Standard-setting and Antitrust

Standard-setting and Antitrust

Joseph Kattan, PCOctober 29, 2010

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Antitrust Issues in Standard-setting

• Exclusion of rival products• Collusive standardization• Participation rules• Patent disclosure policies• Royalty commitments• Patent licensing policies• Patent pooling• Defensive suspension


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Different Types of Standards

• Safety standards

– Regulate safety characteristics

• Performance standards

– Regulate or measure some performance attribute

• Compatibility standards

– Enable interoperability

• Law was developed largely in safety area


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Exclusion of Rival Products

• Dominant issue in litigated standards cases• Leading U.S. cases involve exclusion by rendering rival

products or technologies noncompliant– Allied Tube – electrical conduit

– Hydrolevel – pressure cut-off valve

– Radiant Burners – gas boilers

• Cases typically involve industry-wide actions that do not serve the purpose of the standards but exclude competitors


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Collusive Standardization

• Competitors cannot collude in the guise of a standard

– Agreements on what product attributes each supplier will provide

• FTC v. Golden Grain Macaroni

– Agreement to standardize wheat content of pasta illegal

• Standardization as effect of standard vs. agreement to produce only compliant products


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Participation Rules

• Trade-offs between quickly responding to market needs and democratic procedures

• Some lawyers advise avoiding the express lane, but caution may not be justified

• Hard to establish antitrust liability based on absence of democratic participation rights– Liability found based on complete corruption of standard-setting

process• Participation rules matter only when there is some other basis

for violation• Law in both U.S. and Europe recognizes need for efficiency in

standard-setting, and therefore accepts need to limit participation


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Participation Rules

• Allied Tube (U.S. Supreme Court) calls for “procedures that prevent the standard-setting process from being biased”

• But Northwest Wholesale Stationers (U.S. Supreme Court) cautions that “the absence of procedural safeguards can in no sense determine the antitrust analysis”

• European Commission (X/Open) upholds SSO membership restriction to major computer companies with “established expertise” in Unix– EC Communication on Standardisation and the Global Information

Society: “Standards adopted following traditional procedures often prove inappropriate because of the lengthy procedures involved in their elaboration”


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Participation Rules

• Participation issues

–Membership limitations

–Membership tiers

– Timely access to standards information

• How much process is right?

– Efficient process entails a reasonable risk, but apply the smell test


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Patent Disclosure Policies

• Broad range of disclosure policies– No disclosure– Disclosure of known patents– Disclosure of known patents and applications– Disclosure and mandated patent search

• Trade-offs between disclosure burdens and participation of “patent haves”– In comments on FTC’s Dell consent order “ANSI opposed

the imposition of any affirmative duty to identify and disclose patents, because it would chill participation in standards development”


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• Case law development is still limited, but there is a clear antitrust risk in violating standard-setting organizations’ disclosure rules– Nondisclosure can lead to monopolization if different

standard would have been adopted with disclosure, standard becomes widely accepted, and undisclosed patent is necessarily infringed

– Rambus holds that there is no violation if same standard would have been adopted with disclosure

• Antitrust is not the sole remedy– Defenses of estoppel and implied license available in

infringement cases


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• Debate over whether nondisclosure can be a violation in the absence of disclosure rules– FTC took position in Rambus that expectations can be

relevant even in the absence of disclosure rules

– Court of Appeals expressed “serious concerns about [the] strength of the evidence relied on to support some of the Commission's crucial findings” about those expectations

– Today, nearly a decade after the FTC sued Rambus, an assumption that disclosures are expected at standards organizations that do not have disclosure rules is highly unwarranted


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Royalty Commitments

• Commitments to standards bodies to license under RAND terms can also raise antitrust issues

• One court has held that a violation of a RAND commitment can be an antitrust violation where the standards organization relies on the commitment

• But other decisions express skepticism

• Patent defenses should be available, regardless of antitrust


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Patent Licensing Policies

• Standards organizations’ licensing policies vary

–Most require licensing of necessarily infringed patents on reasonable and nondiscriminatory (RAND) terms

– Some provide for royalty-free licensing

– Some do not mandate licensing

– Some vary obligations by level of party’s contribution to standard

• Reciprocity typically required


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Patent Licensing Policies

• Do license terms satisfy the “R” part of RAND?–What does “reasonable” mean?

• Rates for a prior standard in same area?

• Rates for another standard?

• Does the significance of the patent matter, and can antitrust courts make that judgment?

• May SSO consider license terms in establishing standard?– OK to choose one technology over the other based on

lower royalty?


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Patent Pooling• Pooling to facilitate standards compliance is permissible

and procompetitive– Facilitates one-stop shopping for standards that necessarily

infringe hundreds or even thousands of patents (essential patents)

• U.S. Justice Department business review letters give green light to pooling essential patents– Based on inclusion of only technically and commercially essential

patents in the pool

• U.S. DOJ, European Commission, Japan Fair Trade Commission, and KFTC have endorsed patent pooling as procompetitive when accompanied by appropriate safeguards


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Defensive Suspension

• Defensive suspension involves revoking license to a licensor’s patent against a party that sues it on– Essential patents under the standard

– Non-essential patents related to standard

– Any patent

• DOJ has blessed suspension of licensee who sues on essential patents• Intergraph v. Intel supports broader suspension

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Standard-setting and Antitrust

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