By Access Advance
The UK Supreme Court’s decision in Tesla v. InterDigital & Avanci recognizes, as have courts around the world, that patent pools which are procompetitive1 are efficient, market-driven mechanisms that drive rapid and widespread adoption of standardized technology, enabling better consumer experience while ensuring interoperability. Indeed, that widely accepted truth is an important driver of the UK Supreme Court’s decision.
That decision has been commonly understood to mean that the UK court has jurisdiction to set royalty rates for patent pools. We note, however, that Avanci identifies itself not as a patent pool, but as a “licensing platform” and that the UK Supreme Court opinion contemplates that difference, noting that Avanci offers a “5G licensing platform” (par. 2, emphasis added) and that Avanci’s license was a “platform license” (par 1, emphasis added)2. We also note that Avanci’s collective licensing platforms are organized and operated very differently from patent pools.3
The UK Supreme Court has not yet reached the merits of the case, and is far from deciding whether a UK court has the authority to set rates for a patent pool. But it is important for courts – as well as patent owners, implementers, and consumers – to understand why courts setting royalty rates for patent pools will be harmful to the market and will not provide a solution that meets real-world market needs.
Judicially setting royalty rates for a patent pool risks undermining the very features that have made patent pools successful for more than three decades. By displacing voluntary, market-based licensing with court-imposed rates, such intervention threatens the efficiency, innovation, and broad industry participation that have enabled patent pools to benefit consumers, implementers, and patent owners alike. Less participation in pools by patent owners and implementers will result in more market fragmentation, which likely will lead to more litigation between licensors and implementers, in turn resulting in higher costs, less clarity and transparency around rates and terms, inefficiencies in the market, and delayed technical adoption, all of which ultimately will harm consumers.
A court that intervenes in the pool’s royalty rate setting process will therefore not only almost certainly harm the pool that is the subject of its decision, but due to the fact that every pool could be exposed to the risk of after-the-fact rate resetting, will likely weaken all existing pools and discourage the formation of new pools.
Patent pools succeed when they balance the interests of implementers and patent owners. A balanced royalty rate is one that is sufficiently low for implementers to willingly take a license and sufficiently high for the patent owners to willingly give a license. And that balance is the economically rational way for a pool to optimize profits because a patent pool exhibits the economics of a two-sided market with economic effects from one side benefitting the other side: the more licensors there are on one side of the pool, the more the licensees benefit from the increased patent coverage; the more licensees there are on the other side of the pool, the more the licensors benefit from the increased overall revenue opportunity.
If a court determines a rate lower than has been negotiated in the market, the licensors of the pool may disagree and refuse to vote to change the rates according to the court’s determination. Patent pool agreements typically provide sole authority for rates to the licensors, so without that licensor approval, the court-determined rate cannot actually go into effect. In addition, even if the court-determined rate goes into effect, patent owners who no longer choose to license their patents through the pool under the judicially reset rate will withdraw, and other patent owners may not join.
These outcomes will reduce the value of the pool to implementers because the patent coverage of the pool will decrease, with the result that licensees may leave the pool and other implementers may not join. Licensee departures and fewer licensee sign-ups, in turn, will further reduce the revenue opportunity for patent owners, potentially causing them to withdraw from the patent pool and discouraging prospective participants from joining.
That negative feedback loop resulting from the pool’s two-sided economics is the death spiral that will undermine a pool and the procompetitive benefits that it brings to the market for consumers, implementers, and patent owners.4 It is no overstatement to conclude that pool licensors may discontinue offering their patents through a patent pool if they know that they may be compelled to license them at court-imposed royalty rates different from the rates on which they decided to license through the pool.
The UK Supreme Court has recognized, as have courts around the world, that patent pool rates are lower than royalty rates in bilateral licenses for the same or similar patents. That fact is often stated as “the economic efficiency of a patent pool results in lower rates”. But that proposition is only partially correct.5
Lower rates are not only the result of lower costs resulting from economic efficiencies, but also the result of pool licensors being willing to share those lower costs with licensees in the form of rates lower than the licensors would accept in bilateral licensing. A patent owner who licenses its essential patents through a pool accepts those lower rates as a trade-off in exchange for the (likely) larger number of implementers the licensor will be able to license through the pool – the classic economic example of lower price as a trade-off for higher volume. The pool rates to which the licensors agreed represent the compromise they were willing to make in joining the pool in the first place. If the licensors are not willing to accept a further compromise represented by the rates a court sets, the results will be the same death spiral as described above.
In fact, it is likely that no patent owner would join a pool and make the compromises it does on royalty rates, knowing upfront that a court could later change the royalty rates at which it was obligated to license its patents. A licensor considering joining a pool conducts the same type of comprehensive financial analysis and due diligence as any company that is making a long-term substantial financial investment. Standard essential patent portfolios often represent investment and value in the tens, if not hundreds of millions of dollars. Today, when a licensor joins a pool, it is committing for generally a 5-to-10-year term, and more often they remain in the pool for the life of their patents. That licensor is also committing to a license for the life of the patents for any implementer that becomes a licensee during that licensor’s term.6
If royalty rates can be revised by a court, two obvious negative outcomes will occur. First, the confidence value the licensor has in its financial analysis will be greatly reduced as the principal factor in the analysis – the royalty rates – are effectively an unknown. Second, the fact that the royalty rates will be an unknown will increase the licensor’s risk premium in the investment decision, making it more likely that the licensor will either not join a pool, or at a minimum, seek to offset the higher risk by demanding higher royalty rates than it otherwise would7 and/or the right to terminate their participation in the pool, not only for new licensees but even for existing licensees in the event a court determined a different rate that the licensor deems unacceptable.
And, if this happens, then one of the primary benefits of patent pools for licensees will be effectively eliminated. What many do not realize about patent pools is that one of the greatest benefits of patent pools, but also one of the least recognized, is that patent pools provide licensees a license for the life of the patents from any licensor.8 This provides licensing and cost certainty for licensees. Any royalty rate increases permitted by the pool agreements are limited and clearly stated in the pool license. This assurance of a life of the patent license at known rates is critical in the decision process of a potential licensee to join a pool (and adopt new technologies). If the pool no longer provides such assurance, this key benefit of pools for licensees would be lost. And if pools offer fewer benefits, fewer licensees will join, and fewer licensees will result in fewer licensors – the death spiral referenced earlier.
Rates set by a court also have a high likelihood of being worse – rather than better – as an indication of the appropriate balance between licensee and licensor interests. Unlike patent pools, courts are not in the same position as patent pools that negotiate real-world licenses and have access to market information necessary to establish pool royalty rates that accurately reflect the value of the licensed technologies and balance the interests of licensees and licensors. Those determinations are better made through market-based negotiations among participants with related technical, economic, and industry knowledge.
A court setting rates for a pool at a particular point in time lacks the flexibility and adaptability inherent in pool licensing. For example, a court’s determination could quickly become wrong because, over the life of the pool, the number of patents licensed by the pool both increases and, near the end of the pool’s life, decreases. Access Advance’s HEVC Advance pool provides an instructive example. The pool patent portfolio included about 500 essential patents when it began licensing in 2015 and over 30,000 essential patents as of Q3 of 2026. The royalty rates were set by the licensors in 2015 on the assumption that over its life the pool would include 34.5% of all HEVC essential patents. The 2015 rates have not changed (and are fixed through at least 2030) for existing licensees of the pool even though the pool has significantly grown to now include 80% or more of all HEVC essential patents.
A court generally would be expected to set pool rates based on the patent portfolio at the time it sets rates, just as a court does in a bilateral rate setting. But because the number of patents licensed by the pool may increase significantly over the life of the pool, a rate set by a court as “FRAND” based on a then-current patent count would unavoidably be underpriced (non-FRAND) in later years if the number of patents substantially increased. As an example, if a court had set rates it considered FRAND for the HEVC Advance pool in 2015 on the basis that the pool license included 500 essential patents, that rate would almost certainly be underpriced (i.e. no longer FRAND) on the basis of the number of patents licensed in 2020 when the pool license included 7,000 patents or today when the pool license includes over 30,000 patents – although in reality, such a decision probably would have simply killed the HEVC Advance pool because that rate would have driven away existing licensors and made it impossible to attract new additional licensors.
In addition, courts are not in a position to constantly monitor market feedback and adjust rates to reflect market changes. Even after the initial formation of the pool, the pool administrator constantly monitors the market for feedback concerning the pool’s rates and terms. If adjustments are indicated after the launch of the pool based on market feedback, the pool administrator reports that to the licensors. The licensors may then decide, according to the pool’s agreed-upon decision-making procedures, to adjust the royalty rates or revise terms, taking into account that market feedback. And that process is ongoing over the life of the pool to ensure the licensors have the most current feedback from the market and the pool royalty rates and terms reflect market needs and remain FRAND.9
So, what should a court do if it believes that it must determine whether an offer to license through a pool is FRAND10, but the pool has not yet established a level of market acceptance which clearly indicates the pool is FRAND,11 and, further, a court, after careful review of the evidence presented by the parties (e.g., a comprehensive economic analysis) believes that the pool’s rates and terms are not FRAND under the evidence presented at that time. In that case, absent consent of the parties for the court to establish a FRAND rate12, the court should simply issue an opinion finding that the rates and/or terms are not FRAND under the evidence presented at that time. The pool licensors would then need to reconsider the pool’s rates/terms to address the court’s ruling.
Pool licensors would be unlikely to bring additional litigation until the relevant facts that had led to the court’s ruling had changed. For example, one such change could be additional licenses, either signed by the pool or bilaterally by patent owners inside or outside the pool, which subsequently provide evidence that the pool’s rates/terms are FRAND. Another such change may be that the pool’s patent coverage will have grown as additional patents are issued to existing pool licensors and new licensors join the pool. If the rates/terms are subsequently litigated, a court can determine whether the pool has established a level of market acceptance which clearly indicates the rates/terms are FRAND. If the pool has not established a requisite level of market acceptance and the court determines based on the evidence presented that the rates and terms remain outside of the FRAND corridor, the court should simply issue an opinion finding that rates and/or terms are not FRAND under the evidence presented at that moment in time, again assuming that the defendant is a willing licensee entitled to a FRAND commitment and absent consent of the parties for the court to establish a FRAND rate.
This approach would eliminate many, if not all, of the serious negative ramifications previously discussed resulting from courts unilaterally setting pool rates. And would ensure that any determination of new rates or terms would be made by the licensors, not the courts, and that the market acceptance of such new rates and terms would also be made by market participants, not by the courts.
We urge courts to recognize that setting pool rates will threaten the existence of current patent pools, and deter the formation of future patent pools, to the detriment of consumers, implementers, and patent owners. Setting pool rates with the aim of (or expecting that the consequence will be that) helping implementers will more likely harm them than help them. The result will be higher transaction costs, decreased interoperability, fewer industry-wide standards, and more proprietary “walled-garden” standards. This, in turn, will also harm consumers. Advance remains confident that voluntary, transparent licensing by procompetitive patent pools is the most efficient market-based mechanism for clearing patent risk at scale. And we will continue to support that model and our licensors’ and licensees’ interests.
- In this statement, and in our submissions to government agencies generally, we use the term “patent pool” to mean procompetitive patent pools that are organized and run in conformance with guidance from competition and patent authorities around the globe. Not every collective licensing arrangement is a patent pool, as the UK Supreme Court’s decision observes. Moreover, not all collective licensing arrangements that call themselves patent pools are procompetitive patent pools. Procompetitive patent pools offer only one product, a license to the entire set of essential patents of its licensors, and have only a single rate structure. Procompetitive patent pools provide full transparency, making available on their websites virtually all the information a prospective licensee needs, including rates and terms, listing the patents that were determined essential, the identity of licensors and licensees, and a description of key license terms. (See, e.g., accessadvance.com/licensing-programs/hevc-advance/ and sites of other Advance pools.) ↩︎
- We also note that the UK Supreme Court was careful to make that distinction in describing “the first question” to be considered as “whether the courts of England and Wales have jurisdiction to decide a dispute concerning the terms of a licence to use a SEP in circumstances where the claim is brought by an implementer rather than the SEP owner, the SEP forms part of a platform of SEPs having different owners, and the licence is offered by the platform operator acting as agent of those different SEP owners.” (par. 23). In subsequent portions of the opinion the court speaks about “a patent pool or patent platform” (e.g., par. 25). ↩︎
- For example, the UK Supreme Court noted that “Avanci arrived at the royalty rate for the 5G Platform based on its own investigations, discussions with licensors and licensees and in the exercise of its own judgment, and no doubt in the light of its own experience. The prospective licensors were then presented with the rate on a “take it or leave it” basis.” (par. 34). ↩︎
- The example in the text describes the effect of a court setting a rate lower than the pool’s rate. But the same effects would result from a court setting a rate higher than the pool’s, except that the first effect will be that licensees leave, and no additional implementers join. That will reduce the revenue opportunity for licensors, who will likely leave, and for other patent owners who will not join. The two-sided nature of patent pools once again results in a death spiral. ↩︎
- Much of a patent pool’s efficiency stems from two core practices. First, since the only license a pool can grant is to the entire package of all the essential patents of all the licensors (whether or not listed on the patent list), there are no negotiations over which patents will be included within the license. And second, since the only rates on which the license can be granted are according to the rate structure, there are no negotiations over rates. While the rate structure may charge different rates for different categories of products, or for different regions of the world, or for different volumes of products, that same rate structure is applied to all licensees. ↩︎
- Provided the licensee remains in compliance with its license obligations. ↩︎
- That higher risk premium will likely result in licensors demanding to keep more of the cost-savings pools provide and thus result in higher royalty rates than may otherwise have been offered. ↩︎
- Providing the patent owner was a pool licensor during the term of the licensees’ pool license. ↩︎
- Access Advance’s HEVC Pool has modified its rate structure to reduce its rates multiple times as market conditions have evolved over the last 10 years, for example by adding sales-price-based royalty rates as sales prices for certain product categories have substantially fallen. ↩︎
- A FRAND obligation should not apply to a pool license. Rather, the FRAND obligation should remain with the individual Licensors. Solely in the event that a Licensor references a pool offer as its only means to meet its FRAND licensing commitment, should a court determine whether a pool offer satisfies the Licensor’s FRAND commitment in the manner further described in this paper. ↩︎
- Market acceptance is the most reliable method to ascertain whether rates and terms are FRAND. The most meaningful indication of market acceptance is whether the pool is successful in attracting both licensors and licensees. This means that once a pool is successful in attracting licensors and licensees, that success alone is proof that its rates are FRAND. While observing a pool in the early years of its licensing efforts may not alone support the conclusion that its rates and terms are FRAND, it may also not support the conclusion that its rates and terms are not FRAND, but rather may only indicate the pool is too new to make that determination based on market acceptance alone. ↩︎
- If all relevant parties – including the licensing implementer(s) and patent owner(s) as well as all the pool licensors – have agreed that the court should set a FRAND rate, then it would be appropriate for a court to do so. ↩︎