Posts Tagged: "standard setting"

Standard Essential Patents (SEPs) are patents that are unavoidable for the implementation of a standardized technology. They represent core, pioneering innovation that entire industries will build upon. These patents protect innovation that has taken extraordinary effort to achieve. Standard Development Organizations (SDOs) exist as a mechanism for industry innovators to work together to collectively identify and select the best and most promising innovations that will become the foundation for the entire industry to build upon for years to come. Those contributing patented technologies to the development of a standard are asked to provide a FRAND (which stands for Fair, Reasonable and Non-Discriminatory) assurance, in essence committing to providing access to patents that are or may become essential to the implementation of the standard.

The Federal Circuit, however, found the district court’s enforceability finding to be unsupported by evidence. The rejection of Nokia’s proposal did not obviate Nokia’s requirement to disclose inventions that might be essential to the standard. Dr. Walker’s uncontroverted testimony explained that patent applications are to be disclosed at the time proposals are presented. “[A]n ETSI member’s duty to disclose a patent application on particular technology attaches at the time of the proposal and is not contingent on ETSI ultimately deciding to include that technology in an ETSI standard,” Bryson explained. Notwithstanding, the Federal Circuit elected to vacate this ruling rather than electing to reverse the district court because the existence of an implied waiver is an equitable defense.

Increasingly, Delrahim’s speeches are moving past where he began in his USC speech in November 2017, discussing this being the appropriate time to now have a discussion about the proper role antitrust enforcement plays with respect to standard setting, to his LeadershIP April 2018 speech where he explained the Antitrust Division will not hesitate to enforce against collusive anticompetitive conduct detrimental to patent owners. Furthermore, Delrahim has now several times discussed his view that in a free market, competition based economy the remedy for patent owners violating obligations to SSOs is a contractual remedy, not an antitrust remedy.

On November 10, 2017, the Department of Justice’s (DOJ’s) new top antitrust enforcer, Assistant Attorney General (AAG) Makan Delrahim, delivered a powerful speech on antitrust law and policy enforcement towards intellectual property rights (IPRs). Former USPTO Director David Kappos described it as “the most important DOJ antitrust speech on IP during my decades practicing law”. … The speech clarifies that the new AAG views “any policy proposals with one-sided focus on hold-up with great skepticism because they pose a serious threat on the innovating process,” and submits that antitrust law should not be misused to police the private commitments such as FRAND that IP holders make to SSOs. In this, the speech agrees with the view shared by several scholars that FRAND commitments are contracts and a potential breach of those commitments may not be best suited under the purview of antitrust law and that “there are perfectly adequate and more appropriate common law and statutory remedies available to the SSO or its members”.

The debate on royalty payments for standard essential patents has a surprisingly emotional, sometimes even hostile, undertone. Companies selling standards-based products have an obvious commercial interest in lower royalty rates, but for some participants in the debate the hostility goes deeper. Some people find the idea of having to pay royalties for the use of any standard objectionable and unreasonable.

When a standard faces competition, it is essential to be the first on the market with products and to establish the highest market share. The network effect will make it increasingly difficult for competing standards to get a foothold. Two competing standards will, therefore, be under pressure to gain market share in the early stages of adoption by getting to market first, with superior performance, and with the lowest price. In view of the network effect, getting to market first is usually the highest priority. But in the early stages of adoption, being a little bit later with superior performance is still viable.

The debate on RAND terms and conditions is mostly about the reasonability of the royalty rate, less about non-discriminatory part. So, what is a “reasonable rate”? Companies that manufacture products based on a standard will demand lower rates or royalty-free licenses, claim harm from patent hold-ups and from royalty stacking. These companies will argue that it is unfair when companies that contribute technology to the standard benefit from the lock-in of the standard because it is now unavoidable to use the essential patents in their products. On the other hand, companies that participated in standards development, and own essential patents because of that investment, claim that lower royalty rates will remove the incentives for future investments in standard setting and will stifle innovation. In the confusion generated by these lobbying interest groups, it makes sense to go back to the one thing everyone seems to agree on: Standards are good.

It is important to emphasize that we are not claiming that the patent system as currently defined cannot be improved. Rather, we offer evidence on two interrelated predictions of the SEP hold-up hypothesis. First, if SEPs are holding up innovation, then products that are highly reliant upon SEPs should experience more stagnant quality-adjusted prices than similar non-SEP-reliant products. Second, if SEPs are holding-up innovation, then changes in the legal system (eBay) that weaken the excessive negotiating strength of SEP holders should accelerate reductions in quality-adjusted prices in SEP-reliant industries relative to non-SEP-reliant industries. We find no evidence for either prediction.