Beyond FRAND: Can Arbitration Standardize Royalty Determination In SEP Disputes?

Authored by - Purvi Singla (Law Student, Rajiv Gandhi National University of Law, Punjab)

     I.         Introduction

Standard-essential patents (SEPs) are crucial to today’s highly interconnected world.[1] They are designed to protect inventions which require a certain technology standard and ensure safety, interoperability of different products developed by different companies. From 5G telecommunications infrastructure[2] to IoT ecosystems[3], SEPs enable manufacturers worldwide to develop compatible products without reinventing foundational technologies. When a patent becomes essential to an industry standard, its owner typically commits to licensing it on fair, reasonable, and non-discriminatory (FRAND) terms, ensuring that it isn’t monopolised and that it doesn’t become a barrier to market entry or innovation.[4]

But FRAND licensing as a solution to preserve a competitive environment and stop a hold-up has come under its own fire. Cases are disintegrating across jurisdictions and this collision of jurisdiction has created anti-suit injunctions, forum shopping and a competition over which venue will confer a benefit that would otherwise be undermined by interoperability and standardization that FRAND was supposed to promote.

The question to ask, however, is not how such disputes can be resolved via arbitration - they are increasingly being resolved through arbitration but rather, whether arbitration, as an institutional form, can provide a consistent and legitimate character. Is it possible to use an arbitration mechanism which is built on the principles of party autonomy and confidentiality to generate standard determinations of FRAND royalty which will have enough weight and precedential authority to bring predictability to technology licensing globally?

2. The Fault Lines in FRAND

While FRAND’s core is fairness, it suffers from issues like royalty disputes and global inconsistency. FRAND’s flexibility, which is one of its strengths, can be moulded to strategic unfairness. Three issues are highlighted:

1. Firstly, there is contention on whether royalties should be calculated on the smallest saleable patent-practicing unit (SSPPU)[5] or on the end-user device which inflates royalties. This methodological difference exists and has a practical impact. In Optis v Apple, the UK high court offered an initial FRAND rate of 5.13 million per year on the device-level base.[6] In 2024, after hearing the appeal, the Court of Appeal determined its own outcome, which was to award Optis 0.15 for each device sold, that is seven times more by changing its previous analytic approach to the court's perception of similar licenses.[7] The lack of a unified methodological approach and the fact of two courts rendering such widely divergent judgments on the same case are the reasons that FRAND decisions can be so diverse.

2. Second, the issue of jurisdiction-specific licencing. Implementers usually act in a global context; however, SEP holders have limited territorial rights. Should there be one global royalty rate for all, or do we need one that varies by territory? The UK in Unwired Planet agreed that courts can impose global rates.[8] The Oppo v. Nokia case in China reached a global rate of $3.27/unit for 5G licensing.[9] However, it included a geographic discount from the outset. This was based on an understanding that Oppo’s revenues were earned primarily in low-GDP markets. These included China, Laos, and Indonesia.

3. Third, the hold-up and hold-out behaviour of the parties. The FRAND framework is designed to prevent patents holders from taking advantage of their market power to enforce unreasonable royalties, as well as patents users from delaying negotiations. On the contrary, there is abundant evidence to support both interpretations by the Courts, and this has led to very different interpretations. Disputes like Ericsson v. Lenovo received rulings in multiple jurisdictions (UK, US, Brazil, Colombia) before agreeing to binding arbitration.[10] Despite the lengthy nature of the case, neither party’s conduct could be clearly branded as hold-up or hold-out.

   
   

3. The Promise of FRAND Arbitration

International commercial arbitration offers several structural advantages that, on their surface, appear to address FRAND's fragmentation crisis. The appeal is understandable and multifaceted. Arbitration is increasingly offered as a more attractive mechanism to address FRAND issues. This is due to various valid factors. Firstly, the technical expertise of selecting a particular arbitrator could save on time and effort including the need for presentation of expert reports before a court. SEP may need specialized knowledge regarding concepts like semiconductors, wireless standards, economic valuations and cellular licensing etc. WIPO's Arbitration and Mediation Centre maintains an open-ended list of specialists in FRAND issues, patent economics, and telecommunications technology.[11] Secondly, it offers a neutral seat which prevents forum shopping and reduces biasness in jurisdictional favour of either the patent holders or implementers. Thirdly, Secrecy has always been the strongest argument in favour of arbitration and FRAND negotiations need it considering that it involves revelation of sensitive data such as cost structures and has protections such as Article 75 of the WIPO Arbitration Rules.[12] Lenovo and Ericsson, for instance, announced a "partial settlement" involving binding arbitration to determine FRAND terms after years of global litigation. It also consolidates cross-border disputes by allowing a single tribunal to hear all disputes and avoid inconsistencies across forums. 

4. Structural Weaknesses in SEP Arbitration

While arbitration solves some of the FRAND issues, it also creates some of its own issues that could result in a conflicting and unpredictable environment for wide-scale adoption of arbitration in SEP disputes. First, there are no strong precedents for awards as they are only binding on the two parties to the agreement; they have no precedential value. Because there will be no body of published arbitration awards, various arbitrators could use different methodologies to determine the value of similar technologies. The lack of continuous doctrine to apply to these cases creates uncertainty about how arbitration will consistently set FRAND rates. Second, arbitrators are typically selected by patent owners, and because of their experience as repeat players in arbitration proceedings, they tend to hold a significant amount of power over arbitrator selections. Third, these awards are not necessarily enforceable. Even under the New York Convention, states are able to refuse to recognize or enforce arbitration awards if the award goes against the public policy of the state, which is possible in jurisdictions where FRAND terms are seen as matters of competition law.[13] Fourth, is the "Anti-Suit Injunction" mess. FRAND disputes frequently involve national injunctions. A recent case of note was Microsoft v. Motorola.[14] Following this decision, many federal district courts issued anti-suit injunctions, preventing parties from pursuing their claims in foreign jurisdictions and further exacerbating jurisdictional problems in the field of FRAND disputes rather than helping to resolve them.

5. Recommendations

For arbitration to become a stable, safe mechanism for FRAND adjudication, it will require structural reforms. A few recommendations are suggested: 

WIPO-Administered Global SEP Arbitration Panel

WIPO, already administering over 80 SEP-related mediations involving parties from 20+ jurisdictions (WTR, 2024) can handle a Global SEP Arbitration Panel.[15] This panel should maintain a roster of pre-approved technical, legal, and economic experts, ensuring balanced expertise between licensors and implementers. Pre-appointment vetting by WIPO would curb bias and increase legitimacy.

Mandatory transparency of royalty determination methodologies

Publishing the royalty valuation frameworks while maintaining confidentiality of all sensitive financial information will provide some degree of consistency among tribunals and will facilitate comparative benchmarking among awards based on their use of such methodologies (e.g., comparable licenses approach; top-down method; incremental value test).[16] It is this transparency of reasoning that will begin to create soft precedents through arbitration.

Codifying Guidelines Regarding "Good Faith" Negotiation Conduct

WIPO and/or SSOs could codify guidelines regarding what constitutes "good faith" behaviour in FRAND negotiations and as a result, operationalize the Huawei v. ZTE framework by the CJEU which outlined mutual obligations of the parties during negotiations.[17] Such guidelines would help eliminate frivolous litigation and may serve as a reference point in both arbitral and judicial forums.

6. Conclusion

The greater the use of cross-border technology, the more devices are becoming connected to each other. Thus, FRAND licensing and resolving SEP disputes in a stable manner will become increasingly important due to the fact that the litigation process has already fragmented too much. Through the availability of a neutral seat for the arbitration proceedings, confidentiality measures, technical expertise of the arbitrator(s), and ability to consolidate cross border disputes into one single proceeding; arbitration can provide the promise of a smoother dispute resolution. However, arbitration has its own set of issues including selection bias, uncertainty in enforcing awards, and lack of transparency. The WIPO led system would need to include standardized expert panels, open valuation processes, and norms of negotiation for private businesses and to meet the public's expectation of how governments regulate.

[1] WIPO, Standard Essential Patents, https://www.wipo.int/en/web/patents/topics/sep (last visited Nov. 15, 2025).

[2] Daniel F. Spulber, Licensing Standard Essential Patents: Preparing for 5G Mobile Communications, 84 SSRN ELECTRONIC J. (May 13, 2019), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3383745.

[3] 4iP Council, Internet of Things: SEP Licensing Within the FRAND Framework, https://4ipcouncil.com/research/internet-of-things-sep-licensing-within-the-frand-framework (last visited Nov. 15, 2025).

[4] WIPO, A FRAND in Need: Why Establishing Standardized Technologies Is So Complicated, WIPO MAG., https://www.wipo.int/en/web/wipo-magazine/articles/a-frand-in-need-why-establishing-standardized-technologies-is-so-complicated-69933 (last visited Nov. 15, 2025).

[5] David Kappos & Paul R. Michel, The Smallest Salable Patent-Practicing Unit: Observations on Its Origins, Development, and Future, 32 BERKELEY TECH. L.J. 1433 (2017), https://btlj.org/data/articles2017/vol32/32_4/Kappos_web.pdf.

[6] Optis v Apple EWCA Civ 552 (appeal from EWHC 197 (Ch)), https://www.wipo.int/wipolex/en/judgments/details/2180 (last visited Nov. 15, 2025)

[7] JUVE Patent, UK Court of Appeal Orders Apple to Pay More Money to Optis, https://www.juve-patent.com/cases/uk-court-of-appeal-orders-apple-to-pay-more-money-to-optis/ (last visited Nov. 15, 2025).

[8] Unwired Planet Int'l Ltd v. Huawei Technologies Co., EWHC 711 (Pat) (appeal proceeding under EWCA Civ 552), https://www.judiciary.uk/wp-content/uploads/2017/04/unwired-planet-v-huawei-20170405.pdf (last visited Nov. 15, 2025).

[9] CIPLawyer, EU Seeks Access to China's Secretive Oppo-Nokia Global FRAND Rate Judgment, https://www.ciplawyer.com/articles/152643.html (last visited Nov. 15, 2025).

[10] Reuters, Lenovo Wins Appeal in UK Fight with Ericsson Over Interim Patent Licence, https://www.reuters.com/technology/lenovo-wins-appeal-uk-fight-with-ericsson-over-interim-patent-licence-2025-02-28/ (Feb. 28, 2025).

[11] WIPO, WIPO ADR for FRAND Disputes, https://www.wipo.int/amc/en/center/specific-sectors/ict/frand/ (last visited Nov. 15, 2025).

[12] WIPO Arbitration Rules (effective July 1, 2021), WIPO Publication No. 446E/2022, https://www.wipo.int/amc/en/arbitration/rules/index.html (last visited Nov. 15, 2025).

[13] New York Convention, Article V(2)(b), Guide, https://newyorkconvention1958.org/index.php?lvl=cmspage&pageid=10&menu=626&opac_view=-1 (last visited Nov. 15, 2025).

[14] Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR (W.D. Wash. Apr. 25, 2013), https://www.wipo.int/wipolex/en/judgments/details/2218 (last visited Nov. 15, 2025).

[15] Gunter, Pierre-Yves & Pierce, John V. H. (eds.), Recent Trends in WIPO Arbitration and Mediation, in The Guide to IP Arbitration (3d ed., Law Business Research 2022), https://www.worldtrademarkreview.com/guide/the-guide-ip-arbitration/third-edition/article/recent-trends-in-wipo-arbitration-and-mediation (last visited Nov. 15, 2025).

[16] Stout, Methods for Determining FRAND Licensing Terms for SEPs, https://www.stout.com/en/insights/article/methods-determining-frand-licensing-terms-seps (last visited Nov. 15, 2025).

[17] Claudia Tapia & Spyros Makris, Negotiating SEP Licences in Europe after Huawei v ZTE: Guidance from National Courts, MANAGING IP, May 2018, at 21, https://www.4ipcouncil.com/application/files/1315/3018/6300/21-29_article_SEPs.pdf (last visited Nov. 15, 2025).