Industry Standards
As applied to patent lawsuits and licensing
David Healey
Fish & Richardson
May 27, 2010
Standard Setting Organizations
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Types of Standards
De Jure Standards: Standards or protocols adopted for
compatibility or safety by an industry group, e.g., IEEE or
JEDEC or ETSI
De Facto Standards: Standards that have become adopted
overtime by public popular demand, such as QWERTY
keyboard
Proprietary Standards: Standard created by a company that
it does not license, such as power supply interface.
This presentation is about De Jure Standards
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Old U.S. Saying:
“It is an enigma wrapped in a mystery.”
– An “enigma” is something no one can ever understand:
Like a force of nature.
This “saying” means that we are dealing with a powerful force
where the law is undefined.
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Standard-Setting: Overview
Standard-setting activity is an exception to U.S.
antitrust laws:
– Federal and State Laws prohibit competitors from
working as a group to agree on technology they will use
or on specifications of products they will sell.
– Outside of the standard-setting exception these are
FELONY CRIMES and also subject to CIVIL
LIABILITY
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PERMITTED:
Standard-Setting has been permitted as an exception
when:
– It allows different manufacturers’ products to interface or
interact with each other.
– It provides for neutral certification of product safety
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Compatibility=Competition
Making different products from different
manufacturers compatible with each other opens
competition in closed systems to make more
products available from more sellers:
– Increases supply and availability
– Increases innovation
– Lowers price
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Examples
Example 1:
– ETSI passes a standard protocol that allows different
manufacturers’ GSM or WCDMA phones to connect to a
GSM or WCDMA base station.
– This standard allows all manufacturers to make GSM or
WCDMA phones that are compatible with any other
manufacturers’ GSM or WCDMA base station.
– This is a proper use of standard-setting because it is for
compatibility
– This is legal
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NOT PERMITTED:
Generally, U.S. law DOES NOT permit standards to be set
that do not enhance or improve product compatibility or
certify safety:
– Macaroni Makers Assoc v. FTC, 345 F.2d 421 (1965) is one
example: Standards for noodles were declared illegal because
noodles don’t have to be compatible and are safe.
– Radiant Burners Inc v. Peoples Gas Light, 364 U.S. 656 (1961) is
another example: Refusal to certify as safe an alternative meter to
the only approved standard meter was illegal because the alternative
was safe and the refusal to certify was to stop a competitor.
– Allied Tube v Indian Head, 486 U.S. 492 (1988): Standard
prohibiting use of rubber insulation on electrical wiring for homes
was illegal because the manufacturers of other types of conduit
“stacked” the vote to exclude rubber from the conduit standard to
avoid competition from new manufacturers.
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NOT PERMITTED:
Standard-setting is not permitted:
– To fix prices of any product or technology license.
– To limit sale of technology or products
– To fix price of technology to use in a standard
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Example 2
ETSI passes a rule that all phones must have touch screens
and music players.
This has nothing to do with compatibility of the phones with
a base station or the system.
This is simply an agreement by competitors to only sell more
expensive products with higher profit margins and not to sell
cheaper products with lower profit margins.
Under U.S. law this is a CRIME – A FELONY
Under U.S. law this is also actionable by the FTC or a civil
litigant as a civil antitrust violation
Under EU law this is subject to fine by European
Commission
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The U.S. Supreme Court
In every case the U.S. Supreme Court has had on
standard-setting, it has ruled the law was broken.
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Sources of Law
U.S. Federal and State Antitrust law,
– Title 15 of the U.S. Code, Section 1, Sherman Act
prohibiting conspiracies in restraint of trade.
– Title 15 of the U.S. Code, Section 45, FTC Act Section 5,
prohibiting unfair competition
– State antitrust and unfair competition laws on illegal
group conduct
– These laws over-ride any rules a standards group has
made for itself: Compliance with a standard-setting
group’s rules is not a defense! (But can be relevant fact
in a case.)
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Sources of Law
U.S. patent law:
– Equitable estoppel (non-disclosure or misleading
disclosure)
– Implied license (conduct that seems to permit use)
– Patent misuse (hurting competition in a market with a
patent on a standard by acting with others in selecting the
standard and unfairly manipulating access to use of the
standard)
U.S. contract law:
– Broadcomm v Qualcomm, 501 F.3d 297 (2007),
established that the IP policy of a standards group is an
enforceable contract among members
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Sources of Law
Europe
–
–
–
–
Contract law
Abusive pricing
Duty of good faith
Treaty of Rome, Articles 85 and 86
• Unfair competition and antitrust
– National laws on unfair competition and trade
practices
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Sources of Law
Taiwan FTC had a finding of anticompetitive
conduct in licensing of DVD format for DVD disks
KFTC?
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The Beginning of Standards and IP – FTC v
Dell
Standards began in product safety.
Standard-setting in IP begins with the FTC’s lawsuit in the
early 1990s against Dell for failure to disclose to VESA that
it had patents on a proposed VESA standard for
compatibility of connections for computer monitors.
Dell voted for the standard without disclosing its patents on
the technology.
Dell then sued industry competitors for patent infringement
after the standard was implemented.
FTC sued, and Dell promised not to enforce these patents
against VESA standard or do this type of thing again. In re
Dell, 121 F.T.C. 616 (1996)
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Standards: Duty of Disclosure
Anyone who participates in a standard-setting process must
DISCLOSE known IP:
– Stambler v Diebold, 878 F.2d 1445 (Fed. Cir. 1989), owner of patent
knew standard-setting going on, did not participate, but did not
speak up about patent, equitable estoppel
– Mitsubishi v Wang, 103 F.3d 1571 (1997), owner of patent did not
disclose patent issues when promoting its technology as de facto or
de jure industry standard, implied license
– In re Dell, 121 F.T.C. 616 (1996), owner of patent did not disclose
patents when voting on standard, patent misuse/antitrust
– Rambus v Infineon, 318 F.3d 1081 (2003), owner of patent must
disclose under contract of standard’s group policy, but no money
damages if the policy is not clear
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Standards: Duty of Disclosure
Today it is well-established that a patent owner who
participates in creation or debate or a vote on a standard
must disclose patents or other IP it thinks might be needed to
implement the standard.
The test is not whether the IP is actually needed, the test is
whether the owner asserts it is needed: The purpose is to
avoid allegations in a lawsuit not to decide actual claims.
The patent owner who does not disclose is at risk that its
patent is unenforceable against implementation of the
standard.
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DISCLOSURE!!!
If you have a patent or published application you
want to enforce, then you must disclose it in the
standards process
– 1) Disclose according to group’s rules
– 2) Disclose at earliest opportunity
– 3) Disclose directly to the working committee by email
or letter before draft standard is sent for final vote by
working committee regardless of the group’s rules.
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DISCLOSURE!!!
What if your patent application is not yet published
anywhere?
What if you are doing R&D and planning to apply for more
patents in the future?
DISCLOSURE: Write to the group president, the chairmen
of the relevant working committees, prior to adoption of
draft standards, that you have applied for IP in this area
and are developing IP in this area going forward.
DISCLOSURE: Make complete disclosure once publication
occurs anywhere in the world.
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THE IDS
If you participate in standards groups, make sure
you cite draft standards, standards, working papers,
submissions from your company and other member
companies to the PTO in your IDS.
Disclose the material as art in patent offices
Do Provisional Applications on new inventions
before going to standards meetings
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Duty to License
Sources of law:
– Mostly contract: The standard-setting group’s rules
– U.S. and state antitrust laws on “essential facilities” and
on exclusion of competitors from markets
– State contract law on “promissory estoppel”
– Europe: Compulsory licenses have been ordered
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Can YOU AVOID Duty to License?
YES, but to avoid or limit duty to license:
Disclose clearly at all relevant times and broadly to all
interested players and to the members and the officers of
the standards’ group that you will not license IP you think is
needed for implementation of a standard (or disclose terms
you will insist upon in any license).
Disclose to the working committee members and its
chairman that you will not license IP needed for the draft
standard before the draft standard is so far along in
development that investment has been made in product
design by industry players
Post on your website in your standards policy that you may
choose not to license or insist on certain terms.
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Duty to License
Common to both US and EU law is that a
commitment to license in a standard-setting group’s
rules is enforceable by members against each
other…
BUT WHAT DOES THIS MEAN?
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Duty to License
Most standards’ groups rules are not as clear as private
contracts
Generally:
– In Europe, laws against abusive pricing apply to keep royalties lower
than can be argued in the US where no such laws exist
– In US, language in IP policies that is vague will be argued by one
side or the other to get what it wants in the end: no restriction on
price or some restriction on price
– The preferred result is that the patent owner should get the same
aggregate amount of royalties or profits it would have received from
licensing if NO STANDARD had been adopted at all.
– This means royalty should consider scale or volume added to royalty
base by the group’s adoption of the standard so as not to inflate
value of patent due to group action.
– This also means that royalty amount should not be less than what
would have been collected had no group action occurred.
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Duty to License
Injunction issue is unresolved:
1) Nokia v Apple (Del.) sued for royalty only for patents disclosed in standards
2) Samsung in ITC against IDC had said that so long as it had made a fair and
non-discriminatory offer, then no injunction could issue until Court decided
if the amount of the royalty offered fulfilled its obligation
3) In Ericsson v Samsung, District Court bifurcated to try the royalty issue first
for standards patents before liability or other parts of case to decide if
license existed under group rules and only price in dispute
4) Nokia had taken position in the past that it only had to license specific
patents used in standard not the portfolio disclosed for the standard by the
patent owner (or even just specific claims of a patent)
5) Samsung had taken position in the past portfolio disclosed for the standard
by the patent owner and any other patent that could be asserted against
standard would be licensed and extent of use and value is part of price
6) Samsung has said no injunction can be sought before a fair and nondiscriminatory offer has been made, but court need not rule on that issue
before an injunction is requested.
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Example 3
There are 4 proposed standard interfaces for a power supply
and a laptop.
You have a patent on one of the 4 proposed standard
interfaces.
Since the patent issued you have licensed the patent to 40%
of the manufacturers for a royalty of $0.50 per laptop.
No other licenses have been made or requested.
Your patent is adopted as the standard, your royalty might
be: 1) No more than $0.50 less $0.20 to account for larger
base; 2) for a new royalty of $0.30 per laptop.
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Example 4
There is only one way that a protocol for a standard interface circuit for a
power supply that works in all countries on all electrical outlets and
electrical systems can be implemented and no other way.
You have a patent on this single viable method.
Your patented method is proposed as a standard interface circuit.
Since the patent issued you have licensed the patent to 50% of the
manufacturers for a royalty of $1.00 per laptop that uses the protocol.
Your patent is adopted as the standard, your royalty should remain at
$1.00 for each laptop that uses the protocol because there are no
alternatives to your patent.
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Litigation Tactics – As Plaintiff
DO NOT assert a patent against a standard unless the patent
was disclosed in the standard-setting process as required by
the group’s rules.
DO NOT assert a patent against a standard unless the record
is clear that the patent application was filed before or
independently of work by a group on a standard.
BEFORE SUIT, offer to license a patent you declared
relevant to a standard on fair and non-discriminatory terms.
BEFORE SUIT, collect all documents related to the standard
and compliance with the group’s policy for disclosure and
licensing – and make sure you complied!
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Litigation Tactics -- Plaintiff
ITC is best forum for plaintiff on industry standards issue because the
ALJs focus on patent issues for exclusion orders not contract issues
between parties.
The idea of a compulsory license contradicts idea of an exclusion order.
The ITC cannot decide contract and antitrust claims.
But if you want money, go to district court first and file as a patent
infringement suit not a contract or antitrust case because:
– The Federal Circuit is hostile to compulsory license, standards and antitrust
claims, and filing as a patent case ensures Federal Circuit jurisdiction on
appeal.
– You can avoid contradictory positions by not seeking injunctive relief in
district court on standards patents
– You can seek injunctive relief on patents that do not relate to standards
– Choice of law is important due to European laws against abusive pricing as
a limiting factor on any license.
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Litigation Tactics -- Defendant
Checklist if patent is asserted against a standard:
1) Was patent or application disclosed properly and timely in the process?
2) How and when was it disclosed (in accord with the rules of the group or
not)?
3) What are the group’s rules on IP disclosure and licensing?
4) Were disclosure and licensing rules followed?
5) Why did the committee choose the standard despite the patent disclosure –
were promises or assurances made on licensing to working committee
members or group?
6) Were people who voted on the standard employed by companies already
cross-licensed so that the standard advantaged them but hurt others due to
patent?
7) What positions has the patent owner taken in the past on injunctions and
royalties on standards?
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Litigation Tactics -- Defendant
Checklist if patent is asserted against standard (continued):
8) Does the standards group have a legal or licensing committee where
statements were made relevant to royalties? E.g., UMTS legal committee
had discussions of aggregate royalty per phone.
9) What is the evidence of the total amount of royalties that the patent owner
would have collected if the patent was not picked as the standard? (The “ex
ante” lost license fee)
10) Would the license price and terms offered make it costly or difficult to
manufacture the product? (that is contradict purpose of exception to
antitrust law – make goods cheaper and supply bigger)
11) Could a cheaper alternative technology have been chosen instead had
committee members known of the patent or the license terms?
12) Can products be marketed and sold without compliance with the standard?
E.g., is it a protocol for a cell phone to connect to a base station.
13) What country’s law applies to the IP policy? E.g., ETSI is France
14) Did the patent owner promote its IP as a standard and imply it would freely
and cheaply license? Or make other representations on licensing?
15) Did patent owner disclose to PTO any relevant art or submissions it
learned of in the standards group related to its application?
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Defenses and Counterclaims
Defenses
– Equitable estoppel: failure to disclose or misleading or incomplete
disclosure
– Implied license: People lead to believe they could use IP in the standard
with no fee
– Patent misuse: Patent covers (or blocks) implementation of the standard;
neither the product nor alternatives can be sold without the standard; the
patent owner is charging too much, or tying the patent license to a license to
other patents not desired by the licensee, or demanding a free grant-back on
your patents as a condition of the license.
– Inequitable conduct: The patent owner did not disclose art from the
standards group to the PTO prior to issuance of the patent.
– Abusive pricing under European law if applicable
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Defenses and Counterclaims
Breach of contract: Failure to license as promised by joining the group
and adopting its rules (contract).
Promissory estoppel: Patentee is barred from denying a contractual
license exists due to its conduct in the group.
Unfair competition: The patent owner has done something that violates
another law or is an unfair business practice to hurt competition. (Mass
Gen Laws. Chap. 93A, Texas common law)
Antitrust: The patentee and one or more members of the group have
conspired to manipulate the standard to hurt other competitors or gain an
advantage in the market.
Fraud: The patentee failed to disclose or lied about its IP or its coverage
or terms for license. (Negligent misrepresentation may also apply).
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