Antitrust enforcers are continuing to emphasise the importance of competitive, open and transparent standardisation.

Two speeches(1) by top Department of Justice (DOJ) officials have identified specific policy choices that standards-setting organisations could implement which would promote competition. They set out four main ways in which such organisations could clarify their IP policies:

  • Licensing commitments made to the standards body should bind both the current patent holder and subsequent purchasers of the patents. Fiona Scott-Morton commented that fair, reasonable and non-discriminatory (FRAND) commitments, which become weaker on sale of the patent, incentivise "sales designed to evade those commitments and are not going to protect consumers as well as one those that are watertight".
  • FRAND commitments should include a commitment to a process that is faster and less costly for determining FRAND rates or adjudicating disputes over FRAND. Options might include arbitration, alternative dispute resolution, an allowed range for a royalty rate and specification of the base to which a royalty should apply.
  • The FRAND dispute resolution process should require that the licensor specify a cash price for its standards-essential patents rather than relying on cross-licensing arrangements between patent holders. Officials note that determining whether a complex package of cross-licences satisfies FRAND will be difficult for a third party, whereas a cash option is more transparent.
  • The FRAND commitment should include a dispute resolution process preceding any action for injunction or an exclusion order. This would specify what steps must be taken by parties in order to resolve disputes over a FRAND rate, validity, essentiality or infringement before an infringement or an exclusion order may be sought against the licensee. Fiona Scott-Morton considered that "constraining the ability of licensors to threaten – at any time, in any way – to exclude a product from the market during bargaining will reduce the ability of the licensor to extract royalties above the FRAND rate".

Officials have emphasised that the above elements are suggestions and at this stage do not represent official agency policy statements, which represent requirements imposed by the agencies. However, these suggestions have reportedly emerged from discussion between the top economists at the Federal Trade Commission, the DOJ and the European Commission (including Kai-Uwe Kühn, the chief economist at the EU Directorate General of Competition), and represent an agreed approach between them.

For further information on this topic please contact Peter Citron at Hogan Lovells' Brussels office by telephone (+32 2 505 0911), fax (+32 2 505 0996) or email (peter.citron@hoganlovells.com).

Endnotes

(1) Fiona Scott-Morton, the DOJ's chief economist, speaking at the Intellectual Property Management in Standard-setting Processes: An International Comparison conference at the National Academy of Sciences in Washington on October 3 2012; Renata Hesse, deputy assistant attorney general at the DOJ, speaking at the ITU-T Patent Roundtable in Geneva, Switzerland on October 10 2012.

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