città, luogo, data standardization, intellectual property rights and the evolution of the...

Città, luogo, data

Standardization, Intellectual Property Rights and the

Evolution of the Information Industry in Europe

Avv. Massimiliano GranieriHead, Intellectual Property & Technology Transfer

Fondazione Bordoni

Rome, July 29, 2003

Intellectual Property and Antitrust Issues in Standard

Setting Organizations

INTERMEDIATE REPORT

2Standardization, Intellectual Property Rights and the Evolution of the Information Industry in Europe – © Torino Wireless 2003

SpeakerAvv. M. Granieri

Rome, Fondaziopne Bordoni July 29, 2003

WHY STANDARDS

A way to ensure backward and forward interoperability and compatibility among different levels of a de-verticalized market

At least at the very beginning scarce attention to IPRs, the reason being that many SSOs were partecipated by national monopolists with no need to defend a market (the case for CCITT, then ETSI). GSM case: ~ 1200 relevant patents, ~ 50 essential, ~ 10 holders UMTS case: above 2000 relevant patents, 200 essential, more than 40 holders

As a consequence of liberalization and vertical disintegration of the industry new entrants pose more attention on IPRs and proprietary standards become crucial to the industry.

Vertical interconnection externalities are common to many ICT industries (TLC, computing, video broadcasting)




DEFINING STANDARDS

Definition:

“technical or quality requirements with which current or future products, production processes or methods may comply” (§ 159, EU Guidelines for the application of art. 81 to horizontal cooperation agreements)

A standard is a piece of valuable information related to a specific, de-verticalized market, as a condition for the entry into the market

Nature of impure public good (market failure and economics of information considerations)




POSSIBLE METHODS TO ENSURE COMPATIBILITY THROUGH STANDARDS

A. DE FACTO STANDARDS

B. DE JURE STANDARDS

1. Standards set up by public, governmental bodies: NIST, ANSI, ETSI etc.

2. Standards set up by private voluntary organizations (voluntary consensus standards): Standard setting organizations (SSOs) as consortia or alliances

3. Interoperability ensured by open architectures (e.g., open source software)




VIRTUES AND VICES OF STANDARD SETTING PROCESSES

BY GOVERNMENTAL BODIESVICES- Bureaucracy and slow response to market change- Durability of standards even when ill-conceivedVIRTUES- No antitrust concerns- Public regulation and control allowed

BY PRIVATE SSOsVICES- Consumption of time and resources (public good nature)- Transaction and coordination costs- Possibility of collusion- Possibility of predatory and exclusionary practices (winner takes all nature of the market)VIRTUES- Higher quality- Quicker response to market’s needs and change




HISTORY OF STANDARD SETTING PROCESS

IN THE US

1. ANSI sets the standards or recognizes SSOsAfter American Society of Mechanical Engineer vs. Hydrolevel [456 U.S. 556 (1982)], ANSI imposes RAND licensing and duty to disclose to SSOs members

2. SSOs starts to develop to make up defects and vices of public standard setting processes

Pay-to-play participation in alliances and consortia. Same criteria as above apply for membership. Anticipatory standardization matters

3. SSOs and their participants are put under antitrust scrutiny and new legislation is passed to ensure a more favorable antitrust treatment.

Standard Development Organization Advancement Act of 2003 (H.R. 1086)




STANDARD SETTING ORGANIZATIONS AND MARKET PROPERTIES

Main characteristics of markets dominated by standards:

• Oligopolies (or tendency to monopoly)

• Winner-takes-all nature. Competition is for the market, not in the market (full value is appropriate by the winner, not only his marginal contribution)

• Network externalities and tipping effects are relevant and can affect the competitive process

• Markets evolve rapidly and technologies become obsolete, although backwards compatibility can protect the entrenched standard-setter raising switching costs for consumers (unless leapfrogging product comes up)




STANDARD SETTING ORGANIZATIONS AND INTELLECTUAL PROPERTY ISSUES

1. Determining essential patents to enter an SSO Need for impartial determination of essentiality

2. Avoiding ‘submarine’ and ‘torpedo’ patents Need for timely and complete disclosure Duty to disclose as condition of membership Duty to license Consider breach of contract

3. Dealing with ‘ghost’ patents Same treatment as above

4. Defining royalties policies (RF, RAND, FRAND etc.) Preventing hold up problems in negotiations Allowing price regulation Limiting damages to FRAND royalties




STANDARD SETTING ORGANIZATIONS AND INTELLECTUAL PROPERTY ISSUES (cont’d)

5. Relying on homogeneous private IPRs policies and strategies within companies

6. Relying on homogeneous laws among countries(the case for software)

7. Remedies Prevent dominant firm to enforce essential, submarine IPRs Adopt compulsory licensing under special circumstances Limit license by default only to SSOs member who actively contributed

technology




STANDARD SETTING ORGANIZATIONS AND ANTITRUST ISSUES

THREE LEVEL OF ANALYSIS

1. SSOs membersIncumbents with significant market power can abuse their dominant position by discriminating or denying licenses and/or set high prices. Make a distinction b/w close and open SSOs

2. Firms interested in becoming SSOs membersNewcomers can apply for membership and act opportunistically concealing patents which are essential to the standard. At the same time, they can be discriminated and prevented from entering the market (with regard to so called open SSOs)

3. Firms only interested in getting a license to use the standard technologyThey can only be discriminated, charged high prices prevented from

entering the market (with regard to open SSOs)




STANDARD SETTING ORGANIZATIONS AND ANTITRUST ISSUES (cont’d)

Behaviors relevant to antitrust analysis

•IndividualAbuse of dominant position/Attempt of

monopolization. Abuse (or patent misuse) if enforcement of patent rights is sought after a standard has been set

•CollectiveGroup boycott, concerted refusal to deal, abuse of joint dominant position




WIRELESS COMMUNICATIONS SYSTEMS AT A GLANCE

GENERATIONS

1G (analog transmission technology)

2G (digital technology): 9.6 kbps

3G: (digital technology) 144 kbps / 2Mbps

WIRELESS VOICE

TELEPHONY

WIRELESS VOICE

TELEPHONY AND DATA

TRANSMISSION

3G RADIO INTERFACE APPROVED BY ITU

1. IMT-Multicarrier (IMT-MC) CDMA 2000

2. IMT-Direct Spread (IMT-DS) Wideband-CDMA

3. IMT-Time Code (IMT-TC) TD-CDMA

4. IMT-Single Carrier (IMT-SC UWC-136 or TDMA-EDGE

5. IMT-Frequency Time (IMT-FT) DECT (digital enhanced cordless telecommunications)




THE CHAIN VALUE FOR 3G MOBILE TLC INDUSTRY

End users

Access network provider

Content provider

Service network provider

Value-added service provider

AREA OF INTEROPERABILITY




IPRs AND ANTITRUST ISSUES IN SSOs FOR THIRD GENERATION WIRELESS SYSTEMS

Business SegmentBusiness Segment

Patent ProblemPatent Problem

Third generation (3G) wireless systems (2002 - 2018)

Proliferation of companies claiming ownership of patents making

cumulative royalties excessive

SolutionSolution Industry defined 3G Patent Platform

New ParadigmNew Paradigm

Flexible collective licensing arrangement suitable for complex patent

arrangements, and multiple standards and

technologies

Business Context

THE CASE FOR THE 3G PATENTS PLATFORM




IMPACT ON THE INDUSTRY COST OF A PATENT PLATFORM FOR THIRD GENERATION WIRELESS SYSTEMS

R&D(internal orexternal)

Production bill(materials,

manufacture,sub-contracting,

assembly and test)

IPR costs(royalties paidand collected)

Mark-up(profit)+ + +

TOTALEQUIPMENT

COST

Continuing commercial effort to reduce all costs, including IPR costs (i.e., royalties paid).

Market pressureto reduce prices

“Platform effect”

• Quantification of the “platform effect” (reducing the total royalty bill for the industry): The IPRS cost is an important element of the overall equipment cost, and has a major influence on profitability.

• The “equipment cost model” comprises several key elements (It applies to all products, including terminals, base stations, network controllers, and test equipment)




STRUCTURE OF THE 3G PATENT PLATFORM

• Structured with completely independent platforms. Each radio interface technology is operated by its own Platform Company (“PlatformCo”: see next slide), and that PlatformCo is governed solely by the licensors (excluding pure licensees). (This organizational structure was required as a prerequisite to DOJ approval)

• A common services company, 3G Patents, provides to all of the PlatformCos, the following services (see next slide):patent evaluation and certificationpromotion and education about the 3G patent

platform conceptmarket research and analysis to seek additional

royalty revenue sources for the 3G business chain

industry discussion forum for IPR issues relating to 3G




STRUCTURE OF THE 3G PATENT PLATFORM (cont’d)

W-CDMA TD-CDMA UWC-136 CDMA 2000 DECT

3G Patents Ltd3G Patents Ltd

Common services

Membership is openand voluntary to allInterested players, e.g.manufacturers, operators, patent law firms, patent attorneys, and industry bodies.

Membership open to owners of certified “essential” patents, that is, licensors of a specific technology (but excludes pure licensees)

PlatformCOs (5, in principle)

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