Who Inherits A FRAND Obligation
A company that owns patents essential to a technical standard such as 5G, Bluetooth, or Wi-Fi, often declares those patents as standard-essential patents (SEPs). When they do this, they usually commit to license them on fair, reasonable, and non-discriminatory (FRAND) terms. This commitment is made to standard-setting organizations (SSOs) so that others can implement the standard without fear of being blocked. But what happens when the patent changes hands? Who inherits the FRAND obligation? A FRAND lawyer will point out that this question has significant legal and commercial implications.
When a company makes a FRAND commitment, it does so with the understanding that the patent will be shared under specific licensing terms. That promise is generally tied to the patent itself, not just the original owner. Additionally, it is normally a company entity that deals with this rather than a single individual, but sometimes a sole proprietor may encounter this. If that patent is sold or transferred, most courts and regulatory bodies agree that the FRAND obligation also transfers to the new owner. Otherwise, the value of the original commitment would be lost, and the new owner could potentially exploit the standard in a way that undermines competition.
Patent Transfers And Continued Obligations
When SEPs are sold as part of a merger, asset sale, or portfolio transfer, the new patent holder typically assumes all obligations associated with the asset. That includes the duty to license the patents under FRAND terms. Courts in the U.S. and abroad have repeatedly affirmed that FRAND obligations “run with the patent,” meaning the commitment follows the patent no matter who owns it.
If a company acquires a portfolio of SEPs, they cannot suddenly demand unreasonable royalties or refuse to license the patents altogether. Doing so would likely violate the original FRAND commitment and could lead to legal action. This principle helps preserve trust in standardized technologies and ensures that users of the standard continue to have access to the necessary technology under the terms initially promised.
Bankruptcy And Dissolution Scenarios
If the patent holder goes out of business or enters bankruptcy, the situation can get more complicated. In many cases, the patents may be sold during bankruptcy proceedings. Courts often treat FRAND commitments as binding obligations that must be honored by the new owners. This is particularly important when SEPs are sold to patent assertion entities, who may be less inclined to license on reasonable terms.
Attorneys like those at COFFYLAW can attest that disputes sometimes arise when buyers believe they are purchasing “clean” assets and later learn those patents carry enforceable licensing duties. Due diligence is critical in these transactions, and legal review of FRAND commitments should be part of any patent transfer involving standardized technology.
Individual Ownership And Succession Issues
In less common cases, individual inventors or small businesses may hold SEPs. If those individuals pass away or transfer their patents through a will or trust, the obligation to license under FRAND terms still remains with the patent. That means the heir or successor cannot alter the licensing terms just because they acquired the patent through inheritance. While it’s unusual for an estate to hold such patents, it raises important questions: ones that an estate planning lawyer might face if patent assets are involved in the estate. This is also why it is so important to discuss what heirs will be receiving should you pass so that your family knows what their responsibilities will be.
For patent holders planning to transfer rights — either during their lifetime or through an estate — it is worth documenting any FRAND commitments and making clear that future owners will be expected to honor them. This helps avoid disputes and protects both licensees and licensors.
The obligation to license a standard-essential patent on FRAND terms does not disappear when the patent is sold or transferred. Whether through corporate acquisition, private sale, or inheritance, the new owner is expected to uphold the original licensing promise. If you are acquiring SEPs or managing patent assets tied to industry standards, speaking with a lawyer is a practical step to understand your responsibilities and avoid legal risk. Contact an attorney near you today for more information.