Global Standards Collaboration
Intellectual Property Rights Working Group
Antitrust-Related IP Issues
in Standard Setting
Melanie Sabo, Assistant Director
Anticompetitive Practices Division
Bureau of Competition
Federal Trade Commission
Washington, D.C. 20580
July 16, 2008
Caveat
 The views expressed here are mine
and do not necessarily reflect the
views of the Federal Trade
Commission, any Commissioner, or
other FTC staff member.
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Communication Networks
 Networks depend upon interconnection
standards to offer consumer value
 Antitrust has role when conduct impairs
standards development and blocks benefits
offered by standards
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Competition Issues in Standard Setting
 Why is deception in standards-setting an
antitrust concern?
 If licensing fees are disclosed during
selection, does that avoid deception?
 Is failure to abide by licensing commitments
an antitrust issue?
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Standards Enhance Competition
 Create new products; stimulates innovation
 Establish communications networks
 Allows interoperability
 Sharpens competition
 Enables interchangeability
 Simplifies price comparison
 Increases consumer demand and attracts suppliers
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Harms of Patent Hold-Up
 Holder of essential patents can block
implementation or use of standard
 Industry investment and consumer adoption
make it prohibitively expensive to switch
 Patentee has power to extract greater royalties
than it could if patents and costs had been
known prior to selection of its technology for
standard
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Hold Up Possible Where
Patents or Patent Cost Hidden
 Deception about patents and their costs
impairs selection process by blocking
information needed for selection process
 Rival technologies compete to become
standard based upon performance and cost
 Selection turns on SSO’s knowledge of each
rivals’ performance and cost
 Unfair advantage is gained by misleading
SSO about patents and their costs
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SSOs Vulnerable to Deception
 SSO participants less able to protect
themselves against deception because they
suspend rivalries to cooperate in good faith to
develop an industry standard
 Thus, standards development is vulnerable to
deception about patents and their cost
 SSO has no authority over patent holders after
selection process
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Patent Deception as
Antitrust Violation
 Antitrust has a role when deception “disrupts the
proper functioning of the price-setting
mechanism of the market”
 Commission has concluded that a patentee may
violate antitrust laws when
 it misleads SSO about its patents;
 deception substantially contributes to its acquisition
of power to collect supra-competitive royalties; and
 it intentionally engaged in the deception
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Deception Depends Upon Circumstances
 Whether patentee’s conduct, statements, and
omissions are deception is fact specific
 It is based upon impressions left with SSO
members by patentee
 Patentee’s conduct, statements and omissions are
viewed within context of SSO procedures and
practices, if any, regarding patents
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FTC Cases
Against Patent Deception
 In re Dell Computer Corporation
121 F.T.C. 616 (F.T.C. 1996)
 In re Rambus Inc
140 F.T.C. 1138 (F.T.C. July 20, 2005)
 In re Union Oil Company of California
138 F.T.C. 1 (F.T.C. 2004)
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Patent Deception in Dell
 Patentee “certified” that it had no IP on
computer bus standard
 SSO adopted standard with patentee’s
technology
 Commission concluded that patentee misled
SSO and its failure to disclose was “not
inadvertent”
 Patentee settled with remedy blocking ability
to collect royalties when patent used in
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standard
Patent Deception in Unocal
 Patentee offered its technology to California Air
Resources Board (“CARB”) for gasoline
formulation standard
 Patentee claimed technology was “nonproprietary”
 CARB adopted the technology for standard
 Patentee settled, agreeing to license its patented
technology royalty free for use in standard
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Patent Deception in Rambus
 Patentee concealed essential IP for memory
chip standard
 SSO adopted standard using patentee’s
technology
 Commission found that patentee misled SSO
 Commission limited royalties to amount
patentee could collect “but for” the deception
 D.C. Circuit reversed Commission decision
(April 22, 2008)
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Take Away Points Regarding
Deception and Antitrust
 Patent holders may violate antitrust laws by
misleading SSO about essential patents
 Deception significantly contributes to
acquisition of monopoly power
 Patentee intentionally engaged in deception.
 Patentees participating in SSOs should:
 be candid and cooperate in good faith
 follow the SSO’s practices and procedures
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Licensing Commitments
Following Patent Disclosures
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Failure to Follow Specific Licensing
Commitment
 In recent N-Data matter, technology
proponent offered its patented technology for
use in wired LAN standard
 Pursuant to SSO request for a licensing letter,
patentee committed to $1,000/manufacturer
royalty
 Industry relied upon royalty commitment and
adopted standard
 Patent later sold to N-Data
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Commission Ruling in N-Data
 Commission alleged that N-Data’s refusal to
license for $1,000 was antitrust violation
 N-Data knew about the licensing commitment
 Commission believed repudiation of
commitment harmed competition and consumers
and was unlawful under FTC Act
 N-Data settled; agreed to charge $1,000
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Next Steps in N-Data
 Matter is now awaiting final Commission
action
 Public comments generally supportive that
breach of a specific licensing commitment is
antitrust violation
 The SSO in N-Data, the IEEE, stated that it
supports the settlement outcome
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Public Comment Questions in N-Data
 Are all commitment letters irrevocable?
 Depends upon the SSO members’ expectations
 Must SSO have a policy on revocability?
 SSO free to follow whatever policy it wishes
 Do licensing commitments encumber patent
in the hands of a transferee?
 Yes
 Is licensing agreement form attached to FTC
order the required licensing form?
 No
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Learning Patentee’s Licensing
Intentions Prior to Selection
 SSOs often take steps to confirm cost of patents
upon disclosure
 Knowledge of costs enable industry to take steps
to avoid patent holdup
 SSOs may condition use of patented technology
on patentee licensing commitment
 If patentee declines, it can withdraw its patented
technology from consideration
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Types of Licensing Commitments
 Commit to license for specific royalty amount
 Commit to license royalty free
 Commit to license on reasonable and nondiscriminatory terms (“RAND”)
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Commitments to Specific Rates
 If SSO elects, it can invite patentees to
disclose licensing terms before selection of
technology standard
 Antitrust enforcement authorities have
approved such ex ante disclosure of rates
 Disclosure enhances competition by
facilitating performance/cost comparisons
 Patentee ex ante disclosure of rates does not
create substantial risk of price fixing
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DOJ Business Review Letters
 DOJ approved two different SSO approaches
to ex ante disclosure of licensing terms
 VITA (2006): SSO required holders of
essential patents to disclose maximum royalty
rates and most restrictive non-royalty terms
 IEEE (2007): SSO allowed members
voluntarily to state most restrictive terms
 Both SSO procedures encourage competition
 Actual price fixing remains unlawful
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RAND Commitments and Antitrust
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Commitments to License on RAND Terms
 SSOs may invite patentees to commit to
“reasonable and non-discriminatory terms”
 A RAND commitment is indicator of cost of
technology
 RAND signals that patentee will license
technology at capped “reasonable” rate
 Patentee may abuse monopoly power when it
charges more than cap
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Is Failure to Comply with RAND
Commitment an Antitrust Case?
 Commission has not addressed whether refusal
to fulfill RAND commitment violates antitrust
law
 Federal Courts of Appeals decisions are mixed
 3rd Circuit found false RAND commitment a § 2
violation (Broadcom v. Qualcom)
 D.C. Circuit appears to say that § 2 violated only
if commitment led to elimination of rival
(Rambus)
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Failure to Follow RAND Commitment Is
§ 2 Violation: Broadcom v. Qualcomm
In Broadcom v. Qualcomm, patentee offered
technology for 3rd generation cell standard
Patentee committed to RAND licensing
SSO allegedly relied on licensing commitment
Patentee was also downstream chip supplier
Rival chip maker alleged patentee breached
RAND commitment by charging a
discriminatory higher total royalty rate where
users purchased chips from rival chip makers 28
Broadcom v. Qualcomm: 3rd Circuit Ruling
 3rd Circuit recognized § 2 cause of action
where patentee knowingly misrepresents its
intention to license technology on RAND
terms to acquire monopoly power
 Plaintiff must show patentee made a false
promise
 Plaintiff must show patentee’s licensing
regime breached licensing commitment
 Case currently in pre-trial discovery
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Failure to Fulfill Rand Commitment
May Not Be § 2 Violation: Rambus
 Rambus concerned computer memory chip standard
 Commission found patentee misled SSO about its IP
 Commission believed patentee would have made
RAND commitment if IP had been disclosed
 Commission also found SSO would have used
patentee’s technology with RAND commitment
 Commission found patentee had been charged a supraRAND rate and limited patentee to RAND royalty
going forward
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Rambus: D.C. Circuit Ruling
 D.C. Circuit reversed the Commission
 Concluded charging more than RAND royalty
is not § 2 violation where SSO would have
selected same technology
 Rambus decision may mean patentee’s failure
to fulfill RAND would not be § 2 violation
unless rival was eliminated by misleading
commitment to RAND licensing
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Rambus: FTC Requests en banc Review
 FTC has requested en banc review
 FTC believes that patentee’s patent deception
harms competition and violates § 2
 Key Arguments
 Panel’s standard of proof contrary to the standard
in the Microsoft case
 Panel misapplies Supreme Court decision on
pricing by lawful monopolist (NYNEX v. Discon)
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