Presentation to Chinese Government Interagency Delegation
March 26, 2009
Evan R. Cox

• Standards should be set by private industry
• Standards should be voluntary except where health and safety are involved
• Standards should preserve scope for competing means of implementation
– set minimum, not maximum specifications
– specify objective performance criteria rather than specific design (unless physical interoperability issues)
• Competing standards should generally be encouraged
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• Standard setting is generally procompetitive, antitrust complaints judged by rule of reason
• Standards do not automatically create market power
• “Openness” is a factor in evaluation, but universal participation is not required
– No basic difference in analysis between institutional standard setting organizations (SSOs) and ad hoc “consortia”
• Role of agencies and courts is to prevent process abuses, not second-guess technical or business outcomes
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• Allied Tube: Violation for steel pipe maker to exploit membership rules by signing up hundreds of new members to vote against proposal to include plastic pipe
• Hydrolevel: Violation for group to allow one company to issue false standards interpretations to hurt competitor
• Golden Bridge: Potential violation for companies to agree in advance to vote to exclude competing technology without regard to technical merits
• Rambus: Alleged violation of patent disclosure policies leading to “patent holdup”
• Addamax: No violation in vote to choose one technology over another on technical merits in absence of process abuse
• API: No violation in delay in action to include company’s technology that meets technical criteria if membership is balanced, and includes customers as well as competitors, no evidence of anticompetitive intent
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• IP policies may only bind voluntary participants - benefits of standards do not justify compulsory participation and licensing
• IP policies should ensure an even playing field for implementation by all competitors
• IP policies should cover only “essential” patents, and only for purposes of implementing the standard
• Royalty policies and rates should be left to competitive forces
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• No antitrust policy preference for royalty or royalty free, as long as non-discriminatory
• Benefits of royalty free
– potentially reduces costs of implementation
– avoids disclosure issues (among participants)
– but discourages participation of innovative companies, use of
“proprietary” technology
• Benefits of RAND or FRAND (royalty allowed)
– increases participation of innovative companies and use of
“proprietary” technology
– does not always lead to patent holders charging royalties
– but requires disclosure policies and difficulty setting judicial standards for what is “reasonable”
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• Nondiscriminatory doesn’t necessarily mean same price for all
– shouldn’t discriminate between “similarly situated” implementers
– different prices for different categories of implementer, e.g., software vs hardware, component versus finished product, etc.
– justifications for variations to reflect cross licenses, additional consideration, etc.
– founders can charge each other lower rates that reflect contributions
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• Patent disclosure policies allow informed choice about use of technologies that might incur royalties
• Violations lead to patent “hold up”
– may have designed around patented technology to avoid royalties
– royalties more likely to be reasonable if clarified before market gets
“locked in”
• Antitrust authorities intervene on theory that failure to disclose results in wrongful acquisition of monopoly power
– Rambus, Unocal, Dell, Qualcomm
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• Significant issues: Scope of duty
– at what stage of standards development?
– essential, or likely to be essential?
– does it cover patent applications?
– whose knowledge and any duty to enquire within company or conduct portfolio search?
– recent trend to consider what participants believed their duty covered, and not just language of policy Rambus, Qualcomm
• Remedy – non-enforceability or RAND
– would disclosure have resulted in design-around?
– or would RAND assurance have been accepted but royalty have been lower before lock-in?
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• Patent disclosure provides incomplete information for design-around decisions
• But discussion of royalty rates creates price fixing concerns
• Recent DOJ and FTC statements to encourage ex ante disclosure of license terms, but scope for discussion unclear
• Limited adoption to date
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• Agencies and courts properly reluctant to judge whether royalty is “reasonable”
• No successful challenges to RAND yet
– most courts have upheld against challenges to rates, but allegations becoming more frequent
– 3 rd Circuit approach: was RAND commitment “fraudulent when made”
– NData – repudiation of RAND commitment post-transfer
• Rambus FTC proceeding
– attempted to determine RAND as remedy for non-disclosure
– engaged in detailed examination of other licenses to set reasonable royalty
– decision mooted when overturned on causation
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• Concern about patent thickets and patent stacking, not exclusively a standards problem
– cumulative weight of individually set RAND rates could discourage adoption
• Patent pools a potential solution to make clear total patent cost of adoption
• Antitrust policy approach is to allow pool formation to be market driven and monitor for potential abuses
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• Business Review Letter principles stress they should be voluntary and non-exclusive
– Pools do not need to be open to all participants – 1995 DOJ/FTC
IP Guidelines § 5.5
• Important to preserve competition between standards
– In re Summit Tech. Inc.
, No. 9286, 1998 FTC Lexis 29
– 3GPP Business Review Letter
• Limiting pools to essential patents and limiting scope of grantbacks to preserve further innovation
• Court challenges to cumulative rates set by pools have thus far been unsuccessful
– e.g. Matsushita v. Cinram and Wuxi Multimedia v. Phillips
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