialised in specific standards (i.e., that have in-depth
knowledge about the related technology, the SEPs of the standard and about usual licensing practises in the
related industries of the Parties, etc.)."
• Arbitration: here the Paper prescribes the following principles:
o Procedural Rules adapted to circumstances of the SEP dispute at hand;
o Arbitration procedures that are cost efficient, conducted in a competent and fair manner, and resulting in
equitable and proportionate judgments;
o The reuse of expertise and skills of Arbitrators in cases with overlapping subject matter (e.g. for the same
standard or some same patents in dispute); and
o Transparency, including the disclosure of arbitration decisions.
• The Paper then prescribes a number of FRAND principles that should be in the procedural rules of the arbitration
procedure
o The parties must agree to arbitrate.
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11. ADR v Litigation in National Courts (4)
FRAND principles (continued):
• The potential licensee's rights under patent laws to challenge the validity, essentiality or infringement of
the alleged SEP cannot be compromised in the name of licensing efficiency. The SEP holder should have
the burden of proving its entitlement to FRAND royalties through a showing that it owns infringed patents
actually essential to the standard (and whether the used features of the standard are mandatory or
optional) and withstanding any challenges to validity, enforceability, or other defences. ADR should not
simply be a matter of setting a rate if the licensee contests the SEP holder's claims.
• All aspects of arbitration findings to be appealable to a court.
• Although arbitration is by its nature confidential, in order to provide transparency and allow potential
licensees to verify claims of fairness and non-discrimination, some aspects of FRAND arbitration must be
made public, including findings of validity, infringement, and the FRAND terms and conditions. The more
data points regarding FRAND terms that are publicly available, the less often parties need to resort to
litigation as both will have a better understanding of the likely outcomes.
• The composition of the panel should favour neither the SEP holder nor the potential licensee.
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12. ADR v Litigation in National Courts: some
Case Comments.
• In the Matter of Motorola Mobility LLC and Google, Inc: US Federal Trade Commission
(FTC) Consent Order 23 July, 2013.
• This case concerned Motorola's use of injunctions and exclusion orders based on
infringement of SEPs subject to commitments to license on FRAND terms. The Consent
Order provided that, if FRAND negotiations failed after 6 months, having identified the
Contested Terms, the potential licensee could request a Determination or Binding
Arbitration. If the potential licensee elected to resolve the Contested Terms through a
Request for Determination and if the U.S. District Court determines that it cannot issue
a ruling on the Contested Terms, those terms shall be resolved through Binding
Arbitration.
• Qualified Arbitration Organisations identified for resolving such international disputes
were the AAA/ICDR; JAMS; and WIPO.
• Similarly, in the Consent Order in Samsung Electronics (Case Comp/C-3/39,939) in
2014, where FRAND negotiations should fail after 12 months of negotiations, the
dispute was to be resolved by a Court or by arbitration administered by the ICC. The
EU Commission Complaint related to Samsung's enforcement of its UMTS SEPs.
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13. ADR v Litigation in National Courts: some
Case Comments (2)
• In re Innovatio IP Ventures, LLC (District Court for the Northern District of Illinois Eastern Division) patents
essential to the IEEE 802.11 wireless standard were in issue. The Court and the Parties (Cisco; Motorola; Hewlett-
Packard and others) agreed to address damages before a determination of infringement and validity. In his
judgment Holderman J said
"The court hopes that by doing so, the possibility of settlement will be enhanced because the parties will be
better able to evaluate the potential risks and benefits of expending additional resources in the litigation.“
The assessment of damages involved, first, ruling on essentiality, then setting a FRAND royalty based on the value
of the patents in the context of their contribution to the standard.
• InterDigital Communications, Inc v ZTE Corp and Nokia (Delaware District Court Civ. Act. Nos. 1:13-cv 00009-RGA
and 1:13-cv 00010-RGA). A Motion to dismiss FRAND counterclaims that InterDigital had failed to offer a FRAND
rate was granted by Andrews J on 28 May ,2014. In his judgement Andrews J said:
"It seems to me likely that the parties do in fact want to reach an agreement. Negotiating such an agreement
involves mostly business considerations. It does not seem to me that litigation by itself is a very effective
means to make an agreement between willing parties. I understand that the parties cannot agree on the
scope of arbitration. If they could, or they could decide to have the arbitrator decide the scope, that would
appear to be a possible way to proceed.
All the Court's determination of a FRAND rate would accomplish would be to give a data point from which the
parties could continue negotiations."
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14. Med/Arb of SEP/FRAND disputes arising from
implementation of the IoT, Industry 4,0 and the
other Regional EU initiatives
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• It is clear that there are likely to be multiple standards.
• It is also clear that there are already patents in the various categories of the IoT landscape (the Lex Innova
analysis) and that there will be multiple SEPs.
• Furthermore, to enable Industry 4.0 there will need to be licensing amongst the, potentially, numerous
stakeholders involved.
• It may be that Patent Pools will emerge, but from the various commentaries it seems more likely that FRAND
licensing will dominate.
• Inevitably, failure to agree FRAND terms will result in claims of SEP infringement.
• Experience to date would tend to indicate that National Courts are not best suited to Resolve FRAND terms. Look,
for example, at the Unwired Planet litigation in the English Patents Court. In his judgement of 29 April, 2016 Birss J
referred to the costs of the so-called "non-technical" part of the case - i.e. calculation of FRAND and resolution of
the Defendants' counterclaims under Arts. 101 and 102 TFEU - as being estimated as reaching £50 million:
Judgement, para.30.

15. Mediation of such SEP/FRAND disputes.
• This is a solution proposed in the February, 2017 Paper from the Fair Standards Alliance.
• The ETSI Guide on IPRs para.4.3 provides for the possibility of mediation to resolve dispute, but I am not
aware of any significant take up.
• However, in the context of the likely future explosion of FRAND royalty disputes arising from the
IoT/Industry 4.0, it does seem that mediation could provide a relatively low cost and fast means of
resolution when negotiations have failed to provide agreement on terms.
• The Fair Standards Alliance Paper suggests use of Mediators with in-depth knowledge about the
technology in issue, the SEPs of the standard concerned and about the usual licensing practices in the
industries involved. It is, however, perhaps something of a tall order to find a mediator possessing all
those qualities.
• But, from my own limited experience, co-mediation can be extremely effective. This would allow use of,
say, a suitably qualified technical mediator with a legally qualified mediator able to deal with the
infringement, validity and licensing issues likely to be involved.
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16. Arbitration of such SEP/FRAND disputes
• The major issue for debate, it seems to me, is whether arbitration can be mandated for disputes relating to FRAND licensing
of SEPs, or whether - as currently - there must be an agreement between the parties to submit to binding arbitration.
• Under the current WIPO Submission Agreement for arbitration of FRAND disputes, it provides that
"Nothing in this agreement shall prevent any party from bringing any argument or defence it chooses in the arbitration.“
The note to that provision reads:
"This may include patent essentiality, validity, infringement and enforceability."
• Consequently, subject to the parties' agreement, one can find oneself with an arbitration facsimile of the unwieldy National
Court proceedings noted above. A possible way to avoid this is provided in para.6 of the Submission Agreement, which
provides:
"6. An initial Preparatory Conference pursuant to Art.40 of the WIPO Rules is scheduled within 15 days after the
establishment of the arbitration tribunal. The arbitral tribunal shall draw up, in consultation with the parties, a
document defining the scope of the arbitration, the methodology to be used and, if appropriate, stages of the
proceedings."
• But, this could founder on lack of agreement by the parties as in the InterDigital case (above). Art.40 of the WIPO Rules
provides:
"40. The Tribunal shall, in general within 30 days after its establishment, conduct a preparatory conference with the
parties in any suitable format for the purpose of organising and scheduling the subsequent proceedings in a time and
cost efficient manner."
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17. Arbitration of such SEP/FRAND disputes (2)
• Another possibility could be to provide for a two stage arbitration.
Stage 1: the scope of the arbitration could be to determine FRAND License terms. Parties would be
free to present arguments on essentiality.
Stage 2: If an appeal was filed against the first instance award, the scope of the second instance
arbitration could be to determine essentiality, validity, infringement and enforceability by providing
the following in the Submission Agreement:
“The Award pursuant to Art.64 of the WIPO Arbitration Rules shall only be subject to review
through an appeal to an Appellate Tribunal consisting of three arbitrators appointed pursuant
to Art.17 of the WIPO Rules. No arbitrator in the arbitral tribunal shall be an arbitrator on the
Appellate Panel. Such an appeal must be notified within 30 days of the date of the arbitral
award or otherwise the award shall become a final award pursuant to the WIPO Rules. (If an
appeal is sought the Appellate Tribunal shall conduct a de novo review of the legal
determinations of the arbitral tribunal and shall determine whether there is a reasonable basis
for all factual determinations.)”
The sentence in parenthesis is optional.
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18. Arbitration of such SEP/FRAND disputes (3)
• Probably, there cannot be a "one size fits all" procedural order. Instead, a Submission
Agreement could provide a series of options for contracting parties. Perhaps an Agreement
that limits the Tribunal's jurisdiction to determining FRAND terms. Parties would be free to
present arguments on essentiality, validity and infringement, but the Tribunal would not have
jurisdiction to make a binding decision on those issues.
• If such a Submission Agreement further provided that the parties, having agreed on FRAND
determination by arbitration, could not subsequently separately raise essentiality, validity
and infringement in National Courts, would this be (i) acceptable to stakeholders (e.g.
originators and implementers) and (ii) compatible with Competition Law (the no-challenge
provision inherent in such an agreement)?
• To what extent must the FRAND Principles proposed by the Fair Standards Alliance ( slides 9
and 10 above) be incorporated in an Agreement to Arbitrate? In particular, the potential
licensee's right to challenge in court the essentiality and validity of the SEPs, the right to
appeal an arbitration award to Court and making the arbitration award public.
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19. Future mechanisms for resolving SEP/FRAND
disputes arising from implementation of
standards developed for the IoT/Industry 4.0
• The experience of obliging declarants of SEPs in the telecommunications sector to offer licenses on
FRAND terms has lead to costly and time taking litigation in both National Courts and arbitration.
Those disputes have, thus far, failed to provide any industry wide guidelines for setting appropriate
royalty rates.
• With the new landscape arising from Industry 4.0, which necessitates development of a mechanism
to prevent hold-up and enable pro-competitive licensing of patents essential to the new standards,
clearly both industry and Regulators do not want to allow repetition of the cumbersome and
unsatisfactory disputes that have arisen and continue to arise in the Telecoms sector.
• Is arbitration to be preferred to National Court litigation? If it is, because arbitration is a consensual
process, the current system would seem to require changes to meet the demands of the new
technologies. If Industry fails to agree adequate mechanisms, will Regulators step in? In terms of
SEPs will even the Regulators be restricted in devising dispute resolution solutions by existing
International Treaties, for example the Rights Conferred by a Patent Art.28 of the TRIPS Agreement
and the limited exceptions contained in Art.31?
• Is the Fair Standards Alliance on the right track, or not? FRAND issues in future SEP scenarios are
inevitable. Can the IPDR Forum, WIPO and Industry Bodies provide guidance either to adapt
existing arbitration mechanisms or create new dispute resolution means to deal with the
inevitable?
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20. Postscript: the Irish Torpedo. Vodafone GmbH v IP
II (Intellectual Property) Ventures etc.
Judgment of the Irish High Court: March 10 2017 (1)
If there need be another example of why ADR options should be used, this is it.
• IV II LLC (IV) holds 16 EPs declared as essential to the ADSL; ADSL2; and VDSL2 Standards. ADSL =
automatic digital subscriber line. VDSL = very high speed digital subscriber line.
• IV licensed another IV Group company, IV International Licensing (incorporated in Ireland) to License those
SEPs.
• IVIL offered Vodafone a FRAND License on the portfolio for Germany and, at Vodafone's option, in other
territories. Vodafone rejected that offer and made a counter offer.
• In January,2016 IV sued Vodafone in Düsseldorf for infringement of 2 of the 16 EPs, seeking damages.
Unlike in ZTE/Huawei, IV did not seek an injunction or delivery up. In July,2016 Vodafone filed its Defence,
followed in October,2016 by IV's Reply and in January,2017 Vodafone's Rejoinder. An oral hearing in
Düsseldorf is set for April 2017 and it is expected that there will be a decision by September 2017.
• In around June,2016 Vodafone commenced the Irish case claiming that IVIL's offer was not FRAND
compliant and requesting the Irish Court to settle FRAND terms.
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21. Postscript: the Irish Torpedo. Vodafone GmbH v IP II
(Intellectual Property) Ventures etc.
Judgment of the Irish High Court: March 10 2017 (2)
• Although the Düsseldorf Court is not requested to settle FRAND terms but only to deal with infringement
of the 2 EPs, it appears from German case law that in an infringement case the Court will assess whether
or not the SEP holder has offered FRAND terms. It seems - per, Judge Kuhnen - that damages for
infringement will be limited to the FRAND royalty rate: paras. 68-81 of the judgment.
• The Irish Torpedo part of the judgment is set out at paras119-167. See, also paras. 83-94;93;97 and the
Court Notes on pp.56-57.
• Held, no mandatory lis pendens stay under Art.29 of EU Regulation No.1215/2012, since there is no
identity of the causes of action or the parties in the German and Irish courts.
• However, a discretionary stay of the Irish case was ordered under Art.30(1) of the Regulation, which
enables the Court second seized to stay "related" actions.
• Consequently, Vodafone's case in Ireland to have FRAND terms determined by the Irish Court has been
stayed until after judgment in the earlier filed Düsseldorf infringement action.
• In the context of the WIPO Submission Agreement, the judgment contains interesting comments that, for
the purposes of negotiating FRAND licenses, sampling patents is both sensible and common practise in the
Telecoms industry: paras.93 and 109(3) of the judgment.
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