An extract from The Intellectual Property and Antitrust Review, 6th Edition
In the United States, the contours of antitrust claims relating to SEPs, such as manipulation of the standard-setting process, standard-setting deception and subsequent breaches of FRAND commitments, have been evolving against the backdrop of the Delrahim DOJ's advocacy to realign antitrust policy with the incentives to innovate that are inherent in the patent grant. This is a developing area of law that may be further shaped by the change in the administration and the turnover of leadership at both the DOJ and the FTC. Notably, the Agencies' prior Guidelines are silent as to the application of the antitrust laws both with respect to SEPs and issues relating to FRAND commitments.
Corporations routinely rely on standards developed by hundreds of national and international standard-setting organisations (SSOs) and standard-developing organisations (SDOs).89 To enable the production of new generations of technology, particularly those that require inter-operation, industry participants work together to develop technical specifications for consensus-driven standards based on scientific and engineering contributions that may come from a private group of companies or a broader collection of market participants, research organisations, government representatives or other international stakeholders. The US Supreme Court has recognised that 'standards can have significant procompetitive advantages', leading most courts to apply the rule of reason to standard-setting by private associations.90 The Court simultaneously noted, however, that '[t]here is no doubt that the members of such associations often have economic incentives to restrain competition and [that] the product standards set by such associations have a serious potential for anticompetitive harm.'91 Some courts in the United States have further held that a plaintiff may assert a potential monopolisation claim when a SEP holder obtains a monopoly by failing to disclose IP rights or by making fraudulent FRAND declarations in order to induce an SSO to adopt a particular standard.92 Courts have disagreed, however, as to whether deception alone is sufficient to state the exclusionary conduct element of a monopolisation claim or whether more must be done to show that the standard would not have been adopted but for the fraudulent misrepresentation or omission such that other technologies were excluded from the standard as a result of the conduct.93
To encourage companies that invest in research and development to contribute their inventions to the advancement of standardised technologies, standards organisations generally enact IP policies recognising that contributors should be entitled to seek fair compensation for their inventions by enforcing patents that read on standards, known as standard-essential patents.94 To strike a balance against concerns that incorporating patented technologies into a standard could increase a patentee's market power and thus enable the patentee to demand excessive royalties, referred to as patent 'hold up', standards organisations frequently request those contributing patented technologies to a standard to commit to granting licences on FRAND terms.95 What constitutes a FRAND rate ordinarily is not determined by the standards organisation itself, but is left to subsequent negotiations between licensors and licensees.
As discussed above, the New Madison approach espoused by the Delrahim DOJ sought to rebalance the emphasis previously placed on concern for patent 'hold up' by patentees versus patent 'hold out' by implementers who may seek to depress royalty rates or otherwise practice patented technologies without paying royalties.96 There has also been much debate in the United States with respect to who is best suited to determine whether a rate is fair,97 whether FRAND commitments require patentees to license at every level of the supply chain or base royalties on the smallest saleable practicing unit,98 and whether breaching a FRAND commitment constitutes an antitrust violation or merely a contractual commitment as advocated by the Delrahim DOJ.99