Antitrust and Trade Regulation Alert
June 1, 2010
Authors:
Vanessa C. Edwards
vanessa.edwards@klgates.com
+44.(0)20.7360.8293
Neil A. Baylis
neil.baylis@klgates.com
+44.(0)20.7360.8140
Scott S. Megregian
scott.megregian@klgates.com
+44.(0)20.7360.8110
K&L Gates includes lawyers practicing out
of 36 offices located in North America,
Europe, Asia and the Middle East, and
represents numerous GLOBAL 500,
FORTUNE 100, and FTSE 100
corporations, in addition to growth and
middle market companies, entrepreneurs,
capital market participants and public
sector entities. For more information,
visit www.klgates.com.
Proposed Changes to Standard-Setting
in the European Union
On 4 May, 2010, the European Commission published draft regulations and
guidelines that update the rules governing horizontal co-operation agreements
between competitors. Guidance for assessing horizontal co-operation agreements is
currently given by two “block exemption” regulations on research and development
(“R&D”) agreements and on specialisation agreements, along with accompanying
Horizontal Guidelines. The regulations exempt R&D, specialisation and joint
production agreements from the European Union’s ban on anti-competitive
agreements, articulated in Article 101 of the Treaty on the Functioning of the
European Union, provided they meet certain conditions. The Horizontal Guidelines
provide an analytical framework for assessing horizontal co-operation agreements.
The proposed changes will replace the current regulations, which expire at the end of
this year, and the Horizontal Guidelines. Consultation remains open until 25 June,
2010. One key change is how the draft Horizontal Guidelines (“draft Guidelines”)
treat standard-setting arrangements.
Standardisation agreements
Standardisation occurs when competitors agree on technical and other standards for
their industry, even though such agreements would normally raise potential antitrust
law concerns. Standards are increasingly important in facilitating technological
innovation, and agreements define technical or quality criteria for products,
production processes, services and methods. Standardisation criteria may be
developed by European or national standards bodies or trade associations; they may
also be agreed to between companies.
Recognizing the positive effects of standards, the European Commission allows
exemptions to antitrust rules in some standardisation cases. The Commission’s 2001
Horizontal Guidelines currently provide that non-mandatory standards adopted by
recognised standards bodies in accordance with a non-discriminatory, open and
transparent procedure do not in principle fall under Article 101. In contrast,
standardisation agreements aimed at excluding actual or potential competitors will
almost always be caught by Article 101. Between these ends of the spectrum,
compatibility with Article 101 depends on a number of competitive factors.
Standard-setting in the draft Guidelines
The Commission notes in the press release accompanying the draft Guidelines that
its case experience over the last decade has demonstrated that many complaints about
standard-setting are due to the lack of transparency during the selection process, in
particular in the context of intellectual property rights (“IPR”) and exclusion of
competing technologies. The revised standardisation chapter seeks to avoid such
problems by giving clear guidance on the standard-setting process and the means of
preventing misuse of such process. Openness, non-discrimination and transparency
are salient considerations.
Antitrust and Trade Regulation Alert
To that end, the draft Guidelines focus on whether
participation in standard-setting, and the procedure
for adoption of standards, is “unrestricted and
transparent.” If so, standardisation agreements
which set no obligation to comply and which
provide access to the standard on “fair, reasonable
and non-discriminatory” (“FRAND”) terms will in
principle be regarded as compatible with Article
101. A standard-setting agreement which does not
fulfil these conditions may still be compatible but
will require an individual assessment on whether it
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falls under Article 101.
Although most standard-setting organisations
already require participants to undertake to license
IPRs on FRAND terms, the Commission’s
experience of standard-setting disputes indicates the
importance of transparency. The draft Guidelines
give guidance on what is meant by unrestricted
participation and procedure and transparency,
including:
•
The relevant rules should not exclude or
discriminate against specific groups of IPR
holders, and should guarantee that all relevant
actors can participate in the process selecting the
standard;
•
There should be no bias for or against royaltyfree standards;
•
The standard-setting organisations should have
objective and non-discriminatory procedures for
allocating voting rights and allowing
stakeholders to inform themselves of past,
current and future standardisation work;
•
The rules should avoid charging abusive royalty
rates by IPR holders.
Of particular interest are the proposals that a
standard-setting organisation’s rules ensure that the
process cannot be abused by IPR holders, such as an
IPR holder refusing to license or requesting
unreasonable fees once the industry has been locked
in to the standard. The draft Guidelines require a
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This assessment in the proposed Guidelines would consider whether an
agreement that is in principle contrary to Article 101 falls within the Article 101(3)
derogation from the prohibition. Here, the Guidelines would analyze efficiency
gains from standardisation agreements, but weigh these against the scope of
restrictions and other competitive factors.
“clear and balanced IPR policy that protects against
companies abusing market power with respect to a
standard.” Such a policy requires holders of any
IPRs which might be essential for the
implementation of a proposed standard to disclose
any such IPR in good faith before the standard is
agreed, to give an irrevocable commitment in
writing to license it to all third parties on FRAND
terms and to ensure that any transferee of the IPR
(including the right to license the IPR) is also bound
by the FRAND commitment. Thus, the IPR
incorporated in a standard is accessible to users on
FRAND terms.
The draft Guidelines also make clear that an abuse
of market power gained by virtue of an IPR being
included in a standard infringes Article 102.
Whether fees imposed for patents in this context are
unfair or unreasonable depends on whether they
bear a reasonable relationship to the economic value
of the patents. Since the costs of developing a
patent are difficult to assess, the Commission
suggests either comparing the licensing fees charged
by the undertaking concerned before and after the
industry has been locked into the standard
(assuming that this comparison can be made
consistently and reliably) or obtaining an
independent expert assessment of the IPR’s
objective quality and centrality to the standard at
issue. The Guidelines also envisage a standardsetting organisation providing for up-front
disclosures of the most restrictive licensing terms.
The draft Guidelines moreover state that the
inclusion of substitute technologies in a standard is
likely to restrict competition under Article 101,
because it could exclude competing alternative
technologies from inclusion in a different standard.
The Commission will also scrutinize standards that
are not accessible to third parties, i.e. non-members
of the relevant standard-setting organization.
However, high market shares held by parties in the
market(s) affected by the standard do not
necessarily mean that there are restrictions on
competition under Article 101. Whether
agreements restrict competition depends in part on
whether members remain free to develop alternative
standards or products that do not comply with the
agreed standard.
June 1, 2010
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Antitrust and Trade Regulation Alert
Conclusion
Based on past experience, the Commission’s draft
Guidelines emphasize openness and nondiscrimination in standard-setting, particularly in the
context of IPR holders and licensing. The revisions
propose that the factors of transparency, competition
and participation should play a major role in the
evaluation of whether a standardisation agreement is
exempt from Article 101. These new rules
significantly update the standard-setting analysis.
*Associate Scott T. Baker contributed to this alert.
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K&L Gates includes lawyers practicing out of 36 offices located in North America, Europe, Asia and the Middle East, and represents numerous
GLOBAL 500, FORTUNE 100, and FTSE 100 corporations, in addition to growth and middle market companies, entrepreneurs, capital market
participants and public sector entities. For more information, visit www.klgates.com.
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June 1, 2010
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