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The guiding principle of the App Store is simple - we want to provide a safe experience for users to get apps and a great opportunity for all developers to be successful. We do this by offering a highly curated App Store where every app is reviewed by experts and an editorial team helps users discover new apps every day. For everything else there is always the open Internet. The company has entered into license agreements with dozens of SEP licensors. In each case, Apple has sought to apply a transparent and consistent FRAND methodology for valuing SEPs, which is applied equally to SEPs owned by others and SEPs owned by Apple, including those acquired from Intel. For apps that fall into this category—Aperture’s a good example—the Mac App Store license says that you essentially can install that item on computers you use or on a single computer shared.
Summary
How standard essential patents are licensed affects competition, innovation, product compatibility, and consumer choice. When licensed on fair, reasonable, and non-discriminatory terms, everyone stands to benefit. On the other hand, when companies use the market power of a standard and standard essential patents to demand unfair, unreasonable, or discriminatory terms, consumers are harmed and fewer choices are available. Apple brings a balanced perspective to the promises and perils of standardization and outlines several core principles to promote fair, reasonable, and non-discriminatory licensing of standard essential patents, addressing transparency during negotiation, merits-based evaluation, portfolio licensing, use of a common royalty base and rate, and injunctive relief. Taken together, these principles provide a consistent framework for fair, reasonable, and non-discriminatory licensing of standard essential patents.
Introduction
Apple values invention, respects intellectual property, and recognizes the pertinent role of developing voluntary industry standards. Standardization is beneficial when it advances marketplace cooperation and interoperability, allowing consumers to have confidence that products reliably interact with other products. Yet it can also lead to problems when companies use the power conferred by standardization to eliminate competition through selective patent licensing or discriminatory and excessive royalties.
Despite over a decade of debate, the marketplace continues to suffer from a lack of consistent adherence to voluntarily accepted fair, reasonable, and non-discriminatory (FRAND) licensing principles for standard essential patents (SEPs), particularly in the cellular standards arena. In light of Apple’s acquisition of the majority of Intel’s smartphone modem business, including a significant number of cellular SEPs, the time is right to reiterate Apple’s FRAND licensing principles on industry standards. Consistent with evolving case law, Apple is committed to these core principles to promote fair, reasonable, and non-discriminatory licensing of SEPs.
Innovation and Industry Standards
Innovation is the cornerstone of Apple’s business and the company prides itself on the commitment to “think different,” inventing products and services unlike anything else on the market. With products such as the Mac, iPod, iPhone, iPad, and Apple Watch, Apple has revolutionized industries, and created entirely new industries by reimagining technology and focusing on delivering the best possible user experience.
Apple’s differentiating features drive demand for all our products, while standards allow interoperability with other products around the world. Our engineers participate in over 100 diverse standard-setting organizations, and Apple has contributed to the advancement of a wide range of standards, including, for example, cellular, Wi-Fi, and USB-C.
Apple has long sought to bring a balanced perspective to the promises and perils of standardization and is committed to licensing its cellular SEPs on FRAND terms. The company has entered into license agreements with dozens of SEP licensors. In each case, Apple has sought to apply a transparent and consistent FRAND methodology for valuing SEPs, which is applied equally to SEPs owned by others and SEPs owned by Apple, including those acquired from Intel. Apple is committed to the fair enforcement of the FRAND licensing promise throughout all industries, and in light of this acquisition, we reinforce this commitment.
The following core principles have guided and will continue to guide Apple’s approach to FRAND licensing of standardized technologies as both a SEP licensor and licensee.
Negotiations in FRAND Licensing
Both SEP licensors and licensees should negotiate transparently and willingly based on an exchange of relevant information.
- Owners of SEPs should make licenses available on FRAND terms to any and all interested parties that request a license.
- SEP owners should not discriminate in the licensing of those SEPs — including by category, industry, or location in the supply chain.
- SEP owners should include, with license offers to SEPs, an explanation with factual and legal support sufficient for potential SEP licensees to assess for each SEP whether (i) a license is needed, and (ii) the offer is FRAND.
- After a SEP owner satisfies its disclosure obligations, SEP licensees should provide substantive responses to any bona fide offer, including an explanation and factual and legal support as to why the licensee believes the offer does not comply with the owner’s FRAND obligations, if applicable.
- Parties have a fundamental right of access to national courts and a willing licensee does not become unwilling if it refuses arbitration, challenges the merits, or resorts to litigation because the SEP owner does not offer FRAND terms.
Merits-Based Evaluation of SEPs
Traditional patent law and burdens of proof should be applied to test the merits of SEPs and owners’ royalty demands, just as they are for all patents.
Principle For Mac License Manager
- SEP owners should not avoid or shift traditional burdens of proof during a FRAND negotiation, alternative dispute resolution, or litigation.
- SEP owners should identify each SEP to be licensed, and should prove with specificity why each SEP is actually essential, infringed, and not otherwise invalid, exhausted, licensed, or unenforceable.
- SEP owners should prove the value of each alleged invention and establish that a licensing offer to each and all such patents complies with FRAND requirements.
Portfolio Licensing & Bundling or Tying of SEPs
No licensor of any type of patent, including SEPs, has a special legal right to collect royalties for only a portfolio-wide license; SEP licensees should not be forced to take bundled or portfolio licenses.
- SEP licensees should have the ability to choose whether to license individual, select groups of, or entire portfolios of SEPs.
- SEP licensors should not condition SEP licenses on the licensing of their non-standard-essential patents or on access to licensee’s non-standard-essential patents.
- SEP licensors should not demand that a SEP licensee take a portfolio or bundled patent license — whether all included patents are declared SEPs, or are a combination of SEPs and non-standard-essential patents.
FRAND Royalty Base
There should be a common FRAND royalty base that applies equally to all SEP licensors and SEP licensees.
Principle For Mac License Key
- The common royalty base for SEPs should be no more than the smallest salable unit where all or substantially all of the inventive aspects of the SEP are practiced.
- This base should be further apportioned to isolate the SEP value, separate and apart from prior art, non-patented features, other patented technologies, standardization itself, and contributions and innovations of others (i.e., materials, manufacturing, marketing, etc.).
- For cellular standards, the smallest salable unit should be at most the baseband chip.
FRAND Royalty Rate
Principle For Mac License Key
A FRAND royalty rate should be proportional among SEP licensors and comparable among SEP licensees.
- A SEP licensor’s pro rata share of declared SEPs is an objective reference point in a FRAND negotiation.
- An objective reasonable royalty rate protects against SEP licensors being unjustly enriched through excessive royalties (royalty stacking) to the detriment of both SEP licensees and other SEP licensors and contributors, as well as consumers.
- An objective reasonable royalty rate applied to a common royalty base protects SEP licensees from cumulative, excessive royalties.
- ASP or use-based methodologies for determining FRAND royalties are a back-door for SEP licensors to discriminate between licensees, to charge different royalties for the same SEPs, and to capture value attributable to licensee innovations.
Injunctive Relief with Respect to SEPs
SEP licensors should not seek injunctions to increase their negotiating leverage, except in very rare circumstances.
- The threat of injunction on even a single SEP creates “hold-up” and distorts arms-length FRAND negotiations.
- Monetary damages provide a sufficient remedy for SEP infringement.
- Injunctions should be available only when a SEP licensee (i) fails to comply with a final judgement from a court of competent jurisdiction, (ii) is bankrupt, or (iii) is beyond the jurisdiction of a court.
- Injunctions on non-standard-essential patents should be viewed with suspicion when circumstances suggest they are being sought to gain leverage in SEP negotiations.
Conclusion
As both an innovator and an implementer of standardized technologies, Apple remains committed to these core FRAND principles, now and in the future.
Additional Resources
Arkansas:
Act 1194- Regulates how drugs can be put on the MAC list as well as requires the MAC lists be made available to pharmacies. The act also requires that necessary updates be performed on the MAC list every 7 days. It also creates an appeals process for pharmacies to dispute MAC price billing with PBMs. (Act signed into Law April 12, 2013)
California:
A.B. 627: This bill would exempt certain contracts governing medicine and medical supplies that are provided to injured employees in workers' compensation cases from certain requirements. It also requires PBMs that reimburse contracting pharmacies to identify data sources used to determine the MAC for drugs on MAC lists. They also need to provide an appeals process and the most up-to-date MAC lists they have. Only certain drugs can be included on the lists. Signed into law on July 13, 2015.
Hawaii:
H.B. 252: Establishes requirements for PBMs that reimburse contracting pharmacies for drugs on MAC basis. PBMs must have a clearly defined process for contracting pharmacies to appeal the MAC for drugs on MAC lists, and establish requirements for that process. Signed into law July 2, 2015.
Iowa:
HF 2297: Regulates PBM management of Maximum Allowable Costs. Among the various provisions is a requirement for the PBM to include in its contract information regarding which of the national compendia is used to obtain pricing data used in the calculation of the maximum reimbursement amount pricing and a process to allow a pharmacy to comment on, contest, or appeal the maximum reimbursement amount rates or maximum reimbursement amount list. (Signed into Law March 14, 2014)
Kansas:
S.B. 103: This bill says PBMs shall not put drugs on MAC lists unless they meet certain conditions, they shall provide the sources used to determine the MAC price, MAC lists shall be reviewed and updated every seven days, and there will be an appeals process laid out. Signed into law on March 23, 2016.
Kentucky:
S.B. 107 - Requires PBMs to identify the sources used for their drug price data as well give the contracted pharmacies the actual cost MAC for each drug. Additionally it requires reviews and adjustments to the MAC list for every drug every 14 days. (Signed into Law March 22, 2013)
S.B. 117 - Requires PBMs to obtain a license, defines MAC, provides for an appeals process, price updates, and administrative regulations, requires review of MAC every seven days, provides for fees to cover enforcement costs. Signed into law April 9, 2016.
Louisiana:
S,B. 410 - Requires that PBMs make their MACs available to all pharmacies that are subject to the MAC list, no longer than seven days from a change in the MAC setting methodology or in the variable involved in the methodology. (Effective August 1, 2014)
Maine:
L.D. 1150: Requires that drugs meet certain conditions for PBMs to include them on the MAC list. Stipulates PBMs shall remove or modify MACs for drugs as necessary, and that they shall disclose to pharmacies and carriers the methods and sources used to establish MACs. Also, every seven days, MACs shall be disclosed. Signed into law on April 11, 2016.
Maryland:
S.B. 952 and H.B. 793 - Requires PBMs to disclose pricing methodology to pharmacies, specifying that the PBMs must identify national drug pricing compendia or other source used to obtain the drug price and the methodology used to calculate MAC. PBMS must also establish a process by which network pharmacies can appeal a MAC. (Signed into law May 5, 2014).
New Mexico:
H.B. 126 This legislation would provide a reasonable degree of transparency over how MAC pricing is determined and reported. The legislation also takes additional steps to reform PBM activities in New Mexico. This law will help preserve patient access to prescription drugs and better protect New Mexico’s small business community pharmacies from being reimbursed at a financial loss. It will establish guidelines and notice provisions for Maximum Allowable Cost for drugs and a system for challenging the MAC pricing. (Signed into law by the Governor March 5th, 2014).
North Dakota:
H.B. 1363 - Requires the PBMs to every year divulge the market-based source utilized to determine MAC and update the pricing information every seven calender days. Also ensures that the MAC prices are not set below market-based sources available for purchases without limitations by pharmacy providers. (Signed into Law April 12, 2013) - See our letter in support of H.B. 1363
Oklahoma:
H.B. 2100 - Regulates the conduct and transparency of PBMs and specifies that they must reveal the basis of the methodology and sources used to determine MACs and also must update and share new MAC prices with their pharmacies every seven days. PBMs must also provide a reasonable appeals process for pharmacies. (Signed into law May 12, 2014)
Ohio:
H.B. 64 - Language incorporated into budget. Requires PBMs to be licensed as third party administrators by the Ohio Department of Insurance, give DOI the power to revoke their licenses or fine them if needed. PBMs must also supply a list of the sources used to determine MAC prices, update and implement MAC pricing information at least every seven days, and provide an appeals process. Only certain drugs that meet conditions can be added to the MAC list. Signed into law on June 30, 2015.
Oregon:
H.B. 2123 - Requires PBMs to disclose to pharmacies the sources used to determine the MAC pricing at the start of each contract and upon each subsequent renewal of the contract. PBMs also can no longer include the dispensing fee in the calculation of the MAC. (Signed into Law July 1, 2013)
Pennsylvania:
H.B. 946 - Requires PBMs to be registered, sets up auditing procedures for pharmacies, sets transparency guidelines for MAC and prescription drugs reimbursements. Signed into law on November 22, 2016.
Tennessee:
H.B. 1554 - Regulates the use of MAC lists by PBMs and other covered entities, requiring them to provide to their contracted pharmacies the methdology and sources used to determine the MAC for multi-source generic drugs. In addition, PBMs are prohibited from setting MACs at an amount lower than the amount found in the source used by the PBM to set the cost. (effective January 1, 2015)
S.B. 1789- Allows a pharmacy to designate a pharmacy services administrative organization to file and handle an appeal challenging the maximum allowable cost for a particular drug or medical product or device on behalf of the pharmacy. Signed into law March 23, 2016.
Texas:
S.B. 1106 - This law regulates what drugs can be placed on the MAC cost list as well as spells out the frequency for how frequently the MAC information must be updated to reflect any modification in MAC pricing. Specifies information that must be given to pharmacies when entering or renewing contracts as well as creates an appeals process for pharmacies to contest MAC reimbursement rates. (Signed into Law June 14, 2013)
South Carolina:
S. 849: Provides guidelines to the maximum allowable cost reimbursements for generic drugs paid by PBMs to pharmacists. Drugs must meet certain conditions to be on the MAC list, PBMs must make sources used to determine MAC prices available to pharmacies, and they must establish an appeals process. Signed into law on May 2, 2016.
Utah:
H.B. 113 - This law regulates certain reimbursement practices of Pharmacy Benefits Managers including the Maximum Allowable Cost as well as appeal rights for Pharmacies. The MAC may be determined be determined by using comparable and current data on drug prices obtained from multiple nationally recognized, comprehensive data sources, including wholesalers, drug file vendors, and pharmaceutical manufacturers for drugs that are available for purchase by pharmacies in the state. The PBM is however responsible for disclosing in their contract with a pharmacy the national drug pricing compendia and other sources used to obtain the drug prices, as well as review and make necessary changes to the MAC list once per week. (Signed into Law March 31, 2014)
Washington:
SB 6137: This law requires PBMs to register with the Department of Revenue, imposes limits on audits of pharmacies by PBMs and other entities, places restrictions on the use of MAC pricing and includes appeals processes for pharmacy audits and MAC pricing. Would regulate how Pharmacy Benefit Managers operate in the State broadly as well as outlines specifics including how audits are to be conducted and take place as well as details surrounding the application of a Maximum Allowable Cost list. A PBM would be required to make available to each network pharmacy at the beginning of the term of a contract, and upon renewal of a contract, the sources utilized to determine the MAC pricing of the PBM. Additionally a PBM is mandated to update each list every seven business days and make said updated lists available to network pharmacies. (Signed into law by Gov. Jay Inslee (D) on April 3, 2014)
Act 1194- Regulates how drugs can be put on the MAC list as well as requires the MAC lists be made available to pharmacies. The act also requires that necessary updates be performed on the MAC list every 7 days. It also creates an appeals process for pharmacies to dispute MAC price billing with PBMs. (Act signed into Law April 12, 2013)
California:
A.B. 627: This bill would exempt certain contracts governing medicine and medical supplies that are provided to injured employees in workers' compensation cases from certain requirements. It also requires PBMs that reimburse contracting pharmacies to identify data sources used to determine the MAC for drugs on MAC lists. They also need to provide an appeals process and the most up-to-date MAC lists they have. Only certain drugs can be included on the lists. Signed into law on July 13, 2015.
Hawaii:
H.B. 252: Establishes requirements for PBMs that reimburse contracting pharmacies for drugs on MAC basis. PBMs must have a clearly defined process for contracting pharmacies to appeal the MAC for drugs on MAC lists, and establish requirements for that process. Signed into law July 2, 2015.
Iowa:
HF 2297: Regulates PBM management of Maximum Allowable Costs. Among the various provisions is a requirement for the PBM to include in its contract information regarding which of the national compendia is used to obtain pricing data used in the calculation of the maximum reimbursement amount pricing and a process to allow a pharmacy to comment on, contest, or appeal the maximum reimbursement amount rates or maximum reimbursement amount list. (Signed into Law March 14, 2014)
Kansas:
S.B. 103: This bill says PBMs shall not put drugs on MAC lists unless they meet certain conditions, they shall provide the sources used to determine the MAC price, MAC lists shall be reviewed and updated every seven days, and there will be an appeals process laid out. Signed into law on March 23, 2016.
Kentucky:
S.B. 107 - Requires PBMs to identify the sources used for their drug price data as well give the contracted pharmacies the actual cost MAC for each drug. Additionally it requires reviews and adjustments to the MAC list for every drug every 14 days. (Signed into Law March 22, 2013)
S.B. 117 - Requires PBMs to obtain a license, defines MAC, provides for an appeals process, price updates, and administrative regulations, requires review of MAC every seven days, provides for fees to cover enforcement costs. Signed into law April 9, 2016.
Louisiana:
S,B. 410 - Requires that PBMs make their MACs available to all pharmacies that are subject to the MAC list, no longer than seven days from a change in the MAC setting methodology or in the variable involved in the methodology. (Effective August 1, 2014)
Maine:
L.D. 1150: Requires that drugs meet certain conditions for PBMs to include them on the MAC list. Stipulates PBMs shall remove or modify MACs for drugs as necessary, and that they shall disclose to pharmacies and carriers the methods and sources used to establish MACs. Also, every seven days, MACs shall be disclosed. Signed into law on April 11, 2016.
Maryland:
S.B. 952 and H.B. 793 - Requires PBMs to disclose pricing methodology to pharmacies, specifying that the PBMs must identify national drug pricing compendia or other source used to obtain the drug price and the methodology used to calculate MAC. PBMS must also establish a process by which network pharmacies can appeal a MAC. (Signed into law May 5, 2014).
New Mexico:
H.B. 126 This legislation would provide a reasonable degree of transparency over how MAC pricing is determined and reported. The legislation also takes additional steps to reform PBM activities in New Mexico. This law will help preserve patient access to prescription drugs and better protect New Mexico’s small business community pharmacies from being reimbursed at a financial loss. It will establish guidelines and notice provisions for Maximum Allowable Cost for drugs and a system for challenging the MAC pricing. (Signed into law by the Governor March 5th, 2014).
North Dakota:
H.B. 1363 - Requires the PBMs to every year divulge the market-based source utilized to determine MAC and update the pricing information every seven calender days. Also ensures that the MAC prices are not set below market-based sources available for purchases without limitations by pharmacy providers. (Signed into Law April 12, 2013) - See our letter in support of H.B. 1363
Oklahoma:
H.B. 2100 - Regulates the conduct and transparency of PBMs and specifies that they must reveal the basis of the methodology and sources used to determine MACs and also must update and share new MAC prices with their pharmacies every seven days. PBMs must also provide a reasonable appeals process for pharmacies. (Signed into law May 12, 2014)
Ohio:
H.B. 64 - Language incorporated into budget. Requires PBMs to be licensed as third party administrators by the Ohio Department of Insurance, give DOI the power to revoke their licenses or fine them if needed. PBMs must also supply a list of the sources used to determine MAC prices, update and implement MAC pricing information at least every seven days, and provide an appeals process. Only certain drugs that meet conditions can be added to the MAC list. Signed into law on June 30, 2015.
Oregon:
H.B. 2123 - Requires PBMs to disclose to pharmacies the sources used to determine the MAC pricing at the start of each contract and upon each subsequent renewal of the contract. PBMs also can no longer include the dispensing fee in the calculation of the MAC. (Signed into Law July 1, 2013)
Pennsylvania:
H.B. 946 - Requires PBMs to be registered, sets up auditing procedures for pharmacies, sets transparency guidelines for MAC and prescription drugs reimbursements. Signed into law on November 22, 2016.
Tennessee:
H.B. 1554 - Regulates the use of MAC lists by PBMs and other covered entities, requiring them to provide to their contracted pharmacies the methdology and sources used to determine the MAC for multi-source generic drugs. In addition, PBMs are prohibited from setting MACs at an amount lower than the amount found in the source used by the PBM to set the cost. (effective January 1, 2015)
S.B. 1789- Allows a pharmacy to designate a pharmacy services administrative organization to file and handle an appeal challenging the maximum allowable cost for a particular drug or medical product or device on behalf of the pharmacy. Signed into law March 23, 2016.
Texas:
S.B. 1106 - This law regulates what drugs can be placed on the MAC cost list as well as spells out the frequency for how frequently the MAC information must be updated to reflect any modification in MAC pricing. Specifies information that must be given to pharmacies when entering or renewing contracts as well as creates an appeals process for pharmacies to contest MAC reimbursement rates. (Signed into Law June 14, 2013)
South Carolina:
S. 849: Provides guidelines to the maximum allowable cost reimbursements for generic drugs paid by PBMs to pharmacists. Drugs must meet certain conditions to be on the MAC list, PBMs must make sources used to determine MAC prices available to pharmacies, and they must establish an appeals process. Signed into law on May 2, 2016.
Utah:
H.B. 113 - This law regulates certain reimbursement practices of Pharmacy Benefits Managers including the Maximum Allowable Cost as well as appeal rights for Pharmacies. The MAC may be determined be determined by using comparable and current data on drug prices obtained from multiple nationally recognized, comprehensive data sources, including wholesalers, drug file vendors, and pharmaceutical manufacturers for drugs that are available for purchase by pharmacies in the state. The PBM is however responsible for disclosing in their contract with a pharmacy the national drug pricing compendia and other sources used to obtain the drug prices, as well as review and make necessary changes to the MAC list once per week. (Signed into Law March 31, 2014)
Washington:
SB 6137: This law requires PBMs to register with the Department of Revenue, imposes limits on audits of pharmacies by PBMs and other entities, places restrictions on the use of MAC pricing and includes appeals processes for pharmacy audits and MAC pricing. Would regulate how Pharmacy Benefit Managers operate in the State broadly as well as outlines specifics including how audits are to be conducted and take place as well as details surrounding the application of a Maximum Allowable Cost list. A PBM would be required to make available to each network pharmacy at the beginning of the term of a contract, and upon renewal of a contract, the sources utilized to determine the MAC pricing of the PBM. Additionally a PBM is mandated to update each list every seven business days and make said updated lists available to network pharmacies. (Signed into law by Gov. Jay Inslee (D) on April 3, 2014)