Valuation and the fragile balance behind FRAND Rates

FRAND licensing is often presented as a technical exercise: find comparables, run the arithmetic, produce a number. But the panel on valuation and FRAND rate calculation at the OxFirst 12^th IP and Competition Forum converged on a more uncomfortable reality — rates are shaped as much by bargaining power and remedies as by valuation technique. When that balance is wrong, the system distorts.

Opening the discussion, Managing Director at Vossius Brinkhof, Mr Bollman, warned against false precision. Valuation, he said, is not an exact science. It depends on the quality of data, the skill of the valuer and assumptions about an uncertain future. FRAND rates, by definition, are forward-looking — and that makes them inherently contestable.

Professor Ghafele, Managing Director at OxFirst, sharpened the point. Patent licensing, she argued, is ultimately injunction-driven. Negotiations are shaped less by abstract fairness than by what each side expects will happen if talks collapse. Injunctions are the strongest tool judges possess, and their availability — or absence — directly influences incentives to settle.

Her research suggests that extremes are destabilising. If injunctions are unavailable, bargaining power tilts toward implementers, who face limited downside beyond paying reasonable royalties. If injunctions are too easily granted, power swings sharply to patentees, pushing rates upward. In economic terms, FRAND sits somewhere between zero and the cost of redesign — but where that midpoint lies depends on bargaining power, litigation risk and the probability of success.

A Nash bargaining model illustrates the mechanics. Licensing rates rise mechanically with redesign costs. The higher the cost of avoiding a patent, the higher the ceiling for negotiation. Add in uncertainty over litigation outcomes, and incentives to hold out or hold up quickly emerge. The conclusion was blunt: courts cannot avoid influencing market behaviour, and issuing too many — or too few — injunctions is equally counterproductive.

New sectors, old tools

From an implementer’s perspective, Ms Landis, Vice President Legal, Litigation at Warner Bros. Discovery, challenged the premise that hold-out is the central problem. In content-driven industries such as streaming, valuation looks nothing like the cellular world. Platforms derive value from brands, libraries and consumer relationships built over decades. Patent holders, she said, benefited historically from implementers bringing standards to life without demanding royalties — and are now seeking to monetise late in the cycle, often through injunction pressure.

That mismatch exposes a deeper problem: comparables are scarce or non-existent. In cellular markets, decades of licensing provide reference points. In streaming and codec technologies, valuation often feels arbitrary. When one side controls the valuation logic and the other sees only the number, agreement becomes elusive.

Ms Rajendra, a Partner at Osborne Clarke, offered a judicial counterweight, pointing to the UK’s evolving approach. Courts have endorsed FRAND injunctions that dissolve once a court-determined licence is accepted. Implementers retain access to the FRAND rate, while patentees retain leverage if commitments are refused. In that framework, refusing to commit to a court-set licence can itself signal unwillingness under ETSI rules.

Mr Kamprath, Principal at McKool Smith, highlighted the valuation gap between mature and emerging sectors. For established SEP portfolios, high-level valuation using comparable licences remains feasible. In newer sectors, valuation must be built from first principles — looking not just at patents, but at use cases, decoding versus encoding, consumer quality and business models. A codec that saves bandwidth may matter less than one that reduces churn.

Beyond comparables

Prof Ghafele underlined the need for broader economic tools. One alternative may be a present value-added approach, borrowing from mainstream finance. By discounting future income streams and isolating the incremental value contributed by patented technology, courts can estimate reasonable royalties even in new markets.

Ms Rajendra questioned what, exactly, courts are valuing: access to the standard, value to the implementer, or value to consumers. Ex ante approaches, she noted, often shift gains away from SEP holders and have struggled to gain traction in UK courts, particularly for portfolio-wide licensing.

Information asymmetry loomed large. In streaming markets, implementers often hold the most relevant data on usage, subscriptions and revenue. Patent holders, meanwhile, control portfolio information and essentiality claims. Both sides complain of opacity — and both depend on courts to break deadlock.

The session closed with realism rather than ideology. Parties want certainty and business solutions, not perpetual litigation. But valuation methods lag technological change — and injunctions remain the gravitational force around which negotiations orbit.

FRAND is not struggling because courts cannot calculate rates. It struggles because valuation, incentives and enforcement are inseparable — and pulling too hard on any one lever risks tipping the entire system out of balance.

Views expressed at the 12^th IP and Competition Forum are not necessarily those of OxFirst, its employees or affiliates.