Regional rate structures for patent pools enable some deals and minimize litigation, but each market has its own characteristics-Overseas News-Shenzhen deep trust patent Agency Co., LTD

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The previous article discussed new developments surrounding patent pool rates, with one major pool operator expanding the concept of regional rates (i.e., a discount for developing markets) to an additional licensing program after concluding a license deal with a Chinese Africa-focused smartphone maker for a pool that has come with regional rates for quite some time.

Patent pools don’t hold standard-essential patents (SEPs). They’re a one-stop shop option that competes with the possibility of taking a multiplicity of bilateral agreements. The pool operators themselves do not have a FRAND (fair, reasonable and non-discriminatory licensing) obligation, so if we talk about non-discriminatory rates, it’s not meant to imply a legal requirement. The opposite of the “ND” in FRAND, discrimination, actually has two manifestations:

The more common scenario is that unequal prices are charged in otherwise equal transactions, just like if you paid $3 for a bottle of water when someone else pays $1.50.
But charging equal prices in otherwise greatly unequal transactions can also be deemed discriminatory: you pay $30 for a taxi ride to an airport that is only two miles away, and someone else pays the same $30, but gets a 30-mile ride, even though all other things (region, terrain, time of day etc.) are equal.

Patent pools are market makers. Their job is to identify a rate structure at which licensors are prepared to contribute their patents and licensees are willing to take licenses (especially without litigation). As I mentioned in the previous article, pools always compete with the bilateral option. An implementer may negotiate dozens of individual deals instead of taking a one-stop shop pool license. Put differently, the pool has to offer a better deal.

The licensors of some pools decide to offer regional rates. For example, an audio codec patent pool may charge one third less on devices sold in developing economies such as China, Latin America and Africa than on the ones sold in less price-sensitive markets such as the United States and Europe. Some others believe that the fairest, simplest and most efficient solution is to have identical rates worldwide.

I want ip fray to be neutral in this regard. Just like it may not be the best idea to have different types of governmental authorities engage in price-setting when pool administrators are in a better position to do it (not least because they depend on market outcomes), I don’t think that one model should be imposed on all pool makers. Implementers can’t demand a discount in one economy because some other pool does it, nor can anyone expect all patent pools to have identical prices around the globe.

There can be no doubt that markets differ. There are huge discrepancies in per-capita gross domestic product (GDP), net disposable income, and average selling prices (ASPs). I live in a small country that is often left out of global GDP comparisons because it’s off the charts: most rankings call Luxembourg the “richest” country in the world with a $140K/year GDP, but Monaco is at about three to four times that level. That doesn’t mean that everything’s far more expensive here. It’s mostly just real estate.

For certain product categories, such as mobile phones, there are major differences in ASP and margins. Transsion sells phones in Africa at prices that are high compared to the net disposable income of most customers there, yet very low compared to what American phone buyers (where the majority opts for the luxury brand among phone makers, Apple) spend.

If you asked Apple, they’d like to use Transsion’s rates as a comparable and pay the same rates. But it wouldn’t work the other way round.

As long as regional rates focus on point-of-sale geography, there is no discrimination between competitors: whether Apple or Transsion sells a phone in Nigeria, the regional rate, meaning a discounted one for developing economies, will be the same. Again, that still wouldn’t make Apple happy. But Apple won’t really be happy until it’s all royalty-free.

For other products, such as cars, the economics may be different. Even in the cheapest market, the aggregate (“stack”) SEP licensing cost of a car is tiny compared to the product price. We don’t even have to argue the royalty base here because it makes no difference in the end: those who say the telecommunications control unit (TCU) should be the royalty base wouldn’t have an argument for regional rates either as TCUs are sold globally.

Ever since there have been SEP licenses, there has been a debate over whether per-unit license fees should be the same or whether value-based (or, in Latin, “ad valorem”) pricing is the way to go. And there are hybrids:

The Munich I Regional Court’s new FRAND guidance talks about the ASP for a product category (July 18, 2025 ip fray article) so as to keep royalty calculations simple. That, of course, means a distinction by category. A connected flower pot will have a lower ASP than even a low-end smartphone, let alone a car.
Regional rates can reflect market characteristics (such as lower prices that must be offered to highly price-sensitive buyers at lower margin), yet avoid that license fees are paid, in part, on premium features unrelated to the licensed technology, which would be inequitable.

Making licenses more affordable in emerging markets can be desirable from an economic policy point of view and a smart long-term investment in market development. It has the potential to enable products that could otherwise not be made at affordable prices. As those markets develop, price differences may narrow or go away. But the virtuous cycle has to start someplace.

If licensors don’t feel they’re getting a fair value for their intellectual property, there won’t be unanimity or a supermajority of contributors to a given pool who would vote in favor of regional rates.

If licensees don’t like globally consistent prices, they have the bilateral option. Typically, patent pools offer such tremendous transactional efficiencies, however, that even if every individual licensor agreed to a substantial discount, the combination of numerous bilateral licenses would still not save (and more likely cost) money as compared to the pool license. But in that case, the only problem is that some would like to pay less, not that the pool doesn’t serve its purpose of providing a superior alternative over a bundle of bilateral licenses.

There is no indication that the availability or unavailability of regional rates has ever determined the fate of a patent pool or other patent licensing program. Licensing programs succeed or fail for other reasons. In some cases, regional rates may enable incremental revenues and avoid litigation. In other cases, consistent global pricing may yield greater returns because there are only weak arguments for price differentiation.

Regulatory intervention to impose one model or the other on patent pool operators is neither warranted nor likely to give better answers than the market.