A YEAR IN THE LIFE OF A HIGH TECH
STANDARDS SETTING ORGANIZATION
Section of Antitrust Law
April 25, 2002
Washington, D.C.
A Year in the Life of a High Tech Standards Setting Organization
Overview
Standards that facilitate interoperability are critical in high tech industries
and increasingly raise antitrust issues, whether set through a standard
setting organization, by ad hoc groups of competitors, or by a single
dominant firm.
A Year in the Life of a High Tech Standards Setting Organization is
sponsored by the following committees: Corporate Counseling, Intellectual
Property, Sherman Act Section 1, and Trade Associations. This program,
with its distinguished panel and comprehensive program materials, is
designed to illuminate a part of this complicated area of the law.
The focus of “A Year in the Life of a High Tech Standards Setting
Organization” is on the rights and obligations of a patent owner whose
patent can preclude others from practicing a standard. A series of brief
vignettes will be used to explore issues that can arise in the standards
setting process. The brief vignettes will start with the formation of a
standards setting organization, proceed through disputes over the nature
and extent of any obligation to disclose patents and patent applications,
followed by patent infringement litigation and counterclaims, and then
conclude with an agency enforcement action. The perspectives of the
different participants in the standards setting process will be presented to
stimulate debate. In the process, practical advice will be provided by our
panel of distinguished speakers.
Since the Federal Trade Commission’s 1996 decision in Dell Computer
Corp., 121 F.T.C. 616 (1996), there has been increasing controversy over
the interface between antitrust and intellectual property in this area. Some
commentators are urging the FTC and the DOJ to provide guidance and
issue guidelines, but others are of the view that such steps are not
necessary. The FTC and the DOJ are exploring these issues in their
hearings on Competition and Intellectual Property Law and Policy in the
Knowledge Based Economy. Specifically, hearings are scheduled on April
18, 2002 on Standard Setting Practices: Competition, Innovation and
Consumer Welfare. Any material submitted in connection with that
hearing
should
be
available
on
the
FTC’s
website,
http://www.ftc.gov/opp/intellect/index.htm.
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A Year in the Life of a High Tech Standards Setting Organization
Participants:
(Detailed information on our panel is included at the end of the program materials.)
Lisa C. Wood
Lisa C. Wood will moderate the program. Ms. Wood is a senior partner at
the Boston law firm of Nutter McClennen & Fish LLP and is Chair of
Sherman Act Section 1 Committee.
Richard B. Dagen
Richard B. Dagen, Assistant Director of the Bureau of Competition for
Anti-competitive Practices, Federal Trade Commission, will provide
valuable insights, after noting that he is not speaking on behalf of the FTC.
Mark A. Flagel
Mark A. Flagel, a partner with the Los Angeles office of Latham & Watkins,
represented Kingston Technology in its successful defense of patent
infringement claims brought by Sun Microsystems.
Joseph P. Lavelle
Joseph P. Lavelle, a partner in the Washington D.C. office of Howrey
Simon Arnold & White LLP, has represented Rambus Inc. and other
clients in standard setting matters.
Dorothy Gill Raymond
Dorothy Gill Raymond is Senior Vice President and General Counsel,
Cable Television Laboratories, Inc. Among Mrs. Raymond's
accomplishments while at CableLabs are establishing royalty-free license
pools for CableLabs' cable modem and PacketCable projects, and
establishing a sub-licensing program for third party security software
needed by cable modem manufacturers
Richard S. Taffet
Richard S. Taffet, a partner with the New York office of Thelen Reid &
Priest LLP, has represented Accredited Standards Committee T1,
sponsored by the Alliance of Telecommunications Industry Solutions
(“ATIS”), since its formation in 1984. Mr. Taffet is also an original member
of the American National Standards Institute’s Patent Committee.
Program Materials
Our program materials start with Richard S. Taffet’s "Patented Technology
and Standard Setting: A Standards Development Organization View.”
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A Year in the Life of a High Tech Standards Setting Organization
This article provides a comprehensive review of patent disclosure policies
adopted by various standards setting organizations and how those policies
have changed over the past few years.
The second article is “Standard Setting Activity - Offensive Claims,” by
Joseph P. Lavelle and Melissa J. Gunthner. Although the focus of this
article is on federal antitrust laws, the article also discusses federal RICO
claims and state claims, including common law fraud claims.
The third article is “Strategic Considerations When Asserting Defenses
Against a Claim for Infringement of a Patent That Reads on an Industry
Standard” by Mark A. Flagel and Michael J. Lawrence. This article is
particularly helpful to antitrust lawyers unfamiliar with the intricacies of
patent infringement litigation and the application of the affirmative
defenses of estoppel, patent misuse, and implied license.
The fourth article for the program is “Benefits and Risks of Patent Pooling
for Standard Setting Organizations,” by Dorothy Gill Raymond. This
article discusses the advantages and disadvantages of this alternate
approach.
To provide additional background, three case summaries that were
prepared in anticipation of this program are also included. These articles
were published in AT-IP Report, the electronic newsletter of the
Intellectual Property Committee.
"Rambus v. Infineon—The Latest Standard Setting Patent
Disclosure Guidance," by Veronica Smith Lewis, AT-IP Report
(September 24, 2001) provides an excellent discussion of a case
which raises many of the issues presented in this program.
“Intel Corporation v. VIA Technologies, Inc., 174 F. Supp2d 1038
(N.D. Cal. 2001),” by Richard S. Taffet and Sophia Fix, AT-IP
Report (February 1, 2002), focuses on the scope of a license
provided by single firm issuing a standard.
“An Update on the Soundview Litigation”, by John S. Martin, AT-IP
Report (December 7, 2001), discusses a series of patent and
antitrust decisions relating to “V-Chip” technology.
Finally, a detailed list of resources relevant to standard setting and
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A Year in the Life of a High Tech Standards Setting Organization
antitrust is included for your future reference. The current version of the
list, with links to material available on the internet, is available on the
Intellectual Property Committee's webpage under "Hot Topics,"
http://www.abanet.org/antitrust/committees/intell_property/hottopic.html.
John Anthony Chavez
Session Chair
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A Year in the Life of a High Tech Standards Setting Organization
A YEAR IN THE LIFE OF A HIGH TECH STANDARDS
SETTING ORGANIZATION
Section of Antitrust Law
PATENTED TECHNOLOGY AND STANDARD SETTING:
A STANDARDS DEVELOPMENT ORGANIZATION VIEW
By
Richard S. Taffet
Thelen Reid & Priest LLP
April 25, 2002
Washington, D.C.
© 2002 Thelen Reid & Priest LLP
5
A Year in the Life of a High Tech Standards Setting Organization
I.
Introduction*
This paper discusses how standards development organizations
(“SDOs”) in the United States have addressed, and continue to address,
issues relating to the use of proprietary – specifically patented –
technology in the development of technical standards. Particular focus will
be on standards development in technology and network industries.
To provide context, an overview of different types of SDOs and
the standard development process itself will be first set out. Next, a
description of various patent policies, including the Patent Policy of
American National Standards Institute (“ANSI”) and policies adopted by
certain non-accredited SDOs, will be discussed. The rationales for and
the consequences of these policies will be explained.
It is hoped that this discussion will eliminate some of the
confusion that exists concerning the scope and requirements of specific
SDO patent policies. What this discussion is also intended to show is that,
while clearly there have been some well-publicized instances of abuse of
the standards setting process relating to patented technologies, in the
context of overall standards development activity, such conduct is de
minimis and has been effectively addressed by government enforcement
agencies and in the courts under existing legal principles.
In these circumstances those now pressing for uniform SDO
patent policies that would impose specific mandatory obligations on patent
holders and SDOs concerning disclosure requirements and the
establishment of licensing terms should take care not to take such steps
without being fully aware of the unintended consequences that may result.
Even assuming specific mandatory requirements may be appropriate in
particular situations – perhaps depending on the specific industry, the
technology and the nature of patents involved – this should not suggest
that a broad based, generalized, application of such obligations for all
SDOs can be supported. Indeed, rather than avoiding abusive standards
practices, the creation and imposition of new duties and obligations might
*
The author has represented Accredited Standards Committee T1, sponsored by the
Alliance of Telecommunications Industry Solutions (“ATIS”), since its formation in 1984. Committee
T1, as discussed below, is a leading telecommunications industry standards developer. Mr. Taffet
is also an original member of the American National Standards Institute’s Patent Committee.
6
A Year in the Life of a High Tech Standards Setting Organization
only upset the proper balance among the various stakeholder interests,
and lead to increased litigation risks and less effective industry-wide
standards development.
II.
Background
A. Competitive Effects of Standards Development
It is settled that procompetitive benefits may result from standard
setting. As stated by the United States Supreme Court in Allied Tube &
Conduit Corp. v. Indian Head, Inc.:1
When . . . private associations promulgate safety
standards based on the merits of objective expert
judgments and through procedures that prevent the
standard setting process from being biased by
members with economic interests in stifling product
competition those private standards can have
significant procompetitive advantages.
Id. at 500. In particular, standard setting may result in procompetitive
effects by: (i) serving as an efficient means for buyers and sellers to
exchange information on complex product attributes; (ii) easing the
introduction of new technologies; (iii) allowing innovative manufacturers to
demonstrate advantages of new products; and (iv) reducing production
and distribution costs by eliminating superfluous product variations. 2
These procompetitive advantages, it has been observed, may
particularly arise in technology and network industries, including for
telecommunications, computer hardware and software and Internet related
products and services. Such products and services involve sophisticated
and disparate technological attributes and depend upon the
interconnectibility and interoperability of various competitive alternatives.
1
486 U.S. 492 (1988).
2
See, e.g., Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478 (1st Cir. 1988), cert.
denied, 488 U.S. 1007 (1989)(trade association’s promulgation of a standard lowers information
costs and creates a better product – the very benefits the antitrust laws seek to promote);
Consolidated Metal Prods., Inc. v. American Petroleum Inst., 846 F.2d 284, 296 (5th Cir.
1988)(“[e]ven if user reliance gives [the standard] influence over the market, that influence may
enhance, not reduce, competition and consumer welfare”).
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A Year in the Life of a High Tech Standards Setting Organization
Thus, for example, in Dell,3 the Federal Trade Commission observed that
the record of the Commission’s hearings in the Fall of 1995 on Global and
Innovation-Based Competition was “replete with discussion of the
procompetitive role of standard-setting organizations,” and that one topic
that was specifically considered at the hearings “was the important role of
standard-setting in the technological innovation that will drive much of this
nation’s competitive vigor in the 21st century.”4
Similarly, one frequent commentator has opined that standards
play a “critical role” in connection with network-related products and
services because they can lead to: (i) increased price competition
resulting from consumers being more able to readily compare and contrast
products and features; (ii) increased compatibility and interoperability so
that new suppliers are better able to compete in producing products and
services related to the underlying technology; and (iii) increased use of a
particular technology allowing for the installed base of users to benefit
from enhanced economic and functional values to the extent the
technology is compatible with a large network of applications.5
It is equally settled, however, that standards development activity
may cause anticompetitive harm, and may expose standards development
organizations to potential antitrust liability.6 For example, as discussed by
the Supreme Court in Allied Tube, standards setting may result in
anticompetitive effects by excluding competing producers and facilitating
3
In re Dell Computer Corp., 121 F.T.C. 616, No. C-3658, 1996 FTC LEXIS 291 (May 20,
1996).
4
Id. at *20.
Balto, David A., “Standard Setting in the 21 st Century Network Economy,” Computer and
Internet Lawyer, June 2001.
5
E.g., American Soc’y of Mechanical Eng’rs, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982);
Dell, supra at *21(“a standard-setting organization may provide a vehicle for a firm to undermine
the standards-setting process in a way that harms competition and consumers”). Note, however,
that “concerted action does not exist every time a trade association member speaks or acts.
Instead, in assessing whether a trade association (or any other group of competitors) has taken
concerted action, a court must examine all the facts and circumstances to determine whether the
action taken was the result of some agreement, tacit or otherwise, among members of the
association.” Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 1007,1009 (3d Cir. 1994),
cert. denied, 514 U.S. 1063 (1995). See also Consolidated Metal Prods., 846 F.2d at 293-94 &
n.30 (when analyzing activities of a trade association “the mere showing of relationships between
alleged conspirators is insufficient to imply a conspiracy”); Wilk v. American Med. Ass’n, 895 F.2d
352 (7th Cir.), cert. denied, 496 U.S. 927 (1990)(same); Five Smiths, Inc. v. National Football
League Players Ass’n, 788 F. Supp. 1042, 1049 n.5 (D. Minn. 1992)(same).
6
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A Year in the Life of a High Tech Standards Setting Organization
oligopolistic pricing by easing rivals’ ability to monitor each other’s prices. 7
Most recently, the potential for anticompetitive effects arising
from the use of and reliance on intellectual property – particularly patented
technology – in the development of standards has been the target of
intensified scrutiny.
For example, in announcing the current joint
FTC/DOJ hearings on “Competition and Intellectual Property Law and
Policy in the Knowledge-Based Economy,” FTC Chairman Timothy Muris
specifically commented that “[s]tandards that rely on intellectual property
can raise difficult competition issues.”8 Chairman Muris also commented,
however, that while such standards are now more common in the
knowledge-based economy, some of the competition issues being raised
in connection with them are not new.9 He is correct.
B. Industry Consideration of Patented Technology in
Standards Development
Since at least the mid-1980s the implications of using patented
technology in standards have been the subject of intense discussion and
consideration by the standards community, including from the perspective
of standards developers, owners of significant patented technology, and
users of standards. Indeed, many, if not all, of the issues now being
raised have been considered. Moreover, such consideration has been
specifically undertaken in connection with standardization activities in
technology and network markets.
7
486 U.S. at 500 n.5 (citing 7 Phillip E. Areeda, Antitrust Law, § 1503, at 373 (1986)). See
also Remarks of FTC Commissioner Deborah K. Owen, Horizontal Restraints – Industry Standard
Setting, delivered to the Compressed Gas Association Annual Meeting, March 4, 1994 (“classic
example of raising rivals’ costs behavior is where a group of manufacturers manipulates industry
product standards in order to prevent competing firms from introducing an innovative or lower-cost
product”). Cf. Moore v. Boating Indus. Ass’ns, 819 F.2d 693 (7th Cir.), cert. denied, 484 U.S. 854
(1987) (determination of trade associations that they could not certify boat trailers which used
lamps manufactured by plaintiff, in the face of an independent test report showing that the lamps
manufactured by plaintiff did not comply with federal standards, did not violate federal antitrust laws
absent evidence that challenged conduct had anticompetitive effect); In re Circuit Breaker Litig.,
984 F. Supp. 1267 (C.D. Cal. 1997)(decision of standards development organization not to adopt a
standard for rebuilt circuit breakers was reasonable, non-discriminatory, and based entirely on
technical feasibility and did not cause any competitive injury).
8
Remarks of FTC Chairman Timothy J. Muris, Competition and Intellectual Property Policy:
The Way Ahead, before the American Bar Association Antitrust Section Fall Forum, November 15,
2001.
9
Id.
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A Year in the Life of a High Tech Standards Setting Organization
At the heart of these discussions has always been the need to
balance the interests of the various stakeholders in the standards
development process, including owners of patented technology that may
become essential for implementation of a standard, parties that want to
gain access to patented technology to build or provide the standardized
product or service, and SDOs themselves. The interests of SDOs may be
particularly relevant since their focus should be specifically on the integrity
of the standards process itself and its inherent procompetitive attributes,
without regard to any particular vested interest that individual participants
may have.
Accordingly, over the years the position has been consistently
asserted and reaffirmed, at least in connection with the development of
standards by formal standards bodies such as those accredited by the
American National Standards Institute (“ANSI”), that to achieve the proper
balance between competing stakeholder interests, and to ensure to the
greatest extent possible that standards setting will achieve desired
procompetitive results, a patent policy should allow for use of patented
technology and encourage the early disclosure of potentially relevant
patents. To do this, the consensus has always been that a patent policy
should not impose unduly burdensome obligations on patent owners
concerning mandatory disclosure requirements or a duty to search patent
portfolios. Nor should a policy, however, allow patent holders undue
liberty in depriving the industry members access to required patented
technology. Otherwise, the necessary balance for effective standards
setting would be put out of line.
Stated differently, the ANSI Policy strikes a balance between
competing interests by recognizing in the first instance that the
contribution of patented technology to standards development provides
the opportunity for the “best” available technical alternative to be the focus
of standards activity. As a result, firms that would not otherwise have the
opportunity to commercialize such technology obtain the ability to actively
compete in markets for the standardized products and services. Owners
of patented technology, therefore, should not be dissuaded from foregoing
at least certain of the exclusive rights afforded them by patent law (e.g.,
the right not to allow any commercialization of an invention), which could
occur if they were made subject to mandatory requirements causing them
to forego such rights. But, if access to patented technology for purposes
of implementing a standard is not truly available, or if it is made available
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A Year in the Life of a High Tech Standards Setting Organization
only on terms or in a manner that causes anticompetitive harm or is
otherwise inconsistent with legal principles, then there must be avenues of
redress for such conduct.
Recently, the balanced approach reflected by the ANSI Patent
Policy has yet again been questioned. Once more some commentators
and participants in standards development are asserting that more
rigorous and expanded disclosure obligations should be imposed upon
patent owners who wish to take part in standard setting, both as respects
issued patents and unpublished patent applications. There are also some
calls now for SDOs to take a greater role in assessing the validity of
asserted patent rights and the appropriateness of license terms. These
voices do not distinguish among different types of SDOs or the subject
matter of the standardization effort, and, as in the past, they assert that
such steps are necessary to address the possibility that the standards
process will be abused by the improper assertion of patents that are
required for implementation of standards. For many SDOs, however, the
question is whether the proposed fix is worse than the any problem that
actually exists.
III.
The Standards Development Process
A. Types of SDOs
The volume and pace of standards development in
telecommunications, computer, Internet and other network industries has
grown tremendously. One factor propelling such growth may be the
increased number of firms offering competitive products and services in
these markets, and the need to ensure that all such offerings can
interconnect at and interoperate across common network interfaces.
Standardization allows for such interconnection and interoperability.
The types of organizations developing industry-wide standards in
these areas has also expanded, both in number and type. But, while any
number of informal consortia are regularly being formed, a primary source
of many technical standards remains the formal SDOs accredited by the
American National Standards Institute (“ANSI”). Some of the leading
SDOs of this type are Committee T1, sponsored by the Alliance for
Telecommunications Industry Solutions (“ATIS”); the Telecommunications
Industry Association (“TIA”), which is part of the Electronic Industry
Alliance (“EIA”); and the InterNational Committee for Information
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A Year in the Life of a High Tech Standards Setting Organization
Technology Standards (“INCITS”), which is sponsored by the Information
Technology Industry Council (“ITI”).10 These SDOs are subject to specific
procedural requirements as a condition for ANSI accreditation.
Private consortia, on the other hand, are not bound to the same
procedural obligations.
The rationale for establishing these “informal”
bodies is often stated (whether accurately or not is subject to dispute) as
the need to develop standards in a more timely manner than is possible in
formal ANSI-type SDOs. Thus, concepts of due process, openness and
consensus inherent in the ANSI process may be absent in the consortia
context, and more lax procedural requirements may apply. As respects
patent policies, however, some consortia adopt more stringent positions
than required by ANSI for accreditation.11
B. Procedural Requirements
The existence or lack of procedural safeguards in connection
with standards setting will not, of course, in and of itself, be determinative
of whether specific conduct is anticompetitive, including in connection with
how patented technology is treated.12
Properly fashioned and
implemented procedural guidelines, however, will be relevant for
evaluating the competitive impact of specific standards related conduct.
As the Supreme Court in Allied Tube stated: “[t]he hope of procompetitive
benefits depends upon the existence of safeguards sufficient to prevent
the standard-setting process from being biased by members with
10
From 1997 through 2001 INCITS was known as the National Committee for Information
Technology Standards (“NCITS”), and from 1961 through 1996 NCITS was known as Committee
X3, Information Technologies. ITI was formerly known as the Computer and Business Equipment
Association (“CBEMA”).
11
For example, discussed below will be the patent policies of VESA, the SDO relevant to the
Dell case, and JEDEC, the relevant SDO in the Rambus case and others. Neither of these SDOs
is ANSI-accredited. JEDEC, however, is affiliated with EIA. The patent policy of another nonaccredited SDO, the ATM Forum, will also be discussed. Its policy is similar to the ANSI Policy.
12
E.g., Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S.
284, 293 (1985)(“the absence of procedural safeguards can in no sense determine the antitrust
analysis. If the challenged concerted activity of [an association’s] members would amount to a per
se violation of § 1 of the Sherman Act, no amount of procedural protection would save it. If the
challenged action would not amount to a violation of § 1, no lack of procedural protections would
convert it into a per se violation because the antitrust laws do not themselves impose on joint
ventures a requirement of process”).
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A Year in the Life of a High Tech Standards Setting Organization
economic interests in restraining competition.”13
The ANSI process recognizes this principle. Specifically, the
development of American National Standards in the United States is
undertaken by independent SDOs accredited by ANSI. Accreditation by
ANSI requires that SDOs comply with certain principles and procedures
set out in ANSI’s “Procedures for the Development and Coordination of
American National Standards” (the “Procedures” or “ANSI Procedures”). 14
The Procedures concern issues such as due process, openness,
consensus and the avoidance of dominance by any particular industry
segment. An opportunity for appeal must also be available.
ANSI itself, however, it is important to note, does not develop
standards.15 As stated in ANSI’s Procedures, ANSI’s role is “to verify that
the principles of openness and due process have been followed in the
approval procedure and that a consensus of those directly and materially
affected by the standards has been achieved.” “Consensus” in this
context is defined by the Procedures to mean “substantial agreement has
been reached by directly and materially affected interests.” This signifies
the concurrence of “much more than a simple majority, but not necessarily
unanimity.
Consensus requires that all views and objections be
considered, and that a concerted effort has been made towards their
resolution.”
Thus, standards development in ANSI-accredited SDOs
generally commences with the introduction of a technical contribution by
subject matter experts. Such contributions are considered at escalating
levels of the organization, starting in working groups, progressing to
technical subcommittees and then evolving to the full SDO committee for
486 U.S. at 509. See also Pretz v. Holstein Friesian Ass’n of America, 698 F. Supp. 1531,
1540 (D. Kan. 1988)(“presence or absence of a fair hearing . . . certainly affects the factfinder’s
determination of defendant’s motive or intent and reasonableness of defendant’s restraints under a
rule of reason analysis”); Brant v. United States Polo Ass’n, 631 F. Supp. 71, 78 (S.D. Fla.
1986)(“[p]laintiff could argue . . . that the lack of procedural due process or fair play . . . somehow
evidences an anticompetitive motive and intent”).
13
ANSI’s Procedures, and other information regarding the Institute, can be found at
www.ansi.org.
14
The ANSI Operating Procedures of the Board of Standards Review explains, “ANSI does
not develop standards. Standards are developed by many qualified technical societies, trade
associations, and other groups which voluntarily submit them to ANSI for approval as American
National Standards.”
15
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A Year in the Life of a High Tech Standards Setting Organization
approval as a draft proposed American National Standard. At each level
the ANSI requirements of due process, openness and consensus apply.
Accordingly, consideration and resolution of all conflicting views occurs,
often times by refining, modifying or replacing the original technical
contribution.
As a result of this process, there is a dynamism inherent in the
development of American National Standards that may lead to the
evolution of the technical parameters of a standard as it is developed.
Thus, the technical scope of an approved standard may be far different
than that originally proposed in an initial industry contribution. Moreover,
that parameter may evolve regularly over the standard’s development.
These changes are driven by the requirements for openness and
consensus, which allow for all views to be considered and require all
opposing positions to be fully addressed. As a result, the goal is for a
standard ultimately to reflect what the industry believes is the best
technical solution for the matter at hand, taking into account any number
of factors including technological attributes, time to market, and
international precedent.
Non-ANSI-accredited SDOs (i.e., the consortia), of course, are
not required to adhere to these same procedural requirements.
Participants in such groups are free to establish whatever guidelines and
procedures they deem appropriate. Thus, limitations on membership,
approval other than through consensus, and the absence of due process
are all permissible. Many consortia though do adopt some procedural
safeguards, no doubt at least in part because of the recognized antitrust
advantages of properly implemented procedures. They do so also
because the effective development of industry-wide standards can be
eased and achieved more timely when input from all interested parties is
encouraged and accommodated.
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A Year in the Life of a High Tech Standards Setting Organization
IV.
Patent Policies16
A. The ANSI Patent Policy
One factor considered for approval of an American National
Standard developed by an ANSI accredited SDO is its compliance or noncompliance with the ANSI Patent Policy. 17 The ANSI Patent Policy has
existed, with only limited modification, for at least 25 years. Starting in the
mid-1980s, when technologically sophisticated standards development
activity began to grow, the Policy has been continuously scrutinized
regarding whether it continues to properly reflect a balance between and
an appropriate accommodation of all stakeholder interests – patent
owners, industry participants and SDOs.18
As an initial matter, the ANSI Patent Policy expressly provides
that “[t]here is no objection in principle to drafting a proposed American
National Standard in terms that include the use of a patented item, if it is
considered that technical reasons justify this approach.”19
This
statement is intended to make it clearly understood that a patented
invention may be incorporated into an American National Standard when it
represents, based upon industry consensus, the most advantageous
technical solution for standardization purposes. This may be because of
the specific technical attributes of the technology, the ability to develop a
16
For purposes of this discussion IPR policies relating to copyrights and other rights are not
considered. Such policies raise distinct issues beyond the scope of this presentation.
17
The 2002 version of the ANSI Procedures contain the ANSI Patent Policy at Sections 1.2.121.2.12.4. ANSI has also published Guidelines for Implementation of the ANSI Patent Policy, which
can be found at www.ansi.org/public/library/guides/ppguide.html (the “Guidelines”). As stated in
Section I of the Guidelines, “[c]ompliance (or non-compliance) with the Patent Policy is one of the
criteria to be considered by ANSI’s Board of Standards Review (“BSR”) in determining whether to
approve (or withdraw approval of) an American National Standards. See ANSI Procedures
Sections 1.3.1.1, 1.3.2.5.”
18
The initial in depth consideration of the ANSI Patent Policy occurred in approximately
1986 through 1988. At that time Committee T1 sought to evaluate the Policy in connection with the
development of telecommunication interface and interoperability standards. Thereafter, in
approximately 1991, ANSI established what was then an ad-hoc Patent Committee, and what is
now a full ANSI Committee. The purpose was to revisit the same issues addressed by the T1
Committee, but with a broader representation of interests. The ANSI Patent Guidelines were
developed by the ANSI Patent Committee. The ANSI Patent Committee continues to actively meet
and address relevant issues.
19
ANSI Procedures, Section 1.2.12.
15
A Year in the Life of a High Tech Standards Setting Organization
standardized solution in the most timely manner, or such other technical
reasons as a consensus of an SDO deems relevant.
This aspect of the ANSI Policy also avoids the potential for the
type of anticompetitive conduct addressed by the FTC’s consent decree in
American Society of Sanitary Engineers,20 which involved an ASSE policy
that, among other things, prohibited the standardization of patented
inventions. As alleged by the Commission, such a policy unreasonably
restrained trade because (i) an innovative product was excluded from the
market; (ii) buyers were misled to believe that the new product would not
perform as well as approved products; and (iii) buyers were deprived of
information about the performance of the product.
The ANSI Patent Policy then addresses the situation where
notice is given that a patent may be relevant to a proposed American
National Standard. It does so without imposing any requirement that
patent owners affirmatively disclose or search for potentially relevant
patents. Rather, Section 1.2.12 states that “[i]f the Institute receives a
notice that a proposed American National Standard may require the use of
a patented invention, the procedures of Section 1.2.12.1 through 1.2.12.4
shall be followed.” These latter sections provide as follows:
“Section 1.2.12.1 Statement from Patent Holder.21
Prior to approval of such a proposed American
National Standard, the Institute shall receive from the
identified party 22 or patent holder . . .
20
3 Trade Reg. Rep. (CCH) ¶ 22,185 (1985).
21
In 1997 this Section was revised to delete a final paragraph that stated:
The terms and conditions of any license shall be submitted to ANSI for review
by its counsel, together with a statement of the number of independent licensees,
if any, which have accepted or indicated their acceptance of terms and conditions
of the license.
This paragraphs was deleted upon the consensus recommendation of the ANSI Patent Committee
because, as a matter of practice, it was not being followed. ANSI was not, appropriately, reviewing
specific terms of license agreements and only on rare occasions were terms and conditions
submitted by licensors to ANSI.
The words “identified party” were added in 1997 to recognize that notice of a potentially
relevant patent may be from a party other than a claimed patent owner. It is possible, therefore,
that the party identified by the third party does not actually own a patent that may be required for
implementation of the standard, and therefore may not be a “patent holder.”
22
16
A Year in the Life of a High Tech Standards Setting Organization
either: assurance in the form of a general disclaimer
to the effect that such party does not hold and does
not anticipate holding any invention whose use would
be required for compliance with the proposed
American National Standard or assurance that:
a. A license will be made available without
compensation to applicants desiring to utilize
the license for the purpose of implementing
the standard; or
b.
A license will be made available to
applicants under reasonable terms and
conditions that are demonstrably free of any
unfair discrimination.
“Section 1.2.12.2 Record of Statement.
A record of the patent holder’s statement shall be
placed and retained in the files of the Institute.
“Section 1.2.12.3 Notice.
When the Institute receives from a patent holder the
assurance set forth in 1.2.12.1(a) or 1.2.12.1(b), the
standard shall include a note as follows:
Note – The user’s attention is called to the possibility
that compliance with this standard may require use of
an invention covered by patent rights.
By publication of this standard, no position is taken
with respect to the validity of this claim or of any
patent rights in connection therewith. The patent
holder has, however, filed a statement of willingness
to grant a license under these rights on reasonable
and nondiscriminatory terms and conditions to
applicants desiring to obtain such a license. Details
may be obtained from the standards developer.
17
A Year in the Life of a High Tech Standards Setting Organization
“Section 1.2.12.4 Responsibility for Identifying Patents.
The Institute shall not be responsible for identifying all
patents for which a license may be required by an
American National Standard or for conducting
inquiries into the legal validity or scope of those
patents that are brought to its attention.
These provisions reflect several important concepts.
First, the Policy does not impose a duty on patent holders to
search their portfolios to determine whether they own any patents that
may be or are relevant to the proposed standard under development, or to
disclose any such patents. While such disclosure is encouraged, it is not
mandated, and experience in ANSI-accredited SDOs establishes that a
mandatory rule is unnecessary. Specifically, it is recognized that patent
owners have strong incentives to disclose the existence of potentially
relevant patents during the development process. Such incentives include
the enhanced ability to have one’s proprietary technology standardized on
an industry-wide basis, and to enter into licensing arrangements at an
early time. Thus, it is common for patent owners, particularly those with
large portfolios, to provide general assurances of a willingness to license
early in the development process.23 A strong consensus has also existed
that imposition of mandatory search and disclosure duties could chill the
incentive for patent owners to participate in the standards setting process,
which would then cause industry to be deprived of potentially superior
technology for standardization.
Second, the Policy does not apply to pending patent
applications. Discussion is presently underway in the ANSI Patent
Committee regarding whether the Policy should be extended to published
patent applications, but no decision in that regard has been made.
Besides the confidential nature of unpublished patent applications,
another rationale for not including them under the Policy is the dynamic
nature of both standards development and of the patent approval process.
Not only do the technical parameters of proposed standards evolve
23
Such assurances do not, typically, identify specific patents or proposed license terms, but
they make it known that if any technology is standardized for which a license is needed, one will be
forthcoming. ANSI’s Guidelines identify ways to encourage such disclosure.
18
A Year in the Life of a High Tech Standards Setting Organization
continuously, the limitations of a patent’s claims may also as it is reviewed
in the Patent and Trademark Office. Thus, any determination that an
invention described in a yet-to-be-issued patent may be relevant or
essential for use of a standard, which itself has not yet been defined, is a
difficult task that could impose significant delay on the standards process.
A patent applicant, however, is in no way precluded from disclosing the
fact of and specifics concerning its pending application.
Third, Section 1.2.12 intends to make clear that the assurances
referenced in Section 1.2.12.1 are implicated only if ANSI receives a
notice that a patent may be relevant to the standard under development.24
Again, no mandatory duty exists to give such a notice; rather, the
incentives inherent in the process generally compel such a step. Further
the use of the word “may” here is intentional, and is also consistent with
the ANSI Policy’s goal to encourage disclosure of potentially relevant
patents at as early a stage in the standards development process as
possible. As stated in the ANSI Patent Guidelines, “[e]xperience has
indicated that early disclosure of patents is likely to enhance the efficiency
of the process used to finalize and approve standards.”
Fourth, as noted above, the amendment to Section 1.2.12.1 to
add the words “identified party” was intended to make clear that
identification of a potentially relevant patent can be by a party other than
the patent owner – e.g., a party with an interest in the standards
development work which takes it upon itself to determine the existence of
any potentially relevant issued patents. Again, this change was made to
further encourage disclosure of relevant patent information. As with many
things, however, in adopting this position the potential of unintended
consequences needed to be considered. For example, a party seeking to
slow the standards process, or avoid a particular technology from being
standardized other than for legitimate technical reasons, could assert
without basis that another party owns a relevant patent. To address such
an assertion the claimed patent owner would be forced to undertake an
expensive and time-consuming search of its patent portfolio and an
analysis of potentially relevant patents. The ability to provide a general
assurance to license without disclosure of information concerning specific
patents helps avoid the possibility that the claimed patent owner in such
circumstances would be unresponsive in providing any assurance.
24
In practice, SDOs also receive such notices and assurances, which are then passed along
to ANSI as part of the approval process.
19
A Year in the Life of a High Tech Standards Setting Organization
Fifth, even if a patent that may be relevant is identified, the
assurances contemplated by Section 1.2.12.1 only apply to patents that
“would be required for compliance with the proposed American National
Standard.” This is a very different criterion than a patent that “may” be
relevant to the standard. The “required” language has been consistently
understood to mean “essential” for implementation of the standard – i.e.,
absent a license, implementation of the standard would infringe the patent.
Thus, if alternative methods exist to implement a standard, this aspect of
the ANSI Policy would not apply. Similarly, if the patent concerns only
informative (as distinct from normative) aspects of a standard, the Policy
also would not apply. This is not to say, of course, that disclosure in such
circumstances would not still be encouraged and made by the patent
owner.
Sixth, the notice contemplated by Section 1.2.12.3 is important
to ensure that it is understood that neither ANSI nor an ANSI-accredited
SDOs will become involved in ascertaining the applicability or validity of a
particular patent in connection with a proposed standard. Likewise,
Section 1.2.12.4 makes clear that neither ANSI nor ANSI-accredited
SDOs will be responsible for identifying or conducting inquiries regarding
the existence or validity of the identified relevant patents or additional
patents.25 These sections, and the corresponding disclaimers used by
Committee T1’s Procedure Manual thus provides for a notice to be given to committee
members that “[d]isclosure made of such patents may not be exhaustive of all patents that may be
essential for the use of standards under development, and that neither Committee T1, the
[Technical Subcommittee] nor the [Technical Subcommittee] Chairman ensure the accuracy or
completeness of any disclosure or whether any disclosure is of a patent that in fact may be
essential for the use of standards under development.” A similar disclaimer is included in
standards developed by Committee T1.
25
Similarly, Section 8.4 of the Policies and Guidelines of INCITS provides for notices both
where a commitment to license has been made and where it has not. The following notice is used
where notice and a commitment to license exist:
“CAUTION: The developers of this standard have requested that holders of
patents that may be required for the implementation of the standard disclose such patents to the
publisher. However, neither the developers nor the publisher have undertaken a patent search in
order to identify which, if any, patents may apply to this standard.
As of the date of publication of this standard, following calls for the identification
of patents that may be required for the implementation of the standard, notice of one or more such
claims has been received. By publication of this standard, no position is taken with respect to the
validity of this claim or of any rights in connection therewith. The known patent holder(s) has
(have), however, filed a statement of willingness to grant a license under these rights on
reasonable and non- discriminatory terms and conditions to applicants desiring to obtain such a
20
A Year in the Life of a High Tech Standards Setting Organization
SDOs are intended to make clear that no expectation should arise that all
potentially or actually relevant patents have been disclosed.
As
commented by the FTC in Dell, this set the ANSI Policy apart from the one
considered there.26
Another important reason for ANSI and SDOs to limit their role in
determining the existence or validity of any relevant patents is to avoid the
risk of potential liability of the type that EIA now faces in the Sony
Electronics, Inc. v. Soundview Technologies, Inc. case.27 The plaintiff
there alleged that EIA, in connection with the development of a standard,
induced its members to infringe plaintiff’s patent even though, plaintiff
alleged, the patent was essential for implementation of the standard. The
court specifically found the following allegations, if proven, sufficient to
establish a EIA’s intent to induce infringement: “EIA identified the ‘most
relevant’ patents for its members, circulated that information to them,
posited various ways its members could avoid licensing obligations, and
provided test tapes for its members to ascertain whether their allegedly
infringing products met the regulatory requirements.”28 Accordingly, based
at least in part on these allegations, the court denied EIA’s motion to
dismiss plaintiff’s claim against it.
Seventh, the ANSI Patent Policy does not contemplate ANSI or
SDOs being involved in discussions or negotiation of license terms.
Rather, such matters are left to the licensor and licensees.29 This position
license. Details may be obtained from the publisher. No further patent search is conducted by the
developer or publisher in respect to any standard it processes. No representation is made or
implied that this is the only license that may be required to avoid infringement in the use of the
standard. In the scenario where neither the developer nor the publisher has received notice, the
following notice is provided: CAUTION: The developers of this standard have requested that
holders of patents that may be required for implementation of the standard disclose such patents to
the publisher. However, neither the developers nor the publisher have undertaken a patent search
in order to identify which, if any, patents may apply to this standard. As of the date of publication of
this standard and following calls for the identification of patents that may be required for the
implementation of the standard, no such claims have been made. No further patent search is
conducted by the developer or publisher in respect to any standard it processes. No representation
is made or implied that licenses are not require to avoid infringement in the use of this standard.
26
See discussion infra at 23-24.
27
157 F. Supp.2d 190 (D. Conn. 2001).
28
Id. at 201. See also John S. Martin, An Update on the Soundview Litigation, AT-IP
Report, December 7, 2001, www.abanet.org/antitrust/committees/intell_property/dec7report.html.
Section III(B) of the Guidelines provides that “it should be reiterated, . . . , that the
determination of specific license terms and conditions, and the evaluation of whether such license
29
21
A Year in the Life of a High Tech Standards Setting Organization
has been followed because discussion of such issues in the development
process could give rise to allegations of anticompetitive conspiracies, and
thereby expose standards participants and SDOs to potential antitrust
liability. This does not mean that a patent owner cannot announce what
its terms will be, but involving an SDO as a vehicle for establishing
licensing terms may more likely lead to allegations of collusion. In
addition, participants in the standards development process are typically
technical experts who generally would not be in a position or have the
authority to address licensing terms on behalf of their companies. Further,
reasonable and non-discriminatory (RAND) terms and conditions may, but
need not, be identical for each licensee; they may vary depending upon a
number of factors, including when in the development process a license is
agreed upon, whether reciprocal licenses are involved, whether the
licensed patent is bundled with other patents and other variables that
might arise in specific circumstances. Thus, to allow appropriate licenses
to be fashioned for each circumstance confidential negotiations between
the parties outside the development arena are common. Again, the ANSI
Policy does not require confidentiality, but accommodates it as part of the
balancing of interests. Not only does this encourage patent owners to
engage in licensing discussions without limiting the types of licensing
arrangements they may make available, it provides standards participants
knowledge of likely license terms and conditions even while a standard is
still being developed. A mandatory requirement that such terms be
publicly disclosed, however, could inhibit negotiations, or even cause
patent owners to be unwilling to license at all. Notably, only in very few
cases have there been any reports of objections to proposed license
terms under the ANSI Policy, and in each instance the objections were
resolved.30
terms and conditions are reasonable and demonstrably free of unfair discrimination, are not matters
that are properly the subject of discussion or debate at a development meeting. Such matters
should be determined only by the prospective parties to each license or, if necessary, by an appeal
challenging whether compliance with the Patent Policy has been achieved.”
One case, however, has addressed a patent owner’s proposed license terms under a
patent policy similar to ANSI’s. In Townshend v. Rockwell Int’l. Corp., No. C-0400, 2000 U.S. Dist.
LEXIS 5070, 2000-1 Trade Cas. (CCH) ¶ 72,890 (N.D. Cal. March 28, 2000), the court dismissed
defendant’s counterclaims under §§ 1 and 2 of the Sherman Act on the pleading. Defendant
asserted its counterclaims in response to plaintiff’s claim of patent infringement, and based them on
plaintiff’s alleged improper conduct that caused the International Telecommunications Union (“ITU”)
to approve an industry standard that required use of plaintiff’s patented technology. In addition,
plaintiff was alleged to have violated the ITU Patent Policy by denying access to its technology, “or
conditioning the availability of the technology on reciprocal dealing, by extracting cross-licenses at
fixed, artificially low rates and by attempting to double-charge [defendant] and its customers by
requiring them each to pay a separate license fee . . .” 2000 U.S. Dist. LEXIS 5070 at *19-20.
30
22
A Year in the Life of a High Tech Standards Setting Organization
These aspects of the ANSI Patent Policy have been maintained,
and the principles underlying them affirmed, even in face of the possibility
that the process may be abused as a result of a so-called “snake in the
grass,” “hold up” or “patent ambush.” These refer to the situation where a
patent owner does not disclose its patent rights during the standards
development process, and only later asserts them after the standard has
been widely implemented. Due to the serious impact that such conduct
can have on the standards development process generally, careful
consideration has repeatedly been given to such a possibility. The
collective recollection of the ANSI Patent Committee, however, is that no
such abuse has occurred in the development of American National
Standards.
In addition, the ANSI Patent Policy has withstood the test of time
because it appears to be working. Not only have there been no recalled
instances of a “snake in the grass” or “patent ambush,” the pace and
volume of standards development has increased even as more patents
have been identified and become relevant to standardized technology.
Modifying the Policy to include more burdensome duties and obligations
on patent owners, which could chill the incentive for patent owners to
voluntarily disclose and agree to license their rights and also expose
standards participants and SDOs to greater litigation risks, therefore, has
been viewed as unnecessary and potentially detrimental to the balance of
interests reflected by the current policy.
The effectiveness of the ANSI Patent Policy is also reflected by
its adoption by leading technology SDOs. These include Committee T1,
which develops standards and technical reports related to functions and
characteristics associated with interconnection and interoperability of
In holding that defendant had not sufficiently alleged injury to competition, the court
observed that the ITU Policy leaves negotiations of specific license terms to the parties, and that
plaintiff had made its willingness to license known. Accordingly, because “a patent holder is
permitted under the antitrust laws to completely exclude others from practicing his or her
technology,” plaintiff’s submission of proposed licensing terms, whatever they were, would not state
a violation of the antitrust laws. Id. at *23. Further, the court said, even if it were to consider the
alleged unfair nature of the proposed terms, no injury to competition could be stated. The court
reached this conclusion because: “a patent owner’s pursuit of optimum royalty income is not an act
in restraint of trade”; “cross-licensing is considered a pro-competitive practice because it can
facilitate the integration of complementary technologies”; and “because a patent owner has the
legal right to refuse to license his or her patent on any terms, the existence of a predicate condition
to a license agreement cannot state an antitrust violation.” Id. at *25-26.
23
A Year in the Life of a High Tech Standards Setting Organization
telecommunications networks at interfaces with end user systems, carriers
and information and enhanced service providers; INCITS, which develops
standards in the field of information technology which encompasses
storage, processing, transfer, display, management, organization and
retrieval of information; TIA, which develops standards and specifications
for telecommunications equipment and fiber optic products; and the
Society of Cable Telecommunications Engineers (“SCTE”), which
develops technical specifications relating to cable television products,
procedures, materials and safety practices.
Leading international technology standards organizations have
adopted similar positions. The ITU, for example, as previously noted, has
adopted a policy that is very similar in scope and application to the ANSI
Patent Policy.31 Indeed, the ITU’s implementing guidelines for its Patent
Policy point out that the underlying principle of its Policy is the same as
underlies the ANSI Policy, and the policies of other standardization
organizations including ISO, IEC and CEN/CENELEC.32
The Patent Policy of the European Telecommunications
Standards Institute (“ETSI”) also seeks to encourage the early disclosure
of relevant patent rights without imposing mandatory obligations on patent
holders. Thus, the ETSI Policy states that it “seeks a balance between the
needs of standardization for public use in the field of telecommunications
and the rights of the owners of IPRs.” Members are, therefore, directed to
use “reasonable endeavors” to inform ETSI of “essential” rights that the
member becomes aware of, but any implication of an obligation to search
is expressly disclaimed and no mandatory duty to disclose is imposed.33
2.
Other Patent Policies
(a) The ATM Forum
31
The ITU Policy can be found at www.itu.int/ITU-T/dbase/patent/Patent_Policy.html.
32
One difference between the ITU Policy and the ANSI Policy is that if a potentially relevant
patent is disclosed in connection with the development of an ITU specification and the identified
patent owner will not provide an assurance regarding licensing, the specification will not be
approved. Under the ANSI Policy approval of the standard as an American National Standard may
still occur if a consensus of the development organization is in favor.
33
The ETSI Policy can be accessed at www.etsi.org.
24
A Year in the Life of a High Tech Standards Setting Organization
Some non-accredited SDOs have also adopted ANSI-like patent
policies. For example, the ATM Forum, an international group of providers
of asynchronous transfer mode (ATM) technology and applications based
upon international and national standards, has adopted a policy similar to
the ANSI Policy in that it encourages disclosure of patent rights but does
not mandate it. The ATM Forum’s policy also expressly does not obligate
any member to disclose or identify any unpublished anticipated patent
rights or to search for any potentially pertinent intellectual property or other
rights.34
(b)
VESA
Other non-accredited SDOs, however, have adopted policies that
vary from the ANSI-type policy in that they impose disclosure and other
obligations upon patent holders, as well as expand the scope and source
of disclosures that must be made. One such policy was adopted by the
Video Electronics Standards Association (“VESA”), and was the subject of
the FTC’s Dell proceeding. In contrast to the ANSI Policy, VESA imposed
an affirmative disclosure requirement as a condition of membership by
requiring members to certify whether they had any patents or other
proprietary rights that conflicted with the standard at issue.
This
affirmative disclosure requirement, the Commission stated, “creates an
expectation by [the VESA] members that each will act in good faith to
identify and disclose conflicting intellectual property rights.” 35
The
Commission further noted that other SDOs may have different procedures,
and specifically that the ANSI Patent Policy does not create the same
expectation because it “does not require that companies provide a
certification as to conflicting intellectual property rights.”36 Accordingly, the
Commission expressly cautioned that the relief in Dell “should not be read
to impose a general duty to search.”37
The VESA Policy also differed from ANSI’s in another important
way. It called for the representative of the member company attending the
relevant meeting to make the disclosure regarding the existence of
34
See www.atmforum.com/pages/advantages/bylaws99.html at § 3.12.2.
35
Dell, supra at *18.
36
Id. and n.6.
37
Id.
25
A Year in the Life of a High Tech Standards Setting Organization
patents and other intellectual property rights. The Commission found that
the voting representative’s action bound Dell. Often times, however, as
previously commented, a company’s representative participating in an
SDO will have less than full knowledge concerning the scope of the
company’s patent portfolio or of the specific limitations stated in claims of
patents that may be relevant to the standard being developed. Thus, a
policy that imputes the company’s knowledge to the representative, or vice
versa, can create serious potential liability for patent owners, and thereby
inhibit the standards process.
(c)
JEDEC
Another non-accredited SDO whose patent policy differs from
ANSI’s is the JEDEC Solid State Technology Association (“JEDEC”).38
The JEDEC Patent Policy is stated in various sections of its Manual of
Organization and Procedure, and among other things “requires the early
disclosure of known patents and patent applications that are or may be
relevant to the work of the formulating committee. This duty extends to
the patent owner and any other participant on the formulating committee
with knowledge of the patent or patent application.”39 In addition, Section
7.3 of the JEDEC Manual provides “committees should avoid
standardization that refers to a product on which there is a known patent
unless all the relevant technical information covered by the patent is
known to the formulating committee, subcommittee or task group.”
Section 7.3 continues:
If the committee member indicates that the standard
requires the use of patent items, then the committee
chairperson must receive a written assurance from
the organization holding rights to such patents that a
license will be made available to applicants desiring to
implement the standard either without compensation
or under reasonable terms and conditions that are
demonstrably free of any unfair discrimination.
38
JEDEC is affiliated with EIA, as is TIA, both of which have adopted the ANSI Patent
Policy.
39
The JEDEC Patent Policy is accessible at www.jedec.org.
26
A Year in the Life of a High Tech Standards Setting Organization
Section 7.3.1 imposes a further duty on the chairperson of any JEDEC
committee to call to the attention of all present “the obligation of all
participants to inform the meeting of any knowledge they may have of any
patents, or pending patents that might be involved in the work they are
undertaking.”
Thus, like VESA’s, the JEDEC Policy imposes a mandatory
disclosure obligation regarding patents and patent applications that may
be relevant to the standard under consideration. Guidance is not
provided, however, concerning the boundaries of relevance so that patent
owners can have certainty in determining the extent of their disclosure
obligation. Further, while this duty is sought to be limited to potentially
relevant patents that are known by a JEDEC member or its participating
representative, difficult issues will exist regarding what constitutes
knowledge. For example, if a JEDEC member does not search its patent
portfolio and thereby fails to uncover an essential patent, will it still be
deemed to have the knowledge of that patent? Full and continuous
searches may, therefore, be required, at least by implication. Likewise, if
a company does search its portfolio, but innocently overlooks a potentially
relevant patent, would that give rise to a claim that it violated JEDEC’s
Policy and thereby should be stopped from asserting its patent? Further,
what will be the consequence of a patent owner determining that its patent
would not be relevant to a standard at an early formative stage, only to
reach a different conclusion once the standard matures? As difficult as
these issues are in connection with corporate members, they are likely be
even more difficult when applied to the individual representatives of those
members who actually attend committee meetings.
The JEDEC Policy’s requirement that “all the relevant technical
information covered by the patent” be disclosed also raises issues. This
requirement seemingly would preclude the practice of a patent owner to
simply provide a generalized assurance to license, and thereby avoid the
burden and cost of continuously searching its patent portfolio to find
potentially relevant patents, leading to delay in a standard’s development.
This requirement could also lead to a “reverse snake in the grass”
scenario where a third party, for improper purposes (e.g., to slow or avoid
standardization), identifies a company as having a potentially relevant
patent without identifying the patent. The claimed patent owner might not
be able to identify a specific patent, or at least not in a timely manner, and
as a result be unable to meet the requirement of disclosing all technical
information covered by the asserted patent. Nor would the patent owner
27
A Year in the Life of a High Tech Standards Setting Organization
likely be willing to disclaim rights that it may have, but which it does not
know are actually implicated by the standard. As a result, the identifying
party would succeed in blocking standardization.
Disclosure
obligations
concerning
unpublished
patent
applications also raise issues because standards participants may be
compelled to disclose confidential proprietary technology not yet protected
under patent law, before it is clear what the actual scope of a standard (or
the patent) may be. As a result, inventors may be less willing to
participate in standards development process because their ability to
recoup their inventive investment could be eliminated.
Thus, while patent policies such as those adopted by VESA and
JEDEC may be deemed appropriate and necessary to address certain
potentially abusive conduct in connection with specific standardization
efforts, they can also raise serious issues, including potentially greater
risks of litigation for standards participants and SDOs.40 As such, they
may not be appropriate for other SDOs. Indeed, SDOs that follow the
ANSI Policy have declined to adopt policies with the type of obligations
and requirements reflected in the VESA and JEDEC Policies.
III.
Conclusion
Standards development for information and technology industries
is a complex process involving many competing interests.
The
complexities only become greater and the task of balancing all relevant
interests only more challenging when patented technologies are involved.
40
See, e.g., Rambus, Inc. v. Infineon Technologies AG, No. 00CV524, 2001 U.S. Dist.
LEXIS 11871 (E.D. Va. August 9, 2001) (Rambus’s violation of JEDEC Policy relevant to fraud
verdict); Wang Laboratories, Inc. v. Mitsubishi Electronics America, Inc., 103 F.3d 1571, 1581-82
(Fed. Cir.), cert. denied, 522 U.S. 818 (1997) (plaintiff’s participation in and failure to comply with
JEDEC policy basis for implied license defense); Veronica Smith Lewis, Rambus’ Limited Patent
Disclosure To a Standard Setting Body Was Found To Be Fraudulent But Not An Antitrust
Violation, AT-IP Report, June 6, 2001, www.abanet.org/antitrust/committees/intell_property
/rambus.html.; Veronica Smith Lewis, Rambus v. Infineon-The Latest Standard Setting Patent
Disclosure
Guidance,
AT-IP
Report,
September
24,
2001,
www.abanet.org/antitrust/committees/intel_property/sep24report.html. See also Potter Instrument
Co., Inc. v. Storage Technology Corp., 207 U.S.P.Q. 763, 766 (E.D. Va. 1980), aff’d, 641 F.2d 190
(4th Cir.), cert. denied, 454 U.S. 832 (1981) (estoppel defense considered in light of SDO policy
providing that when any patent is to be included in a standard “the owner of such patent must bring
to the attention of the Subcommittee the existence of such patents”). Cf. Stambler v. Diebold, Inc.,
11 U.S.P.Q.2d 1709, 1714-15 (E.D.N.Y. 1988), aff’d, 878 F.2d 1445 (Fed. Cir. 1989) (plaintiff
estopped from asserting claim of patent infringement where 10 years prior to suit it knew that
allegedly infringing standard was being considered as an American National Standard).
28
A Year in the Life of a High Tech Standards Setting Organization
Experience shows, however, that these matters cannot be addressed in a
“one size fits all” manner. Rather, in crafting patent policies SDOs must
be allowed to give careful consideration to many different factors – the
nature of the industry, the nature of the technology, and even the nature of
patents involved – and care should be taken not to require changes to the
standards development process when perhaps there is no compelling
need or reason to do so.
29
A Year in the Life of a High Tech Standards Setting Organization
A YEAR IN THE LIFE OF A HIGH TECH STANDARDS
SETTING ORGANIZATION
Section of Antitrust Law
STANDARD SETTING ACTIVITY
OFFENSIVE CLAIMS
By
Joseph P. Lavelle
and
Melissa J. Gunthner
April 25, 2002
Washington, D.C.
30
A Year in the Life of a High Tech Standards Setting Organization
INTRODUCTION
Much has been written, debated, and dissected regarding the
antitrust issues that arise when patent holders participate in voluntary
standard setting activity. The debate is important. Intellectual property is
a significant and generally procompetitive component of our modern
economy. Likewise, voluntary standard setting activity generally is
procompetitive. When the two combine to raise anticompetitive concerns,
a careful review of the precise nature of the concerns and a discerning
approach to a remedy is clearly in order.
This article focuses on the largest risks attendant to standard
setting activity—namely the affirmative damages and other claims that can
be leveled against an IP holder that participates in standard setting
activities. A companion article, by Mark Flagel and Michael Lawrence,
discusses ways in which standard setting conduct may preclude
enforcement of IP.1
We focus primarily on federal claims, which for the most part arise
under the federal antitrust laws. However, the RICO statute has also been
asserted against IP holders that have participated in standard setting
activity. We also review state law claims. Most noteworthy among these
is the claim for common law fraud successfully asserted at the trial court
level in the district court decision in Rambus, Inc. v. Infineon Technologies
AG.2
For a general introduction to the claims that can arise out of

Mr. Lavelle is a partner at Howrey Simon Arnold & White, LLP. Ms. Gunthner is associated with
the same firm. The views expressed here are those of the authors alone and do not necessarily
represent the views of Howrey Simon Arnold & White or of any client of the firm. Mr. Lavelle has
represented Rambus, Inc. and other clients in certain matters involving standard setting. Once
again, the views expressed herein are Mr. Lavelle’s alone, not those of Rambus, Inc. or any other
client of Mr. Lavelle. The authors thank Michael G. Cowie, Senior Litigation Counsel, Bureau of
Competition, Federal Trade Commission. Mr. Cowie’s prior collaboration with the authors was of
assistance in preparing this work.
1
Mark A. Flagel & Michael J. Lawrence, Strategic Considerations When Asserting Defenses
Against a Claim for Infringement of a Patent that Reads on an Industry Standard (2002).
2 164 F. Supp. 2d 743 (E.D. Va. 2001).
31
A Year in the Life of a High Tech Standards Setting Organization
standard setting activities, see the materials listed in the note.3 In this
article, we focus on the developments that have occurred in recent case
law relating to the offensive claims that can be asserted against a
patentee who participates in standard setting.
FEDERAL OFFENSIVE CLAIMS
Misconduct in the standard setting process may lead to claims that
the IP holder violated the federal antitrust laws—specifically, Section 1 of
the Sherman Act, relating to agreements in restraint of trade, and Section
2 of the Sherman Act, relating to unlawful monopolization or the attempt or
conspiracy to monopolize. In addition, IP holders have been subjected to
claims and investigations by the Federal Trade Commission (“FTC”) under
Section 5 of the FTC Act, in instances where the FTC Staff considered the
IP holder’s conduct to amount to an unfair method of competition. Private
litigants, the U.S. Department of Justice, the FTC, and state attorneys
general may sue for violations of the Sherman Act. The FTC has
exclusive power to bring an action under Section 5 of the FTC Act.
Civil remedies for a violation of the federal antitrust laws may
include treble damages to private litigants.4 Criminal liability may include a
felony conviction and imprisonment and/or a fine up to $10 million for
corporations and up to $350,000 if any other person.5
The Racketeer Influenced and Corrupt Organizations Act (“RICO”)6
provides for treble damage remedies and attorneys fees awards that have
motivated private plaintiffs for decades to try to convert state law fraud
claims into federal RICO claims. Despite numerous attempts by the
courts to limit this tendency,7 lure continues to prove irresistible, and a
challenge to standard setting conduct under RICO has been presented to
at least one jury.8
3
Michael G. Cowie & Joseph P. Lavelle, Patents Covering Industry Standards: The Risks to
Enforceability Due to Conduct Before Standard-Setting Organizations, AIPLA Q.J. (forthcoming
2002); 2 HERBERT HOVENKAMP ET AL., IP AND ANTITRUST § 35 (2002).
4 15 U.S.C. § 15 (2000).
5 15 U.S.C. §§ 1, 2 (2000).
6 18 U.S.C. §§ 1961 et seq. (2000).
7 H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1988); Sedima, S.P.R.L. v. Imrex Co., 473
U.S. 479 (1985).
8 Rambus, Inc. v. Infineon Techs. AG, 164 F. Supp. 2d 743 (E.D. Va. 2001).
32
A Year in the Life of a High Tech Standards Setting Organization
SHERMAN ACT
Restraint of Trade – Section 1
Section 1 of the Sherman Act provides that “[e]very contract,
combination . . . , or conspiracy, in restraint of trade or commerce among
the several States, or with foreign nations, is declared to be illegal.” 9 Early
on, the Supreme Court recognized that the statute could not literally mean
what it says, and it is well established today that Section 1 prohibits only
agreements that unreasonably restrain trade.10
The essence of a Section 1 claim resides in concert of action.
Agreements that have on balance an anticompetitive effect on competition
can violate Section 1.11 However, the existence of an agreement is
essential to a claim.
Concerted Action
As illustrated by Hyundai Electronics Industries Co. v. Rambus Inc.,
failure to allege concerted action is fatal to a section 1 claim.12 Hyundai
involved a challenge to a patentee’s failure to disclose pending patent
applications to a standard setting body called JEDEC, which is active in
the electronics and computer arts. Years after the patentee left the
standards organization, it filed continuation applications and presented
claims, some of which covered standards adopted by JEDEC.
Hyundai claimed Section 1 was violated because Rambus’s
conduct allegedly had an anticompetitive effect on a collaborative
process—namely standard setting. The district court dismissed the
Section 1 claim on the pleadings.13 The court held that a patent holder’s
unilateral conduct can not result in a violation of Section 1. Applying well
established principles, the found that while the unilateral conduct was
9
15 U.S.C. § 1.
Chicago Bd. of Trade v. United States, 246 U.S. 231, 238 (1918); Standard Oil Co. v. United
States, 221 U.S. 1, 58 (1911). For a detailed analysis of the case law under Sections 1 and 2 of
the Sherman Act, the reader is urged to consult ABA Section of Antitrust Law, Antitrust Law
Developments (4th ed. 1997). Antitrust Law Developments strives to present an accurate view of
the current state of antitrust case law, with little or no editorializing or opining.
11 Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768 (1984); Am. Tobacco Co. v. United
States, 328 U.S. 781, 810 (1946).
12 No. C 00-20905 RMW (N.D. Cal. Jan. 19, 2001) (order granting in part and denying in part
defendant’s motion to dismiss).
13 Id. at 4-5.
10
33
A Year in the Life of a High Tech Standards Setting Organization
alleged to have an effect in a collaborative forum such as JEDEC, this fact
alone is insufficient to support a section 1 claim.14
Where, on the other hand, concerted action is alleged, a section 1
claim based on misconduct in the standard setting process may survive a
motion to dismiss. For example, in Sony Electronics, Inc. v. Soundview
Technologies, Inc.,15 a district court denied a motion to dismiss a section 1
claim where concerted action between a standard setting organization and
its members was alleged. Soundview Technologies, Inc. (“Soundview”)
owned a patent that covered the Electronic Industries Alliance (“EIA”)
standard for the V-chip, a device that allows parents to block undesirable
television programming.16 EIA and its members (television manufacturers)
allegedly rejected Soundview’s offer to license its patents on nondiscriminatory and reasonable terms and agreed upon a set price for a
license under Soundview’s patent.17 Soundview claimed that EIA and its
members participated in a group boycott and refusal to deal and engaged
in price fixing in violation of section 1.18
The court determined that Soundview adequately plead a
monopsony conspiracy. Anticompetitive effects, such as an artificial
depression in price, an exodus of suppliers from the market, a reduction in
innovation and development, and a restraint on individual television
manufacturers’ ability to make independent economic decisions, could
result.19 The court rejected the argument that the alleged conduct was
protected by the Noerr-Pennington doctrine. As the court explained,
“Soundview’s counterclaim contains substantially more than mere litigation
or joint action to challenge a patent, in that it alleges a conspiracy to pay a
maximum price and a group boycott not to accept a license from
Soundview.”20
Antitrust Injury
In addition to alleging concerted action, one must allege antitrust
injury in order to state a claim under section 1. Antitrust injury is courtmade prudential doctrine that limits the type of damages that can be
recovered in a claim under the federal antitrust laws.
14
Id. at 4.
157 F. Supp. 2d 180 (D. Conn. 2001).
16 Id. at 181.
17 Id. at 182.
18 Id.
19 Id. at 184-88.
20 Id. at 189.
15
34
A Year in the Life of a High Tech Standards Setting Organization
The doctrine of antitrust injury requires that a plaintiff plead and
prove two things: first, that the plaintiff was injured in fact; and second,
that the injury is the type of injury the antitrust laws were intended to
protect and flows from that which makes the defendant’s conduct unlawful
under the antitrust laws.21
In Townshend v. Rockwell International Corp.,22 a district court
dismissed a section 1 counterclaim without leave to amend for failure to
allege antitrust injury. The accused infringer, Conexant, alleged that the
patent holder, Townshend, and his licensee, 3Com, conspired to
fraudulently procure an International Telecommunications Union (“ITU”)
standard requiring the use of Townshend’s patent.23 As required by ITU’s
patent policy, 3Com and Townshend stated their willingness to license the
patent on non-discriminatory and reasonable terms.24 In addition, the
parties announced the terms on which they were prepared to deal and
posted them on a website. While Conexant argued that the terms were
unfair and in violation of the ITU patent policy, the ITU was presumably
satisfied that the patentee had complied with ITU rules by agreeing to
grant non-discriminatory licenses.
ITU subsequently adopted the
standard, called V.90, and the standard remains in use today for dial-up
modems.25
The court dismissed Conexant’s Section 1 claim for failure to allege
antitrust injury.26 First, the court determined that the alleged unfair
licensing terms, including “unfair royalty rates, double-charging of
customers and manufacturers, mandatory cross-licenses, and reservation
of the right to condition licenses on the resolution of litigation,” did not
state an injury to competition.27 Relying on 35 U.S.C. § 271(d)(4), the
court reasoned that it was not improper for a patentee to announce the
terms on which it was willing to deal.28 Somewhat surprisingly, the court
fails to distinguish between unilateral acts of a patentee, such as those
covered in § 271(d)(4), and the allegations in this case, which relate to an
alleged conspiracy to enforce the license terms.
21
E.g., Brunswick Corp. v. Pueblo Bowl-O-Matic, Inc., 429 U.S. 477 (1977).
No. C 99-0400 SBA, 2000 U.S. Dist. LEXIS 5070 (N.D. Cal. Mar. 28, 2000).
23 Id. at *5-6.
24 Id. at *20-21.
25 Id. at *21.
26 Id. at *28.
27 Id. at *22-23.
28 Id.
22
35
A Year in the Life of a High Tech Standards Setting Organization
Second, as the court stated, “Conexant’s allegations that
Townshend initiated a patent infringement suit—without any additional
allegation of anti-competitive aspects of this suit—does not state an
antitrust injury, nor does it identify any antitrust injury caused by a
conspiracy between 3Com and Townshend.”29 Again, the court does not
consider whether litigation undertaken in furtherance of an alleged
conspiracy should be treated different from the unilateral decision of a
patentee to file suit. Finally, the court found that alleged injury to
Conexant itself was insufficient to amount to an allegation of injury to
competition.30
Monopolization – Section 2
Section 2 of the Sherman Act prohibits monopolization, or the
attempt or conspiracy to monopolize, “any part of the trade or commerce
among the several States, or with foreign nations.”31 Section 2 of the
Sherman Act is addressed primarily at unilateral conduct.
Generally
speaking, to prove the offense of monopolization, the plaintiff must prove
that the defendant possessed monopoly power, and that the monopoly
power was acquire or maintained through unlawful conduct.32
A threshold issue that is likely to recur relates to whether a claim
that a patentee misused the standard setting process states a claim in
light of the Federal Circuit’s overly broad dicta in In re Independent
Service Organization Antitrust Litigation (“Xerox”).33 In Xerox, the Federal
Circuit suggested that a patentee was free to enforce its patent without
concern under the antitrust laws, unless the patentee was guilty of illegal
tying, a Walker Process litigation, or the existence of sham litigation.34
Patentees accused of standards related antitrust claims will likely rely on
Xerox as immunizing their conduct. In Hyundai Electronics Industries Co.
v. Rambus, Inc., discussed supra, the district court rejected this argument
in the context of a motion to dismiss.
Hyundai asserted that Rambus violated Section 2 by attempting to
monopolize the market for technology inputs to high-speed memory
29
Id. at *26-27.
Id. at *27.
31 15 U.S.C. § 2 (2000).
32 E.g., United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir.), cert. denied, 122 S. Ct. 350
(2001); Elecs. Communications Corp. v. Toshiba Am. Consumer Prods., Inc., 129 F.3d 240, 246
(2d Cir. 1997).
33 203 F.3d 1322 (Fed. Cir. 2000).
34 Id. at 1326-27.
30
36
A Year in the Life of a High Tech Standards Setting Organization
devices by violating certain disclosure rules before the JEDEC standards
body. Rambus asserted that, as its alleged conduct was not a tie-in,
Walker Process violation, or allegedly sham litigation, it was immune from
antitrust scrutiny under the Xerox decision.
Judge Whyte rejected this claim. Relying on the FTC’s consent
decree in Dell Computer Corp.,35 the court reasoned that the allegations
that the patentee failed to disclose its patent rights to a standards body
called into question whether those patent rights were lawfully acquired. 36
In such circumstances, the court reasoned that “a defendant’s failure to
disclose relevant patent rights to a standard-setting body and subsequent
assertion of those rights against other members of the body may
constitute an antitrust violation under section 2 of the Sherman Act.”37
Antitrust injury issues have arisen in private litigation under Section
2 as well. In ESS Technology, Inc. v. PC-Tel, Inc., the district court
dismissed plaintiff’s section 2 claim for failure to allege antitrust injury. 38
PC-Tel, Inc. held patents essential for the ITU V.34 and V.90 modem
standards. ESS Technology, Inc. alleged that the defendant held
essential patents, that the plaintiff could not compete without licenses to
those patents, and that the defendant refused to grant licenses to those
patents under reasonable and non-discriminatory terms.
Judge Whyte held that these allegations alone were insufficient to
plead a violation of Section 2, in that the plaintiff had failed to plead injury
to competition in a relevant market.39 The decision, of course, is clearly
correct, in that the plaintiff had failed to plead that the alleged misconduct
injured competition (as opposed to a single competitor) in a properly
defined relevant market. Leave to amend was granted in this opinion.
After the claims were amended, the defendant moved to dismiss
the antitrust claims on the ground that the allegations that it was not
offering fair licenses were not of the type of conduct outlined in Xerox as
permitting an antitrust claim. Judge Whyte rejected this claim, finding that
35
121 FTC 616 (FTC 1996).
Hyundai Elecs. Indus. Co. v. Rambus, Inc., No. C 00-20905 RMW, at 3-4 (N.D.Cal. Jan. 19,
2001).
37 Id. at 4.
38 No. C 99-20292 (N.D. Cal. Nov. 9, 1999).
39 Id. at 5.
36
37
A Year in the Life of a High Tech Standards Setting Organization
the allegations of the complaint were sufficiently analogous to those in
Xerox to permit the claim to go forward.40
In Townshend, discussed supra, the district court dismissed the
accused infringer’s counterclaim for attempted monopolization.41 First, the
court determined that the accused infringer’s allegations did not support
an inference of a specific intent on the part of 3Com to control prices or
destroy competition.42 The court reasoned that by stating terms on which
they were willing to license and adhering to them, the patentee and its
licensee could not be alleged to have formed a specific intent to
monopolize a product and technology market related to the standard. The
court also found no allegation of overt acts in furtherance of the claim of
monopoly, relying primarily on the fact that there was no allegation that the
standards body could have adopted technology that avoided the
patentee’s patent.43
The court also found that there was an insufficient allegation of
dangerous probability of monopoly, despite the fact that the complaint
alleged that the patentee defendant held a patent covering the standard
and that the licensee commanded 50% of the sales in the product market
covered by the standard.44 In the product market, the court found the 50%
market share inadequate in the absence of allegations that competitors
were unable to expand output. In the technology market, the court
reasoned that whatever exclusionary power the patentee held in
technology input market for the standard, the market power was the result
of the patent and hence was lawful.
FTC ACT
Under Section 5 of the FTC Act, the FTC has jurisdiction to
investigate and prosecute unfair methods of competition in or affecting
commerce.45 These methods of unfair competition include conduct that
violates the antitrust laws.
40
No. C 99-20292 (N.D. Cal. July 11, 2000).
Townshend v. Rockwell Int’l Corp., No. C 99-0400 SBA, 2000 U.S. Dist. LEXIS 5070, at *38
(N.D. Cal. Mar. 28, 2000).
42 Id. at *30-32.
43 Id. at *33.
44 Id. at *36-38.
45 15 U.S.C. § 45 (2000).
41
38
A Year in the Life of a High Tech Standards Setting Organization
In American Society of Sanitary Engineering,46 the FTC accepted a
consent decree in which a standard setting agency agreed to abandon a
rule by which patented goods could not be considered for a standard.
According to the Commission, the automatic exclusion of patented
products from consideration for a standard was likely to deter the adoption
of innovative technologies to the harm of consumers.
Well known, of course, is the consent decree the FTC adopted in
Dell Computer Corp.47 For those who have been stranded on a desert
island, however, the facts of Dell involved standard on a video bus for a
personal computer known as the VL-bus standard. According to the
complaint, Dell held a patent on the connector used to connect the VL-bus
to the motherboard of the computer. However, during the adoption and
voting for the standard, Dell failed to disclose its patent. When voting in
favor of the standard, a Dell employee certified that to the best of his
knowledge, the proposal did not infringe any Dell patents.
After the standard was adopted and successful, Dell wrote letters to
computer manufacturers using the VL-bus.
In these letters, Dell
demanded that companies meet with Dell to determine how the accused
infringers were going to respect Dell’s IP rights.48 The Commission’s
complaint alleged that Dell’s conduct unreasonably restrained competition
by hindering adoption of the standard, raising the costs of adopting the
standard, and by exerting a chill on legitimate standards setting activity. 49
Dell agreed to a consent decree under which it agreed not to assert
its patent against parties who adopted the VL-bus standard. Dell agreed
to certain other relief as well.50
The Dell Computer consent decree catalyzed several distinct
groups into action. Standards setting bodies vociferously opposed the use
of Section 5 to create new rules regarding patent disclosure beyond the
disclosure rules of the bodies themselves. Antitrust scholars questioned
the use of Section 5 in a case where the allegations of anticompetitive
intent were far from clear.51 At the same time, patent defendants rushed
46
106 FTC 324 (FTC 1985).
121 FTC 616 (FTC 1995).
48 Id. Complaint ¶¶ 7, 8.
49 Id. ¶ 9.
50 Id. Decision and Order ¶¶ II-VII.
51 See especially Commissioner Azcuenga’s Dissenting Statement in Dell Computer.
47
39
A Year in the Life of a High Tech Standards Setting Organization
to assert estoppel and unenforceability defenses against any patent
remotely related to the activity of a standards body.
The FTC Staff continues to investigate allegations that Section 5
has been violated in connection with conduct by patent holders before
standards bodies. Standard setting activities remain one focus of the joint
DOJ/FTC hearing on IP and antitrust currently under way.
RICO
Standard setting participants may face civil liability under RICO. In
Rambus, Inc. v. Infineon Technologies AG,52 a claim that Rambus violated
civil RICO was rejected by a jury. Infineon contended that a patentee’s
conduct before a standards body constituted fraud and also constituted a
“pattern of racketeering activity” within the meaning of the RICO statute.53
The jury was charged with a bare-bones, pattern RICO jury instruction. As
the jury was instructed, Infineon had the burden to establish that Rambus,
though its association with JEDEC, engaged in a pattern of racketeering
activity by committing multiple acts of mail fraud and/or wire fraud in
furtherance of a scheme to defraud JEDEC, causing injury to Infineon’s
business or property.
The jury found fraud and that verdict survived a post trial JMOL
motion.54 However, the jury rejected the allegations under civil RICO.
STATE OFFENSIVE CLAIMS
While federal antitrust claims seem to be the vehicle of choice to
challenge patentees conduct before standards setting bodies, several
state law claims should be noted.
First of all, in litigation in the federal courts in California, offensive
claims routinely include allegations of a violation of Section 17200 of the
California Business & Professions Code. In cases alleging the patentee
failed to disclose IP to a standards body, it is common to include
allegations of common law fraud in the offensive claim.
When patentees have undertaken to grant reasonable and nondiscriminatory licenses before a standards body, a slightly different set of
52
164 F. Supp. 2d 743, 747 (E.D. Va. 2001).
18 USC § 1961 et seq. (2000).
54 Rambus, Inc. v. Infineon Technologies AG, 164 F.Supp.2d 743 (E.D. Va. 2001).
53
40
A Year in the Life of a High Tech Standards Setting Organization
issues arise. In this circumstance, the key issue often becomes just what
constitutes a fair and reasonable royalty rate. In this context it is not
uncommon for a defendant facing a claim of patent infringement to assert
that the patentee’s promise to grant fair and reasonable licenses
constitutes a contract, enforceable by either a direct or third party
beneficiary of the promise.
STATE UNFAIR COMPETITION LAWS
Most states have a body of common law unfair competition law.
Some states have codified their unfair competition provisions by statute.
Other states have enacted state antitrust statutes and/or “little-FTC Acts”
that prohibit unfair competition. The remedies available vary from state to
state. All of these diverse state laws provide a potential vehicle for a claim
against a patentee relating to conduct before a standards body.
A number of cases pending in federal courts in California have
asserted claims under Section 17200 of the California Business and
Professions Code.55 Section 17200 prohibits certain acts of unfair
competition. The statute does not contain a damages provision, but has
been interpreted to allow for disgorgement of the defendant’s unjust
enrichment and other equitable relief.
As with many state laws, the outer limits of Section 17200 are often
unclear. However, with respect to claims under § 17200, sounding in
competition related claims, the California Supreme Court has held that §
17200 parallels antitrust law. In Cal-Tech Communications v. L.A.
Cellular,56 the court held that in cases where the § 17200 claim relates to
allegedly “unfair” acts directed at a competitor, that § 17200 mirrors the
antitrust law. In such a case, the plaintiff must show that the challenged
conduct “threatens an incipient violation of an antitrust law, or violates the
policy or spirit of one of those laws because its effects are comparable to
or the same as a violation of the law, or otherwise significantly threatens
or harms competition.”57
Following the decision in Cell-Tech, motions to dismiss claims
under § 17200 directed at conduct by patentees before standards bodies
have tended to be resolved in the same way that the federal antitrust claim
is resolved. If the federal antitrust claim survives then the § 17200 claim
55
Cal. Bus. & Prof. Code § 17200.
20 Cal.4th 163, 973 P.3d 527 (1999).
57 20 Cal.4th at 186-87.
56
41
A Year in the Life of a High Tech Standards Setting Organization
survives a motion to dismiss.58 Likewise, if the motion to dismiss the
federal claims is granted, dismissal of the § 17200 claim follows.59
FRAUD
Common law fraud formed the basis for a jury verdict of Rambus,
Inc. v. Infineon Technologies, AG.60 The Rambus case involved
standards relating to SDRAM and DDR SDRAM. These are memory
technologies useful in personal computers and other devices. The
standard setting activity was undertaken by a standards body called
JEDEC, which has long promulgated standards for memories.
Rambus attended JEDEC standards meetings from 1991 through
the end of 1995. While a member of JEDEC, Rambus had on file in the
PTO a patent application with a 1990 filing date that disclosed a number of
fundamental advances in memory technology invented by Rambus. 61
There was evidence, which the jury credited, that while Rambus was at
JEDEC it had the intent to secure patents covering the standard, that it
worked with patent attorneys to write claims to cover the relevant
standard, and that Rambus never disclosed its intent to secure such
patents to the PTO. The jury found Rambus guilty of actual and
constructive fraud and awarded the plaintiff $1 in actual damages as well
as punitive damages. The punitive damages were later limited under
Virginia law to $350,000.62
On JMOL, the trial judge reversed the finding of constructive fraud.
He also reversed the finding of fraud as it related to the DDR SDRAM
standard on the ground that Rambus had departed JEDEC before that
standard was adopted and hence had no duty related to that standard. 63
As to the remaining finding of actual fraud as to the SDRAM
standard setting, Rambus’s JMOL motion challenged every aspect of the
fraud claim, including whether a duty existed to disclose pending patent
applications, whether Rambus had any patent claims that were required to
58
E.g., Hyundai Elec. Indus. Co. v. Rambus, Inc., No. C 00-20905 RMW (N.D. Cal. Jan. 19, 2001);
SanDisk Corp. v. Lexar Media, Inc., No. C 98-01115 (N.D. Cal. Oct. 17, 2000).
59 E.g., Townshend v. Rockwell Int’l Corp., No. C 99-0400 SBA, 2000 U.S. Dist. LEXIS 5070, at *38
(N.D. Cal. Mar. 28, 2000); ESS Technology, Inc. v. PC-Tel, Inc., No. C-99-20292 (N.D. Cal. Nov. 4,
1999).
60 164 F. Supp. 2d 743 (E.D. Va. 2001).
61 Id. at 747.
62 Id.
63 Id. at 765-67.
42
A Year in the Life of a High Tech Standards Setting Organization
be disclosed and hence whether it breached any duty, whether it had
intent to mislead, whether Infineon actually relied on Rambus’s silence,
and whether Infineon suffered any compensable harm. In a lengthy
opinion, the trial judge rejected all of these contentions.64 The court later
entered a broad injunction and Rambus has appealed to the Federal
Circuit.
In a related case, Micron Technology, Inc. v. Rambus, Inc.,65 Judge
McKelvie of the District of Delaware recently ruled that the finding of fraud
against Rambus could not be automatically applied under collateral
estoppel principles by other companies that adopted the JEDEC
standards. The court found that the element of reliance in a fraud claim
was personal to the plaintiff, rendering collateral estoppel inapplicable. 66
The court then stayed most of the balance of the case pending the result
of the appeal in Rambus v. Infineon.
A final case that is of interest on the fraud issue is SanDisk Corp. v.
Lexar Media, Inc.67 In this case, SanDisk attended a formal standards
setting related to flash memory as well as participated in certain industry
initiatives related to standardizing flash memory, all without disclosing that
it had a pending application that covered certain aspects of flash memory.
When the patent issued and SanDisk sued for infringement, Lexar filed a
counterclaim alleging that the failure to disclose the pending application
amounted to fraud.68
SanDisk moved for summary judgment, contending that none of the
standards bodies it participated in had any rule requiring that patent
applications be disclosed and that it never misrepresented its patent
position to anyone.69
While agreeing that there were no written
regulations creating a duty to disclose patent applications, the court
nonetheless denied SanDisk’s motion for summary judgment. The court
concluded that Lexar offered sufficient evidence of an oral agreement
among members of the standards association to survive summary
judgment on the question of a duty.
64
Id. at 751-65.
No. 00-792-RRM, 2002 U.S. Dist. LEXIS 3250 (D. Del. Feb. 27, 2002).
66 Id. at *33.
67 No. C 98-01115 (N.D. Cal. Oct. 17, 2000).
68 Id. at 1-3.
69 Id. at 3.
65
43
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BREACH OF CONTRACT
Finally, we turn to an offensive claim of a completely different sort.
Here we consider a claim by a party who has adopted the standard in
question that it is entitled to enforce the patent holder’s commitment to
grant reasonable, non-discriminatory licenses through an action for breach
of contract.
Most standards bodies extract some sort of licensing commitment
out of a patentee as a quid pro quo for having the IP included in the
standard. Commonly, the commitment consists of an agreement either to
not enforce the patent at all or else to agree to grant licenses on
reasonable, non-discriminatory terms. In nearly all cases, the patentee
chooses the latter course. With the IP issue “addressed,” the standards
body then considers itself free to adopt the IP into the standard.
The breach of contract theory being asserted here is that the
patentee’s commitment to license on reasonable terms is a promise, made
enforceable when the patentee’s technology is adopted into the standard.
The defendant claims to be either the intended beneficiary or a third-party
beneficiary of the promise. Hence, the defendant asserts that the
patentee is bound by contract to grant a reasonable, non-discriminatory
licenses (or whatever commitment it is that the patentee agreed to).
Two cases are representative and instructive. In Rambus v.
Infineon, and other Rambus-related litigation, the SDRAM manufacturing
defendants alleged that Rambus incurred a contractual obligation to grant
reasonable licenses. As Rambus never made any formal (or even
informal) statements regarding its willingness to license, the defendants
were apparently forced to argue that the contractual obligation arose
simply because of Rambus’s presence at the standards meetings.
In the Infineon case, this claim failed to survive a motion for
directed verdict. The trial judge, in a common sense ruling, found that in
the absence of any promise by Rambus, there could be no contract.
On the other hand, in ESS Technology v. PC-Tel,70 a claim for
enforcement of a contractual promise as a third party beneficiary was
found to state a claim. In this case, the counterclaim alleged that the
70
No. C 99-20292 (N.D. Cal. Nov. 9, 1999).
44
A Year in the Life of a High Tech Standards Setting Organization
licensing commitment was in fact made by the IP holder during the
standards setting.
One might reasonably ask what benefit accrues to the defendant
from asserting this breach of contract claim? While the law is unsettled, it
seems intuitively obvious that if the defendant is found to infringe, then the
royalty awarded under 35 USC § 285 will be limited to the reasonable,
non-discriminatory rate that the patentee promised to grant. What then
does the breach of contract claim add to the rights the defendant already
has?
It has sometimes been suggested that a breach of contract claim
would entitle the defendant to the equitable remedy of specific
performance, and that the royalty rate would therefore be calculated by
the judge, rather than the infringement jury. While this might be an
advantage in some cases if true, it is unclear to us whether this outcome is
actually possible given the respective roles of judge and jury explained by
the Supreme Court in Becon Theaters, Inc. v. Westover.71
71
359 U.S. 500 (1959).
45
A Year in the Life of a High Tech Standards Setting Organization
A YEAR IN THE LIFE OF A HIGH TECH STANDARDS
SETTING ORGANIZATION
Section of Antitrust Law
STRATEGIC CONSIDERATIONS WHEN
ASSERTING DEFENSES AGAINST A CLAIM
FOR INFRINGEMENT OF A PATENT THAT
READS ON AN INDUSTRY STANDARD
by
Mark A. Flagel
and
Michael J. Lawrence
April 25, 2002
Washington, D.C.
46
A Year in the Life of a High Tech Standards Setting Organization
I. INTRODUCTION
Over the past decade, industry-wide standards have played an
increasingly important role in the commercialization of new technologies.
Courts have tried keep pace with this trend by balancing the principles of
antitrust law and intellectual property rights. Today, it is well settled that a
patent owner may be found guilty of some form of unfair competition or
abuse of patent rights by enforcing its patent against a party practicing an
industry standard where the owner, having encouraged the adoption of the
standard, failed to notify the standard-setting body that it held a patent
covering the standard prior to the standard’s adoption. For the accused
infringer who practices the standard, that party can raise a number of
affirmative defenses against a claim for patent infringement. Alternatively,
the accused infringer may wish to adopt a more aggressive stance and
plead counterclaims against the patentee. This article addresses the
various legal options available to the accused infringer in the standardsetting context.
II. A HYPOTHETICAL SCENARIO
To illustrate the application of the legal options available to an accused
infringer in the standard-setting context, it is useful to use a hypothetical
case.
Let’s assume that two of the leading telecommunications
companies have independently developed a new generation of chipsets
for their wireless telephones that are far more advanced than current
technologies, and thus, render existing wireless phones obsolete.
These telecommunications companies – Company A and Company B –
are fierce competitors. Each company therefore offers its own competing
wireless telephone based upon its own version of the new generation of
chipsets. Although Company A and Company B use similar technologies
in their chipsets, their telephones are unable to communicate with each
other. In other words, a telephone from Company A is incompatible with a
telephone from Company B. However, this incompatibility problem could
be overcome if the companies adopted a uniform set of technical
specifications concerning the operation of their chipsets.

The views expressed are those of the authors, and do not necessarily represent the views of
Latham & Watkins. Mr. Flagel represented Kingston Technology in its successful defense of
patent infringement claims brought by Sun Microsystems.
47
A Year in the Life of a High Tech Standards Setting Organization
Company A and Company B are both members of a telecommunications
industry association. One of the missions of this association is to adopt
uniform standards that ensure the interoperability of different
telecommunications systems, such as the new chipsets developed by
Company A and Company B. The association routinely hosts conferences
in which members may offer proposals for the adoption of new standards.
If association members reach a consensus about a new standard, the
association will adopt and publish that standard.
The association follows a voluntary “code of practice” regarding
intellectual property rights that are the subject matter of proposed
standards. In order to foster access to the standards, the code expressly
provides that any member putting forward a proposal should, from the
outset, advise all other members to any issued patents or pending patent
applications that may conflict with the proposed standard. In addition, the
member must announce whether or not it would be willing to negotiate
licenses with other members on a non-discriminatory basis on fair and
reasonable terms. If a member is unwilling to offer such a license, the
code of practice dictates that the association will not adopt a standard that
incorporates such proprietary technology.
At an annual conference of the association, Company A and Company B
each submitted its own competing written proposal for a standard of the
new generation of wireless telephones. Both companies also made formal
presentations to the members about the merits of their respective
proposals, providing technical information and answering members’
questions. Following the presentations, the companies’ representatives
privately lobbied individual members to adopt their respective proposals.
At the conclusion of the conference, the association voted to adopt
Company A’s proposed standard. The “Company A” standard was
therefore published as the officially recognized standard of the
association.
At no time during the conference did any members identify or disclose that
they had any patents or pending patent applications which would conflict
with the standard. As it turned out, Company A had filed U.S. patent
applications regarding the subject matter of Company A’s new generation
of chipsets. However, Company A made no disclosures under the code of
practice. At the same time, Company B modified all of its chipsets to
practice the new standard. Company B sold these chipsets to the public
48
A Year in the Life of a High Tech Standards Setting Organization
in large quantities, and received orders to manufacture and sell additional
chipsets.
Following the adoption of the standard, the U.S. Patent Office issued
several patents to Company A. These patents cover or “read on” the
standard. Once these patents issued, the legal department for Company
A sent a letter to Company B stating that Company B’s products are
infringing Company A’s patents. The letter demanded that Company B
take a license on the following terms: it must (i) pay royalties of 5% per
unit, and (ii) promise to stop selling any competing products in the
separate market for wireless telephone accessories (which are not
covered by Company A’s patents).
Although Company B acknowledged that its chipsets practice the
standard, and thus, infringe on Company A’s patents, it refused to take a
license. Company A therefore filed a patent infringement suit against
Company B. The suit seeks damages for past infringement and injunctive
relief to prevent future infringing sales.
Below, we shall discuss the application of these hypothetical facts to the
strategic considerations and defenses available to an accused infringer in
the standard-setting context.
III.STRATEGIC CONSIDERATIONS AND DEFENSES
When a patentee files an infringement suit based on a patent that reads
on an industry standard, the accused infringer can assert a number of
affirmative defenses if the patentee failed to disclose its patent rights to
the standard-setting organization prior to the adoption of the standard.
Potential defenses include (i) equitable estoppel, (ii) patent misuse, and
(iii) implied license. These affirmative defenses are traditional patent lawbased defenses, but their logic applies to misconduct or deceptive
practices relating to a standard-setting process, and the extension of
patent rights beyond their lawful scope.
A.
Affirmative Defenses
1.
Equitable Estoppel
The doctrine of equitable estoppel is an affirmative defense to a claim of
patent infringement. This affirmative defense holds that a patentee will be
49
A Year in the Life of a High Tech Standards Setting Organization
estopped from enforcing a patent against an accused infringer where (1)
the patentee – through misleading conduct or statements – represents to
the accused infringer that no infringement suit will be filed, (2) the accused
infringer relies on that representation, and (3) the accused infringer will be
materially prejudiced if the patentee is allowed to proceed with its claim.1
This defense turns on whether the patentee makes deceptive statements
that cause the accused infringer to reasonably believe that the patentee
does not intend to enforce its patents.2 Generally, silence will not result in
an estoppel unless there is a clear duty to speak, or the patentee’s
continued silence reinforces the accused infringer’s belief that the
patentee acquiesces in the accused infringer’s activities.
The defense of equitable estoppel has been successfully invoked in a
handful of cases where a patentee allegedly made misleading statements
to a standard-setting body in connection with the formulation of an industry
standard.3
For example, in Wang Laboratories Inc. v. Mitsubishi
Electronics America, Inc., the court denied a patentee’s motion for partial
summary judgment to dismiss the accused infringer’s defense of equitable
estoppel. In that case, Wang sued Mitsubishi for infringement of two
patents that covered an industry standard adopted by the Electronic
Industries Association’s standardization group known as the Joint
Electronic Device Engineering Council (JEDEC). JEDEC is composed of
competing semiconductor manufacturers and sellers, including Wang and
Mitsubishi. At a series of conferences, participants will vote on whether
they should adopt industry standards for electronic components.
Beginning in 1983, Wang urged JEDEC participants, including Mitsubishi,
to adopt certain Single In-Line Memory Module (SIMM) technology as part
of a proposed standard. Unbeknownst to the participants, Wang had two
pending patent applications covering the SIMM technology that it was
promoting. Under JEDEC’s internal policies, participants must disclose
any pending applications to the body. However, Wang failed to do so. By
1
2
3
See, generally, A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 960 F.2d 1020,
1041-44 (Fed. Cir. 1992) (explaining doctrine of equitable estoppel); Rambus, Inc. v.
Infineon Technologies AG, 155 F. Supp. 2d 668, 679 n.8 (E.D. Va. 2001) (explaining
that affirmative defense of equitable estoppel is analogous to an offensive claim for
fraud).
See Aukerman at 1043.
See, e.g., Potter Instrument Co., Inc. v. Storage Tech. Corp., 207 U.S.P.Q.2d 763,
aff’d, 641 F.2d 190 (4th Cir. 1981) (affirming on other grounds); Stambler v. Diebold,
Inc., 11 U.S.P.Q.2d 1709 (E.D.N.Y. 1998), aff’d, 878 F.2d 1445 (Fed. Cir. 1989);
Wang Labs. Inc. v. Mitsubishi Elec. Am., Inc., 30 U.S.P.Q.2d 1241, 1247 (C.D. Cal.
1993), aff’d, 103 F.3d 1571 (Fed Cir. 1997) (affirming on other grounds).
50
A Year in the Life of a High Tech Standards Setting Organization
1986, JEDEC published a new standard incorporating the SIMM
technology promoted by Wang. Thereafter, Wang’s applications were
granted, and Wang filed an infringement suit against Mitsubishi.
Based on these facts, the district court held that Mitsubishi showed that
there were triable issues regarding the affirmative defense of equitable
estoppel. The court found, among other things, that there were factual
issues as to whether Wang’s failure to disclose the existence of its
applications was misleading and deceptive, and whether Mitsubishi
representatives in attendance at JEDEC conferences relied on Wang’s
alleged misstatements when they approved a standard incorporating
Wang’s SIMM technology. The court therefore denied Wang’s motion for
partial summary judgment on the equitable estoppel defense.
Using the hypothetical above, Company B (the accused infringer) could
respond to the infringement suit filed by Company A (the patentee) by
asserting a defense of equitable estoppel. Here, Company B could argue
that Company A should be estopped from enforcing its patent rights
covering the standard because Company A misled the association when it
failed to disclose that it owned several patents. In relying on Company A’s
deceptive silence, the association adopted a standard that incorporated
Company A’s patents. Company B now will be materially prejudiced if
Company A were allowed to proceed with its infringement claim. At this
stage, Company B has no alternative to practicing the standard, which
incorporates Company A’s patent technology.
If Company A had
complied with the association’s code of practice by disclosing its patents,
the association might have implemented a different non-proprietary
standard. Under these facts, Company B has a strong affirmative defense
for equitable estoppel against Company A.
2.
Patent Misuse
Patent misuse is another affirmative defense to a claim of patent
infringement. The purpose of this defense is to restrain business practices
that improperly extend the “patent monopoly” beyond its lawful scope. 4 In
4
See, e.g., Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 136 (1969)
(“there are established limits which the patentee must not exceed in employing the
leverage of his patent to control or limit the operations of the licensee.”); B. Braun
Med. Inc. v. Abbott Labs., 124 F.3d 1419, 1426 (Fed. Cir. 1997) (explaining that the
key inquiry of the patent misuse doctrine is whether the patentee “impermissibly
51
A Year in the Life of a High Tech Standards Setting Organization
other words, a patentee is not entitled to use a patent to obtain economic
benefits beyond those which lawfully derive from the patent rights. 5
Patent misuse is an extension of the equitable doctrine of unclean hands,
providing that a court of equity should not lend its support to enforcement
of a patent that has been used to secure an unfair competitive
advantage.6
In cases of patent misuse, the patent is rendered
unenforceable and the patentee is not entitled to recover any infringement
damages for the period of misuse. That is, courts withhold relief from the
patentee until the patentee discontinues the abusive practice.7 Once the
patentee purges its misuse, the patentee’s rights will be restored from that
point forward.
The defensive shield of patent misuse is analogous to the offensive sword
of an antitrust claim. The defense seeks to restrain business practices
that do not in themselves violate any law, but that draw anticompetitive
strength from the patent right, and thus, are deemed to be contrary to
public policy.8 In other words, patent misuse is a broader concept than an
antitrust violation.9 Examples of patent misuse may include (1) “tying
arrangements” or requiring the purchase of unpatented goods in order to
obtain a license for patented goods,10 (2) “package licensing” or
conditioning the purchase of a license upon acceptance of another license
for an unrelated patent,11 (3) charging royalties based upon total sales,
rather than the patented goods alone,12 (4) charging royalties after the
5
6
7
8
9
10
11
12
broadened the physical or temporal scope of the patent grant with anticompetitive
effect.”).
See Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700, 704 (Fed. Cir. 1992);
Windsurfing Int’l, Inc. v. AMF Inc., 782 F.2d 995, 1001 (Fed. Cir. 1986).
Carter Wallace, Inc. v. United States, 449 F.2d 1374, 1377 (Ct. Cl. 1971) (“Courts will
not aid a patentee in infringement litigation if the patentee, in dealing with the patent
by licenses or product sales, engages in conduct violative of the antitrust laws or the
principles of equity.”).
C.R. Bard, Inc. v. M3 Sys., Inc., 157 F.3d 1340, 1372-73 (Fed. Cir. 1998), reh’g
denied & reh’g in banc declined, 161 F.3d 1380 (Fed. Cir. 1998) (“Patent misuse
arises in equity, and a holding of misuse renders the patent unenforceable until the
misuse is purged; it does not, of itself, invalidate the patent.”).
Mallinckrodt, 976 F.2d at 704.
Senza-Gel Corp. v. Seiffhart, 803 F.2d 661, 668 (Fed. Cir. 1986).
Id. at 669.
Western Elec. Co. v. Stewart-Warner Corp., 631 F.2d 333, 338 (4th Cir. 1980);
McCullough Tool Co. v. Well Surveys, Inc., 343 F.2d 381, 408 (10th Cir. 1965); Apex
Elec. Mfg. Co. v. Altorfer Bros. Co., 238 F.2d 867, 871 (7th Cir. 1956).
Engel Indus., Inc. v. Lockformer Co., 96 F.3d 1398, 1408 (Fed. Cir. 1996).
52
A Year in the Life of a High Tech Standards Setting Organization
expiration of a patent,13 (5) refusing to license a patent in circumstances
where the patentee has a monopoly in the relevant market,14 (6) fixing the
resale price of patented goods,15 and (7) prohibiting the making or selling
competing goods as a condition to obtain a license for patented goods.16
Because patent misuse is a broader concept than an antitrust violation,
patent misuse does not require proof of the same elements of an antitrust
claim. First, patent misuse generally requires no evidence that the
patentee wields “market power” in the relevant market.17 It is therefore
unnecessary to show that the patentee has the capability to make a profit
by either reducing output or charging a price higher than its marginal cost.
Second, patent misuse requires no evidence of harm to the accused
infringer.18 In other words, no allegation of specific injury is necessary to
state this affirmative defense.
Despite the lower threshold of proof required for patent misuse, this
defense has not been successfully raised in any reported standard-setting
case.19 For example, in Townshend, a district court held that a patentee
could not be found liable for patent misuse by imposing supposedly unfair
or discriminatory licensing terms on a patent which had been incorporated
into an industry standard. In that case, an accused infringer alleged that a
patentee had lobbied the International Telecommunications Union (ITU) to
adopt a standard that embodied the patentee’s technology, but that the
13
14
15
16
17
18
19
Sunrise Med. HHG, Inc. v. AirSep Corp., 95 F. Supp. 2d 348, 414 (W.D. Pa. 2000);
A.C. Aukerman Co. v. R.L. Chaides Constr. Co., 29 U.S.P.Q.2d 1054, 1058 (N.D.
Cal. 1993).
Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 455 (1992).
Mallinckrodt, 976 F.2d at 704; United States v. Studiengesellschaft Köhle, 670 F.2d
1122, 1131-32 (D.C. Cir. 1981).
Keystone Retaining Wall Sys. Inc. v. Westrock Inc., 792 F. Supp. 1552, 1559 (D. Ore.
1991), aff’d, 997 F.2d 1444 (Fed. Cir. 1993); Nat’l Lockwasher Co. v. George K.
Garrett Co., 137 F.2d 255, 256 (3d Cir. 1934).
There are two exceptions to this basic rule. In cases (i) where a patentee refuses to
license or use any rights to the patent or (ii) a patent is used as part of a tying
arrangement, it must be shown that the patentee has market power in the relevant
market. In 1988, Congress added subsections (d)(4) and (5) to 35 U.S.C. § 271(d) to
make clear that these specific acts cannot constitute patent misuse in the absence of
market power. See, generally, Virginia Panel Corp. v. MAC Panel Corp., 133 F.3d
860, 869 (Fed. Cir. 1997) (explaining that patent misuse requires proof of market
power under section 271(d)). Hence, the 1988 amendment makes patent misuse
considerably more difficult defense to prove as to certain types of conduct.
Motorola, Inc. v. Kimball Int’l, Inc., 601 F. Supp. 62, 65 (N.D. Ill. 1984); Leesona
Corp. v. Varta Batteries, Inc., 522 F. Supp. 1304, 1341 (S.D.N.Y. 1981).
See, e.g., In re Indep. Serv. Orgs. Antitrust Litig., 85 F. Supp. 2d 1130 (D. Kan.
2000); Townshend v. Rockwell Int’l Corp., 55 U.S.P.Q.2d 1011 (N.D. Cal. 2000).
53
A Year in the Life of a High Tech Standards Setting Organization
patentee’s proposed licensing terms violated the ITU’s internal policies by
“conditioning the availability of the technology on reciprocal dealing, by
extracting cross-licenses, at fixed, artificially low rates and by attempting
to double-charge [the accused infringer] and its customers by requiring
them each to pay a separate license fee for [the patentee’s] patents.” 20
The accused infringer sought relief from the federal courts because the
ITU’s policies precluded the ITU itself from getting involved in intra-party
disputes. The district court found that the accused infringer’s defense
under 35 U.S.C. § 271(d) should fail: “Because a complete refusal to
license does not constitute patent misuse . . . A statement of proposed
licensing terms, which indicates a willingness to license in accordance
with these terms, cannot constitute patent misuse.”21 Accordingly, the
court dismissed the patent misuse defense.
The Townshend decision has been criticized by leading commentators.
The past chairman of the Federal Trade Commission, Robert Pitofsky,
identified Townshend as an example of how federal courts have failed to
properly balance competing principles of antitrust and intellectual property
laws.22 He stated that undue emphasis has been placed on intellectual
property rights, thereby allowing patentees to impermissibly extend their
market power beyond the scope of their conferred rights.23 According to
Pitofsky, this trend of granting broad exceptions to antitrust principles
sacrifices more competition than is necessary to provide appropriate
incentives to innovate.24 It remains to be seen whether federal courts will
heed these comments.
Using the hypothetical above, Company B (the accused infringer) could
respond to the infringement suit filed by Company A (the patentee) by
asserting a defense of patent misuse. Here, Company B could argue that
Company A is not entitled to obtain economic benefits beyond those which
lawfully derive from the patent rights: Company A seeks to leverage its
patent rights under the standard by imposing licensing terms on Company
B that impair competition. In order to obtain a license, Company B must
promise to stop competing with Company A in the separate market for
wireless telephone accessories. Hence, Company A seeks to coerce
20
21
22
23
24
Id. at 1017.
Id. at 1024.
See generally, R. Pitofsky, Antitrust and Intellectual Property: Unresolved Issues at
the Heart of the New Economy, 16 Berkeley Tech. L.J. 535, 545-46 (2001).
Id. at 546.
Id.
54
A Year in the Life of a High Tech Standards Setting Organization
Company B to cease sales of products which are unrelated to Company
A’s patents. Under these facts, Company B has a strong affirmative
defense of patent misuse.
3.
Implied License
The doctrine of implied license is another affirmative defense to a claim of
patent infringement. This defense is based upon a patentee’s waiver of its
statutory right to exclude others from practicing the patented invention.25
Unlike an express license that arises by a written agreement between
parties, an implied license arises by operation of law. In other words, an
implied license may be inferred where the patentee’s words or conduct
reasonably suggest an affirmative grant of consent or permission to its
patent rights.26 For example, a patentee’s unrestricted sale of a device
may indicate the grant of a license because the absence of any conditions
connotes a license for all purposes.27
In the standard-setting context, the case of Wang Laboratories is
instructive.28 In that case, the Federal Circuit held that a patentee gave an
implied license by, among other things, failing to disclose to a standardsetting body that it held patents rights covering the standard.29 The
Federal Circuit also observed that the patentee encouraged other
manufacturers to produce such patented products so that it could buy their
products, rather than making them for itself at a lower volume and higher
cost.30 According to the court, the patentee therefore received exactly
what it desired – a “design [that] is the industry standard, and the benefits
of a large market and lower prices.”31
25
26
27
28
29
30
31
Spindelfabrik Suessen-Schurr Stahlecker & Grill GmbH v. Schubert & Salzer
Maschinenfabrik Aktiengesellschaft, 829 F.2d 1075, 1081 (Fed. Cir. 1987).
Wang Labs., 103 F.3d at 1581.
Met-Coil Sys. Corp. v. Korners Unlimited, Inc., 803 F.2d 684, 687 (Fed. Cir. 1986).
Wang Labs., 103 F.3d 1571.
Id. at 1582.
Id. at 1580.
Id. at 1582. Cf. Winbond Elec. Corp. v. Int’l Trade Comm’n, 262 F.3d 1363 (Fed. Cir.
2001) (holding that patentee did not grant an implied license when it offered to make
its patent available on a royalty-free basis if its patent was adopted into an industry
standard because standard-setting body did not adopt patentee’s technology;
patentee’s licensing condition was never satisfied, and thus, no license was
intended).
55
A Year in the Life of a High Tech Standards Setting Organization
Using the hypothetical above, Company B (the accused infringer) could
respond to the infringement suit filed by Company A (the patentee) by
asserting a defense of implied license. Here, Company B could argue that
an implied license should be inferred by Company A’s failure to disclose
the existence of its pending patent applications under the code of practice.
Given this code of practice, Company A’s silence led Company B to
believe that Company A had nothing to disclose, and thus, it had no
intention of demanding any royalties. The association, including Company
B, chose a particular technology, which it believed, would be available to
all without cost. Accordingly, Company A’s conduct arguably suggests an
affirmative grant of permission to its patent rights.
4.
Variations in the Hypothetical
All of these defenses could be significantly affected depending upon the
underlying facts. For example, if the code of practice of a standard-setting
organization requires disclosure of issued patents, but does not expressly
require disclosure of pending patent applications, these defenses can
become more difficult.32 In addition, a party must determine whether the
code of practice explicitly requires disclosure of all patents and patent
applications of a company, or just those known by the company
representatives to implicate the proposed standard.33 If there is a
requirement to disclose all patents and applications, there will be a more
difficult remedy issue: where a specific patent or application was not
disclosed, but the nondisclosure was plainly unintentional, should the
remedy be equitable estoppel, an implied license on a royalty-free basis,
or a license on “fair, reasonable and non-discriminatory terms”? And,
assuming the remedy should be a license on fair, reasonable and non32
33
Rambus Inc. v. Infineon Techs. AG, 164 F. Supp. 2d 743, 751-52 (E.D. Va. 2001)
(upholding jury verdict that patentee breached duty to disclose pending patent
applications to standard-setting organization even though organization’s rules made
no explicit reference to pending patents).
There has been extensive debate on this issue. See generally, In re Dell Computer
Corp., 121 F.T.C. 616, 625-26 (1996) (there is no “general duty to search” for
relevant patents, but codes of practice imposing an affirmative disclosure
requirement would create an expectation that members “will act in good faith to
identify and disclose conflicting intellectual property rights”). In reality, many
companies have a portfolio of thousands of patents as well as pending patent
applications, and the company representatives may have limited knowledge about
those patents and applications that implicate a proposed standard. The question
therefore may arise as to whether a code of practice of a standard-setting
organization can ever require automatic licensing where company representatives
innocently did not identify or disclose a patent.
56
A Year in the Life of a High Tech Standards Setting Organization
discriminatory terms, who gets to decide whether the proposed terms
meet this definition? All of these answers will depend upon the particular
disclosure rules of the standard-setting organization.34
An issue also may exist concerning the applicability of a patent to a
standard. For example, if the code of practice requires the disclosure only
of those patents that are “required” to practice the standard, a dispute can
arise as to whether a particular patent is absolutely necessary, or merely
one of several different ways to practice the standard.35
In short, the specific disclosure rules of the standard-setting organization
will have to be carefully reviewed to determine the best defenses available
to an accused infringer.36
B.
Other Considerations and Counterclaims
In addition to asserting affirmative defenses, the accused infringer can
seize the offensive and plead counterclaims against the patentee in an
infringement suit. Potential counterclaims may be based upon (i) a
violation of antitrust laws, (ii) a violation of state unfair competition
statutes, (iii) fraud on the standard-setting body, or (iv) breach of contract
based upon the patentee’s failed promise to disclose the existence of
patent rights. Furthermore, the accused infringer can refer alleged patent
abuses to government agencies that are responsible for enforcing unfair
competition laws.
34
35
36
For example, some codes require that all patents applicable to a standard be
licensed on fair, reasonable and non-discriminatory terms. However, an accused
infringer could still argue for equitable estoppel on the theory that, had the patent
been disclosed during the standard-setting process, the standard would not have
been adopted, or it would have deliberately excluded the patent at issue.
See generally, Intel Corp. v. VIA Techs., Inc., 174 F. Supp. 2d 1038 (N.D. Cal. 2001)
(interpreting the scope of a license granted by the patentee under an industry
standard after the patentee sued a licensee for practicing a separate patent that was
allegedly not “required” to be practiced under the standard).
See generally, R.S. Taffet, Patented Technology and Standard Setting: A Standards
Development Organization View (forthcoming 2002) (discussing how standard-setting
organizations approach the use of proprietary technologies).
57
A Year in the Life of a High Tech Standards Setting Organization
1.
Antitrust
One offensive claim is an antitrust counterclaim based upon the
patentee’s misconduct in the standard-setting process. The patentee who
participates in standardization but fails to disclose that it owns any patent
rights that cover the standard may become a bottleneck in the market.
For example, once a standard has been adopted, the patentee might
refuse to license its technology to others, and thus, can exert monopolistic
control over supply and prices. In this regard, the patentee’s refusal to
deal could result in an antitrust violation.
Ordinarily, a refusal to license a patent does not constitute an antitrust
violation since mere ownership of a patent does not normally confer
market power on the patentee.37 However, this general rule applies where
the patented technology is merely one of a number of substitutable
technologies that are available in the market.38 With the adoption of a
standard, there are few, if any choices, to the patented technology – i.e.,
the patented technology becomes an essential facility to entering the
market. Indeed, a standard is usually intended to preclude other
competing technologies from being commercialized.39 As a consequence,
37
38
39
Continental Paper Bag Co. v. Eastern Paper Bag Co., 210 U.S. 405, 429 (1908);
Intergraph Corp. v. Intel Corp., 195 F.3d 1346, 1362 (Fed. Cir. 1999); Genentech,
Inc. v. Eli Lilly & Co., 998 F.2d 931, 949 (Fed. Cir. 1993); Genentech Labs. v.
Brennan, 952 F.2d 1346, 1354-55 (Fed. Cir. 1991). See also 1995 Department of
Justice and Federal Trade Commission Antitrust Guidelines For the Licensing of
Intellectual Property, § 2.2, reprinted in ABA Section of Antitrust Law, Antitrust Law
Developments (4th ed. 1997) at 1486 (“Although the intellectual property right confers
the power to exclude with respect to the specific product, process, or work in
question, there will often be sufficient actual or potential close substitutes for such
product, process, or work to prevent the exercise of market power.”).
See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 16 (1984) (explaining
that “it is fair to presume that the inability to buy the product elsewhere gives the
seller market power” where the seller has a patent or similar “monopoly over a
product”).
See, e.g., In re Pabst Licensing, GmbH Patent Litig., 2000 U.S. Dist. LEXIS 12076
*21 (E.D. La. Aug. 11, 2000) (denying motion to dismiss antitrust claim even though
there is no presumption that patent ownership creates market power since lack of
presumption “does not exclude the possibility that a patent owner does have market
power”); Dell, 121 F.T.C. at 624 n.2 (explaining that wide acceptance of an industry
standard “effectively confer[s] market power upon [the patentee]” where the standardsetting body could have adopted an alternate standard based upon equally effective,
non-proprietary technologies). But see Townshend, 55 U.S.P.Q.2d at 1021] (holding
that the accused infringer “has not alleged facts to show that competitors are unable
58
A Year in the Life of a High Tech Standards Setting Organization
the patentee obtains the power to control prices or restrict competition
because there are no substitutes for the patented technology.
Using the hypothetical above, Company B (the accused infringer) could
respond to the infringement suit filed by Company A (the patentee) by
asserting a counterclaim for an antitrust violation under Section 2 of the
Sherman Act.40 Here, Company B could argue that Company A
possesses monopoly power in the market for the new generation of
wireless telephones by virtue of the fact that the standard incorporates
Company A’s patents (and thus, the patented technology is an essential
facility), and that it willfully acquired that power through its deception of the
standard-setting body by failing to disclose its patent rights. In addition,
Company A also sought to willfully acquire monopoly power in another
market – the telephone accessories market – when it imposed licensing
terms that require licensees to stop selling competing telephone
accessories. However, Company A could respond to these accusations
by pointing out that Company B has merely assumed the existence of
monopoly power, and that there is no evidence that Company A actually
obtained such power as a result of the adoption of the standard. These
facts present a complex case in which the outcome is uncertain.
2.
Unfair Competition
Another offensive claim is a counterclaim for unfair competition under a
state statute. It is difficult to generalize about the nature of such a claim
because unfair competition statutes vary from state to state. Generally,
however, the scope of state unfair competition laws are broader than
federal antitrust laws.41 In this regard, unfair competition laws may enable
an accused infringer to plead an offensive claim that falls short of
constituting an antitrust violation.
40
41
to expand output, and as such, has not alleged that [the accused monopolist] has a dangerous
probability of monopolization of the product market.”).
See 15 U.S.C. § 2. This section prohibits a party that possesses “monopoly power” in a
relevant market from willfully acquiring or maintaining that power through restrictive or
exclusionary conduct. Monopoly power, also referred to as “market power,” is “the power to
control prices or exclude competition.” United States v. E.I. du Pont de Nemours & Co., 351
U.S. 377, 391 (1956).
See, e.g., Cel-Tech Communications, Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 187 (1999)
(explaining that California’s unfair competition statute (Cal. Bus. & Prof. Code § 17200)
requires “conduct that threatens an incipient violation of an antitrust law, or violates the policy
or spirit of one of those laws . . . ”) (emphasis added).
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A Year in the Life of a High Tech Standards Setting Organization
3.
Fraud
Another offensive claim is a counterclaim for fraud based upon the
patentee’s misconduct in the standard-setting process. The case of
Rambus42 is instructive. In Rambus, the court upheld a jury verdict that a
patentee deceived a standard-setting body by failing to disclose to the
body that it had pending patent applications regarding the subject matter
of the standard. In that case, the accused infringer asserted a fraud
counterclaim in response to the patentee’s infringement suit. The Rambus
court held that there was sufficient evidence to support the jury’s finding
that the accused infringer, which was a member of the standard-setting
body, reasonably relied upon the patentee’s non-disclosures, and that it
was later harmed when it incurred attorneys’ fees in defending itself
against the patentee’s suit.
Using the hypothetical above, Company B (the accused infringer) could
respond to the infringement suit filed by Company A (the patentee) by
asserting a counterclaim for fraud on the standard-setting body. Here,
Company B could argue that Company A’s failure to disclose the
existence of its pending patent applications constituted misleading and
deceptive conduct. Under the code of practice, Company A had an
affirmative duty to disclose to the association whether it had any patent
rights regarding the subject matter of the standard. Given this code of
practice, Company B should have identified its pending patent
applications. Under the circumstances, Company B reasonably relied
upon Company A’s non-disclosures, and inferred that Company A had no
such patent rights. Accordingly, Company A’s subsequent efforts to
enforce its patent rights arguably constituted a fraud.
42
164 F. Supp. 2d 743. See also, V. Smith Lewis, Rambus v. Infineon – The Latest Standard
Setting
Patent
Disclosure
Guidance,
<http://www.abanet.org/antitrust/committees/intell_property/sep24report.html>
(analyzing
Rambus decision).
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A Year in the Life of a High Tech Standards Setting Organization
4.
Breach of Contract
Another offensive claim is a counterclaim for breach of contract based
upon the patentee’s misconduct in the standard-setting process. This
cause of action is somewhat novel and relatively untested.43 The grounds
for this claim is that the accused infringer is a beneficiary of the patentee’s
legal promise to the standard-setting body that the patentee will disclose
the existence of any patent rights under the body’s code of practice.
Hence, the patentee’s failure to abide by its promise gives rises to a claim
for breach of contract by the accused infringer. The accused infringer
arguably suffers damages when it is required to defend itself in a patent
infringement suit filed by the patentee.
Using the hypothetical above, Company B (the accused infringer) could
respond to the infringement suit filed by Company A (the patentee) by
asserting a counterclaim for breach of contract. Here, Company B – as a
member of the association – could argue that it is a third-party beneficiary
to Company A’s contractual duty under the code of practice. The purpose
of this code is to foster access to standards by requiring members to
disclose any patent rights and to license those patent rights on fair,
reasonable and non-discriminatory terms. By failing to disclose its patent
rights to the association and by failing to offer a license on reasonable
terms, Company A breached its contract with the association. In its
capacity as a third-party beneficiary, Company B may therefore seek to
recover damages for this breach.
5.
Referring the Case to Law Enforcement
Agencies
In addition to affirmative defenses or counterclaims where the accused
infringer turns to the judicial system for relief, an entirely different option is
to report any suspected patent abuses to federal or state agencies that
are responsible for enforcing unfair competition statutes. In recent years,
for example, the FTC has taken an interest in enforcing unfair competition
laws against patentees who allegedly deceived standard-setting
organizations.
In the matter of Dell,44 the FTC investigated a personal computer
manufacturer for alleged manipulation of a standard adopted by the Video
43
44
See EES Tech., Inc. v. PC-Tel, Inc., No. C 99-20292 (N.D. Cal. Nov. 2, 1999) (order denying
defendant’s motion to dismiss claim for specific performance where plaintiff alleged that it was
third-party beneficiary to defendant’s agreement with standard-setting body and where
defendant agreed to license its patent to all on fair, reasonable and non-discriminatory terms).
121 F.T.C. 616.
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A Year in the Life of a High Tech Standards Setting Organization
Electronics Standards Association (VESA). In 1992, VESA launched a
series of meetings to evaluate a proposed standard for a “VL-bus” – the
mechanism that transfers electronic information between a computer’s
central processing unit and peripherals. During these meetings, Dell
actively lobbied other VESA members to approve the proposed standard.
At the same time, VESA members were asked to certify whether they
owned any patents that conflicted with the proposed standard. Although
Dell had been granted a patent that covered elements of the proposed
standard, it certified that it had no such patents. Thereafter, VESA
adopted the proposed VL-bus standard, which became a commercial
success. Only then did Dell break its silence about its patent. Dell notified
various companies that were practicing the VL-bus standard that it was
entitled to receive royalties for patent infringement.
The FTC conducted an investigation of Dell’s activities, concluding
that Dell engaged in anticompetitive business practices. According to the
FTC, Dell sought to capitalize on the VL-bus standard when, if Dell had
disclosed the existence of its patent, VESA could have adopted a different
standard that did not “read” on Dell’s patent: “In this case – where there is
evidence that the association would have implemented a different nonproprietary design had it been informed of the patent conflict during the
certification process, and where Dell failed to act in good faith to identify
and disclose patent conflicts – enforcement action is appropriate to
prevent harm to competition and consumers.” As a remedy, the FTC
ordered Dell not to enforce its patent rights against any party that
practices the VESA standard.
Of course, there can be no guarantee that a government agency
will conduct an investigation just because it receives a referral from an
aggrieved party.
Moreover, there can be no guarantee that any
investigation will lead to a favorable result. This option therefore should
not be chosen as an alternative to asserting an affirmative defense or
pleading a counterclaim, but as an additional means to obtain full relief for
the aggrieved party. Furthermore, counsel should be careful not to
threaten criminal charges to obtain an advantage in civil litigation. 45
45
In a number of states, it is unethical for an attorney to threaten criminal prosecution in the
context of a civil case. See, e.g., Cal. Rule of Prof. Conduct 7-104 (“A member of the State
Bar shall not threaten to present criminal, administrative or disciplinary charges to obtain an
advantage in a civil action . . . ”). Cf. ABA Formal Ethics Op. 92-363 (July 6, 1992) (stating
that, under certain circumstances, it is ethical for an attorney to threaten criminal prosecution
to obtain an advantage in the context of a civil case – namely, where the criminal matter is
related to the client’s civil claim, the attorney has a well-founded belief that both the civil claim
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A Year in the Life of a High Tech Standards Setting Organization
Instead, the aggrieved party should understand that this option merely
seeks to improve the prospects that applicable laws will be enforced.
III.CONCLUSION
Where a patentee files an infringement suit based on a patent that
reads on an industry standard and where the patentee failed to disclose its
rights to the standard-setting organization, the accused infringer has a
number of options about how to respond to the infringement claim. The
accused infringer can assert affirmative defenses, including (i) equitable
estoppel, (ii) patent misuse, and (iii) implied license. Or, if the accused
infringer wishes to seize the offensive, it can plead counterclaims based
upon (i) a violation of antitrust laws, (ii) a violation of state unfair
competition statutes, (iii) fraud on the standard-setting body, or (iv) breach
of contract based upon the patentee’s failed promise to disclose the
existence of patent rights. The accused infringer can even refer alleged
patent abuses to government agencies that are responsible for enforcing
unfair competition laws. The specific course of action will vary depending
upon the facts of the particular case.
and the criminal charges are warranted by the law and the facts, and the attorney does not
attempt to exert or suggest improper influence over the criminal process).
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A Year in the Life of a High Tech Standards Setting Organization
A YEAR IN THE LIFE OF A HIGH TECH STANDARDS
SETTING ORGANIZATION
Section of Antitrust Law
BENEFITS AND RISKS OF PATENT POOLING
FOR
STANDARDS SETTING ORGANIZATIONS
by
Dorothy Gill Raymond
Senior Vice President and General Counsel
Cable Television Laboratories, Inc.
April 25, 2002
Washington, D.C.
© 2002
Cable Television Laboratories, Inc.
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A Year in the Life of a High Tech Standards Setting Organization
BENEFITS AND RISKS
ORGANIZATIONS
OF
PATENT POOLING
FOR
STANDARDS SETTING
TABLE OF CONTENTS
I.
Introduction
II.
Historical View
III.
Current View
A. Antitrust Guidelines for the Licensing of Intellectual
Property
IV.
B.
MPEG-LA business review letter
C.
The DVD letters
A Framework for Analysis
A.
How are essential patents defined and determined?
B.
Who can join the pool?
C.
Does the pool promote innovation?
D.
Does the pool allow members access to information they
would not have outside the pool?
V.
VI.
Other Considerations For a Standards Body
A.
Should access to IPR in the pool be free?
B.
How is the royalty fee set?
C.
How important is compliance to the standard?
Conclusion
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A Year in the Life of a High Tech Standards Setting Organization
BENEFITS AND RISKS OF PATENT POOLING FOR STANDARDS SETTING
ORGANIZATIONS
I.
INTRODUCTION
A patent pool can be a way for a standards body to effectuate its
policy of requiring contributors to make essential intellectual property
rights (IPR) within a standard available on fair, reasonable and nondiscriminatory terms. This paper explores the historical and current views
of patent pools, proposes a framework for analysis to be used by a
standards body in determining whether to proceed with a patent pooling
arrangement, and concludes with some practical considerations.1
A patent pool is an agreement by multiple owners of IPR (which
can include copyrights as well as patents) to interchange licenses or to
grant licenses to third parties.2 Patent pools can enable the spread of
technology, lower consumer prices, and foster competition but they can
also limit innovation, restrict output and raise prices.
II.
HISTORICAL VIEW
The original judicial view of patent pools was consistent with the
view that a patent grants a legal monopoly, thus courts gave “broad
deference to the licensing practices of patentees.”3 Patentees pooled
patents and attached conditions to the licenses that effectively restrained
1
The author is General Counsel for Cable Television Laboratories, Inc. CableLabs is a private
industry consortium that helps the cable television industry implement new technologies, such as
digital television and high speed cable modems. CableLabs’ efforts include developing voluntary
open interface specifications which are available for any interested manufacturer and which allow
compliant equipment manufactured by any vendor to interoperate on cable television systems.
CableLabs participated in the development of the MPEG standard and was instrumental in forming
the IPR Working Group. Since the formation of the MPEG licensing pool, CableLabs has created
royalty-free pools for three of its voluntary industry interface standards, including the highlysuccessful interface standard for high-speed cable modems.
2 See U.S. Department of Justice and Federal Trade Commission, Antitrust Guidelines for the
Licensing of Intellectual Property, (1995) (the “Licensing Guidelines”). Although patent pools
and cross-license arrangements are similar, the principal distinction between a cross-license and a
patent pool is that licenses from a patent pool are usually made available even to companies that
lack any IPR to contribute to the pool.
3 See Steven C. Carlson, Note, Patent Pools and the Antitrust Dilemma, 16 YALE J. ON REG. 359,
373 (1999).
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A Year in the Life of a High Tech Standards Setting Organization
trade. In E. Bement & Sons v. National Harrow Co.,4 the Supreme Court
found nothing wrong with a patent pool that fixed prices: “The fact that the
conditions in the contracts keep up the monopoly or fix prices does not
render them illegal…[the Sherman Act] clearly does not refer to that kind
of a restraint of interstate commerce which may arise from reasonable and
legal conditions imposed upon the assignee or licensee of a patent by the
owner thereof, restricting the terms upon which the article may be used
and the price to be demanded therefor.”5
But, as happens many times in other areas of antitrust law, the
pendulum swung in the other direction and the view of what is acceptable
changed, perhaps as a result of the excesses catalogued in Bement.
Courts began viewing patent pools as a mechanism for cartels to engage
in collective price setting or output restrictions. “Rights conferred by
patents are indeed very definite and extensive, but they do not give any
more than other rights a universal license against positive prohibitions.
The Sherman law is a limitation of rights, -rights which may be pushed to
evil consequences, and therefore restrained.”6
The pooling of blocking airplane patents during World War I was
done at the behest of the government7 and appears to be not so much
anomalous as indicative of the heavy burden necessary to show when
patent pooling could be permissible. The government needed more
airplanes, but the two rival manufacturers with blocking patents were
demanding large royalties. Faced with high costs that also resulted in
limited production, the government decided the solution was a patent pool
of all US-issued airplane patents with licenses being made available to all
aircraft manufacturers.
In the early seventies, the view that a patent conferred monopoly
power that could be used to harm competition culminated in the
Department of Justice identifying suspect practices that came to be called
4
E. Bement & Sons v. National Harrow Co., 186 U.S. 70 (1902).
Id. at 91-92.
6 Standard Sanitary Manufacturing Co. v. United States 226 U.S. 20, 49 (1912). See also HartfordEmpire Co. v. United States, 323 U.S. 386 (1945); Carlson, supra note 2, at 373-374, and Robert
P. Merges, Institutions For Intellectual Property Transactions: The Case for Patent Pools (August
1999) at www.law.berkeley.edu/institutes/bclt/pubs/merges.
7 See “Cross Licensing and Antitrust Law”, address by Joel I. Klein, Acting Assistant Attorney
General, Antitrust Division, U.S. Department of Justice (May 2, 1997), reprinted at
www.usdoj.gov/atr/public/speeches.
5
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A Year in the Life of a High Tech Standards Setting Organization
the “Nine No-No's.”8
The suspect practices included grantbacks of
improvements and royalties unrelated to sales volume,9 and did not
require any inquiry into whether there were substitutes for the licensed
patent. While patent pooling was not one of the Nine No-No’s, the Nine
No-No’s did not create an atmosphere that was conducive to pooling of
patents, even though there might have been good reason to do so.
III.
CURRENT VIEW
A.
Antitrust Guidelines for the Licensing of Intellectual
10
Property.
The Department of Justice and the Federal Trade Commission
issued the Antitrust Guidelines for the Licensing of Intellectual Property
(the “Licensing Guidelines”) in 1995, firmly swinging the pendulum back in
contrast to the Nine No-No’s.
The Licensing Guidelines explicitly
recognize that patent pooling is generally procompetitive and should be
analyzed using the rule of reason.
The Licensing Guidelines contain considerations for analyzing
patent pooling. One must consider whether the pool creates efficiencies
that are more significant than the harm to non-participants in the pool.
The Licensing Guidelines make it clear that a pooling arrangement does
not need to be open to any interested party unless participation is
necessary in order to compete in the relevant market or if the participants
have market power.
One must also consider whether the pool reduces incentives to
innovate. Requiring grantbacks or licensing of IPR at very low rates may
stifle innovation. Conversely, the pool may make a new technology more
widely available or clear blocking patents, so that innovation can take
place at a different, more efficient level, such as what happens when
underlying technology is standardized.
8
See Sheila F. Anthony, Antitrust and Intellectual Property Law: From Adversaries to Partners, 28
AIPA Q.J. 1, 3 (2000) reprinted at www.ftc.gov/ftc/news.htm.
9 See Willard K. Tom and Joshua A. Newburg; Antitrust and Intellectual Property: From Separate
Spheres to Unified Field, 66 Antitrust L.J. 167, 178-184 (1997) for a thorough discussion of the
history and evolution of these practices. The other no-no’s included tying of unpatented products,
tie-outs (or restrictions on a licensee’s ability to deal in products or services not within the scope of
the patent), restrictions on licensee’s sale of products using the patented process, specifying
minimum sales prices for licensed products, granting the licensee veto power over future licenses,
and mandatory package licenses.
10 See Licensing Guidelines, supra.
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A Year in the Life of a High Tech Standards Setting Organization
B. The MPEG Business Review Letter.11
The Department of Justice was given the opportunity to make its
position on patent pools more definitive when the participants in the
MPEG-2 compressed digital video standard, after forming an IP Working
Group, decided to pool essential patents. In the MPEG review letter, the
Department of Justice articulated considerations for when pooling patents
may be pro-competitive, and applied them to the very specific facts of the
MPEG pool.
The Department of Justice considered four main factors: (1) the
patents licensed by the pool are all essential to comply with the MPEG-2
standard and are thus complementary, not competitive; (2) the license
offered by the pool is the same for any and all licensees including
“maverick competitors and upstart industries;” (3) the structure of the pool
prohibits exchange of competitively sensitive information among
participants and (4) the license agreement does not restrain development
of rival products or technology. Looking in-depth at each factor gives a
clear roadmap of how to make a standards-based pool procompetitive.
1.
Only essential patents are licensed. The MPEG standard
is extremely complex and, as the work product of many companies sitting
in many meetings, contains intellectual property contributed by many
different participants. Without the licensing mechanism supplied by the
MPEG pool, fewer companies would have implemented the standard, and
the products manufactured to the standard would be more expensive.
The Department of Justice stated that “a combination of complementary
intellectual property rights, especially ones that block the application for
which they are jointly licensed, can be an efficient and procompetitive
method of disseminating those rights to would-be users.”12
The MPEG IP working group retained an independent expert (at the
cost of much time and money) to review all 800 submitted patents to
determine which patents were truly essential to implement the MPEG
standard.13 Thus, the patents in the MPEG pool are not substitutes for
See Letter from Joel I. Klein, Ass’t Attorney General, Department of Justice, Antitrust Division, to
Gerrard R. Beeney, Esq. (June 26, 1997) www.usdoj.gov/atr/public/busreview/1170.htm (the
“MPEG review letter”). The author was General Counsel for CableLabs at this time.
12 MPEG review letter, supra, page 9.
13 Twenty-seven essential patents had been identified when the business review letter was
requested. See MPEG review letter, supra, page 3.
11
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A Year in the Life of a High Tech Standards Setting Organization
one another (i.e., they are not competitive); rather, they are all required in
order to implement MPEG. The pool arrangements provide that the
independent expert will continue to review additional patents submitted to
it for inclusion into the pool.
2.
Non-discriminatory license terms. The MPEG license is
a very straightforward technology license. The same terms are available
to any one who wants a license, enforced with a most-favored nations
clause. And, if a potential licensee does not like the terms of the MPEG
license, it is free to make its own individual license arrangements for the
MPEG-2 patents, because the license into the pool is non-exclusive.
3. Limited chance for collusion. The MPEG-LA agreements are
set up to minimize the possibility of pool members exchanging
competitively sensitive information. Information flowing into the pool is
accessible only by the MPEG Licensing Authority (MPEG-LA), which is
independent from the licensors. And information flowing from MPEG-LA is
governed by confidentiality provisions. In addition, the Department of
Justice recognized that the royalty rate is so minimal that there is no
reduction in downstream price uncertainty.
4.
Incentive to innovate.
The MPEG license does not
discourage innovation. The royalty rate is based on the number of units
manufactured, described as “actual use” by the Department of Justice,
instead of a flat fee or a fee based on the size of the licensee. Thus, if
and when something better comes along, the license agreement does not
impose extra or sunk costs for switching to the new technology. Nor does
the license prohibit a licensee from manufacturing non-MPEG-2 compliant
products.
The MPEG license has two provisions that at first blush might seem
problematic, but were recognized by the Department of Justice as being
pro-competitive. If a licensee has an MPEG-2 essential patent, the
licensee must license it to any of the MPEG IPR licensors or licensees on
fair and reasonable terms and conditions. The grant-back is limited to
essential patents--and since the MPEG-2 standard was completed at the
formation of the pool, the Department of Justice correctly judged that there
would be little, if any, innovation within the standard itself. The grant-back
is also fair. It prevents a licensee with essential IPR from taking
advantage of everyone else’s low cost IPR under the MPEG license, while
extracting high rates for its own essential IPR.
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A Year in the Life of a High Tech Standards Setting Organization
The other interesting provision is a partial termination right given to
licensors, who may request that MPEG-LA terminate the license of that
licensor’s IPR to a particular licensee, if that licensee has sued the
licensor for infringement of an MPEG-2 essential or “related” patent, or
refused to license a related patent on fair and reasonable terms. The
Department of Justice pointed out that the termination of license for that
licensor’s essential IPR puts the licensee in the same position it would be
in if there were no pool at all--it is free to negotiate directly with the
terminating licensor, who remains bound by the MPEG standard setting
organization’s requirement for licensing on fair and non-discriminatory
terms.
C.
The DVD letters.
After the definitive MPEG review letter, two other pools were
formed (both relating to DVD technology) after getting favorable business
review letters from the Department of Justice.
1. The letter to Philips, Sony and Pioneer.14 In the second
formal review of an IPR pool, the Department of Justice addressed a few
different twists from what MPEG LA had proposed. The definition of
essential patent was broader -- “necessary (as a practical matter)”,
compared to MPEG LA’s more rigorous definition of “technical necessity.”
The parties to the letter successfully argued that “necessary as a practical
matter” would be interpreted by the expert as “no economically viable
substitute,” which would limit the pool to complementary patents, as did
“technical necessity.”15
The Department of Justice was also concerned about the true
independence of the expert. Unlike MPEG where CableLabs, which was
not a licensor, funded the expert, the expert here was funded by the
licensors. However, the expert was contractually obligated to act
independently and the licensors gave written assurances that the expert’s
“compensation and future retention will not be affected by his
determinations as to essentiality.” The Department of Justice gave the
companies the benefit of the doubt, but indicated that if the pool ended up
See Letter from Joel I. Klein, Ass’t Attorney General, Department of Justice, Antitrust Division, to
Gerrard R. Beeney, Esq. (December 16, 1998), www.usdoj.gov/atr/public/busreview/2121.htm, (the
“first DVD letter”)
15 See id. at 5.
14
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A Year in the Life of a High Tech Standards Setting Organization
including non-essential patents, its “enforcement intentions” might change.
16
2. The letter to Hitachi, Matsushita, Mitsubishi, Time Warner,
Toshiba and JVC.17 The third review of an IPR pool also addressed the
definition of “essential” and the independence of the expert. In the third
pool, “essential” was defined to include patents for which there is no
“realistic” alternative. The parties reassured the Department of Justice
that “realistic” meant economically feasible, and the Department was
again satisfied that only complementary patents would be included.18
The expert in this pool was also retained by the licensors. Unlike
the previous DVD pool, the contractual agreement with the expert
contained explicit, objective criteria for the expert to consider in
determining whether a patent is essential, the expert could not be
dismissed by the licensors except for malfeasance or nonfeasance, the
expert was paid by time and not by number of essential patents
determined, and, finally, the formula for dividing royalties was based in
part on patent count, which gave the licensors an incentive to make sure
the expert did not included non-essential patents.19
It is also worth noting in passing that while one of the licensors
would be managing the pool (in contrast to the independent management
of MPEG LA), that licensor agreed to internal firewall provisions to protect
competitively sensitive information.20
IV.
FRAMEWORK FOR ANALYSIS
Patent pools are very popular in the video, communications and
data areas, which not coincidentally rely heavily on compatibility
standards.
Of course, there are other ways of achieving interoperability
besides a patent pool. However, if the standard is based on contributions
16
See id. at 6.
See Letter from Joel I. Klein, Ass’t Attorney General, Department of Justice, Antitrust Division, to
Carey R. Ramos, Esq. (June 10, 1999) www.usdoj.gov/atr/public/busreview/2485.htm, (the “second
DVD letter”).
18 See id. at 7.
19 See id. at 9.
20 See id. at 5 and 8.
17
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A Year in the Life of a High Tech Standards Setting Organization
from many different companies, and it enables a product that is expected
to be popular in the market place, a patent pool has become the norm.21
CableLabs’ motive in fostering the MPEG pool was to ensure that
companies desiring to build consumer electronics products (particularly
cable television set-top boxes) incorporating the standard had access to
the IPR necessary to build products to the standard.22 Outside of the
standards area, IPR pools are recognized as promoting access to IPR.23
Even if the standards body imposes an explicit obligation on the
companies contributing IPR to make that IPR available on fair, reasonable
and non-discriminatory terms, a patent pool can be a critical necessity for
the successful commercial adoption of the standard. The absence of a
patent pool (with a sufficient critical mass of patents) creates an uncertain
level of risk and exposure to patent lawsuits, thus manufacturers are
reluctant to enter the marketplace.
The Licensing Guidelines and the three business review letters
leave the state of the law clearly in a rule of reason context. However, it
would be a mistake to construe the business review letters as carte
blanche for any patent pool. The competitive landscape has to be
carefully analyzed, and the effect of each provision in the licensing
arrangements and pool creation must be considered.24 The framework
proposed here is designed to aid such analysis and consideration.
A.
How are essential patents defined and determined? The
starting point of any analysis of a proposed patent pool is whether the
patents being pooled are complementary or competitive,25 and how the
determination will be made.
From the discussion above, it is evident that while the Department
of Justice prefers a strict definition of “essential,” i.e., that it be technically
required, a definition of “essential” that includes the concept of “no
economically feasible alternative” does not appear to create a significant
21
See Merges, supra at 33.
The author was General Counsel of CableLabs during this period.
23 See, for example, Jeanne Clark, Joe Piccolo, Brian Stanton and Karin Tyson, Patent Pools: A
Solution to the Problem of Access in Biotechnology Patents, U.S. Patent and Trademark Office
(December 5, 2000), at www.uspto.gov/web/offices/pac/dapp/opla/patentpool.pdf.
24 See Carlson, supra, for a discussion of the “enormous” anticompetitive potential of the MPEG LA
patent pool, premised mostly on the concern that the patents in the pool may not be truly
complementary.
25 See id. at 49 for the suggestion that “open membership” and nonexclusive licensing are more
essential for patent pools than is “strict complementarity.”
22
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A Year in the Life of a High Tech Standards Setting Organization
risk of disapproval.
Pools of patents that are merely related or useful to the practice of
the specification would likely be problematic. Because by definition these
patents are not “essential” they can represent substitutes to each other. If
all substitutes are included in the pool, the Department of Justice warns of
the risk of price fixing. If only some of the substitute patents are included,
the pool could “unreasonably foreclose the competing patents from use by
manufacturers.”26
This risk is exemplified by the FTC’s actions in the Summit
Technology and VISX matter.27 The FTC forced those two companies to
terminate their pooling arrangement of two competitive patents for PRK
eye surgery, claiming the requirement for each company to pay $250 into
the pool for each use took away any incentives for price competition
between the two companies. The pool also required that any license to a
third party had to be approved by the other company, which in effect
meant no other companies were licensed. The companies’ defense was
that the pool eliminated the risk of costly and uncertain patent infringement
litigation between the two companies. The FTC was not persuaded.
From a standards body viewpoint, narrowly crafting the definition of
“essential” patents can make marketing of the patent pool to prospective
participants easier as well. Prospective participants are generally reticent
to provide a patent license to a potentially large group of licensees (often
including competitors of the participant). Making the definition of essential
patents very narrow and well defined may persuade prospective
participants to joint the patent pool.
In addition to the definition of essential patent, the method for
determining what is essential is important. Needless to say, interpreting a
patent against a written standard for unspecified products requires great
expertise, which does not come cheap. The Department of Justice prefers
an independent third party to make the determination, as in MPEG. For
the two DVD pools, the experts were funded by the licensors establishing
the pool. In the first DVD letter, the Department of Justice reluctantly
approved a contractual obligation on the part of the expert to be
independent, when coupled with letters of assurances from the licensors.
26
See the first DVD letter at 5 and the second DVD letter at 5-6.
See the FTC’s analysis of the antitrust issues at www.ftc.gov/os/1998/9808/d09286ana.htm, for
the complete docket listing, see www.ftc.gov/os/caselist/d9286.htm.
27
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A Year in the Life of a High Tech Standards Setting Organization
In the second DVD letter, the licensors added more safeguards for
independence, providing for objective criteria to be followed by the expert
in making its determination.
Why did the licensors in these two pools fund the expert?
In
MPEG, it was CableLabs that engaged the third party expert, at great
expense.28 In the DVD instances, there did not appear to be anyone other
than the licensors that was willing to fund the search. Generally, it has
been the author’s experience that standards bodies do not have the
financial wherewithal to fund such a review.
One possibility, adopted by the Digital Video Broadcasting
Project,29 is to ask each IPR holder submitting a possible “essential
patent” to pay an up-front fee to cover the review. This could either be a
barrier to competition, in that a company struggling for funding (or an
individual inventor) may not be able to pay the fee, or it could be procompetitive in that only companies who are relatively certain their patent is
essential will be willing to pay the fee. At the time of this writing, it is too
early to tell what the actual effect will be of this structure on the number of
patents that are submitted.
B. Who can join the pool? The patent pool in the Summit/VISX
patent pool was not created in a standard setting context, but it does
illustrate how pooling patents can hurt rivals. Requiring the approval of
pool members before another company joins should have a legitimate
justification; otherwise it just looks like limiting competition. Looking at the
many patent pools for the promotion of new technologies that have been
created by groups of companies (usually called “founders” or “promoters”),
these pools have avoided antitrust problems by making the license
available to any interested party, and by making the royalties, if any,
minimal.30 Also, the pro-competitive effects of these pools are obvious
and explicit.
28
Legal and expert fees paid by CableLabs exceeded $1,000,000. While most of these fees were
ultimately reimbursed by the licensors out of the license fees collected, it took several years for
CableLabs to be completely reimbursed. It was, in effect, an interest free loan by CableLabs to the
pool.
29 The Digital Video Broadcasting Project (DVB) is an industry-led consortium of over 300
broadcasters, manufacturers, network operators, software developers, regulatory bodies that
primarily operates in Europe. The standard in this particular case is the Multimedia Home Platform
(MHP) standard for digital receivers. The fee proposed by DVB is $3500 per submission.
30 These pools are most prevalent in the computer industries. For example there are pools for the
Universal Serial Bus Interface (see www.usb.org/), the Bluetooth short-range wireless networking
“standard” (see www.bluetooth.org/), and the Universal Plug and Play forum (see www.upnp.org/).
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Another pro-competitive factor is making the license granted to the
pool by the essential IPR holder non-exclusive. This creates an
alternative to the pool, which is always good in the eyes of the antitrust
regulators. And if the license coming from the pool is attractive, it is an
alternative that does no harm to the pool.
Similarly, any barriers for a company to obtain a license from the
pool will likely create competitive concerns. Rather, the patent pool
license should be made available to all comers on a “non-discriminatory”
basis.
While none of the pooling business review letters addressed the
scope or the field of use granted by the license, the Licensing Guidelines
indicate that such restrictions may be pro-competitive.31 If the pool grants
licenses for essential patents in a standard computer interface that must
interoperate with other products also compliant to the same standard, a
field of use limitation that restricts the grant of a license to only products
which comply with the standard is probably reasonable. Conversely, a
restriction that prevents the licensee from making products that comply
with rival standards is probably unreasonable.
C.
Does the pool promote innovation?
All three business
review letters addressed grant back clauses and concluded that the ones
proposed by the three pools were pro-competitive, and did not reduce
incentives to innovate. The grant-backs were limited to essential patents,
and prevent a licensee from taking “advantage of the benefits of the pool
while exploiting its own market power” over other licensees.32
Another interesting area for discussion in setting up a pool is what
rights a licensee should have to use the IPR licensed from the pool to
make improvements outside of the standard. It is probably reasonable to
grant the right to use the essential IPR to make improvements that do not
adversely affect the product’s compliance with the standard.33
Most standards bodies have procedures for changing their
31
See Licensing Guidelines, supra at 5.
See the first DVD letter, supra at 7.
33 See Multivideo Labs, Inc. v. Intel Corp., 99 Civ. 3908 (DLC), 2000 U.S. Dist. LEXIS 110 (S.D.
N.Y. Jan 7, 2000) for a discussion about the importance of compatibility with respect to the USB
standard. While not a pooling case, it does provide an excellent discussion on the benefits of a
uniform interface standard compared to the benefits of innovation.
32
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A Year in the Life of a High Tech Standards Setting Organization
standards, or introducing new ones. Creators of a patent pool for a
particular standard may want to consider how to explicitly address
changes in the standard. If the standard changes, should a company be
forced to license its IPR on the same terms (e.g. without the right to
renegotiate the licenses arrangements in the pool) if it is also essential to
the revised standard?
Another potential chill for innovators happens when the royalty fee
charged by the pool is a flat fee that is not based on actual usage. In the
MPEG review letter, the Department of Justice explicitly contrasted license
fees based on actual usage compared to a per-processor fee, for
example.34
D.
Does the pool allow members access to information they
would not have outside the pool? The patent pool should prevent
information sharing among competitors. If the licensors to the pool are
also licensees from the pool, the administration of the pool should make
sure that the reporting of license fees due from each licensee is not
shared with the licensors except in an aggregate manner. The MPEG
review letter and the second DVD letter both make this clear.35 And, as
made clear in the Summit/VISX matter,36 the license fee should not
represent a major portion of the cost of the product. As a practical matter,
if the license fee from the pool is too high, it will be counter productive for
wide acceptance of the standard it is expected to support.
34
See the MPEG review letter, supra at 12.
See id. at 11 and the second DVD letter, supra at 8.
36 See supra note 20.
35
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A Year in the Life of a High Tech Standards Setting Organization
V.
OTHER CONSIDERATIONS FOR A STANDARDS BODY
In addition to considering how the proposed pool will address the
issues highlighted above, a standards body will face other issues with
antitrust components as the pool is being established.
A.
Should access to IPR in the pool be free? Patents in any
Internet specification promulgated by the Internet Engineering Task Force
must be dedicated to the public. There are other examples of royalty-free
pools where the licensors retain ownership of their IPR, but make it
available royalty-free for those companies who wish to build products
which comply with the standard.37
The author’s experience in setting up the royalty-free pools has
been that companies are willing to license their IPR royalty-free only if
there is the economic expectation of opening up new markets, and the
companies understand that is the intent of the organization from the
beginning. If the IPR in the pool is made available on a royalty-free basis
(or, equivalently, a mutual covenant not to sue), the need for answering
the question of what is essential IPR probably does not need to be
answered. Nevertheless, the problem of hold-outs must be still be
addressed in a royalty-free pool. The author’s approach to this is a simple
one--if a company wants to receive a license from the pool (to implement
the standard), that company must also grant a license to the pool. Of
course, if the non-participant in the pool does not wish for a license
(perhaps because it is not a manufacturer), this approach will not bring
them into the pool.
However, the author has also observed that in other markets, such
as the video markets noted above, royalty-bearing pools appear to be the
norm. In addition to a desire to collect royalties, some companies believe
the possibility of royalties can be used persuasively to get IPR holders to
join the pool. On the other hand, even in the MPEG pool, which is royaltybearing, at least one essential IPR holder chose not to join.38
B.
How is the royalty fee set? If a patent pool is being
formed, a discussion of the royalty fee is inevitable. If the pool contains
37
For example, while not reported in the antitrust literature, CableLabs has successfully
established royalty-free pools for three of its interface specifications. See supra note 1.
38 Lucent Technologies Inc. was one of the parties requesting the MPEG review letter, but did not
enter into a licensing arrangement with the pool.
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A Year in the Life of a High Tech Standards Setting Organization
only complementary, essential IPR, then one can argue that there is no
price fixing. This position is tacitly acknowledged by the Department of
Justice in the DVD letters.39
On the other hand, some standards
organizations are “wary of sanctioning any specific agreement regarding
the magnitude of licensing terms for fear of … ‘price fixing.’” 40 In fact, the
Soundview litigation included the allegation that the standards body fixed
prices as part of setting up the pool.41
A related issue is how the royalties are divided up among the
licensors. It can be per-patent, as in the MPEG pool,42 or by formula, as in
the second DVD letter.43 One could argue that the fact that all the parties
contributing essential IPR to the pool have agreed on a method probably
means that it is fair; however, if the division of royalties is on some noneconomic basis so that incentives to innovate would be skewed, problems
may arise.
C.
How important is compliance to the standard?
Compliance is another issue that deserves attention. Where the field of
use for the license is restricted to products that are compliant with the
standard, what is the mechanism for determining compliant products, and
who makes the determination? Although it did not arise in the licensing
context, the Multivideo Labs case44 illustrates some of the risks present if
the determination of compliance is not based on objective criteria,
consistently applied.
VI.
CONCLUSION
Patent pools are a way for standards bodies to make essential IPR
available to interested parties. If the standard is an enabling one, such as
a communications interface, access to the IPR required to implement the
standard on fair, reasonable and non-discriminatory terms is crucial for
wide adoption of the standard.
39
See DVD-1, supra at 5 and DVD-2, supra at 6.
See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools and StandardSetting (March 2001), page 10, available at www.haas.berkeley.edu/~shapiro/thicket.pdf.
41 See Sony Electronics, Inc. v. Soundview Technologies Inc., 157 F.Supp. 2d 180 (D. Conn.
2001).
42 See MPEG Review Letter at 7.
43 See the second DVD letter at 2. The formula was not disclosed.
44 See Multivideo Labs, supra note 28.
40
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A Year in the Life of a High Tech Standards Setting Organization
Thanks to the efforts of MPEG LA and the companies that
requested the DVD letters, more clarity has been offered around
establishing patent pools, and thus patent pools are becoming more
common. With this in hand a standards body (and the companies
participating in it) should not shrink from the complexity of an IPR pool.
The familiar consensus process that a standards body follows in creating
a standard is similar to the consensus process of negotiating a patent
pooling arrangement among many rights holders. As instructed by the
Licensing Guidelines, the Department of Justice in the MPEG review letter
and the DVD letters applied the rule of reason to analyze the patent pools.
This should give standards bodies comfort that if there is a good reason to
make the IPR available by way of a patent pool, antitrust law will not be a
barrier.
If (1) the patent pool is comprised of essential patents only, as
determined by an independent expert, (2) access to the license offered by
the patent pool is open to any interested party, (3) the patent pool does
not facilitate the sharing of competitively sensitive information among
competitors, and (4) the patent pool does not contain disincentives for
innovation, such an arrangement among companies that are competitors
can easily have pro-competitive results.
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A Year in the Life of a High Tech Standards Setting Organization
Rambus v. Infineon—The Latest Standard Setting Patent Disclosure
Guidance
By Veronica Smith Lewis
Vinson & Elkins, l.l.p.
Dallas, Texas
The recent rulings in Rambus v. Infineon[1] provide the most
comprehensive guidance thus far regarding the existence and scope of
the patent disclosure obligations that arise as a result of participation in a
standard setting body.
Rambus sued Infineon in the Eastern District of Virginia for infringement of
four (4) patents covering technology related to semiconductory memory
devices. Rambus maintained that certain forms of Infineon’s Dynamic
Random Access Memory ("DRAM"), including Infineon’s Synchronous
Dynamic Random Access Memory ("SDRAM") devices and double data
rate ("DDR") SDRAM devices, infringed Rambus patents issued in 1999
and 2000.[2] DRAM chips are the dominant form of memory employed in
the semiconductor industry today.
Rambus believes its patents cover the technology incorporated in the
SDRAM and DDR SDRAM industry standards, and as a result, virtually all
manufacturers of such devices are obligated to obtain licenses under its
patents. Rambus has thus taken a very aggressive stance on licensing. It
has publicly asserted: "[t]hose companies that decide to litigate" rather
than voluntarily enter into licensing agreements "will pay higher royalty
rates."[3] This is a significant threat given the fact that industry
heavyweights such as Samsung, NEC, and Toshiba have apparently
entered into Rambus licensing agreements with royalty rates as high as
3.5‑ percent.[4] A company forced to pay an even higher rate would be at
a significant competitive disadvantage. Moreover, Rambus has made the
stakes even higher by explaining that it "may not license those companies
that litigate and lose."[5] Thus, if Rambus is right about the scope of its
patents, a company may be foreclosed from production of SDRAM and
DDR SDRAM devices altogether if it does not voluntarily enter into a
licensing agreement with Rambus.
The pressure on Infineon to acquiesce to Rambus’ licensing demands was
thus immense. Infineon, nevertheless, chose to counter Rambus’
infringement claims using two, seemingly, inconsistent theories.
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A Year in the Life of a High Tech Standards Setting Organization
Defensively, Infineon maintained that its industry standard SDRAM and
DDR SDRAM devices do not infringe Rambus’ patents.[6] Infineon also
simultaneously raised offensive counterclaims premised on the notion that
Rambus had, while participating in the industry group that established the
SDRAM and DDR SDRAM standards, surreptitiously obtained patents that
covered products that comply with these standards.[7]
Infineon’s offensive claims raised a number of important questions about
the patent disclosure obligations that arise when a company participates in
a standards setting body. Infineon claimed that Rambus was a long time
member of the body that established the SDRAM and DDR SDRAM
industry standards, Committee Number 42.3 of the Joint Electronics
Devices Engineering Infineon Council ("JEDEC"). Infineon alleged that
JEDEC policy requires members of such committees to disclose all known
patents and pending patent applications that relate to technology under
consideration for adoption as part of an industry standard and to state
whether they are willing to license any such patented technology for free
or on reasonable, non-discriminatory terms.[8] According to Infineon, this
policy serves a number of important purposes:
First, it operates to prevent any single company from secretly capturing
the industry standard by remaining silent while JEDEC adopts a standard
that, unbeknownst to the other JEDEC members, is encompassed by a
member’s patent or pending patent application. In other words, the policy
operates to provide the industry an opportunity to develop open standards
free from potential blocking patents. Second, the policy operates to
prevent an unscrupulous member from manipulating the standards setting
process to its advantage by filing patent applications on technology
learned about through participation in JEDEC. Finally, the policy ensures
that licenses to patent rights that are implicated by a JEDEC standard are
offered to members of JEDEC for free or for a reasonable and nondiscriminatory royalty. This disclosure obligation also allows JEDEC and
its members to design around such potential or actual patent rights if
JEDEC members are unable to obtain a license under satisfactory
terms.[9]
Infineon asserted that Rambus had failed to disclose relevant patent
applications it had pending while it was a member of JEDEC Committee
42.3, made disclosures that led other members of that Committee to
believe Rambus was in fact properly disclosing all relevant patents and
applications, and used information obtained as a result of its participation
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A Year in the Life of a High Tech Standards Setting Organization
in JEDEC Committee 42.3 to draft patent claims that covered the SDRAM
and DDR SDRAM standards. Infineon maintained that Rambus was guilty
of monopolization and attempted monopolization under 15 U.S.C. § 2,
fraud, breach of contract, and violations of the Racketeer Influenced and
Corrupt Organizations Act ("RICO") as a result of this conduct.[10]
Infineon has, thus far, been successful on both its defensive and offensive
fronts. After both parties concluded presentation of evidence in support of
their case, the Court ruled that Infineon’s SDRAM and DDR SDRAM
products do not infringe Rambus’ patents as a matter of law.[11] In fact,
the Court has now ruled that Rambus’ patent infringement claims were so
baseless that Infineon should be awarded $7,123,989.52 in attorneys’ fees
and costs.[12] Rambus’ infringement allegations were clearly believed to
have no merit whatsoever. The Court explained:
the clear and convincing evidence shows that Rambus knew, or should
have known, that its patent infringement suit was baseless, unjustified,
and frivolous—one in which reasonably ‘intelligent people should have
known would have no chance of success’ . . . . Rambus’ construction of
the disputed claim terms and its theory of infringement were directly at
odds with the intrinsic evidence contained in specifications and
prosecution histories of the patents-in-suit . . . . Rambus’ view of the
patents was completely untethered to the language of the patent claims or
the written description, and in many cases, flatly contradicted the written
description.[13]
Nevertheless, the Court allowed Infineon’s fraud and RICO theories to go
to the jury.[14] The jury concluded that Rambus was liable for actual and
constructive fraud as a result of its improper SDRAM and DDR SDRAM
related patent disclosure and awarded Infineon $1 in nominal damages
and punitive damages of $3.5 million.[15] The Court has now reduced the
punitive damages award to $350,000,[16] granted Rambus judgment as a
matter of law on the constructive fraud claim,[17] and granted Rambus
judgment as a matter of law on the actual fraud claim to the extent that it
was based upon failures to disclose to the JEDEC DDR SDRAM standard
committee.[18] However, the Court has upheld the actual fraud verdict
premised on Rambus’ improper patent disclosure to the JEDEC SDRAM
standards committee.[19]
Rambus has thus been found to be guilty of fraud for failing to disclose
information related to its SDRAM patents to a JEDEC Committee
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A Year in the Life of a High Tech Standards Setting Organization
notwithstanding the fact that the Court has ruled that Rambus’ SDRAM
patents do not cover the JEDEC SDRAM standard as a matter of law. This
anomalous result raises a host of questions about the patent disclosure
obligations of an industry standard setting participant. The latest answers
from Rambus v. Infineon are outlined below.
What Needs to Be Disclosed—Issued Patents, Patent Applications,
Predecessor Applications?
Rambus claimed it could not be found to have failed to comply with
JEDEC’s disclosure requirements because: (1) the JEDEC Manual of
Organization and Procedure did not explicitly require it to disclose patent
applications until it was amended in 1993; (2) it disclosed the only issued
patent that it obtained while a member of JEDEC Committee 42.3; and (3)
it did not file the applications which resulted in the SDRAM and DDR
SDRAM patents it asserted against Infineon until after it had ended its
membership in JEDEC Committee 42.3. [20] Rambus asserted it surely
was not required to disclose what did not exist while it participated in the
standards setting process.
Infineon found these arguments "disingenuous"[21], and the Court
ultimately agreed. The Court found that although "the JEDEC manual did
not explicitly provide, until 1993, that pending patents were to be
disclosed, Infineon presented clear and convincing evidence at trial,
through JEDEC members and representatives, that, at all times at issue
before 1993, the duty to disclose applied to pending applications."[22]
Significantly, the Court found that "Infineon demonstrated that Rambus
officials themselves understood that it was JEDEC’s practice to require
disclosure of pending patent applications."[23] The Court found that
Rambus’ disclosure of its single issued ‘703 patent "actually
misrepresented the scope of Rambus’ pending patents because the ‘703
patent admittedly did not relate to the SDRAM work" of Committee
42.3.[24] Moreover, the Court rejected Rambus’ contentions regarding the
timing of the applications for and issuance of the patents asserted against
Infineon noting that "Infineon did not circumscribe its fraud claim only to
the four patents-in-suit; instead, it alleged that Rambus committed fraud
upon Infineon (as a member of the JEDEC committee), by failing to
disclose any pending patents related to the SDRAM work", and "the four
patents-in-suit are divisional or continuation applications of other Rambus
patents which were pending during the time that Rambus was a member
of the JEDEC and at a time when Rambus had a duty to disclose its
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A Year in the Life of a High Tech Standards Setting Organization
pending patents."[25]
Which Patents or Applications Must be Disclosed?
Rambus was found to be guilty of fraud because it failed to disclose
pending patent applications "relating to JEDEC’s SDRAM work".[26] The
JEDEC disclosure standard was quite broad and vague. JEDEC
participants were "to inform the meeting of any knowledge they may have
of any patents, or pending patents, that might be involved in the work they
are undertaking."[27] Infineon presented no expert testimony regarding the
scope of the patent applications Rambus was alleged to have improperly
failed to disclose or their relationship to the SDRAM standards.[28]
Instead, the Court found that evidence which demonstrated that Rambus
intentionally set out to draft patent claims that were designed to cover the
technology under consideration by JEDEC was sufficient to establish a
relationship between the patent applications and the JEDEC standard.[29]
How Much Disclosure is Required?
Rambus maintained that it met its disclosure obligations because its
application for an international patent through the World Intellectual
Property Organization ("WIPO") became public information in October
1991. Rambus’ WIPO application had a written description that was
identical to the one in all Rambus’ U.S. patents, including the SDRAM and
DDR SDRAM patents asserted against Infineon. Rambus’ WIPO
application was discussed during JEDEC meetings, and Rambus claimed
that, as a result, all its inventions were disclosed, and such disclosure put
all relevant observers on notice that it was seeking patent protection in
technological areas related to the SDRAM and DDR SDRAM industry
standards under consideration.[30]
The Court rejected this contention. While the written description in the
WIPO patent application was the same as that in the undisclosed SDRAM
patents, "Rambus presented no evidence at trial indicating that the
description, on its face, relates to SDRAMS."[31] Moreover, the WIPO
patent claims, at the relevant time, related only to a predecessor RDRAM
technology.[32]
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A Year in the Life of a High Tech Standards Setting Organization
At What Point in The Standard Setting Process Must Disclosure be
Made?
The Court’s judgment as a matter of law ruling with respect to the DDR
SDRAM actual fraud claim turned on a resolution of this issue. Rambus
maintained that it had no duty of disclosure with respect to DDR SDRAM
standard setting because it was no longer a member of JEDEC when one
of its Committees began to work on that standard.[33] Infineon claimed
Rambus did have a DDR SDRAM duty of disclosure because "certain
‘concepts’ which ultimately made their way into the DDR SDRAM
standard, were discussed while Rambus was a member of JEDEC."[34]
The JEDEC witnesses who testified gave conflicting evidence on this
point.[35] The Court concluded that Infineon "failed to prove, by clear and
convincing evidence, that, before the DDR SDRAM standard-setting
process actually began, Rambus had a duty to disclose."[36] Because
there was no clear DDR SDRAM duty to disclose, Rambus’ failure to do
so could not be a basis for a fraud finding, and accordingly, the Court
granted Rambus judgment as a matter of law on this claim.[37]
Can Improper Standard Setting Patent Disclosure be The Basis For
an Antitrust Violation?
Infineon’s claim that Rambus’ improper disclosures were predatory acts
taken as part of a scheme to monopolize the "DRAM technology
market"[38] never reached the jury. After the Court ruled that Infineon’s
industry standard SDRAM and DDR SDRAM products indeed do not
infringe Rambus’ patents, Infineon withdrew its monopolization claims,[39]
and the Court granted Rambus’ motion for judgment as a matter of law on
Infineon’s attempted monopolization claim, concluding that Infineon had
failed to submit evidence establishing the scope of a relevant geographic
market.[40]
Infineon had pled a relevant United States market and argued that such a
geographic market was necessarily "implicit" given that Rambus relied
upon United States patents as the basis for its alleged predatory
conduct.[41] Infineon maintains that the "U.S. patent laws compel the
definition of the relevant geographic market as the United States in a
monopolization case based on U.S. patent enforcement"[42] and relies
upon a decision from the Northern District of Texas, Buehler A.G. v. Ocrim
86
A Year in the Life of a High Tech Standards Setting Organization
S.p.A., in support of its position. [43]
Fourth Circuit precedent consistently requires a party asserting a Section
2 antitrust claim to offer proof of a geographic market.[44] An appeal of the
court’s ruling on Infineon’s attempted monopolization claim thus may
provide interesting precedent regarding the type of geographic market
proof an antitrust plaintiff must submit to establish antitrust claims based
on alleged misuse of United States patent rights. Interestingly, it would be
the Federal Circuit, which would hear an appeal that would establish this
precedent.[45] However, it appears unlikely that any precedent addressing
antitrust liability based on alleged improper patent disclosure before a
standards setting body is likely to arise from appeal of Rambus v. Infineon.
Thus, ultimate resolution of Rambus v. Infineon is not likely to provide
guidance to those attempting to assess the antitrust implications of patent
disclosure issues arising as a result of participation in an industry standard
settings body. The In re Dell Computer Corp. consent decree makes it
clear that the Federal Trade Commission ("FTC") believes it is a violation
of antitrust law for a company to make the false affirmative certification
that it has no relevant issued patents to a standard setting body that
requires disclosure of such patents.[46] Notably, the FTC proceeded
under Section 5 of the Clayton Act which makes unfair methods of
competition and unfair or deceptive acts or practices unlawful. The FTC
was not required to and did not allege any relevant geographic or product
market. or the existence of market power in any such markets.[47]
While the standard setting patent disclosure arena thus remains an
antitrust minefield, Rambus v. Infineon makes one thing clear. Limited or
improper patent disclosure to a standards setting body can have serious
adverse consequences.
Endnotes
[1] Rambus, Inc. v. Infineon Technologies AG, No. Civ. A. 3:00CV524, 2001 WL 913972 (E.D. Va.
Aug. 9, 2001).
[2] See id. at *1; First Amended Complaint for Patent Infringement, Rambus, Inc. v. Infineon
Technologies AG, E.D. Va. (No. Civ. A. 3:00CV524).
[3] Substituted First Amended Answer and Counterclaims to Rambus’ First Amended Complaint at
pp. 35-36, Rambus, Inc. v. Infineon Technologies, AG, E.D. Va. (No. Civ. A. 3:00CV524)
[hereinafter "Infineon Answer and Counterclaims"].
[4] Tony Smith, Rambus’ "very high" DDR royalty revealed; The Register, May 25, 2001, available
at http://www.theregister.co.uk/content/3/18706.html.
[5] Infineon Answer and Counterclaims at pp. 35-36.
[6] See id. at p. 17.
[7] See id.
[8] See id at pp. 33-57.
[9] See id. at pp. 39-40.
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[10] See id. at pp. 30-77.
[11] May 4, 2001 Transcript of Trial Proceedings at p. 28, Rambus, Inc. v. Infineon Technologies
AG, E.D. Va. (No. Civ. A. 3:00CV524).
[12] Rambus, Inc. v. Infineon Technologies AG, No. Civ. A. 3:00CV524, 2001 WL 913973 (E.D. Va.
Aug. 9, 2001),
[13] Id.
[14] Infineon withdrew its monopolization claim, and the Court granted Rambus judgment as a
matter of law on Infineon’s breach of contract and attempted monopolization claims. Rambus, 2001
WL 913972, at *1.
[15] Id. at *2. The jury rejected Infineon’s RICO claim. Id.
[16] The Court reduced the punitive damages award in accordance with Va. Code § 8.01-38.1. Id.
[17] See id. at *5-*6 ("constructive fraud cannot, as a matter of Virginia law, be premised on an
fraudulent omission or concealment of a material fact").
[18] See id. at *18-*20.
[19] See id. at *6-*18.
[20] See Plaintiff Rambus Inc.’s Brief in Support of its Motion to Dismiss, Motion to Strike and
Motion for a More Definite Statement at pp. 2-3, 6-10, Rambus, Inc. v. Infineon Technologies AG,
E.D. Va. (No. Civ. A. 3:00CV524) (hereinafter "Rambus Motion to Dismiss"). Rambus attended
Committee 42.3 meetings from December 1991 until December 1995. It formerly withdrew from the
Committee by letter dated June 17, 1996. Rambus disclosed U.S. Patent No. 5,243,703, which
issued on September 7, 1993, to the Committee. The applications for the Rambus patents asserted
against Infineon were submitted between 1997 and 1999 and issued in 1999 and 2000, long after
Rambus left Committee 42.3. See Rambus, 2001 WL 913972, at *4, *18.
[21] See Defendants’ Opposition to Rambus’ Motion to Dismiss and Motion to Strike at p. 3,
Rambus, Inc. v. Infineon Technologies AG, E.D. Va. (No. Civ. A. 3:00CV524).
[22] Rambus, 2001 WL 913972, at *3.
[23] Id. at *6-*7.
[24] Id. at *10.
[25] Id. at *4, *9 (emphasis in original).
[26] Id. at *7-*8.
[27] Id. at *3 (emphasis added). This was the standard set forth in the 1993 amended JEDEC
Manual of Organization. The Court accepted Infineon’s witnesses’ testimony that this requirement
was practiced prior to 1993. See id. at *8.
[28] See id.
[29] See id. at *7-*8.
[30] See id. at *9; Rambus Motion to Dismiss at pp. 2-3, 7-8, 13-15.
[31] Rambus, 2001 WL 913972, at *9.
[32] Id.
[33] Id. at *18. JEDEC Committee 42.3 did not begin working on the DDR SDRAM standard until
December 1996. Rambus attended its last JEDEC meeting in December 1995 and formally
withdrew from JEDEC by letter dated June 17, 1996. Id.
[34] Id. at *19.
[35] The Chairman of Committee 42.3 testified that the duty to disclose was triggered during the
balloting of a proposed standard. However, a JEDEC consultant testified that Rambus had a duty
to disclose when several presentations related to technology ultimately incorporated in the DDR
SDRAM standard were made. See id. at *19-*20.
[36] Id. at *20.
[37] Id.
[38] See Infineon Answer and Counterclaims at pp. 32-33, 70-75.
[39] May 4, 2001 Transcript of Trial Proceedings at p. 100, Rambus, Inc. v. Infineon Technologies
AG, E.D. Va. (No. Civ. A. 3:00CV524).
[40] See id. at pp. 158-59.
[41] See id. at pp.138-43; Infineon Answer and Counterclaims at p. 32.
[42] Infineon’s Motion for Reconsideration of the Court’s May 4, 2000 Ruling Granting Judgment as
a Matter of Law on Infineon’s Attempted Monopolization Claim at p. 1, Rambus, Inc. v. Infineon
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A Year in the Life of a High Tech Standards Setting Organization
Technologies A.G., E.D. Va. (No. Civ. A. 3:00CV524).
[43] 836 F. Supp. 1305 (N.D. Tex. 1993). There, the court explained: "The geographic market in
this patent case is limited to the United States . . . . The limitation reflects the view that the United
States is the only geographic market where a U.S. patent can be ‘misused’ in a manner leading to
antitrust violations . . . ." Id. at 1325.
[44] See, e.g., Consul Limited v. Transco Energy Co., 805 F.2d 490, 493 (4th Cir. 1986), cert.
denied, 481 U.S. 1050 (1987); Satellite Television & Associates Res., Inc. v. Continental
Cablevision of Va., Inc., 714 F.2d 351, 355 (4th Cir. 1983), cert. denied, 465 U.S. 1027 (1984).
[45] The Federal Circuit has exclusive jurisdiction over any appeal from a final decision of a United
States District Court when the jurisdiction of the District Court was based, in whole or in part, on the
presence of a claim arising under the patent laws. See 28 U.S.C. §§ 1295(a)(1), 1338(a).
[46] Consent Decree No. C3658, 121 F.T.C. 616, 1996 WL 350997 (May 20, 1996).
[47] See id.
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Ms. Veronica Lewis is a partner with Vinson & Elkins and is located at the
firm's Dallas office. Ms. Lewis specializes in complex commercial litigation,
including intellectual property and antitrust matters. She may be contacted
at 214.220.7757, vlewis@velaw.com.
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A Year in the Life of a High Tech Standards Setting Organization
An Update on the Soundview Litigation
By John S. Martin
Background.
In 1996, Congress mandated that all television sets sold after January
2000 contain "V-Chip" technology that would permit the blocking of violent
and pornographic programming. This mandate gave rise to a series of
patent and antitrust decisions last summer from the District of Connecticut
which may be of interest.
Upon passage of the V-Chip mandate, an industry association of
television manufacturers -- known as Electronic Industries Alliance or EIA
-- began to study patents covering the technology they would have to
incorporate. During these meetings, the parties discussed possible terms
under which they would license the patents. One of the more important
patents belonged to Soundview Technologies, Inc., which was a member
of the association but did not overtly participate in the relevant meetings.
Soundview subsequently offered patent licenses to EIA and its members.
Instead of purchasing the licenses, however, the EIA and its members
filed a declaratory judgment action against Soundview, and Soundview
counterclaimed for patent infringement and antitrust violations. EIA and
the manufacturers moved for summary judgment and to dismiss the
counterclaims, and in June and July 2001 the district court denied each of
these motions in three separate opinions. The court held that 1)
Soundview had sufficiently pleaded a monopsonistic conspiracy to fix
licensing fees, 2) the manufacturers did not receive an implied patent
license from the government mandate, and 3) Soundview had sufficiently
pleaded inducement by EIA.
Monopsonistic Conspiracy.
After holding that there was no higher pleading standard for antitrust
cases, and construing an affidavit from earlier litigation that it held to be
part of the pleadings, the Court held that Soundview had alleged a
conspiracy by the manufacturers to fix license prices at artificially low
levels. Sony Electronics, Inc. v. Soundview Technologies, Inc., 157 F.
Supp. 2d 180, 184 and 188 (D. Conn. 2001). The court then discussed the
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A Year in the Life of a High Tech Standards Setting Organization
economic theory of a monopsonistic conspiracy by purchasers to drive
input prices down, noting that, while it could reduce consumer prices, it
could nevertheless harm the competitive marketplace by causing suppliers
to exit. Id. at 185. The Court recited caselaw holding that "monopsonistic
schemes" involving conspiracy between horizontal competitors "may
violate the antitrust laws," id. at 187, and held that "a motion to dismiss is
not the appropriate procedural vehicle to decide these complex
questions," id. at 185.
Noerr Pennington
The Court also held that dismissal at this stage of the proceedings could
not be based on the a Noerr Pennington doctrine, holding that an alleged
"conspiracy to pay a maximum price" and "group boycott" went well
beyond "mere litigation or joint action to challenge a patent."Id. at 189.
Implied License.
The government had been granted a non-exclusive, royalty-free license to
use the relevant patent "with the power to grant licenses for all
governmental purposes." Sony Electronics, Inc. v. Soundview
Technologies Inc, 157 F.Supp. 2d 172, 176 (D. Conn. 2001). In their
motion to dismiss, the manufacturers argued that the decision to require
V-Chips in all television sets was a "governmental purpose" and that
passage of the V- Chip mandate conferred upon them an implied license.
The court first noted that "’judicially implied licenses are rare,’" id. at 175
(quoting Wang Laboratories, Inc. v. Mitsubishi Electronics America, Inc.,
103 F.3d 1571, 1581 (Fed. Cir. 1997). The court then rejected this
argument on the ground that the V-chip legislation did not mandate use of
the specific patented technology at issue; to the contrary, the standards
had been set by the industry itself. Id at 176.
The court also rejected the manufacturers’ argument that Soundview’s
statements before the FCC indicated it would not enforce its patents and
therefore estopped it to enforce them now. The Court found neither
sufficiently explicit statements by Soundview nor reliance by the
manufacturers. Id. at 178-79.
Inducement
Soundview also counterclaimed against EIA for inducing its members to
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A Year in the Life of a High Tech Standards Setting Organization
infringe the patent. The court rejected EIA’s motion to dismiss, applying
liberal notice pleading standards and holding that Soundview had alleged
"acts of inducement" in EIA’s patent search, patent analysis, proposal for
strategies to avoid royalty demands and other conduct, as well as EIA’s
knowledge of the patent at the time it took these actions. Sony Electronics,
Inc. v. Soundview Technologies Inc, 157 F.Supp. 2d 190, 196 and 197-98
(D. Conn. 2001).
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Mr. Martin is a partner in the Richmond Virginia Hunton & Williams. He
may be reached at (804) 788-8774, jsmartin@hunton.com
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A Year in the Life of a High Tech Standards Setting Organization
Intel Corporation v. VIA Technologies, Inc.
174 F. Supp.2d 1038 (N.D. Cal. 2001)
By: Richard S. Taffet and Sophia Fix
Introduction
On November 20, 2001, the United States District Court for the Northern
District of California issued an interlocutory order granting defendant VIA
Technologies, Inc.’s ("VIA") motion for summary judgment on Intel’s claims
of patent infringement. The Court based its decision on the ground that
VIA was licensed to practice certain Intel patents required to implement an
industry-wide standard promoting Intel’s "Fast Write" signal protocol.1
The patent at issue was United States Patent No. 6,006,291, entitled
"High-Throughput Interface Between A System Memory Controller and a
Peripheral Device" (the "‘291 Patent"). VIA conceded that some of its
products practiced the "Fast Write" protocol, and thereby were within the
limitations of certain claims of the ‘291 Patent. It argued, however, that it
did not infringe because it had agreed to Intel’s industry-wide license in
connection with the standardization of a specification that included "Fast
Write." Intel argued that "Fast Write" was outside the scope of its industrywide license because the license only granted rights to protocols
"required" to comply with the standard, and "Fast Write" was an optional
protocol.
The Court’s holding in favor of VIA resulted solely from its interpretation of
Intel’s license agreements under general principles of contract law. It did
not, therefore, address the type of issues that have been the subject of
recent and significant attention arising in the context of patented
technology being used in the development of standards by Standards
Development Organizations ("SDOs") and other industry groups. As
discussed below, however, the case may still provide some useful insights
for participants in SDOs.
Background
In July 1996 Intel released version 1.0 of its Accelerated Graphics Port
("AGP") Specification. The AGP Specification was developed entirely by
Intel as an industry standard, without involvement from any SDO or other
industry group. The Specification established a new protocol for data
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A Year in the Life of a High Tech Standards Setting Organization
transfers between the graphics chip and the chipset included in a
computer’s motherboard. AGP was promoted by Intel as an "open
specification" and was made available to the industry by a license that
could be downloaded from Intel’s web site. VIA signed the AGP 1.0
license agreement in December 1996 and commenced producing chipsets
compatible with graphics chips using AGP.
Intel proceeded to develop improvements to the 1.0 Specification,
including the "Fast Write" protocol." AGP 1.0 allowed graphic chips to
initiate data transfers, while "Fast Write" allowed the chipset itself to
instigate high-speed data transfers to the graphics chip. In December
1997, Intel filed a patent application for "Fast Write," and in May 1998 it
released the AGP 2.0 Specification that disclosed, among other things,
"Fast Write." Upon release of the 2.0 Specification, Intel posted an AGP
2.0 form license agreement. VIA entered the AGP 2.0 license on March 8,
2000.
In July 2000, Intel asserted claims against VIA under four different
patents, including the ‘291 Patent.
The issue addressed by the Court on VIA’s motion for summary judgment
was whether Intel’s AGP licenses granted VIA the right to practice the
"Fast Write" invention.
Discussion
The License
First, the Court discussed the relevant provisions of the Intel license
agreements. As noted by the Court, what was licensed by Intel were
"Interface Claims," which were defined to be a patent claim that "must be
infringed in order to comply with the AGP Interfaces." In turn, "AGP
Interfaces" were defined as "the electrical interfaces and bus control
protocols disclosed in, and required by the Accelerated Graphics Port
Interface Specification." (Emphasis added.) Finally, the "Accelerated
Graphics Port Interface Specification" was defined as "the specifications
described in the documents entitled Accelerated Graphics Port Interface
Specification, Revisions 1.0 and 2.0 published by Intel."
According to Intel, the licenses granted only a right to the required
"baseline" features of the AGP Specifications. Protocols and electrical
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A Year in the Life of a High Tech Standards Setting Organization
interfaces not required to perform the baseline functions, including "Fast
Write," it argued, were not "required," and were instead "optional," and
therefore not licensed. 174 F. Supp.2d at 1048.
VIA, needless to say, offered a contrary interpretation. It argued
that "all technology necessary for any specification in the AGP 2.0
Specification regardless of whether it is an optional feature (rather than an
essential feature)" was licensed. (Emphasis in original.) Thus, since it was
necessary to implement "Fast Write" in the exact way specified in the
standard, or the chips would not be compatible with the chips of other
manufacturers using the standard, it was "required" and a licensed
feature. Id.
The Court’s Interpretation
The first interpretive step taken by the Court was to ascertain the
meaning of the term "Accelerated Graphics Port Interface Specifications."
This was significant because the license extended to "the electrical
interfaces and bus control protocols disclosed in, and required by" the
"Accelerated Graphics Port Interface." Intel’s interpretation, that it simply
referred to the generic AGP 1.0 and 2.0 Specifications as a whole, but not
to any specific contents within the Specifications, was rejected by the
Court as unreasonable. Instead, the Court adopted VIA’s position that the
term incorporated the detailed directions of how to implement various
features, including "Fast Write." Id. at 1048.
Next, the Court considered whether "Fast Write" was "required" by
the Accelerated Graphics Port Interface Specification, even though it was
not part of the baseline Specifications. Here, too, VIA’s interpretation, that
all features specified in the Specifications, whether optional or not, were
"required," was held reasonable. Specifically, the Court relied upon the
fact that the AGP 2.0 Specification "makes clear that even ‘optional’
features, such as Fast Write still have a ‘required’ implementation of
exceeding exactitude." Intel witnesses agreed that "optional" features had
to be implemented as required by the AGP 2.0 Specification. Id. at 1049.
Accordingly, the Court concluded, "Fast Write" and the other "optional"
features were included in the license since they "must be implemented in
the ‘required’ way or not at all." Id.
Intel’s arguments to the contrary were deemed unavailing. For
example, the Court rejected Intel’s attempted distinction between
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A Year in the Life of a High Tech Standards Setting Organization
"optional" and "required" features, noting that "[t]he license does not
explicitly exclude ‘optional’ features. It does not even use the words
‘optional’ or ‘baseline’ at all. On the other hand, the license explicitly
extends to interfaces ‘required by’ the specifications. Fast Write . . . is a
specification." Id. at 1049. The Court also found the interpretation put forth
by Intel to be self-contradictory in that numerous features in the
Specifications were labeled "optional" while Intel contended they were
licensed. Further, under Intel’s interpretation, the Court observed graphics
chipmakers would not be afforded any license. Finally, the Court rejected
Intel’s argument that its interpretation was consistent with the policies
underlying the purpose of the license as reflected by industry practice.
While plausible, the Court stated, the argument did not make Intel’s
interpretation of the actual words used reasonable.
While the foregoing was held by the Court to be dispositive, it
stated another independent ground for its decision. Because the license
agreements were drafted by Intel, and made available to the industry on a
take-it-or-leave-it basis, to the extent any ambiguity existed regarding the
meaning of particular words, including "required," applicable law
compelled that such ambiguities be resolved against Intel. Id. at 1050.
Further, the Court did not find meaningful other models of cross-licensing
agreements, or testimony by Intel representatives offering their
interpretations of the license terms.
Conclusion
While this case does not address issues arising in the context of an
industry standards body pursuant to a patent policy, the Court’s analysis
provides some useful insights regarding licenses that may be made
available pursuant to such policies. Specifically, just like Intel’s license,
such licenses will likely be interpreted under established principles of
contract law, and will bind licensors to the terms set forth, irrespective of
an SDOs policy. Accordingly, patent owners granting rights to technology
that is included in a standard should take care to make sure the terms of
their licenses are sufficiently clear so that only those rights intended to be
made available are in fact granted. Conversely, licensees, to reduce the
risk of expensive and time-consuming infringement litigation, should make
sure the grant of rights to them is as clear as possible.
Endnotes
1. The "Fast Write" signal protocol allows communication through chipsets
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A Year in the Life of a High Tech Standards Setting Organization
embedded in computer motherboards. As explained by the Court: "[T]he components of a
computer system include separate chips mounted on a circuit board known as the
motherboard. The system memory, microprocessor, chipset, and various input/output
devices, such as modems, are all distinct components. In order to communicate with each
other, each component chip must send its signals through the chipset, which acts as a
translator between components." 174 F. Supp.2d at 1040.
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Mr. Taffet is a partner in the New York office and Ms. Fix an associate in
the San Francisco office of Thelen Reid & Priest LLP. Mr. Taffet may be
reached at (212) 603-8925, rtaffet@thelenreid.com. Ms. Fix may reached
at (415) 369-7616, sfix@thelenreid.com.
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A Year in the Life of a High Tech Standards Setting Organization
Resources Relating to Antitrust and Standards Setting
In May 2001, in connection with the initial planning for this program, the
Intellectual Property Committee started preparing a list of resources
relevant to antitrust and standard setting. The effort started when
Suzanne T. Michel identified some key articles. Over the past few
months, the list expanded with helpful comments from a number of
people, including: James Atwood, David A. Balto, Michael Cowie, Brian
Grube, Sean P. Gates, Joseph Kattan, Chris Kelly, Joseph P. Lavelle,
Mark Lemly, Michael Lindsay, Suzanne T. Michel, Bruce McDonald,
Michael McNeely, M. Howard Morse, James Murray, Patrick O'Connor,
Daniel Prywes, Bilal Sayyed, David R. Steinman, Carl W. Schwarz,
Richard H. Stern, and Lisa Wood. The list was reworked by Michael
McNeely and Patrick O'Connor, and then by Bruce McDonald for a
September 24, 2001 standards setting program in Houston, Texas.
Howard Morse, Chair of the Intellectual Property Committee,
supplemented the list of resources for the Section's Fall program. Finally,
Ed Biester, John Martin, and Joe Lavelle have provided explanatory notes
on a number of the cases.
The list, of course, could also include more general boycott cases,
certification mark cases and a number of related cases, but we have tried
to keep the list fairly narrowly focused on standard setting and IP subject
matter.
The current version of the list, with links to material available on the
internet, is available on the Intellectual Property Committee's webpage
under "Hot Topics,"
http://www.abanet.org/antitrust/committees/intell_property/hottopic.html.
Cases
Addamax Corp. v. Open Software Foundation, 888 F. Supp. 274
(D. Mass. 1995), later proceeding, 964 F. Supp. 549 (D. Mass.
1997), aff'd, 152 F.3d 48 (1st Cir. 1998)
Software company whose bid for technology sales was denied
challenged actions of group of computer sellers who set standards
for operating system technology. On summary judgment the court
(1) found antitrust injury because of the computer sellers’ power in
the downstream market for PC’s, and (2) rejected the concept that
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A Year in the Life of a High Tech Standards Setting Organization
standard setting body as a joint venture acted unilaterally or was
insulated from section 1 liability simply because it was a valid joint
venture. The court rejected per se treatment, and applied the rule of
reason. The court found triable issues as to market power and
anticompetitive effect because of the group’s ability to affect
industry standards and factual issues with respect to
anticompetitive intent based on certain documents. Ultimately,
defendants prevailed at trial.
Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492
(1988)
Efforts to affect product standard setting process of private
association were not protected by Noerr-Pennington even though
the code for the design and installation of electrical wiring systems
was widely proffered for adoption and adopted into local laws. No
damages were imposed for the incorporation of that Code by any
government. Where an economically interested party exercises
decision-making authority in formulating a product standard for a
private association that comprises market participants, that party
enjoys no Noerr immunity from any antitrust liability flowing from the
effect the standard has of its own force in the marketplace.
American Society of Mechanical Engineers, Inc. v. Hydrolevel
Corp., 456 U.S. 556 (1982)
Standard setting organization responsible for acts of agents acting
with apparent authority that violate antitrust law despite substantial
agency law defenses which, the court holds, are inconsistent with
the policy of vigorous enforcement. Antitrust laws apply to nonprofit
professional standard setting organizations.
American Society of Sanitary Engineering, 106 F.T.C. 324, 1985
FTC Lexis 20 (1985) (Brought by T.J. Muris as Bureau Director).
FTC Complaint alleged that American Society of Sanitary
Engineering ("ASSE") violated section 5 of the FTC Act by refusing
to consider certification that alternative, patented, toilet tank flush
valves which offered improvements to existing devices specified by
its standard, were also compliant with ASSE standards, which were
adopted into many local codes and compliance with which was
alleged to be "essential for manufacturers of plumbing products to
do business in many markets." ASSE entered into a consent order
prohibiting ASSE from excluding from standards a product which is
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A Year in the Life of a High Tech Standards Setting Organization
patented or produced only by one manufacturer or a limited number
of manufacturers, where ASSE has issued standards for competing
products, the applicant has reasonably established that the product
adequately meets the implicit or explicit performance goals required
by the existing standard covering competing products, and ASSE
does not rely upon a justification meeting reasonable standard
setting criteria, i.e., "criteria which are consistently applied in the
development or modification of a standard and which promote the
legitimate self-regulatory goals of ASSE, such as assuring a
reasonable and adequate level of safe and effective performance
for a product."
See discussion in Timothy J. Muris, "Competition and
Intellectual Property Policy: The Way Ahead", Prepared
Remarks Before Antitrust Section Fall Forum (November 15,
2001)
Bond Crown & Cork Co. v. FTC, 176 F.2d 974 (4th Cir. 1949)
Brant v. United States Polo Association, 631 F. Supp. 71 (S.D.
Fla. 1986)
Polo player in the process of starting rival league is suspended
from long-standing league for arguing with umpires. Applying NCAA
v. Board of Regents of the University of Oklahoma, 468 U.S. 85,
1984, court rejects plaintiff’s per se group boycott analysis. Under
rule of reason, court denies preliminary injunction because conduct
based suspension is not anticompetitive.
Brookins v. International Motor Contest Association, 219 F.3d
849 (2000)
Race sanctioning body set standard for transmissions that excluded
plaintiff. Summary judgement granted because no market power
and no concerted action.
Clamp-All Corp. v. Cast Iron Soil Pipe Institute, 851 F.2d 478
(1st Cir. 1988), cert. denied, 488 U.S. 1007 (1989)
Consolidated Metal Products, Inc. v. American Petroleum
Institute, 846 F.2d 284 (5th Cir. 1988)
On summary judgment, court refuses to treat as a per se unlawful
group boycott a trade association decision which has no
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compulsory effect on others. Applying rule of reason, court finds no
unlawful conduct because evidence shows that decision was a
good faith attempt to apply appropriate standards with no
anticompetitive intent.
Dell Computer Corp., 121 F.T.C. 616, 1996 FTC Lexis 291, 1996
WL 350997 (1996).
Dell had certified that it did not have intellectual property rights
interfering with a "VL-bus" standard, for the bus between a
computer’s CPU and peripheral devices, and the Video Electronics
Standards Association (VESA) adopted the standard. After the
standard was adopted and implemented, Dell sought to assert a
patent interfering with the standard. Where VESA arguably would
not have adopted the standard if it had been aware of the Dell
patent, the FTC asserted that Dell’s conduct violated section 5 of
the FTC Act, and Dell entered into a Consent Judgment precluding
its assertion of the patent against use in compliance with the
standard.
DM Research, Inc. v. College of American Pathologists, 170
F.3d 53 (1st Cir.1999)
Affirms dismissal of Complaint alleging that effect of trade
association guidelines harmed plaintiff’s business and caused
owners to sell at a loss. Court rejects "implausible conclusory
allegation" of conspiracy to "adopt faulty standard where main
effect would be to raise costs" for certain competitors in the
industry.
ECOS Electronics Corp. v. Underwriters Laboratories, Inc., 743
F.2d 498 (7th Cir. 1994), cert. denied, 469 U.S. 1210 (1985)
Eliason Corp. v. National Sanitation Foundation, 614 F.2d 126
(6th Cir.), cert. denied, 449 U.S. 826 (1980)
ESS Technology, Inc. v. PC-Tel, Inc., No. C-99-20292 (N.D. Cal.
1999)
ESS Tech., Inc. v. PC-Tel, Inc., No. C-99-20292 (N.D. Cal. Nov. 2,
1999) (order granting in part and denying in part defendant’s motion
to dismiss)
Plaintiff alleged it cannot produce modems that comply with ITU
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standards without infringing defendant’s patents and that defendant
refuses to license its patents on fair and reasonable terms. The
court dismissed the plaintiff’s Sherman Act §2 claim and related
state unfair competition claim for failure to allege antitrust injury.
Plaintiff also asserted a claim for specific performance, arguing that
it was a third-party beneficiary to defendant’s agreement with ITU to
license on fair and reasonable terms. The court rejected
defendant’s argument that its agreement with the standard-setting
organization was too vague to support a claim for specific
performance.
ESS Tech., Inc. v. PC-Tel, Inc., No. C-99-20292 (N.D. Cal. July 3,
2000) (order denying defendant’s motion to dismiss).
Plaintiff alleged that defendant refused to license its patents on fair
and reasonable terms after representing to a standard-setting
organization that it would do so. Defendant argued that a patent
holder may unilaterally refuse to license its patents without being
subject to antitrust liability. The court denied defendant’s motion to
dismiss plaintiff’s antitrust, patent misuse, and state unfair
competition claims, stating that defendant’s "alleged acts amount to
more than just legitimately exercising a right to refuse to license
patented technology."
Fashion Originators’ Guild of America, Inc. v. FTC, 312 U.S.
457 (1941)
Foundation for Interior Design Education Research v.
Savannah College of Art & Design, 2001-1 Trade Cas. ¶ 73,212
Analyze refusal to accredit under rule of reason, no antitrust
injury.
Hyundai Electronics Indus. Co. v. Rambus, Inc., No. C-0020905RMW (N.D. Cal. 2001)
Hyundai Elecs. Indus. Co. v. Rambus Inc., No. C 00-20905 (N.D.
Cal. Jan. 19, 2001) (order granting in part and denying in part
defendant’s motion to dismiss).
The court dismissed plaintiff’s claim under section 1 of the Sherman
Act, holding that it is insufficient to allege unilateral conduct in a
collaborative standard-setting process. The court concluded that
the plaintiff stated a claim under section 2 of the Sherman Act and
section 17200 of the California Business and Professions Code.
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In Re Independent Service Organization Antitrust Litigation:
CSU, L.L.C. v. Xerox Corp., 203 F.3d 1322 (Fed. Cir. 2000), cert.
denied, 121 S.Ct. 1077 (2001)
Grants summary judgment in favor of defendant Xerox which
refused to sell patented and copyrighted materials to independent
servicers of its products, holding that assertion of intellectual
property rights to exclude was valid business justification for refusal
to deal. In controversially broad language, the Court states: "In the
absence of any indication of illegal tying, fraud in the Patent and
Trademark Office, or sham litigation, the patent holder may enforce
the statutory right to exclude others from making, using, or selling
the claimed invention free from liability under the antitrust laws."
Intel Corp. v. Via Technologies, Inc.,
Intel Corp. v. Via Technologies, Inc., 2001 WL 777085, *6 (N.D.
Cal. 2001)
Denies motion to dismiss antitrust counterclaim in patent
infringement action. Holds that allegation of sham patent litigation is
properly pleaded where a license was allegedly given to practice
some of patents in suit and fraud on PTO alleged for another.
Declines to decide whether Noerr-Pennington applies where good
faith claims are mixed with sham claims in a single suit.
Intel Corp. v. Via Technologies, Inc., 174 F. Supp.2d 1038 (N.D.
Cal. 2001)
See Richard S. Taffet and Sophia Fix, Intel Corporation v.
VIA Technologies, Inc., AT-IP Report (February 1, 2002);
Massachusetts School of Law at Andover v. American Bar
Ass’n, 937 F. Supp. 435 (E.D. Pa. 1996), aff’d, 107 F.3d 1026 (3d
Cir. 1997), cert. denied, 522 U.S. 907 (1997)
Granting defendant motion for summary judgment on NoerrPennington/state action defense on grounds that alleged damages
were caused by state laws rather than directly by allegedly
anticompetitive standard setting activity in the accreditation of law
schools.
Milk and Ice Cream Can Institute v. F.T.C., 152 F.2d 478 (7th Cir.
1946)
Affirms FTC cease and desist order which had found that standard
setting organization engaged in price fixing.
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Moore v. Boating Industry Ass’ns, 754 F.2d 698 (7th Cir. 1985),
vacated, 474 U.S. 895 (1985), later proceeding, 819 F.2d 693 (7th
Cir. 1987), cert. denied, 484 U.S. 854 (1987)
Motorola, Inc. v. Rockwell Int’l Corp., No. 95-575 (D.Del. 1995)
Multivideo Labs, Inc. v. Intel Corp., 99 Civ. 3908 (DLC), 2000-1
Trade Cas. (CCH) ¶ 72,777, 2000 U.S. Dist. LEXIS 110 (S.D. N.Y.
Jan. 7, 2000)
After Intel made statements that plaintiff’s personal computer
peripheral device did not comply with standards it had promoted,
plaintiff sued for monopolization and attempted monopolization.
Court granted summary judgment for Intel because, regardless of
market power in CPU’s, Intel did not compete with the plaintiff in the
market for the products at issue. Holds that claim of "monopoly
leveraging requires a threshold showing a threat of higher price or
reduced output in the secondary market."
National Association of Review Appraisers & Mortgage
Underwriters v. Appraisal Foundation, 64 F.3d 1130 (8th Cir.
1995), cert. denied, 517 U.S. 1189 (1996)
National Macaroni Manufacturers Ass'n v. FTC, 345 F.2d 421
(7th Cir. 1965)
Affirms FTC order finding that standards set by Macaroni/Spaghetti
Trade Association calling for blended, rather than pure, form of
durum wheat had effect of depressing price of that input to below
market levels.
Nat'l Camp Ass'n Inc. v. American Camping Ass'n Inc., SDNY
No. 99 Civ. 11853 (DLC) (12/15/00)
Applying rule of reason to refusal to accredit claim, no market
power, no evidence of concerted action.
NDC Health/IMS Health, Case COMP D3/38.044, European
Commission’s Decision of July 3 2001, (Interim measures),
suspended by August 10, 2001 Order of the President of the Court
of First Instance, Case T-184/01 R, Decision of October 29, 2001
by the Court of First Instance
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Potter Instrument Co. v. Storage Technology Corp., 1980 U.S.
Dist. LEXIS 1438, 207 U.S.P.Q. (BNA) 763 (E.D. Va. 1980), aff’d,
641 F.2d 190 (4th Cir. 1981), cert. denied, 454 U.S. 832 (1981)
Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364
U.S. 656 (1961)
Complaint states a claim where it alleges arbitrary and capricious
standards for approval of gas burners together with conspiracy
between utilities and standard setting organization not to provide
gas for use in unapproved burners.
Rambus, Inc. v. Infineon Technologies AG, (No. 3:00CV524),
2001 U.S. Dist. LEXIS 11871 (E.D. Va. Aug. 9, 2001) (SDRAM),
see also 155 F. Supp. 2d 668 (E.D. Va. 2001) (attorney fee award)
In patent infringement action, defendant counterclaimed alleging
that plaintiff had defrauded it by failing to disclose patent
applications in meeting of standard setting body of which both were
members and where standards using the patented technology were
developed. Jury verdict finding fraud affirmed by court.
See Veronica Lewis, "Rambus v. Infineon-The Latest
Standard Setting Patent Disclosure Guidance" AT-IP Report
(September 24, 2001)
SanDisk Corp. v. Lexar Media, Inc., No. C-98-01115 (N.D. Cal.
2000)
Sandisk Corp. v. Lexar Media, Inc., No. C 98-01115 (N.D. Cal. Oct.
17, 2000) (order granting in part and denying in part plaintiff’s
motion to dismiss and for summary judgment).
The court denied plaintiff’s motion for summary judgment on
defendant’s fraud claims, finding that there was a genuine dispute
as to whether plaintiff had a duty to disclose a pending patent
application arising from unwritten agreements among members of
standard-setting organizations. The court also denied plaintiff’s
motion for summary judgment with respect to the unfair competition
claim under California law, which proscribes conduct that is
"unlawful," "unfair," or "fraudulent."
Sessions Tank Liners, Inc. v. Joor Manufacturing, Inc., 1992
Trade Cas. ¶ 69,688 (C.D.Ca.1991), aff'd in part, 827 F.2d 458 (9th
Cir), cert. granted and vacated, 487 U.S. 1213; judgment entered in
favor of the plaintiff on remand, 786 F. Supp. 1518 (C.D. Ca. 1991),
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rev'd, 17 F.3d 295 (9th Cir. 1994), cert. denied, 513 U.S. 813
(1994). In first appeal, 9th Circuit held that Noerr-Pennington
immunity applies to lobbying of private model code association, but
there is an exception for "sham" conduct. Sham claims pleaded
where standards were passed due to false representation made to
standard setting body. On remand, deliberate misrepresentation is
proved, but in subsequent appeal 9th Circuit holds that NoerrPennington applies because harm results entirely from government
conduct in enforcing model code and no harm is alleged in
jurisdictions where the model code was not enforced by the
government body.
Schachar v. American Academy of Ophthalmology, 870 F.2d
397 (7th Cir. 1989)
In an appeal from jury instructions at trial, where verdict was for
defendant, Judge Posner rejects out of hand plaintiff’s contention
that labeling of certain opthalmological treatment as experimental
was an antitrust violation. Remarks that antitrust is about
competition and not a code of medical ethics.
Silver v. New York Stock Exchange, 373 U.S. 341 (1963)
New York Stock Exchange requires disconnection of wire lines
between member firms and nonmember firms. The court holds that
this conduct presented a clear case of a per se unlawful group
boycott and held that this conclusion was not altered by the duty of
self-regulation imposed on such firms by the Securities Exchange
Act.
Sony Electronics, Inc. v. Soundview Technologies, Inc., 157 F.
Supp. 2d 172-190 (D. Conn. 2001)
See John S. Martin, "An Update on the Soundview
Litigation." AT-IP Report (December 7, 2001).
Stambler v. Diebold, Inc., No. 85 CV 3014, 11 U.S.P.Q.2d (BNA)
1709, 1988 U.S. Dist. LEXIS 10132 (E.D.N.Y.) aff'd 878 F.2d 1445
(Fed. Cir. 1988)
Patent case involving defense of laches and estoppel; eleven year
delay in bringing suit held unreasonable and summary judgment
granted for defendant.
Standard Sanitary Mfg. Co. v. United States, 226 U.S. 20 (1912)
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Court affirms an injunction baring agreement between a group of
defendants comprising 85% of the manufacturers of enameled iron
ware from entering into agreements purportedly designed to permit
widespread use of patented technology but which also included
fixing of prices through a pricing committee.
Sun Microsystems, Inc. v. Kingston Technology Co., No. C-9903610, (N.D. Cal.)
Sun Microsystems, Inc. v. Kingston Tech. Co., No. C99-03610
(N.D. Cal. Feb. 7, 2000) (Kingston’s Answer, Affirmative Defenses,
and Counterclaims to First Amended Complaint for Patent
Infringement).
The defendant argued that the patent holder’s infringement claims
were barred by the doctrines of misuse and estoppel based on the
patent holder’s conduct in JEDEC standard-setting proceedings.
Townshend v. Rockwell International Corp., 2000-1 Trade Cas.
(CCH) ¶ 72,890, 55 U.S.P.Q.2d 1011 (N.D.Cal. 2000)
In patent infringement suit, defendant argues that plaintiff patent
holder and company to whom he licensed technology unlawfully
caused a trade association to adopt an industry standard which
embodied the technology without disclosing trade secret litigation
and prospective patent litigation. The court dismisses Section 1
claim for failure to plead sufficient injury to competition because
conduct is a lawful incident of the patent monopoly and because
patent holder offered licenses on reasonable terms. Regarding
Section 2 claim, finds that patent holder’s conduct before Trade
Association was not anticompetitive.
Wang Laboratories, Inc., v. Mitsubishi Electronics America,
Inc., 103 F.3d 1571 (Fed. Cir.), cert. denied, 522 U.S. 818 (1997)
Rejects patent claim based on estoppel and implied license; others
permitted to go forward.
Windbond
Electronics
Corp.
v.
International
Trade
Commission, 262 F.3d 1363 (Fed Cir. 2001)
General discussion of inequitable conduct and implied license
issues relating to inventorship issues
Zaveletta v. American Bar Ass’n, 721 F. Supp. 96 (E.D. Va.
1989)
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Articles, Speeches, Treatises and Testimony
James J. Anton and Dennis A. Yao, "Standard-Setting Consortia,
Antitrust, and High Technology Industries," 64 Antitrust L.J. 247
(1995)
Mary L. Azcuenaga, The Intersection of Antitrust and Intellectual
Property: Adaptations, Aphorisms and Advancing the Debate,
before the American Law Institute-American Bar Association,
Antitrust/Intellectual Property Claims in High Technology Markets,
San Francisco, California (January 25,1996)
David A. Bagwell, "Keeping Antitrust Simple:'Your Momma's Rules'
For Attending Meetings," 48th Annual Spring Meeting, Section of
Antitrust Law, Joint Committee Program of the Trade Association
Committee and the Corporate Counseling Committee (April 7,
2000)
David A. Balto and Robert Pitofsky, "Antitrust and High-Tech
Industries: The New Challenge," 43 Antitrust Bulletin 503 (FallWinter 1998)
David A. Balto, "Standard Setting in the 21st Century Network
Economy," 18 Computer & Internet Lawyer 5 .(June 2001)
David A. Balto, "Standard Setting in a Network Economy," then
Assistant Director Office of Policy and Evaluation, Bureau of
Competition, Federal Trade Commission, before Cutting Edge
Antitrust Law Seminars International, New York, New York
(February 17, 2000)
Jack E. Brown, "Technology Joint Ventures to Set Standards or
Define Interfaces," 61 Antitrust L.J. 921 (1993)
Dennis W. Carlton and J. Mark Klamer, "The Need for Coordination
Among Firms, with Special References to Network Industries," 50
U. Chi. L. Rev. 446 (1983)
Michael G. Cowie and Joseph P. Lavelle, "Patents Covering
Industry Standards: The Risks to Enforceability Due to Conduct
Before Standard-Setting Organizations," AIPLA L.Q. (forthcoming)
Susan A. Creighton, "The Antitrust Counterclaim: Recent
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Developments under Noerr-Pennington," Antitrust and Intellectual
Property 13 (Newsletter of the Intellectual Property Committee of
the Antitrust Section of the ABA) (Fall 2000)
John Croll & Brain Martin, "The Role of Antitrust Enforcement in
Standardization in High-Technology Industries," ALI-ABA 111
(1998)
Paul David and Shane Greenstein, "The Economics of
Compatibility Standards: An Introduction to the Recent Research,"
Economics of Innovation and New Tech. 3 (1990)
Joseph Farrell, "Standardization and Intellectual Property," 30
Jurimetrics J. 35 (1989)
FTC Staff Report, Anticipating the 21st Century: Competition Policy
in the New High-Tech, Global Marketplace (1996)
Sean P. Gates, "Standards, Innovation, and Antitrust: Integrating
Innovation Concerns into the Analysis of Collaborative Standard
Setting," 47 Emory L.J. 583 (1998)
Harry S. Gerla, "Federal Antitrust Law and Trade and Professional
Association Standards and Certification," 19 U. Dayton L. Rev. 471
(1994)
Richard Gilbert, "Symposium on Compatibility: Incentives and
Market Structure," 40 J. Ind. Econ. 1 (1992)
Jennifer L. Gray, "Antitrust Guidelines for Participating in Standard
Setting Activities," Corporate Counseling Report (Newsletter of the
Corporate Counseling Committee of the Antitrust Section of the
ABA) (Spring 2001)
Carole E. Handler and Julian Brew, "The Application of Antitrust
Rules to Standards in the Information Industries - Anomaly or
Necessity" 14 The Computer Lawyer 1 (1997)
Herb Hovenkamp, et al., Intellectual Property and Antitrust Law (1 st
ed. 2001) Chapter on Standard Setting
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A Year in the Life of a High Tech Standards Setting Organization
Michael Katz & Carl Shapiro, "Systems Competition and Network
Effects," 8 J. Econ. Perspectives. 93 (1994)
James B. Koback, Jr. "The Mutable Interface: Standard Setting,
Antitrust and Intellectual Property," The Media Law Report, Vol. 2,
No, 10 (August 1996)
Daniel E. Lazaroff, "Sports Equipment Standardization: An Antitrust
Analysis," 34 Ga. L. Rev. 137 (1999)
Douglas D. Leeds, "Raising the Standard: Antitrust Scrutiny of
Standard-Setting Consortia in High Technology Industries, 7
Fordham Intellectual Property Media & Entertainment L.J. 641
(1997)
Mark A. Lemley, "Antitrust, Intellectual Property, and StandardSetting Organizations," (forthcoming)
Mark A. Lemley, Standardizing Government Standard-Setting
Policy for Electronic Commerce, 14 Berkeley Tech. L.J. 745 (1999)
Mark A. Lemley, "Antitrust and the Internet Standardization
Problem," 28 Conn. L. Rev. 1041 (1996)
Mark A. Lemley and David McGowan, "Legal Implications of
Network Economic Effects," 86 Calif. L. Rev. 479 (1998)
Mark A. Lemley & David McGowan, "Could Java Change
Everything? The Competitive Propriety of a Proprietary Standard,"
43 Antitrust Bull. 715 (1998)
Veronica Lewis, "Rambus v. Infineon-The Latest Standard Setting
Patent Disclosure Guidance" AT-IP Report (September 24, 2001)
Veronica Lewis, "Rambus’ Limited Patent Disclosure To A Standard
Setting Body Was Found To Be Fraudulent But Not An Antitrust
Violation," AT-IP Report (June 6, 2001)
Amy A. Marasco, Vice President and General Counsel, American
National Standards Institute, Testimony before the Federal Trade
Commission (December 1, 1995).
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John S. Martin, "An Update on the Soundview Litigation." AT-IP
Report (December 7, 2001).
Samuel R. Miller, "Standard-Setting in the Computer Industry - the
Antitrust Risks," 13 The Computer Lawyer 1 (1996)
J. Mueller, "Patenting Industry Standards, " 34 J. Marshall L. Rev.
897 (Summer 2001)
Timothy J. Muris, "Standards-Setting Process Important But Must
Not Be Used to Restrict Innovation" before American National
Standards Institute's 1984 Public Conference on Standards and the
Law, (March 27, 1984). FTC Press Release
Timothy J. Muris, "Competition and Intellectual Property Policy: The
Way Ahead", Prepared Remarks Before Antitrust Section Fall
Forum (November 15, 2001)
Robert Pitofsky, "Antitrust and Intellectual Property: Unresolved
Issues at the Heart of the New Economy," before The Antitrust,
Technology and Intellectual Property Conference (March 2, 2001),
Robert Pitofsky, " Antitrust, Technology and Intellectual Property, "
16 Berkeley Tech. L.J. 535 (2001)
Robert Pitofsky, "Self Regulation and Antitrust," before the D.C. Bar
Ass'n (February 18, 1998).
Daniel I. Prywes, "Patent Ambushes and Licensing in Computer
Standard-Setting Groups," Antitrust Report (March 2001)
Michael J. Schallop, "Leveraging Intellectual Property Rights to
Encourage Interoperability in the Network Computing Age, 28
AIPLA Q.J. 195 (2000)
D. Schneck, "Setting The Standard: Problems Presented to Patent
Holders Participating in the Creation of Industry Uniformity
Standards," 20 Hastings Comm/Ent. L.J. 641 (1998)
Carl W. Shapiro & Hal R. Varian, "Information Rules: A Strategic
Guide to the Network Economy" (1999)
Carl W. Shapiro, "Antitrust in Network Industries," before the
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American Law Institute and American Bar Association (Jan. 25,
1996)
Carl W. Shapiro, "Navigating the Patent Thicket: Cross Licenses,
Patent Pools, and Standard-Setting (March 2001), forthcoming in
Innovation Policy and the Economy, Adam Jaffe, Joshua Lerner,
and Scott Stern, eds. (MIT Press, 2001)
Robert A. Skitol, Antitrust Issues Confronting Collective Standard
Setting in High-Technology Industries, before the ABA Antitrust
Section (February 25, 1999)
David R. Steinman and Daniellle S. Fitzpatrick, "Antitrust
Counterclaims in Patent Infringement Cases: A guide to Walker
Process and Sham Litigation," Corporate Counseling Report
(Newsletter of the Corporate Counseling Committee of the Antitrust
Section of the ABA) (Fall 2001)
Richard H. Stern, "Another Update
Skullduggery," IEEE Micro, Sept.-Oct., 2001
on
Standardization
Richard H. Stern, "More Standardization Skullduggery," IEEE
Micro, July-Aug., 2001
Richard H. Stern, "Preventing Abuse of IEEE Standards Policy,"
IEEE Micro, May-June, 2001
Richard H. Stern, "When Compliance with a Standard Gets Too
Expensive," IEEE Micro, Nov.-Dec., 1999
Richard H. Stern, "Licensing IP Embodied in Standards, Part 2,"
IEEE Micro, Sept.-Oct., 1999
Richard H. Stern, "Licensing IP Embodied in Standards," IEEE
Micro, July-Aug., 1999
Richard H. Stern, "Inviting Participants in Standard Setting," IEEE
Micro, May-June, 1998
Richard S. Taffet, "Standards and Certifications: Risks and
Benefits," Paper presented at the ABA Antitrust Section Program
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A Year in the Life of a High Tech Standards Setting Organization
on Trade Associations and Antitrust: A Practical Guide (1996)
Alan J. Weinschel, The Antitrust–Intellectual Property Handbook,
Chapter 4 "Antitrust and Standard Setting, Formal and De Facto"
(2000)
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Session Chair
John Anthony Chavez
Anthony is Counsel with ExxonMobil Chemical Company, in the
company's intellectual property licensing group. In previous assignments
he has coordinated antitrust compliance programs, handled regulatory
filings in the United States, the European Union, and a number of other
jurisdictions, directed complex antitrust cases, and responded to
government investigations.
Mr. Chavez has written and lectured on legal topics relating primarily to:
antitrust analysis of joint ventures; antitrust/intellectual property interface;
corporate compliance programs; trade secrets and misappropriation; and
white collar crime.
He is a member of the American Bar Association and the Houston Bar
Association. He currently serves as a Vice Chair of the Intellectual
Property Committee of the ABA Antitrust Section (2000-present).
Previously, he served as a Vice Chair of the Corporate Counseling
Committee of the ABA Antitrust Section (1998-2000). He designed and
established web sites for the Corporate Counseling Committee and the
Intellectual Property Committee. In addition, for the Antitrust and Trade
Regulation Section of the Houston Bar Association, he served as Chair
(1997-1998); Vice Chair (1996-1997); Secretary/Treasurer (1995-1996);
and Council Member (1993-1995).
He earned his J.D. in 1981 from Stanford University and his B.A. in 1977
from the University of California at Santa Barbara. He is admitted to
practice before the bars of the States of California (1981), New York
(1986), and Texas (1982), the United States Supreme Court (1986), and
the United States District Courts for the Central (1983), Northern (1982),
and Southern (1982) Districts of California; the Southern (1982), Western
(1983), and Northern (1991) Districts of Texas; and the Eastern and
Southern Districts of New York (both 1986).
Moderator
Lisa C. Wood
Lisa C. Wood is a senior partner at the Boston law firm, Nutter McClennen
& Fish LLP, where she co-chairs the financial litigation and antitrust
practice groups.
She has substantial experience representing
corporations, accounting firms, and corporate officers and directors in
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antitrust, professional liability, corporate and federal securities litigation
and in counseling corporate clients on antitrust and securities compliance.
Active in the American and Boston bar associations, Ms. Wood is chair of
the “section one” committee of the ABA’s antitrust section, a member of
the BBA’s council, past chair of the BBAs litigation section and vice-chair
of the corporate counsel committee of the ABA s section of litigation. She
has written and lectured extensively on antitrust and federal securities
matters. Ms. Wood is also active in community affairs, currently serving
as chairman of the volunteer lawyers’ project, a trustee of the Boston bar
foundation, and a member of the board of directors of the national
conference for community and justice.
Participants
Mark A. Flagel
Mark A. Flagel is a litigation partner in Latham & Watkins' Los Angeles
office and is the head of the Intellectual Property and Technology Practice
Group in Los Angeles. He is also Co-Chair of the firm's national
Intellectual Property and Technology Practice Group. Mr. Flagel received
his BA from UCLA in 1980, and his JD from U.C. Berkeley (Boalt Hall) in
1983.
Mr. Flagel has been involved in many high visibility cases. For example,
Mr. Flagel was one of the trial attorneys for Stac Electronics in its
successful prosecution of a patent infringement suit against Microsoft,
resulting in a jury verdict for $120 million. More recently, Mr. Flagel
represented Kingston Technology in its successful defense of patent
infringement claims brought by Sun Microsystems. That case involved a
number of the standard-setting issues that will be addressed in this
Program.
Mr. Flagel has also been involved in various pro bono matters. He serves
on the Board of Directors of Kayne-ERAS Center, a non-profit
organization that serves at-risk children and young adults by providing a
school, a camp, two group homes, vocational training and numerous other
services.
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A Year in the Life of a High Tech Standards Setting Organization
Joseph P. Lavelle
Joseph P. Lavelle is a partner at Howrey Simon Arnold & White, LLP. He
is the head of Intellectual Property litigation in the D.C. office of Howrey.
Mr. Lavelle has also taught a course on intellectual property and antitrust
law at Georgetown University Law Center for a number of years. Mr.
Lavelle graduated from Univ. Pittsburgh School of Law, summa cum
laude, in 1982.
Mr. Lavelle has been involved in a large number of antitrust/IP cases,
including many matters involving standards setting issues in the computer
memory, modems, DSL, and other industries. Mr. Lavelle represents
Rambus, Inc. in several matters involving standards setting.
Dorothy Gill Raymond
Dorothy Gill Raymond is senior vice president and general counsel for
Cable Television Laboratories, Inc. (CableLabs). In that role, Mrs.
Raymond is responsible for all legal matters involving CableLabs,
including antitrust compliance, intellectual property rights issues for
CableLabs' specification efforts, protection of intellectual property, and
other general corporate and contractual matters. In addition, Mrs.
Raymond is a member of the senior staff of CableLabs, providing input on
policy and strategic issues, including CableLabs’ efforts to develop and
certify interoperable high speed data modems and advanced digital settop boxes.
Among Mrs. Raymond's accomplishments while at CableLabs are
establishing royalty-free license pools for CableLabs' cable modem and
PacketCable projects, and establishing a sub-licensing program for third
party security software needed by cable modem manufacturers. Mrs.
Raymond is also responsible for monitoring the procedures of CableLabs'
various specification compliance review boards.
Mrs. Raymond has spoken on a wide variety of topics relating to antitrust
and cable television legal matters. Publications include “The Role Of InHouse Counsel” in Judy Whalley, ed., Merger Review Process, (American
Bar Association, 1995).
Before joining CableLabs, Mrs. Raymond was a staff attorney for TeleCommunicatons, Inc. (TCI) responsible for mergers and acquisitions, and
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then Vice President and General Counsel for WestMarc (a TCI subsidiary)
with legal responsibilities including TCI's alternative access business and
its satellite-delivered programming business. She holds a law degree from
the University of Colorado and an undergraduate degree (summa cum
laude) from the University of Denver.
CableLabs is a research and development consortium of cable television
system operators representing the continents of North America and South
America. CableLabs plans and funds research and development projects
that will help cable companies take advantage of future opportunities and
meet future challenges in the cable television industry.
It also transfers relevant technologies to member companies and to the
industry. In addition, CableLabs acts as a clearinghouse to provide
information on current and prospective technological developments that
are of interest to the cable industry. CableLabs maintains web sites at
www.cablelabs.com;
www.cablemodem.com;
www.cablenet.org;
www.opencable.com; and www.packetcable.com.
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