standards-setting organizations: practical tips and...

Standards-Setting Organizations:Practical Tips and Cautions for Members and Prospective Members

Wednesday, September 24, 2008

Moderator: Roger Furey, Katten Muchin Rosenman LLP, Washington Managing Partner

Panel Members:

• Dan Bart, President and CEO, Valley View Corporation, Chair of ANSI Intellectual Property Rights Policy Committee

• James Calder, Katten Muchin Rosenman LLP, New York Antitrust Partner

• Robert Hebda, Freddie Mac Associate General Counsel

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Outline

• What are SSOs/SDOs? • Benefits to SSO Participation• Risks and Costs of SSO Participation

– Risks of loss of trade secrets – IPR disclosure issues – Antitrust issues

• SSO Selection Criteria• Questions/Answers/Discussion • Supplemental Handout Materials

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What are Standards-Setting Organizations?• Institutions that adopt and promote voluntary equipment,

performance and interoperability standards or codes of conduct: also known as voluntary industry standards.

• Standards are developed through the collaboration of SSO members.

• Example SSOs include:– Internet Engineering Task Force (“IETF”);– IEEE (originally the Institute of Electrical and Electronics

Engineers);– World Wide Web Consortium (“W3C”); and– Accredited Standards Committee X9 (“ASC X9”) Financial

Industry Standards.• Many SSOs are accredited by the American National Standards

Institute (“ANSI”) to develop American National Standards (“ANS”).

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WMACCA and SSOs

• As corporate counsel, your clients/employees may currently participate in (or be thinking of joining) Standards-Setting Organization (“SSO”) or Standards Development Organization (“SDO”)– This may include those that are ANSI-Accredited SDOs

(“ASDOs”), or – Non-Accredited SDOs (“NASDOs”), also known as fora or

consortia, or Special Interest Groups (“SIGs”).

• DO YOU KNOW all the SDOs your client and its employees participate in? WHO attends the meetings? And WHAT the Intellectual Property Rights (“IPR”) and other policies of those organizations are?

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Why Standards Can Be ConfusingInternational De-Facto Standardization OrganizationsWhy Standards Can Be ConfusingInternational De-Facto Standardization Organizations

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Benefits to SSO Participation

• Market Creation

– Through participation in SSOs, members have a chance to exercise strategic and technical influence over the creation of new markets, can condition existing markets, or even expand markets for legacy products.

– An SSO can develop a standard that takes into account existing patent and other IPR.

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• Competitive Market Advantages

– SSO members obtain early access to evolving standards and can tailor their product development efforts accordingly. As a result, SSO members may be first-to-market when new standards emerge and can avoid the pitfalls of funneling time, money, and energy into obsolete products. Through participation, members can help protect and grow their market share.

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• Shared Research and Development– In some circumstances, SSO research will

complement a member’s own research and development efforts thereby reducing costs for creation of new technologies.

• Training– Some SSOs offer seminars, training, and educational

tools for member employees.• Royalty income from licensing technology

– Most SSO policies allow Reasonable and Non-Discriminatory (“RAND”) licensing for embedded IPR.

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• Interoperability Testing and Certification

– Some SSOs will allow members to verify the interoperability of their standards-compliant products.

• Marketing Advantage

– Members may also gain a marketing advantage through SSO certification or branding of standards-compliant products.

– SSOs sometime engage in marketing campaigns to promote newly adopted standards and to generate public interest in the compatible products.

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• Networking Opportunities– Members can network with industry

contemporaries and develop contacts for joint ventures and other collaborative opportunities.

– Participation in SSOs also conveys to market participants and customers that a company is an industry player.

• Maintaining Customer Goodwill– Customers will be satisfied with products

compatible with the adopted standards.

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Risks and Costs of SSO Participation

• Loss of trade secret protection

– Members need to be wary of losing trade secret protection for confidential information shared in an SSO setting.

– Even if an SSO has policies and procedures in place, confidentiality measures are difficult to enforce and there is a high risk of non-compliance by other participants.

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Risks and Costs of SSO Participation• Potential Disclosure of information about IPR

– Some SSOs require members to disclose information about their IPR or any existing non-participant IPR. The amount, scope, and breadth of the disclosure requirement varies.

– Most SSOs at least encourage early disclosure (e.g.,those accredited by ANSI).

– Disclosure may be required regardless of whether a member actively contributes technology or offers suggestions for a proposed standard.

– In some instances, membership alone automatically triggers a duty of disclosure.

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Risks and Costs of SSO Participation• Potential Disclosure of information about IPR

(continued)

– In instances when an SSO’s IPR policies are not clear, members must tread carefully since the law in this area is still developing.

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• Enforcing patents may be difficult

– Even if an SSO does not compel the disclosure of a member’s IPR, many SSOs require their members to make a commitment not to enforce patents against companies that make products that are compliant with the standard.

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• Licensing of IPR on less favorable terms

– Some SSOs require members to provide a compensation free or royalty-free license for all IPR that may relate to an adopted standard.

– In some SSOs, silence regarding IPR results in granting royalty-free licenses.

– Other SSOs require licensing on RAND terms. • What does that mean? Lack of clarity can lead to

controversy during later negotiations. And litigation.

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• Licensing of IPR on less favorable terms (continued)

– To avoid uncertainty, a few SSOs require, but others permit, voluntary ex-ante (i.e., “before the event”) disclosure of proposed RAND terms

• Allows members to take those terms into account when creating a standard.

• Discussion of those terms is not allowed in the standards meeting itself (that is left to the licensing parties).

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• Licensing of IPR on less favorable terms (continued)

– While such ex-ante terms disclosure may help avoid future disputes, it also forces a member to offer favorable terms if it wishes to have its technology incorporated in the adopted standard.

– “Gaming” of process can be an unfortunate byproduct of ex-ante disclosures.

• E.g., Member A can offer very unfavorable terms on some of its IPR that covers Member B’s (a competitor’s) technology, to push the committee towards Member A’s technology.

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• Licensing of IPR on less favorable terms (continued)– In 2006, the FTC decided that a good faith duty to

disclose patents, patent applications and works in progress may exist even when an SSO policy does not clearly require such disclosure on its face.

– On appeal, the D.C. Circuit raised serious questions about the FTC’s finding of such a duty in the face of ambiguous evidence. Rambus v. Federal Trade Commission, 522 F.3d 456 (D.C.Cir. 2008).

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Risks and Costs of SSO Participation• Potential antitrust issues

– Standard Antitrust Precautions for Collaboration Among Competitors

• Whenever competitors get together, traditional antitrust concerns arise over price fixing, market allocation or other anti-competitive agreements.

• Standard antitrust guidelines should be adopted and followed whenever the SSO involves competitors or potential competitors.

• Agendas should be created for all meetings and should be pre-approved by antitrust counsel. Topics not on the agenda should not be discussed without counsel’s approval.

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• Potential antitrust issues (continued)– Hijacking the Standards-Setting Process

• Antitrust exposure is created where competitors are able to seize control of the SSO and set the standard so as to exclude a new or different competitive product or technology from the market. Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S 492 (1988); American Society of Mechanical Engineer v. Hydrolevel Corp., 456 U.S. 556 (1982). See also, Standards Development Organization Act of 2004, 15 U.S.C. § 4301 et seq.

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Risks and Costs of SSO Participation• Potential antitrust issues (continued)

– The Dell Computer and RambusDecisions

• Failure to disclose patents or other IPR related to a standard issued or adopted by an SSO could lead to an FTC or DOJ antitrust investigation.

• If the SSO has a policy requiring patent or other IP disclosure, a violation of the policy may result in liability for monopolization under Sherman Act § 2, 15 USC § 2 and a violation of FTC Act § 5, 15 USC § 45.

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• In Dell Computer, the FTC attacked Dell for certifying that it had no patents that were infringed by an SSO standard and later, after the standard was adopted, asserting infringement claims against those who adopted the standard.

• In Rambus, the FTC attacked Rambus for failing to disclose patents, amendments and planned amendments to patent applications to an SSO. The FTC found that the non-disclosure was deceptive and monopolized the market in violation of Sherman Act § 2 and FTC Act § 5.

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• Potential antitrust issues (continued)• In its decision on the appropriate remedy in Rambus,

the Commission imposed a regime of compulsory licensing on Rambus – forcing royalty-free licensing after several years.

• The FTC asserts that it has the authority to order compulsory licensing when SSO members fail to disclose patents.

• Although the Court of Appeals for the District of Columbia set aside the FTC orders, the court’s decision did not address whether the FTC’s approach to remedy and licensing was appropriate.

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– In 2007, the FTC and DOJ did clarify that an IPR owner’s unilateral ex-ante announcement of licensing terms or bilateral ex-ante negotiations will not attract scrutiny under antitrust laws. See, Antitrust Enforcement and Intellectual Property Rights, April 2007, jointly issued by U.S. Department of Justice and Federal Trade Commission.

– The FTC and DOJ recognize that SSO sponsorship of ex-ante discussions of licensing terms before the technology is chosen may be pro-competitive and will ordinarily be judged under the Rule of Reason. Id at 54 – 55.

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• Potential antitrust issues (continued)

– Due to perceived antitrust risk of SSOs permitting group discussions of prices, most SSO forbid any such discussions under their policies for conducting meetings.

– If ex ante licensing discussions are to be held, they must be done under the supervision of antitrust counsel.

– Beyond government investigations, private litigation–including class action lawsuits–is a risk.

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• Potential antitrust issues (continued)

– Patent Pooling• Some standards will infringe multiple patents held

by multiple patent owners. Negotiating separate licenses with each patent owner will be cumbersome and time consuming, and will impede adoption of the standard.

• Patent pools solve this problem by offering a “one-stop-shop” for license needed to practice the standard.

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• Potential antitrust issues (continued)– Patent Pooling

• Patent pools may raise significant antirust questions. However, DOJ has provided a road map for structuring pools in an antitrust appropriate manner in a series of business review letters. See letter from Joel Klein dated June 26, 1997 concerning MPEG-2 patent pool; letters from Joel Klein dated December 16, 1998 and June 10, 1999 concerning DVD patent pool; letter from Charles James dated November 12, 2002 concerning 3G patent pool.

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• Membership can be expensive

– Annual membership fees can range from a modest amount to very high fees depending on the SSO and the class of membership desired.

– Other expenses such as travel costs to SSO meetings and time away from one’s company are financial commitments which must be considered.

– Beyond the financial commitment, some SSOs require members to “loan” part-time or full-time employees to the SSO for staffing purposes. Such loans can be on a project-by-project basis or for a set period of time.

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Receives periodic updates regarding technical programs and standards (only after they are made public).

Approx. $250 Informational Member

Non-voting participation in technical and marketing processes; provides timely access to information about developing standards, but no influence over standard.

Approx. $10,000Advisory Member

Full voting participation in technical and marketing processes; eligibility for committee chair positions; offers the ability to influence standards.

$15,000 to $25,000Technical Committee Member

A board seat which includes power to nominate committee chairs and officers; offers the ability to influence and help set overall strategic objectives of the SSO.

$25,000 to $60,000 Strategic Member

BenefitsAverage CostMembership Level

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SSO Selection Criteria Checklist1. What are your organization’s objectives for participating

in a SSO?

– For example, are the organization’s goals primarily technical in nature, promotional, or a combination?

2. How do the goals and purpose of the SSO meet your organization’s objectives?

– Different SSOs offer different benefits and advantages. Identify those benefits and advantages that are most important to the organization’s objectives.

– Are there other SSOs that offer the same or better benefits and advantages with respect to the standards at issue? If so, are those SSOs better candidates?

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SSO Selection Criteria

3. What antitrust risk, if any, is presented by the SSO? Does the SSO have a legal guide or antitrust compliance program?

4. Will the SSO be successful?

– How is the SSO structured, organized, managed, and funded?

– Does this SSO have an established reputation and respect in the industry?

– Has it historically produced standards that are accepted in the industry?

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SSO Selection Criteria4. Will the SSO be successful? (continued)

– If it is a new SSO, or one without an established reputation, consider the following questions:

• Which industry members have already aligned themselves with the SSO? Which are staying away? Are the major players in one of these categories?

• Has the SSO been “captured” by a small number of influential companies? If so, you can expect the standards will be skewed in the favor of those companies – does this fit with your organization’s objectives?

• Does it have adequate resources? What is its funding and staffing? Does it have continuity of membership and officers, strong committee chairs, a track record of timely process implementation?

• Does it have robust member participation?• Who are the SSO’s leaders and what are their

reputations in the industry?

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SSO Selection Criteria4. Will the SSO be successful? (continued)

– Review the SSO’s IPR policy and Guidelines for the IPR Policy. Summarize what it requires with regard to:• The member’s duty to disclose patents and other

IPR. What does your organization have to disclose and when?

• Does it require the member to license its patents and other IPR on royalty-free or RAND terms?

• What, if any, obligations are there for the member to review its patent portfolio or poll employees before disclosing information about its patents that might cover a part of the standard to be discussed?

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5. Obtain copies of the following documents for careful review:

– Membership application

– Membership agreement and any other binding documents referenced in the application or agreement, including the IPR Policy and Guidelines

– All policies and procedures, including Legal Guide or Antitrust Guide

– Articles of Incorporation

– Bylaws

– IRS Form 1024

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6. Summarize the expected costs of joining and participating in the SSO:– What level of membership are you requesting and

what are the annual dues?– Which organization employees are expected to be

actively involved?– What are the time and travel commitments for each

participant? Will meetings be in person or via electronic means?

– Is there any requirement to “loan” employees to the SSO for any period of time to assist with staffing?

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Question & Answer Session

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Supplemental Handout Materials

• Standards Overview/Structure

• More Details About ANSI

– ANSI IPRPC, Patent Group, Copyright Group

– ANSI Patent Policy

• Supplemental Information/Resources Links

• Samples of Legal Guides From Some SSOs

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