The Federal Trade Commission (FTC) is consulting on the specific problem of patent hold-up in standard-setting organisations (SSOs). The FTC and Department of Justice have recognised that the standard-setting process furthers innovation and leads to better products and more competition. However, they have also expressed concern that standard-settings organisations can raise antitrust risk. Once a certain technology is incorporated into a standard, it can make it more difficult for a manufacturer to switch to another technology later. If the technology is protected by IP rights that were not disclosed to the SSO before the technology was adopted, the patent-holder may demand a higher royalty or more costly licensing terms from manufacturers than it would have obtained if it had disclosed the standard. The FTC in particular has expressed concern that this could undermine the integrity of the standard-setting process and, ultimately, harm consumers if manufacturers pass on these extra costs to their customers(1).
The FTC is examining three ways to prevent this problem of patent hold-up:
- Adequacy of SSO disclosure rules - the FTC believes that the "ability of disclosure rules to protect consumers from patent hold-up is unclear"(2). For example, disclosure is typically required only of issued patents, not pending applications. In addition, disclosure is usually required only of patents that are known to the company's representative in the SSO; disclosure does not require a full search of the company's patent portfolio.
- Requirement that a patent-holder commit to reasonable and non-discriminatory licensing - this is the most common practice used by SSOs to prevent patent hold-up, but the FTC questions whether it is effective. Some critics of this practice express concern that leaving the negotiation of licensing terms until after the standard-setting process is complete, usually long after the standard is implemented, still gives the patent-holder excess leverage.
- Negotiating licence terms prior to choosing the standard - some SSOs allow or require the negotiation of specific royalty and licensing terms during the standard-setting process, before the standard is adopted. However, the FTC notes that there is not widespread use of ex ante licensing today.
The FTC is seeking comments on several questions related to these issues, which are listed in the FTC's Federal Register notice. Comments must be received by the FTC on or before July 8 2011.
For further information on this topic please contact Eric J Stock at Hogan Lovells US LLP New York office by telephone (+1 212 918 3000), fax (+1 212 918 3100) or email ([email protected]). Alternatively, contact Logan M Breed or Michaelynn R Ware at Hogan Lovells US LLP Washington DC office by telephone (+1 202 637 5600), fax (+1 202 637 5910) or email ([email protected] or [email protected])
Endnotes
(1) The FTC has brought several enforcement actions involving standard setting and also has pending investigations involving these issues.
(2) Request for Comments and Announcement of Workshop on Standard-Setting Issues (May 9 2011) www.ftc.gov/os/fedreg/2011/05/110509standardsettingfrn.pdf