dealing with governmentdealing with government … conference on standard setting and patent pools...

LSI Conference on Standard Setting and Patent Pools

Dealing with GovernmentDealing with Government Agencies on Standard Setting

Melanie Sabo, Assistant Director Anticompetitive Practices DivisionAnticompetitive Practices Division

Bureau of CompetitionFederal Trade Commission

Washington, D.C. 20580

October 2, 2008

Caveat

Th i d h iThe views expressed here are mine and do not necessarily reflect the views of the Federal Trade Commission, any Commissioner, or

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other FTC staff member.

Law Seminars International | Standard Setting & Patent Pools | 10/02/08 in Arlington, VA

Competition Issues in Standard Setting

Why is deception in standards-setting an tit t ?antitrust concern?

If licensing fees are disclosed during selection, does that avoid deception?Is failure to abide by licensing commitments an antitrust issue?

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an antitrust issue?

Standards Enhance CompetitionCreate new products; stimulates innovationHelp establish communications networks

Allows interoperabilitySimplify price comparisonsIncrease consumer demand and attracts

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suppliers


Harms of Patent Hold-UpHolder of essential patents can block i l t ti f t d dimplementation or use of standardIndustry investment and consumer adoption make it prohibitively expensive to switchPatentee has power to extract greater royalties than it could if patents and costs had been

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than it could if patents and costs had been known prior to selection of its technology for standard

Hold Up Possible Where Patents or Patent Cost Hidden

Deception about patents and their costs i i l ti b bl kiimpairs selection process by blocking information needed for selection processRival technologies compete to become standard based upon performance and costSelection turns on SSO’s knowledge of each

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Selection turns on SSO s knowledge of each rivals’ performance and costUnfair advantage is gained by misleading SSO about patents and their costs


SSOs Vulnerable to Deception

SSO participants less able to protect th l i t d ti b ththemselves against deception because they suspend rivalries to cooperate in good faith to develop an industry standardThus, standards development is vulnerable to deception about patents and the cost to license

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deception about patents and the cost to license the invention described in the patentSSO has no authority over patent holders after selection process

Patent Deception as Antitrust Violation

Antitrust has a role when deception “disrupts the f ti i f th i ttiproper functioning of the price-setting

mechanism of the market”Commission has concluded that a patentee may violate antitrust laws when

it misleads SSO about its patents;

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it misleads SSO about its patents; deception substantially contributes to its acquisition of power to collect supra-competitive royalties; andit intentionally engaged in the deception


FTC CasesAgainst Patent Deception

In re Dell Computer CorporationIn re Dell Computer Corporation121 F.T.C. 616 (F.T.C. 1996)

In re Union Oil Company of California138 F.T.C. 1 (F.T.C. 2004)

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( )

In re Rambus Inc.Slip op. on Liability (August 2, 2006)

Patent Deception in DellPatentee “certified” that it had no IP on

t b t d dcomputer bus standardSSO adopted standard with patentee’s technologyCommission concluded that patentee misled SSO and its failure to disclose was “not

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SSO and its failure to disclose was not inadvertent”Patentee settled with remedy blocking ability to collect royalties when patent used in standard


Patent Deception in Unocal

Patentee offered its technology to California Air R B d (“CARB”) f liResources Board (“CARB”) for gasoline formulation standardPatentee claimed technology was “non-proprietary” CARB adopted the technology for standard

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CARB adopted the technology for standardPatentee settled, agreeing to license its patented technology royalty free for use in standard

Patent Deception in Rambus

Patentee concealed essential IP for SDRAM standardSSO d d d d i ’ h lSSO adopted standard using patentee’s technology; implemented by 90% of computer memory marketAfter lock-in, Rambus demanded supracompetitive royalties from firms practicing the standard (1999)Commission found liability on August 2, 2006

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Rambus’deceptive conduct was exclusionary (§ 2), andContributed significantly to acquisition of market powerDeception distorted JEDEC decision-making process

Commission limited royalties to amount Rambus could collect “but for” the deception (Feb. 5, 2007)


Rambus: D.C. Circuit RulingD.C. Circuit reversed: Rambus Inc. v. FTC, 522 F.3d 456 (April 22, 2008)( p , )§ 2 violation possible if JEDEC would have selected alternative technologies but for the deceptionNo § 2 violation if JEDEC might have selected Rambus technology anyway with RAND

Supracompetitive fees ( > RAND) do not harm competition if monopoly power obtained lawfully

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Relying on NYNEX, Corp. v. Discon, Inc., 525 U.S. 128 (1998), the DC Circuit opined that “an otherwise lawful monopolist’s use of deception simply to obtain higher prices normally has no particular tendency to exclude rivals and thus to diminish competition.”

Rambus: D.C. Circuit Ruling

Commission lost because remedy decision left open the possibility that JEDED might have adopted the p y g pRambus technology over alternative technologies (option ≠ § 2)Does this make sense?

JEDEC rules prohibited adoption of patented technology without RAND commitmentRambus did not disclose its patents to JEDECJEDEC h d k h h h l i

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JEDEC had no reason to know that the technology it was considering had been patented to RambusWhy would JEDEC have sought a Rand commitment from Rambus if Rambus never disclosed the existence of its patents?


Rambus: Next StepsPetition for rehearing en banc denied August 26, 20082008Commission considering filing petition for certiorariFundamental Error: Court declined to recognize that deceptive conduct that harmed the competitive process of selecting technologies for inclusion in industry-wide standard, having no justification or

i i b fi d l b i l

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competitive benefits, and was at least a substantial contributing cause to the creation of monopoly power, should be recognized as “exclusionary” for purposes of Section 2 analysis.

Take Away Points Regarding Deception and Antitrust

Patent holders may violate antitrust laws by i l di SSO b t ti l t tmisleading SSO about essential patents

Deception significantly contributes to acquisition of monopoly powerPatentee intentionally engaged in deception.P t t ti i ti i SSO h ld

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Patentees participating in SSOs should:be candid and cooperate in good faithfollow the SSO’s practices and procedures


IBM’s New Standards PolicyAnnounced on September 23, 2008. Tenets include:

SSO ti i ti b d lit d fSSO participation based on quality and openness of processes, membership rules and IP policiesAdvance SSO governance rules that ensure fair technology decisions, votes and dispute resolutions made by independent participants, protected from undue influence

i h i f l i l d i

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Drive the creation of clear, simple and consistent IP policies for SSOs, enabling standards developers and implementers to make informed technical and business decisions

Licensing Commitments Following Patent Disclosures

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Failure to Follow Specific Licensing Commitment

In recent N-Data matter, technology t ff d it t t d t h l fproponent offered its patented technology for

use in wired LAN standardPursuant to SSO request for a licensing letter, patentee committed to $1,000/manufacturer royalty

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royaltyIndustry relied upon royalty commitment and adopted standardPatent later sold to N-Data

Commission Ruling in N-Data

Commission alleged that N-Data’s refusal to li f $1 000 tit t i l tilicense for $1,000 was antitrust violationN-Data knew about the licensing commitmentCommission believed repudiation of commitment harmed competition and consumers and was unlawful under FTC Act

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and was unlawful under FTC ActN-Data settled; agreed to charge $1,000


Commission Ruling in N-DataCommission approved the issuance of a final

t d d l tt t th t fconsent order and letters to the commenters of record on September 22, 2008Public comments generally supportive that breach of a specific licensing commitment is antitrust violation

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antitrust violationThe SSO in N-Data, the IEEE, stated that it supports the settlement outcome

Learning Patentee’s Licensing Intentions Prior to Selection

SSOs often take steps to confirm cost of patents di lupon disclosure

Knowledge of costs enable industry to take steps to avoid patent holdup SSOs may condition use of patented technology on patentee licensing commitment

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on patentee licensing commitmentIf patentee declines, it can withdraw its patented technology from consideration


Types of Licensing CommitmentsCommit to license for specific royalty amountCommit to license royalty freeCommit to license on reasonable and non-discriminatory terms (“RAND”)

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Commitments to Specific Rates

If SSO elects, it can invite patentees to di l li i t b f l ti fdisclose licensing terms before selection of technology standardAntitrust enforcement authorities have approved such ex ante disclosure of ratesDisclosure enhances competition by

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Disclosure enhances competition by facilitating performance/cost comparisonsPatentee ex ante disclosure of rates does not create substantial risk of price fixing


DOJ Business Review LettersDOJ approved two different SSO approaches t di l f li i tto ex ante disclosure of licensing termsVITA (2006): SSO required holders of essential patents to disclose maximum royalty rates and most restrictive non-royalty termsIEEE (2007): SSO allowed members

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IEEE (2007): SSO allowed members voluntarily to state most restrictive termsBoth SSO procedures encourage competitionActual price fixing remains unlawful

RAND Commitments and Antitrust

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Commitments to License on RAND Terms

SSOs may invite patentees to commit to “ bl d di i i t t ”“reasonable and non-discriminatory terms”A RAND commitment is indicator of cost of technologyRAND signals that patentee will license technology at capped “reasonable” rate

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technology at capped reasonable ratePatentee may abuse monopoly power when it charges more than cap

Is Failure to Comply with RAND Commitment an Antitrust Case?

Commission has not addressed whether refusal t f lfill RAND it t i l t tit tto fulfill RAND commitment violates antitrust law Federal Courts of Appeals decisions are mixed3rd Circuit found false RAND commitment a § 2 violation (Broadcom v Qualcom)

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violation (Broadcom v. Qualcom)D.C. Circuit appears to say that § 2 violated only if commitment led to elimination of rival technology


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