the antitrust-ip interface

[ w w w . d u a n e m o r r i s . c o m ]

The Antitrust/IP Interface:

Lessons from Rambus, Qualcomm and Beyond

Part 2─Patents & Collaborative StandardsDuane Morris Philadelphia

By Glenn B. Manishin <[email protected]>

Feb. 14, 2008


Overview

● Patents & Standards Market Power● Procedural Constraints in Standards Setting● The FRAND “Requirement”● Patent Disclosure Under Section 2● Practical Advice to IP Holder Clients● Some Future Trends & Issues


Patents & Standards Market Power

● Now widely accepted under Illinois Tool analysis that patent alone does not necessarily confer market power

Both “interoperability” and “performance” standards are generally efficiency enhancing and procompetitive

IP incorporated into voluntary/collaborative standards can augment market power by raising switching costs and providing increased licensing/bargaining leverage

● With ANSI opinion letter (78 FTC 1628 (1971)), FTC sub silentio initiated regime of procedural safeguards and mandatory licensing for IP incorporated into standards


Patents & Standards Market Power (con’t)

● Market power analysis, essential for monopolization liability, focuses “on the market power of the IP holder that was acquired through the standards-setting process” (DOJ/FTC Joint IP Report)

● Misuse of standards-setting organizations (SSOs) is suspect where SSO is used to impede entry (Hydrolevel, Allied Tube) SSO is used to obtain or maintain monopoly power (Dell,

Rambus, Unocal, Intel, Qualcomm)● Legal source of patentee’s “duty to disclose” is unclear

and debatable in light of Trinko● Per se liability for SSO activities barred by 2004

congressional amendment (15 U.S.C. §§ 4302-03)


Procedural Constraints in Standards Setting

● Oxymoronic legal doctrine applies to standards Typically, “due process” is irrelevant to antitrust liability even

for group boycotts and other per se offenses (Northwest Wholesale Stationers)

Conversely, courts apply § 1 procedural protections to SDO activities as substitute for merits examination (Allied Tube), leaving resolution of technical issues to experts by focusing instead on process

● Few judicial opinions focus on this conflict Under a “reasonable-basis approach,” standards should be

sustained “even if conclusions leading to a different standard might be drawn” Clamp-All Corp. (1st Cir. 1988) (Breyer, C.J.)


The FRAND “Requirement”

● Most SSOs adopt “patent policy” requiring: Incorporation of IP “essential” to implementing standard

only if unprotected/open technology not available Advance disclosure of applicable IP by proponents of

standards Ex ante commitment to license on “fair, reasonable and

nondiscriminatory terms and conditions” (FRAND)

● Antitrust courts have not held that FRAND licensing is §§ 1 or 2 mandate

● Query whether risk of horizontal collusion compels SSO patent policies to avoid group boycott liability


The FRAND “Requirement” (con’t)

● Patent-centric judicial decisions applied equitable estoppel to prevent IP holder from refusing to license IP included standards

● Dell consent decree (FTC 1996) for first time used IP nondisclosure as basis of § 5 remedy for standards-setting abuse

● Some courts have decided standards/IP nondisclosure claims on common law fraud theories Differs from traditional Walker Process patent process fraud

approach Conflicts with patent preemption doctrine immunizing pre-

suit infringement notice from tort liability absent bad faith


Patent Disclosure Under Section 2

● Dell criticized for lack of market power or market definition analysis; remedied in Unocal decision (FTC 2005)

● High-profile cases extended Dell to impose § 2 liability based on IP nondisclosure, Rambus (3d Cir. 2003) implied duty to disclose under ANSI/

EIA patent policy for “reasonable competitor”—no formal infringement analysis

Cotemporaneous FTC decision found § 2 liability for “conceal[ing] its patent interests and, using information gained from participating in SSO proceedings, modif[ying] its patent applications to ensure that its patents would apply to those industry standards.” In re Rambus (2006)


Patent Disclosure Under Section 2 (con’t)

● Broadcomm (3d Cir. 2007) followed Dell, Unocal and Rambus Private standards-setting permissible in antitrust only where

“meaningful safeguards” prevent boycott-like anticompeti- tive effects

Patent “hold up” is principal exclusionary consequence of IP nondisclosure, producing supracompetitive royalties

Court analogized to Microsoft § 2 liability for “polluting” Java standard with deceptive conduct

● Yet other cases have held that “breach of [an SSO’s] disclosure policies, without more, cannot give rise to antitrust liability.” Hynix v. Rambus (N.D. Cal. 2006)


Practical Advice to IP Holder Clients

● Counsel engineers carefully on procedural requirements attendant to SSO participation

● Focus on procedural protections as leverage with SSOs against Allied Tube-type misconduct (meeting packing, vote “bid-rigging,” biased/affiliated chairmen, etc.)

● Choice between de facto standards and industry standards is crucial, strategic business decision—e.g., Microsoft/OOXML


Some Future Trends & Issues

● Largest open legal question is whether, absent fraud, nondisclosure or SSO “misuse,” § 2 liability covers naked refusal to license Rambus/Qualcomm analysis conflates older

equitable estoppel theories and newer, process-oriented antitrust/standards jurisprudence

Intergraph/Kodak II disagreement illustrates that Colgate doctrine may not apply to unilateral refusal to deal where license is required for entry

Conversely, Trinko analysis would conclude that antitrust law alone cannot impose duty to license


Some Future Trends & Issues (con’t)

● Rambus administrative remedy of mandated maximum license price is problematic Little practical effect of nondisclosure liability if courts and

agencies do not scrutinize license rates But traditional antitrust relief, even for core, per se unlawful

horizontal price fixing, does not encompass non-market based pricing (versus damages)

● SSOs will likely face pressures to adjudicate FRAND license prices Predatory IP licensing theory is “next shoe” to drop as

standards-setting becomes ubiquitous in network effects industries

the antitrust-ip interface

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