8 Commitments to License on Fair, Reasonable, andNondiscriminatory Terms: Comparing the Japanese Approach toTechnology Standards with Emerging Trends around the World(*)
Invited Researcher: Carol Mullins HAYES (**)
Standard Setting Organizations (SSOs) often require members to commit to licensing patented
technologies on fair, reasonable, and nondiscriminatory (FRAND) terms. FRAND commitments may be viewed
as contracts. However, enforcing the commitment in favor of a standard implementer will generally require
recognizing the implementer as a third party beneficiary under the contract, and many countries may be hesitantto give third party beneficiaries full rights to enforce a contract. Attempting to evade a FRAND commitment may
be viewed as anticompetitive, but jurisdictions differ as to when such behavior is sufficiently anticompetitive tobe actionable. The public benefit of standards and the possibility that this benefit could be harmed by patent
holdout also raises the issue of how to determine if a patent right is being abused.
My research examines these questions from an international perspective because of the global nature oftechnology standards, with additional attention given to the application of the law of Japan. To gain a variety ofperspectives on this topic, I also conducted interviews with several industry professionals in Tokyo to obtain theperspective of those who practice in relevant fields in Japan.

I

Introduction

The
recentpatentwars
involvingstandardized technology span the globe andstretch across many jurisdictions. Patent
litigation in this area has been making headlines,
in part because some of these cases are between
two parties that are already household names,
including some of the major smartphone
manufacturers. Many of the technologies involved
are implicated by technology standards, and mostof them are subject to commitments to licenseessential patents on fair, reasonable, andnondiscriminatory (FRAND) terms.
In this report, I will examine issues thatarise in the context of standard setting, especially
issues relating to FRAND commitments, from aninternational perspective and with special
attention to Japanese law. This summary isdesigned to follow the organization of the fullreport, so the reader can quickly turn to arelevant section to learn more.

Ⅱ Japanese Law
Historically, the legal system of Japan has
been very different from the U.S. legal system.

These differences include matters of both content
and behavior. As a civil law system, the primarysource of Japanese law is its written codes. The
Japanese Civil Code also includes generalprovisions aimed at ensuring fairness intransactions and in the application of law.
There are other sources of law in Japan aswell, including custom and case law. Article 92 of
the Civil Code indicates that custom prevails overlaws or ordinances that do not concern public
policy. Case law has persuasive effect, but isgenerally not legally binding to the same extent
as case law in common law countries. Though it
lacks stare decisis effect in Japan, case law is
nonetheless very influential, and in many cases alower court’s failure to follow Supreme Court
precedent is grounds for appeal.
Coming from the common law legal systemof the United States, one of the first things that I
wanted to understand was the practical
implications of Japan’s civil law system.
Comparative lawyers often focus on the
differences between the common law and civil law
systems.
Reference to the civil law system of Japansometimes implicates the ideas of “bukken” and“saiken” characterizations of rights. Bukken is(*) This is a summary of the report published under the Industrial Property Research Promotion Project FY2013
entrusted by the Japan Patent Office.
(**) Research Associate, University of Illinois College of Law

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the term used to refer to “real rights,” and isgenerally equivalent to the idea of in rem rights.
On the other hand, saiken refers to obligationrights, or rights in personam. Real rights pertain
to a specified thing and generally can be claimed
against all others, while in personam rights allow
the holder to require specific action or inaction ofanother person and generally can only be claimed
between the parties to the specific contractual
relationship.
a

Patents

Under Japanese law, when a patent has been
infringed, the patent owner may seek an
injunction, damages, and “measures for recoveryof the patent owner’s reputation.” 1 Damages
under the Patent Act can include a demand thatthe defendant pay the patent owner a reasonableroyalty, which is an amount that may be
determined by a court. When an infringer has sold
infringing products, damages can also include thelost profits that the patent holder could haveobtained, though this amount is limited by thepatent owner or licensee’s production capacity.
Under Article 100 of the Patent Act, an injunction
is available when there is a likelihood of
infringement of a patent.
1

Licenses – Exclusive and nonexclusive
The Japanese patent licensing system
includes more complicated procedures than thepatent licensing system under U.S. law. Under
Japanese law, the holder of a sen-yo exclusive
license has most of the same rights to assert apatent as the patent owner, but in order for the
sen-yo license to be effective, it must be
registered with the JPO.
Patent law in the United States currently
does not have any mandatory recordation
requirements in most situations, though the
USPTO has recently considered requiring
recordation at least for patent assignments. While
conducting interviews, I asked representatives ofJapanese industry for their opinions concerning
the recordation system of Japan. The generalconsensus among those whom I interviewed isthat there are some issues with the Japaneserecordation system, but that having a recordation
system is better than not having a recordation
system.
b

Contracts
My primary interest in this report is tounderstand FRAND commitments from theJapanese perspective. To this end, Japanesecontract law is essential to my analysis. Japanesecourts have concluded multiple times that patent
license agreements are governed by normal
contract law. Laws governing IP infringement
also may apply when the transferred right is
exclusive, but in the context of technology
standards, it is unlikely that a sen-yo exclusive
license will be granted for standard essential
patents (SEPs). Thus, Japanese contract law isespecially important to understanding theimplications of FRAND commitments.
FRAND commitments are a contract
between the patent owner and the SSO, but most
SSOs state that they will not intervene inlicensing disputes. Therefore, the right of astandard adopter to enforce the FRAND
commitment is very important for FRAND
commitments to have any real meaning. Under
U.S. contract law, third party beneficiaries canenforce contracts under the right circumstances.
In some European countries, like Germany, therecognition of third party beneficiaries undercontracts is more difficult.
In Japan, Article 537 of the Japanese Civil
Code will apply, under which a third party obtains
a right to claim performance, which Tamura says
may create an interest for FRAND commitment
beneficiaries. 2 Under Article 538 of the Civil
Code, other parties may not modify or extinguishthe right held by the third party beneficiary.
However, under Section 537(2), the right does
not accrue when the contract is formed, andinstead depends on the beneficiary expressing an
intention to receive the benefit. Thus, theintention of the FRAND commitment ispreserved under Japanese law, but it is limited.
The fact that the third party beneficiaries are not
identified might also cause problems for standard
adopters, but a lower court case supports the
proposition that under Japanese law, unidentified
third party beneficiaries may be able to claim thebenefits of the contract.
cCompetition law

The Japanese Fair Trade Commission (FTC)is the primary government body charged with
enforcing Japanese competition law. The FTC has
quasi-legislative and quasi-judicial power, similar
to an administrative agency in the United States.
When preliminary evidence is presented to the
FTC, the FTC can initiate an investigation into
possible
anticompetitive
behavior.
This

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preliminary evidence may come from complaints
made by the public, detection by the FTC, ornotification by the Public Prosecutor General.
Complaints made by the public are the mostimportant source. Decisions of the FTC can bereviewed by the Tokyo High Court. While the
FTC is formally entrusted with enforcing theAnti-Monopoly Act, some private causes of action
may be available to address anticompetitive
actions. However, it is not clear if theAnti-Monopoly Act creates a right to demand a
private law injunction to prevent the rescission ofa contract.
d

Property law

Japanese property law emerged to address
the needs of a collectivist society in managing
potentially conflicting interests in property in thegeographically isolated Japanese archipelago.
Japanese property law, or zaisan ho, has remainedlargely unchanged since the Civil Code wasadopted in 1896.
The numerus clausus principle applies
strongly in Japan, where new rights generally
cannot be created without legislative intervention.
Because of the numerus clausus principle, it isvery difficult for real rights to be recognized ifthey are not within a specific preexisting category
under the Civil Code. The statutory real rights
under the Japanese Civil Code are: possessory
rights, ownership, superficies, emphyteusis,
easements, rights of retention, preferential rights,
pledges, and hypothecs.3
Japanese law contains several provisions
addressing use rights in the property of others.
Under Article 209 of the Japanese civil code, theowner of land may request the necessary accessto or use of neighboring land to the extent
necessity for completing work around theboundary. Article 209 could either be understoodas an extension of the land ownership rights of
the neighbor, or as a constraint on the ownershiprights of the owner of the servient land. The
principle underlying Article 209 is also reflectedin Article 92 of the Japanese patent law, where
the owner of a patent that relies on an earlier
innovation is permitted to request a compulsory
license for the earlier invention to allow thepractice of their later invention. Japaneseproperty law also has a concept that is similar to
the “servitude by necessity” under U.S. law.
Article 210 of the Civil Code gives a landowner aright of access over adjoining land when the firstlandowner otherwise has no access to public

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Property theories
Japanese property law does not draw muchdistinction between movable and immovable
property. However, intellectual property seems tobe treated as a distinct concept under Japaneselaw, perhaps indicating that Japanese property law
is primarily viewed as applying to corporeal
objects. This would put Japanese property law inline with German property law, or “sachenrecht,”a word that can be literally translated as “the lawof things.” On the other hand, the civil law
system of France views incorporeal objects as a
type of movable property.
My previous research on the topic of FRAND
commitments emphasized a property analogy.
Specifically, we contemplated interpreting a
FRAND commitment as creating an encumbrance,
similar to a servitude under real property law, thatwould run with the patent to subsequent assignees.
The Japanese approach to servitudes is similar toservitudes under U.S. law, allowing me toanalogize to FRAND commitments in the sameway. Applying a servitude theory under Japanese
law would resolve the pervasive issue of how toensure that a FRAND commitment is enforceable
against a successor in interest. However, becauseof Japan’s strict numerus clausus doctrine, theinterpretation of a FRAND commitment ascreating an encumbrance would likely need to be
codified in the law, because of the limitations on
creating new “real rights” under Japanese law.
eAbuse of right

Under Article 1 of the Civil Code, there is arequirement that the exercise of private rights
must conform to the public welfare, an obligation
to exercise rights and perform duties in good faith,
and a prohibition on the abuse of rights. The
concept of “abuse of right” has sometimes been
applied in cases concerning conflicts that would
be referred to as nuisances in U.S. property law.
The concept of “abuse of right” is a broad
one and is not grounded in a particular area of law.
In the patent context, a patent owner can be said
to be committing an abuse of rights when theowner’s exercise of the patent right is “contrary
to the purpose of the patent act.”4 Competition
law in many countries prohibits abuse of
dominant position, which seems thematicallysimilar to an abuse of right.

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In the context of technology standards, aJapanese court ruled in 2013 that an abuse ofright occurred when a patent owner claimed
damages without fulfilling its duty to negotiate ingood faith pursuant to a FRAND commitment.5
However, the response to these circumstances
varies across jurisdictions. In proceedings
between IPCom and HTC, a district court inGermany ruled that IPCom’s claims against HTC
concerning standard essential patents were notabusive to law. Because the United States is acommon law jurisdiction, there is no “abuse ofrights” concept in the law, but there is asomewhat related concept called patent misuse.
Competition law and intellectual property law
occasionally overlap in this context. In the UnitedStates,patentmisusereferstotheanticompetitive assertion of a patent. If patentmisuse has been found, the patent owner islimited in his ability to exercise his exclusive
patent rights.

Ⅲ Standardization
A technology standard can be open or closed(depending on to whom membership is available),and public or non-public (depending on whether
the standard is available to the public or only tothe parties that drafted the standard). As Kim
Junghoon stated in an IIP report, the purpose ofstandardization is to reduce uncertainty andpromote economic transactions.6
Standardization has many benefits. It reducestransaction costs, achieves economies of scale,
incentivizes investment, promotes intra-standard
competition, produces network effects benefiting
complementary goods, provides consumers withmore choices, and allows for the expansion of therelevant market. The Tokyo district court statedthat technology standards can help ensure devicecompatibility, reduce the costs of producing andprocuring technology, make R&D expenditures
more efficient, and provide improvements in
products and services to end users. 7 However,standardization also carries the risks of producers
and consumers being locked-in to a particular
type of technology, and can potentially restrict thediversity of the technology. Lock-in reduces
uncertainty at first, but over time, a locked-in
technology can become outdated, and thestandard can make it more difficult to change.
aEssentiality
As a recent IIP Bulletin noted, SEPs aregoing to continue to be very important in theJapanese economy. 8 There are many pressing
questions concerning SEPs. How can an SSO or a
court determine what the SEP’s actual value tothe standard is? What does it mean for a patent tobe essential? Should injunctions be available
when a SEP has been infringed?
Determining how to recognize SEPs is thus avery important topic for policymakers to consider.
In conducting my research, I interviewed several
professionals in Japan who encountered
standards-related issues, either through theirown practice or through interaction with policy
concerns.
In
multipleinterviews,
theinterviewees stressed that a third party service
should be utilized to evaluate whether a declared
essential patent was actually essential to thestandard.
b

Patent pools

Patent pools offer a variation on theprocedures followed by SSOs, focusing on joint
licensing agreements that permit members toplace patents into a pool of technologies rather
than making a declaration that the member has astandard essential patent. Judging by the feedback
that I received during interviews, it appears thatpatent pools are a favored approach in Japanesetechnology industries.
Patent pools can reduce transaction costs byregularizing transactions, and can also potentiallyreduce conflicts when there are mutually blocking
patents. Patent pools can also reduce the problemof royalty stacking, where otherwise reasonable
licensing fees become excessive when aggregatedwith a large number of other reasonable license
fees for the same standardized technology.
There are several possible disadvantages ofpatent pools, including the risk of free-riders andthe danger that the pool could be misused as atool for price-fixing. Patent pools have been thetargetofcriticism
basedonpossibleprice-discrimination issues, so patent pools havehistorically avoided ex ante discussion of price bysetting IPR policies that emphasize FRAND
commitments.
When evaluating whether a patent pool isanticompetitive, competition authorities areespecially concerned about things like whether
the pools are limited to essential patents and if
licensing by the pool is nondiscriminatory. The
relationship between patents in a pool is also very
important when evaluating their status undercompetition law – for example, are the patents

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competitive, complementary,orblocking?
Competitive (or substitute) patents are patents
that can be commercialized without mutual
licensing, while complementary patents arepatents that are worth more when they arecommercialized together. On the other hand,
technologies that rely on blocking patents cannot
be commercialized without the patents being
infringed.
c

FRAND

The primary focus of this report is on thelegal implications of commitments to licenseessential patents on fair, reasonable, andnondiscriminatory (FRAND) terms. Many SSOs
only permit patented technologies to be included
in a standard if the patent owner promises tolicense the patent on FRAND terms.
However, SSOs generally do not define what
traits a FRAND license would have, and often
have specific policies against getting involved inlicensing disputes. The Commission of theEuropean Communities has long recognized thatfairness and reasonableness are subjective factorsthat are to be “determined by the circumstances
surrounding the negotiation.” 9 Thus, FRAND
commitment disputes are typically resolved bycourts.
The effect of FRAND commitments on
remedies remains unclear. Some research suggeststhat a FRAND commitment should be understoodas precluding an injunction for the infringement of
SEPs. In the United States, case law is trending inthis direction, and courts currently seem less likely
to grant injunctions to SEP owners when theinfringed patent is essential to a standard. However,there is not a consensus across jurisdictions on thispoint, and clarifying the effect of a FRAND
commitment on available remedies under Japanese
law might require an amendment of the Japanese
Patent Act.
d

IPR policies

Because of the need to balance the benefitsof standard setting against the rights of SEP
owners, SSOs enact intellectual property rights(IPR) policies. SSOs typically require members todisclose if the member owns patents that are or
will likely become standard essential. The
disclosure requirement serves as a reassurance
to users of the standard that there is not asignificant risk of patent holdup.
IPR policies generally contain terms that do

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not place too many burdens on the patent owner.
ETSI adopted a more stringent and detailed IPR
policy in 1993, but in response to opposition to
the policy, ETSI abolished the policy in 1994 andadopted a more flexible approach.

Ⅳ Legal issues in standardization
Legal issues relating to standardization havebeen examined in many different jurisdictions.
The Japanese law on these points is developing,so this section of my report focuses primarily on
how these issues have been addressed thus far byacademics and in other jurisdictions.
When a beneficiary seeks to enforce a
FRAND commitment, a court may be tasked witheither 1) determining the reasonableness of aproffered royalty, or 2) calculating a reasonableroyalty. Much of the recent litigation concerningtechnology standards involves arguments aboutroyalties.
A district court in the United States recently
provided a very detailed analysis for calculating areasonable royalty in Microsoft v. Motorola.
During interviews with Japanese professionals,
one sentiment that was expressed was thepossibility that the test that was applied in
Microsoft v. Motorola might influence technology
holders to be more interested in patent poolarrangements instead of SSOs.
The two areas of law that have been analyzed
the most with respect to FRAND commitments
and standardization are competition law andcontract law, so it is to these areas of law that wewill next turn.
aCompetition law

The standard setting process can implicatecompetition law because the process typicallyinvolves private companies that are working
together doing things that affect a relevantmarket. Generally, competition authorities arehesitant to challenge standard-setting itself as
being potentially anticompetitive because of thevoluntary nature of the process and thecompetitive benefits of standardization.
1

U.S.
Under U.S. antitrust law, a rule of reason is
generally applied to determine if actions relating
to standardization violate competition law. For arule of reason analysis, the court considers therelevant market and the defendant’s market
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business review letters approving patent pools
like the pools for DVD technology and MPEG-2.
In 2006, the USDOJ also approved VITA’s
proposed policy that would require members to
declare the maximum royalty rates that they willseek for SEPs.
The U.S. case of Rambus Inc. v. FTC
provides a convincing, if somewhat pessimistic,
view of how U.S. antitrust law will apply tomisbehavior in the standard setting context. In
the Rambus case, there was evidence that
Rambus had concealed patents and had amended
its patent application to better reflect the planned
standard before withdrawing from the SSO. The
D.C. Circuit, however, held that this sort ofbehavior was not anticompetitive, in part because
the concealment was done in order to avoid thepossible royalty limitations of a FRAND
commitment. The Court also held the FTC to ahigh causation bar, requiring a showing that but
for the concealment, a different standard would
have been adopted.
2

EU
Analysis of FRAND issues in European
courts often focuses on competition law claims.
Each SEP owner is a monopolist by definition,
because the EC considers each SEP to be “amarket unto itself.”10 Articles 101 and 102 of theTreaty on the Functioning of the European Union(TFEU) are especially relevant to competition
law concerns and standard setting. Article 101
sets forth a variety of prohibitions on businessundertakings, and Article 102 refers to abuse of adominant position.
bContracts

The effect of a FRAND commitment undercontract law is likely to vary significantly acrossjurisdictions. In the United States, FRAND
commitments tend to be viewed as valid contracts,
and it is not too controversial to say that a third
party beneficiary has a right to enforce a FRAND
commitment when a SEP owner is seeking an
injunction against the potential licensee’s use of
the patent.
However, contract issues relating to FRAND
commitments are less clear in some European
courts. In the litigation between IPCom and HTC
in Germany, the District Court of Mannheim heldthat German law would not recognize a FRAND
commitment as executing a partial waiver of inrem rights. This is significant because several
interpretationsof
FRAND
commitmentsemphasize the role that FRAND commitments
play in limiting the scope of the patent owner’s
exclusive rights. FRAND commitments may also
have an uncertain legal status in the United
Kingdom, where the courts generally do notrecognize “contracts to negotiate.”11 In Walford v.
Miles, the UK court went so far as to suggest that
imposing a duty to negotiate in good faith would
be “inherently repugnant to the adversarial
position of the parties.”c

Injunctive relief

One of the pervasive issues that arises in thecontext
ofstandardization
and
FRAND
commitments is the extent to which a SEP ownershould be able to seek an injunction as a remedy
for infringement of a SEP. Some recent U.S. court
decisions rejected requests for injunctive relief
under different justifications, such as byinterpreting the FRAND commitment as animplicit admission that royalties would be
adequate to compensate the patent owner for the
infringement. IIP analysis of case law from theNetherlands indicates that under Dutch law, an
injunction may be denied if the behavior of the
SEP owner amounts to an abuse of right. 12 A
FRAND commitment might also restrict theavailability of injunctions in South Korea.
dTransfer

In the modern information economy, patents
are frequently bought and sold. There have been
many large transfers of patents. The CPTN
Consortium (made up of Microsoft, Apple, EMC,
and Oracle) bought 882 Novell patents for
US$442 million. The Rockstar Consortium (which
included Microsoft, Apple, and Research in
Motion) bought 6000 patents that formerly
belonged to Nortel for US$4.5 billion. Many ofthese transactions involve patents that may be
SEPs and thus subject to FRAND commitments.
When SEPs are acquired, it is unclear if the newowner is bound by the FRAND commitment thatapplied to the predecessor in interest. Dolman
and Ilan argue that FRAND promises should
follow the patent when it is transferred, since topermit otherwise would allow patent owners to
avoid FRAND obligations simply by transferring
the patent.13 Contract language can be used toobtain this effect, like when Rockstar purchased
Nortel’s patent portfolio and the FRAND
obligations were listed in the sale agreement as“permitted encumbrances.”

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If a FRAND commitment were characterized
as a license, it would be easier to argue that thecommitment runs with the patent, sincenonexclusive licenses are generally enforceable
against successors in interest under patent law.
At least one case in China seems to have applied
this reasoning. There, a court concluded thatparticipating in the standard setting processeffectively created a license in favor of parties
who use the standard technology. However,
judging by recent case law, it is more likely that a
FRAND commitment will not be viewed as
creating a license.

Ⅴ Conclusion
Standard setting activities are very
influential across many different jurisdictions.
However, courts currently do not agree about
how FRAND commitments should be understoodor what the effect of the commitment should be.
Through this report, I hope to have provided
some additional insight into the development of
FRAND issues in Japan and around the world.
1

Zentaro Kitagawa (General Editor), Doing Business inJapan, Vol. 3, Part VI, Intellectual Property, s. 2.17
(2006).
2
Yoshiyuki Tamura, Standardization and Patent Rights –Legal Issues Concerning the Application of the RAND
Provisions, Chizaiken Forum, Vol. 90, pp. 18-26 (2012).
3
Zentaro Kitagawa (General Editor), Doing Business inJapan, Vol. 3 (2006), Part IV, Property, 1.02.
4
IIP Bulletin 2013, Vol. 22, The Exercise of Essential
Patents for Standards (II).
5
Judgment of Tokyo District Court, February 28, 2013(2011 (Wa) No. 38969) (translation by IIP); IIP Bulletin
2013, Vol. 22, The Exercise of Essential Patents forStandards (II).
6
Kim Junghoon, Technical Standard-Setting, Patent Pooling,
and Competition Policy 6, IIP, March 2004.
7
Judgment of Tokyo District Court, February 28, 2013(2011 (Wa) No. 38969).
8
IIP Bulletin 2013, Vol. 22, The Exercise of Essential
Patents for Standards (II).
9
Commission of the European Communities,
Communication from the Commission, Intellectual
Property Rights and Standardization, Com(92) 445 final,
4.3.3, Brussels, 27 October 1992.
10
Maurits Dolmans and Daniel Ilan, European Antitrustand Patent Acquisitions: Trolls in the Patent Thickets, 8
NO. 2 COMPETITION L. INT'L 7, 8 (2012).
11
Walford v. Miles [1992] 2 W.L.R. 174.
12
IIP Bulletin 2013, Vol. 22, The Exercise of Essential
Patents for Standards (II).
13
Dolmans and Ilan, supra note 10, at 12.

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