Study On Standard-setting and Antitrust Law

Study On Standard-setting and Antitrust Law
WANG Liming
School of Economics, Shandong University of Technology, P.R.China, 255049
：
Abstract Standard-setting is a global process that bestows inestimable benefits on society. It is
Janus-faced, if it is misused, can block entry and increase costs by excluding new innovative products
and services. Technical standards are often subject to massively overlapping patent protections.
Antitrust and Intellectual Property Laws have the same ultimate goal: “Work together to promote
consumer welfare.”1 To accomplish this goal, antitrust policy should take patent policy into account.
Requiring SSOs to require ex ante disclosure of patents to be incorporated into a standard and associated
license terms, and to permit discussion of those license terms, would promote informed decision-making
and thereby promote consumer welfare.
Key words: Standard setting Antitrust Law Implications Approaches
1 Introduction
Standards are agreed upon specifications for the production of functionally compatible goods and
services. “Standards” are created by voluntary organizations composed of participants from a single
market or industry, such as electronics, medicine, finance, automotive, aerospace, and
telecommunications, which meet to discuss, suggest, analyze, refine, and ultimately adopt mutually
acceptable “standards” that ensure competing and complementary products and components are
compatible and can interoperate with one another.
Nowadays, Examples of standard-setting success stories are all around us. Users of cellular
telephones produced by different companies can communicate with one another because the
telecommunications industry gathered and worked together to adopt standards that allowed for
compatibility of use among their products. Customers of one particular bank are able to use their
automatic teller machine cards at a competing bank’s ATM because of standardized technology.
2 Standard –Setting’s Benefits
Standard-setting is a global process that bestows inestimable benefits on society. Industry standards
have played important role:
Dramatically increased the extent of product compatibility and interchangeability. It “enhances
economic efficiency by providing information to market participants about the suitability of a particular
product for a given purpose, helping to determine the quality and safety of products and satisfying
compatibility and interoperability requirements between complimentary products or components.”2
Facilitated the globalization of markets;
Sped the development and worldwide implementation of new technologies;
Opened up markets to the potential for new entry, often on a smaller scale than might be necessary
absent widely adopted industry standards; and
Helped to cultivate intense price competition and, in turn, intense efforts to maximize efficiency
and lower costs , etc.3
It is almost impossible to conceive of a world without standards. In today’s technology-dependent
1
See TO Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, A Report of the
Federal Trade Commission (October 2003), chap. 6, p. 1.
2
American Antitrust Institute, Brief of Amicus Curiae In Support of Neither Party, filed in FTC Docket No. 9302,
citing Clamp-All Corp. v. Cast iron Soil Pipe Institute, 851 F.2d. 478, 487 (1st Cir., 1988).
3
M. Sean Royall The Role of Antitrust in Policing Unilateral Abuses of Standard-Setting Processes, Cover Stories,
Spring 2004,pp44 49.
～
591
world, industry-standardization, component interoperability, and product-compatibility have become
even more critical to promoting innovation and economic competition. As a result, standard-setting
organizations (SSOs) have taken on new and greater importance over the years. Standard-setting
organizations have evolved, industry by industry, to create standards that form the foundation for fluid
and efficient operation of commerce to the benefit of consumers worldwide.
3
Complicated Relationship between Standard-Setting and Antitrust Law
Standard-setting is Janus-faced: It may both benefit and impede effective competition. It can
promote competition and economic efficiency by disseminating product information and by eliminating
unnecessary and confusing variations in products; If it is misused, can block entry and increase costs by
excluding new innovative products and services, especially if incorporated in governmental codes.
Joint standards development activity is normally subject to treatment under the antitrust laws that
focuses on whether or not the activity is reasonably necessary to achieve legitimate procompetitive ends,
and, if so, whether the benefits of the standard outweigh the costs, and whether adoption of standards
and their implementation are being used to exclude competitors. Private approval of standards is
measured under rule of reason (i.e., whether likely competitive effects outweigh benefits).The benefits
of standard setting are considerable, and the vast majority of standard development activities, when
conducted properly, have little, if any antitrust risk.
Antitrust problems can arise, however, in both the development of a standard as well as the
enforcement of that standard. With SSOs becoming more prevalent and influential, the opportunity for
mischief by those who would seek to subvert the standard-setting process through the use of inside
information, manipulation, and abuse of the patent system in order to “corner the market” and garner a
monopoly has similarly grown.
3.1 Antitrust problems may arise in several situations
members of the standard setting body use the process to exclude competitors and a member of
the standard setting body manipulates the process to monopolise the relevant market. such as in the
following illustrative examples:
When SSOs members misuse the SSOs to facilitate agreements that restrain trade such as when
product standardization has the effect of stabilizing prices;
When a SSOs member fails to disclose intellectual property rights in the standards adopted and
then seeks to assert its rights against those who adopt the standard;
When a standards-setting organization adopts a specification that non-members are not able to meet,
and that gives the members of the standards development group a competitive advantage in
manufacturing or marketing; and
When the SSOs’ rules and procedures are used to unreasonably exclude some competitors.4
3.2 In this situation, the following issues are analysed.
Whether the participant has, or is dangerously close to achieving, monopoly power in the relevant
market covered by the technology;
Whether the intellectual property holder failed to disclose its intellectual property to the standard
setting body and had a duty to do so;
Whether the conduct is predatory;
Whether the participant contributes to the adoption of the standard by misrepresentations or
omissions.
The fundamental objective of the antitrust laws is to protect and promote free and fair competition.
These laws reflect the belief that a competitive marketplace will enable consumers to obtain the highest
quality goods and services at the lowest price. By protecting competition, antitrust law promotes
consumers’ welfare and fosters opportunity for businesses by ensuring a level playing field among
competitors. The applicability of antitrust doctrines in the standard-setting process is an issue that has
4
International Digital Publishing Forum Antitrust Compliance Policy and Guidelines
http://www.idpf.org/doc_library/corporate%20documents/antitrust/IDPF_Antitrust_Policies.htm
592
been and continues to be debated among legal scholars, business leaders, government officials, and
SSOs. Those who advocate increased antitrust scrutiny in the standard-setting context argue that
manipulation of the standardization process by participants who engage in deceptive, bad faith conduct
can lead to monopolization, decreased competition and higher consumer costs.
In order for SSOs to function properly, the participants must share a fundamental trust that no other
participant will “game the system” to its own advantage. If participants fear that competitors are
working within the SSO to manipulate the standard-development process by lulling the entire industry
into adopting technology standard on which the competitor holds a patent – thereby potentially
acquiring a monopoly over an industry-wide standard – they are far less likely to participate in future
SSOs. The result will be standards developed by fewer participants. A poorly accepted standard does
little to achieve the efficiencies of interoperability and compatibility. The result of such a breakdown in
the standard-setting process would be the stifling of innovation, the proliferation of incompatible
products and components, and a decrease in economic efficiency and market competition.
It is imperative for SSOs to remain vigilant to make sure that all its participants are working in the
spirit of collaboration, openness, and good faith. But SSOs, as voluntary, consensus-seeking
organizations, have limited resources and even fewer enforcement tools. Therefore, it must be a key goal
of antitrust law enforcement to work with SSOs to thwart the incentive of unscrupulous participants who
may engage in anticompetitive acts and practices during the standard-development process for the
purpose of monopolizing markets.
Antitrust law is well-suited to redress and deter conduct which may frustrate or delay the
emergence of the pro-competitive benefits of standards-setting organizations, Moreover, the scope of
antitrust law should not be artificially limited in a manner that inhibits it from accommodating new
factual circumstances created by the interplay of standard-setting and intellectual property rights. The
goal of antitrust should be to advance and support fair and open standards setting procedures.
4
Cases Study
Over the past several decades, a number of courts have had occasion to apply Section 1 of the
Sherman Act in the context of industry standard-setting, resulting in a fairly well-developed body of
case law.5 Yet Section 1 of the Sherman Act is not the only provision of antitrust law with potential
relevance to industry standard setting. As is evidenced by the Federal Trade Commission’s suits against
Rambus Inc. a Los Altos, California-based company that licenses memory chip-connection intellectual
property for use in computers, consumer electronics, and communications systems.6 and Union Oil
Company of California (Unocal),7 Standard-setting activities may also implicate Section 2 of the
Sherman Act.8 Though both cases technically arise under Section 5 of the FTC Act, the underlying
theory of liability in each case is rooted, at least in substantial part, in Section 2 principles of
monopolization and attempted monopolization.9
In a unanimous opinion issued August 1, 2006, the FTC held that Rambus, Inc., a leading
developer of computer memory technologies, had engaged in exclusionary conduct rising to the level of
illegal monopolization. The conduct of Rambus that the FTC found unlawful included exploiting its
participation in a standard setting organization ("SSO"), the Joint Electron Device Engineering Counsel
5
See, e.g., Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988); American Soc’y of Mech.
Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S.556 (1982).
6
Rambus
Inc.,
FTC Docket
No.
9302 (June
18,
2002)
(Complaint),
available
at
http://www.ftc.gov/os/2002/06/rambuscmp.htm.
7
Union Oil Co. of Cal., FTC Docket No. 9305 (Mar. 4, 2003) (Complaint), available at
http://www.ftc.gov/os/2003/03/unocalcmp.htm.
8
See D. Bruce Hoffman & M. Sean Royall, FTC Administrative Litigation, 70 ANTITRUST L.J. 319, 324 (2003).
9
Under Section 5, the FTC has authority to prosecute as “unfair methods of competition” conduct that would
constitute a violation of the Sherman Act or other antitrust statutes. 15 U.S.C. § 45(a). Moreover, the Rambus and
Unocal complaints specifically allege that the respondents in both cases engaged in conduct that constituted actual
or attempted monopolization. SeeRambus Complaint, pp 122–123; Unocal Complaint, pp 1.
593
("JEDEC"). In the Matter of Rambus Incorporated, FTC Docket No. 9302. The FTC found that Rambus
deceived JEDEC by working with JEDEC to set industry standards for dynamic random access memory
("DRAM") semiconductor chips but failing to disclose the existence of its own patents and patent
applications that involved the specific technologies that were ultimately adopted in the standards.
Rambus actively misled JEDEC’s members to believe that Rambus would not seek patents covering the
JEDEC standards — even as Rambus surreptitiously amended its pending patent applications to cover
the ultimate standard. Only after the standards were approved did Rambus reveal its patents — through
infringement lawsuits against its fellow JEDEC members that practiced the standard. The Federal Trade
Commission determined that Rambus, Inc. violated Section 2 of the Sherman Act and Section 5 of the
FTC Act by unlawfully monopolizing various technology markets through the deliberate manipulation
of an industry standard-setting process.
The Commission has yet to determine a remedy for Rambus’ violations, and has sought additional
briefing and argument on appropriate remedies (but not on liability). The remedies may include
"reasonable royalty rates for JEDEC-compliant products affected by Rambus’ exclusionary conduct" as
well as injunctive relief.10 The Rambus and Unocal cases are not the first of their kind. In 1994, the
FTC issued a complaint against Dell Computer Corporation, challenging Dell’s unilateral conduct in
failing to disclose certain patent-related information to a standard-setting organization. 11 The
Commission issued fairly detailed statements in support of a negotiated consent order in Dell.12
The Rambus decision dramatically illustrates the interplay between antitrust and IP principles in the
standard setting context. Patents and antitrust law — far from being in conflict — are both aimed at
encouraging innovation that benefits consumers. Nor do patents necessarily create market power. The
collaborative standard setting process, however, presents unique opportunities for abuse.
There are some implications for intellectual property owners that participate in joint
standard-setting organizations.
IP owners need to undertake their own due diligence to determine other members’ patent ownership
rather than relying solely on the organization’s rules of good faith voluntary disclosures of existing and
pending patents and other voluntary policies designed to prevent anticompetitive holdup.
IP owners participating in standard-setting should have legal counsel carefully review the
organization’s disclosure rules and guidelines relating to disclosure of relevant patents. They must
exercise caution to avoid the risk of potential antitrust liability. Last, no participant should attempt to
subvert the process to exclude others or to seek a market advantage for its own intellectual property.
5 Conclusion
Standards are frequently established through consortia involving many of the relevant players in a
given industry, and considerable harm to competition can result when the work of such an industry
group is misdirected to serve the private, anticompetitive purposes of a single company. The challenge
for the courts antitrust authorities in resolving antitrust cases attacking unilateral conduct in this setting
will be to define standards of conduct that deter truly abusive behavior without unduly discouraging
broad participation in group standard-setting activities, which can both enhance the quality of industry
standards and lead to swifter, wider adoption of such standards within the relevant marketplace.
There are two approaches to solving the hold-up problem—one applied on the antitrust side and the
other on the patent side(Rubin,2006).13
5.1 The first approach is market power analysis
There is often market power on the part of the patentee, which is conveyed by the barrier to entry
10
Carole E. Handler and Michael J. Locker, United States: Lessons For Intellectual Property Owners 18 August
2006 ,http://www.mondaq.com/article.asp?articleid=42194&shownav=0
11
See Dell Computer Corp., 121 F.T.C. 616 (1996).
12
See Id. at 623 26.
13
Summary of Breakout Session on Standard Setting ,American Antitrust Institute Annual Conference 2006.
http://www.antitrustinstitute.org.
～
594
created by the patent and the inelastic demand supplied by the adoption of a patent into a standard or
product. But antitrust law dissipates the market power of the standard-setting participants( SSPs),
making it difficult to bargain on equal footing with the patentee. A better antitrust remedy would be to
allow coordinated negotiations between the SSPs and patentee to arrive at licensing terms before the
patent is incorporated into a standard.
5.2 A second solution to the hold-up problem would be applied on the patent side
In the form of an exception to the right of the patentee to sue for infringement. Such a defense,
would apply when: The purpose of enforcing the patent is to foreclose interoperability between a
commercially available product with a complementary product that competes outside the field of
effective competition occupied by the product embodying the patented technology and; The sole
purpose for the infringement is to achieve interoperability between the two complementary products and
acts of infringement extend only as far as necessary to achieve interoperability, or the alleged
infringement is based on field of use restrictions that effectively prohibit the licensee from
interoperating the licensed product with complementary products.
References
[1]TO Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, A Report of
the Federal Trade Commission ,October 2003: 1.
[2]American Antitrust Institute, Brief of Amicus Curiae In Support of Neither Party, filed in FTC
Docket No. 9302, citing Clamp-All Corp. v. Cast iron Soil Pipe Institute, 851 F.2d. 1st Cir., 1988: 478
487.
[3]M. Sean Royall The Role of Antitrust in Policing Unilateral Abuses of Standard-Setting Processes,
Cover Stories, Spring 2004:44 49.
[4]International Digital Publishing Forum Antitrust Compliance Policy and Guidelines.
http://www.idpf.org/doc_library/corporate%20documents/antitrust/IDPF_Antitrust_Policies.htm.
[5] Allied Tube & Conduit Corp. v. Indian Head, Inc., 1988: pp. 486 U.S. 492,American Soc’y of Mech.
Eng’rs, Inc. v. Hydrolevel Corp.,.456 U.S. 1982: 556.
[6]Rambus Inc., FTC Docket No. 9302 (June 18, 2002) (Complaint), available at
http://www.ftc.gov/os/2002/06/rambuscmp.htm.
[7]Union Oil Co. of Cal., FTC Docket No. 9305 (Mar. 4, 2003) (Complaint), available at
http://www.ftc.gov/os/2003/03/unocalcmp.htm.
[8] D. Bruce Hoffman & M. Sean Royall, FTC Administrative Litigation, 70 ANTITRUST L.J. 2003:
319 324.
[9] Rambus Complaint, 122 123; Unocal Complaint, 1.
[10]Carole E. Handler and Michael J. Locker, United States: Lessons For Intellectual Property Owners
18 August 2006 ,http://www.mondaq.com/article.
[11] Dell Computer Corp., 121 F.T.C. 1996: 616. Id. 623 626.
[12]Summary of Breakout Session on Standard Setting ,American Antitrust Institute Annual
Conference2006. http://www.antitrustinstitute.org.
～
～
～
～
～
595