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This book is open access under a CC BY 4.0 license.
With technology standards becoming increasingly common, particularly in the information and communications technology (ICT) sector, the complexities and contradictions at the interface of intellectual property law and competition law have emerged strongly. This book talks about how the regulatory agencies and courts in the United States, European Union and India are dealing with the rising allegations of anti-competitive behaviour by standard essential patent (SEP) holders. It also discusses the role of standards setting organizations / standards developing organizations (SSO/SDO) and the various players involved in implementing the standards that influence practices and internal dynamics in the ICT sector. This book includes discussions on fair, reasonable and non-discriminatory (FRAND) licensing terms and the complexities that arise when both licensors and licensees of SEPs differ on what they mean by “fair”, “reasonable” and “non-discriminatory” terms. It also addresses topics such as the appropriate royalty base, calculation of FRAND rates and concerns related to FRAND commitments and the role of Federal Trade Commission (FTC) in collaborative standard setting process. This book provides a wide range of valuable information and is a useful tool for graduate students, academics and researchers.

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Open Access

Chapter 1. National Disparities and Standards Essential Patents: Considerations for India

Patents on standardized technologies are being issued with increasing frequency, and large multinational firms based in developed economies hold the majority of these patents. As a result, firms from less-developed economies with sparse patent holdings may be disadvantaged in both domestic and foreign markets. While protectionist governmental policies can address these disparities, such measures are potentially contrary to international treaty obligations and often unsuccessful in the long term. An alternative approach involves greater participation in international SSOs by firms from less-developed economies. This increased participation is likely to benefit such firms both in terms of technology development, strengthening of patent positions, and influence over SSO policies. To facilitate increased participation, subsidies may be required from local governments, NGOs, multinational organizations or SSOs themselves.
Jorge L. Contreras

Open Access

Chapter 2. FRAND Commitments and Royalties for Standard Essential Patents

This chapter addresses the conceptual and practical effect of Fair, Reasonable, and Non-Discriminatory (FRAND) commitments to standard setting organizations (SSOs) on royalties for standard essential patents (SEPs). While SSO activities are recognized as potential sources of economic efficiency, the nature of the SSO process facilitates and requires communication and agreement among parties that may otherwise compete in the marketplace, thus leading to antitrust agencies and private counsel to require caution in the standard setting process. The industry-wide, international scope of technological agreement in SSO activities is a potential source of market power for intellectual property owners. The risk of such market power has led technology adopters to seek assurances from technology contributing SSO participants that technologies adopted in the standard are made available on FRAND terms. In addition, it has become increasingly common for technology contributors to provide FRAND commitments in conjunction with their SSO participation. Recent decisions by U.S. courts and regulatory agencies have clarified that FRAND commitments can be binding on technology contributors, and that determination of FRAND royalty rates on standard essential technology can be meaningfully different from that applicable to technology unencumbered by FRAND commitments. More specifically, determination of FRAND royalty rates likely requires inquiry into the apportionment of inherent technology value from value that resulted from the SSO process and standard itself. This chapter addresses various methods to evaluate the sources of economic value of SEPs, to apportion inherent technology value from that resulting from a standard, and the implications of such apportionment on the royalties for FRAND encumbered SEPs.
D. Scott Bosworth, Russell W. Mangum III, Eric C. Matolo

Open Access

Chapter 3. The Policy Implications of Licensing Standard Essential FRAND-Committed Patents in Bundles

Patents declared to standard development organizations (SDOs) as potentially essential for compliance with standards under development within the SDO are typically bound by so-called FRAND commitments – promises from the patent holder to license the patents on fair, reasonable, and non-discriminatory terms and conditions. It is widely agreed that FRAND commitments impose certain constraints on the terms and conditions that patent holders may seek from licensees in comparison to licensing patents without a FRAND commitment. But exactly what those constraints might entail has been the subject of heated debate for at least a decade. The particular constraint discussed in this chapter is whether FRAND prohibits patent portfolio licensing, where both FRAND committed and non-essential, non-FRAND-commitment patents are bundled together into a single license. We explain that the answer to that question is “no”, FRAND does not create a blanket prohibition against portfolio licensing. Whether such a patent portfolio license honors a FRAND commitment depends on the specific licensing terms and conditions.
Anne Layne-Farrar, Michael Salinger

Open Access

Chapter 4. Calculating FRAND Licensing Fees: A Proposal of Basic Pro-competitive Criteria

Although Courts, policy makers, academics and SSOs have been attempting for more than a decade to substantiate the concept of FRAND and to establish how to calculate a FRAND royalty, so far no general organic set of basic common principles has been agreed upon. This despite the clear need of uniformity and harmonization in the standard-setting context, international by nature and participated by SSOs from all over the world. Satisfying such need would translate in preempting risks of dangerous conflicts of approaches and decisions in different regions of the world, either stemming from ‘technical’ grounds (given the variety and diverse characteristics of SSOs), or even more dangerously – fuelled by geopolitical divisions. A four-step elastic framework of criteria is submitted. Its general rationale is to foster dynamic competition while ensuring appropriate compensation for the innovators whose technical contributions have been declared standard-essential. This implies the acknowledgement of the superior constitutional rank of the pro-competition objective, of primarily collective interest, vis-à-vis the owners’ compensation, of primarily private interest. In turn, this should lead to reject SEP holders’ claims to ‘maximized’ compensation in favour of an ‘appropriate’ measure thereof (see ECJ in Premiere League), so as to avoid to raise licensees’ costs to the point that it becomes too difficult for them to compete on a level playing field. First step: Precise identification of the technology that will be adopted by potential licensees. Because standards are inherently complex sets of rules, often comprising optional features, patents that have been declared as essential may end up not being implemented – in full or in part – by single competitors. It is thus necessary to abide by a principle of strict proportion between the patented subject matter and the technology effectively used by the licensee. Second step: The license fees should be calculated by making reference to the royalties that the SEP holder might have charged prior to the ‘election’ of the patent in the standard (ex ante). Only ex ante royalties reflect the true economic value of the patent, neutralizing the hold-up power gained by the patent holder as a result of the standardization process (ex post). Third step: The determination of fees should take into account the overall licenses’ scenario that may encumber potential licensees. This should lead, on the one hand, to consider ‘comparable’ licenses in given industrial sectors. And, on the other hand, to reckon with the fact that in the standard-setting context, in particular in the ICT sector, hundreds of patents may insist on a single final product, so that producers are often obliged to correspond royalties to multiple patent holders. Ignoring this problem might determine a disproportionate “royalty stacking” potentially exceeding a reasonable portion of the product’s price—hence, also, potentially discouraging the producer from the very adoption of the standard Fourth step: The overall licenses’ scenario should be considered in a dynamic perspective. Since standards and SEPs portfolios are regularly evolving, the opportunity for a permanent adjustment of FRAND royalties (possibly through ADR in default of parties’ agreement) should be carefully weighed, taking into account the potential for a progressive increase, or decrease, of the licenses’ number and amount of total fees. Might a wide consensus on these principles, and others of corresponding inspiration, be reached, the optimal seat for their embodiment would be by international agreement (e.g. by an addendum to Article 31 TRIPs). In default, each country should determine whether to entrust their application to Judiciary Courts or Competition Authorities, whichever deemed more trained and sophisticated in IP licensing disputes.
Gustavo Ghidini, Giovanni Trabucco

Open Access

Chapter 5. Selected Issues in SEP Licensing in Europe: The Antitrust Perspective

The recent ruling of the Court of Justice of the European Union in Huawei v ZTE and the European Commission’s decisions in Motorola and Samsung provide important guidance on the boundaries of FRAND negotiations between SEP-holders and licensees. They clarify that the review of the SEP-holder’s pursuit of injunctions under Article 102 TFEU is not limited to the vexatious litigation theory of harm established in ITT Promedia and Protégé International. They lay out the steps that an SEP-holder needs to take in its negotiations with a potential licensee to avoid a finding of abuse under Article 102 TFEU. Huawei goes further and adds the requirements that the potential licensee needs to fulfil to qualify as a ‘willing licensee’ and thus be able to raise a claim of abuse of dominance against an SEP-holder. A number of crucial issues, however, remain unresolved. First, neither Huawei nor the Commission’s decisions in Motorola and Samsung clarify what constitutes a FRAND offer. Second, it is unclear whether the SEP-holder can meet its duty to make a FRAND offer by offering a licence to its portfolio of SEPs rather than a licence to the specific asserted SEPs. Third, there is still no guidance on the methodology that the SEP-holder and the potential licensee should follow to arrive at a FRAND determination. Finally, Europe lacks a coherent antitrust policy on highly controversial issues such as portfolio-splitting and Patent Assertion Entities.
Roberto Grasso

Open Access

Chapter 6. Competition, Intellectual Property Rights and Collaboratively Set Standards: Federal Trade Commission Advocacy and Enforcement

Collaboratively set interoperability standards are a prominent feature of many modern markets, particularly in the information and communication technology (ICT) industries. These standards often incorporate technology contributed by a number of firms, which may have declared that they own patents essential to the standard. The assertion of such standard essential patents (SEPs), through both licensing and the courts, is not only a matter of economic significance but also raises a number of distinct legal issues. SEP assertion often involves litigation governed by patent law. In addition, owing to the collaborative nature of the standard setting process, SEP assertion often raises questions of competition law. Finally, standard setting organizations (SSOs) often adopt private contract that governs SEP assertion by their members. The Federal Trade Commission (FTC) promotes innovation and competition through both law enforcement and competition advocacy. Section 5 of the FTC Act empowers the agency to prevent the use of “unfair methods of competition in or affecting commerce.” In addition, Section 6 of the FTC Act provides the FTC with the ability to “gather and compile information,” thereby developing economic expertise relevant to competition in a number of markets. The FTC has a long history of engaging in competition advocacy before regulators, legislatures, the courts and others, sharing its expertise when these entities contemplate action that may affect competition. The FTC has drawn upon both its enforcement and its competition advocacy expertise to promote innovation and competition in markets impacted by SEPs. For over thirty years, the FTC has used its enforcement authority to police abuses of the collaborative standard setting process. For over twenty years, the FTC has also issued guidance regarding the application of competition law to intellectual property licensing. Finally, for over a decade, the FTC has been involved in competition advocacy regarding the patent system, offering its expertise on issues such as patent quality, notice, and remedies. This paper reviews the FTC’s use of both enforcement and competition advocacy to address competitive harms raised by the assertion of SEPs. In particular, it examines the limited circumstances in which the FTC has used its enforcement authority—to police opportunistic behavior in contravention of SSO policies or practices—and contrasts these circumstances to the situations where the FTC has used its role as an advocate to promote competition more generally.
John E. Dubiansky

Open Access

Chapter 7. Standard Setting Organizations and Competition Laws: Lessons and Suggestions from the United States

The activities of Standard Setting Organizations (SSOs) in determining product standards, especially those covered by Standard Essential Patents (SEPs), create opportunities for anti-competitive and exclusionary behavior, including “hold-ups.” In the United States, antitrust laws have been used to attempt to eliminate such behavior and to minimize its effects. Ironically, concerns about the interpretation of those same laws have made SSOs reluctant to adopt policies that could make their processes more efficient. This chapter looks at the anti-competitive and exclusionary risks posed by SSOs and how American antitrust laws have been used to deal with those risks. The chapter also explores how uncertainty about the application of antitrust and competition laws directed at collective activity may be standing in the way of SSOs adopting procedures and policies that might help avoid those risks and create greater certainty and efficiency. It shows how American antitrust laws and similar competition laws can provide SSOs greater freedom than often believed to, for example, establish maximum royalty rates and determine mandatory licensing terms for SEPs. The chapter concludes with recommendations to help assure that SSOs do not use their powers for anti-competitive purposes.
Donald E. Knebel

Open Access

Chapter 8. FRAND in India

Investigations and litigation involving standard-essential patents (SEPs) have been brought around the world. In the last several years, India has drawn attention to itself by raising several novel and controversial concerns regarding SEPs. For example, in 2013 and 2014, the Competition Commission of India (CCI) issued investigation orders against Ericsson, alleging that the company violated its commitments to license on fair, reasonable, and nondiscriminatory (FRAND) terms by imposing discriminatory and “excessive” royalty rates and using Non-Disclosure Agreements (NDAs). In its investigation order, the CCI stated that “forcing” a party to execute [an] NDA” and “imposing excessive and unfair royalty rates” constitutes “prima facie” abuse of dominance and violation of section 4 of the Indian Competition Act, as does “[i]mposing a jurisdiction clause debarring [licensees] from getting disputes adjudicated in the country where both parties were in business.” Most recently, India’s Department of Industrial Policy and Promotion issued a Discussion Paper on SEPs, which among other things, emphasizes concerns about holdup by patent holders, while omitting any concerns about holdup and holdout by implementers. This chapter analyzes that Discussion Paper, providing guidance based on the approach taken by the United States and Europe, and offers several policy recommendations, including on the availability of injunctive relief; the issuance of a one-size-fits all template for standard-development organizations (SDOs); the imposition of royalty caps or competition sanctions for “excessive pricing,” the use of NDAs and the “ND” prong of FRAND; balancing desires for transparency with needs for confidentiality in licensing; and the use of international arbitration on a portfolio basis as likely the most efficient and realistic means of resolving FRAND disputes.
Koren W. Wong-Ervin, Douglas H. Ginsburg, Bruce H. Kobayashi, Joshua D. Wright

Open Access

Chapter 9. CCI’s Investigation of Abuse of Dominance: Adjudicatory Traits in Prima Facie Opinion

The Courts in India have suggested that the process followed by the CCI for initiating an investigation of alleged abuse of dominance is merely a departmental inquiry and not adjudicatory in nature. This chapter, set in the backdrop of an investigation concerning alleged abuse of dominance in the ICT sector, observes the process adopted by CCI to initiate an investigation. This chapter illustrates that the practice adopted by CCI is more of adjudicatory in nature as opposed to what has been suggested by the Courts.
Indranath Gupta, Vishwas H. Devaiah, Dipesh A. Jain
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