A Market Reliance Theory for FRAND Commitments and Other Patent Pledges

Patent holders are, with increasing frequency, making public promises to refrain from asserting patents under certain conditions, or to license patents on terms that are “fair, reasonable and non-discriminatory” (FRAND). These promises or “patent pledges” generally precede formal license agreements and other contracts, but are nevertheless intended to induce the market to make expenditures and adopt common technology platforms without the fear of patent infringement. But despite their increasing prevalence, current contract, property and antitrust law theories used to explain and enforce patent pledges have fallen short. Thus, a new theory is needed to secure the market-wide benefits that patent pledges can offer. This article proposes a novel “market reliance” theory for the enforcement of patent pledges. Market reliance is rooted in the equitable doctrine of promissory estoppel, but adds a rebuttable presumption of reliance borrowed from the “fraud-on-the-market” theory under Federal securities law. Under this approach, a patent holder’s public commitment is enforceable by any participant in the relevant market, absent a showing that it knowingly rejected the commitment. The market reliance theory offers a robust means for enforcing legitimate patent pledges by third party market participants, and extends the effect of such pledges to downstream purchasers of patents. As such, the market reliance theory could fill a critical gap in the existing patent enforcement landscape and give greater assurance to the technology markets that depend on them