Orrick, Herrington & Sutcliffe Standard setting and abuse of dominant position (Article 82 EC Treaty) Douglas Lahnborg

Standard setting No specific legislation Articles 81 and 82 EC Treaty apply generally –Article 81 prohibits anti-competitive agreements –Article 82 prohibits abuse of a dominant position

EU attitude to standard setting Competition Commissioner Neelie Kroes: –“only standardise where there are demonstrable benefits” –only include “proprietary technology when there are no clear and demonstrable benefits over non-proprietary alternatives” –“standardisation agreements should be based on the merits of the technologies involved” Competition authorities “may need to intervene” when an owner of proprietary technology, which has been included in a standard, exploits its power (OpenForum Europe, 10 June 2008)

Conduct currently under investigation in Brussels Several companies are currently being investigated in relation to standard setting: –FRAND licensing –Disclosure of patents –Conduct in standard setting organisations Licensing of interoperability information

Dominance (Article 82) Examples in the technology field: –MS: Work group server operating systems (file, print, share) “Streaming” Media Players –Qualcomm: Licensing of CDMA and WCDMA patents –Rambus: Licensing of DRAM patents –Google: Search advertising –IBM: Software modelling tools Mainframe → Narrow market definitions

Rambus - “Patent ambush” DRAM chips standardised by the U.S. SSO JEDEC Rambus was a member of JEDEC, did not disclose patent; –but note: Rambus never voted on standard EC Commission (Aug 2007): –Rambus intentionally deceptive by not disclosing the existence of patents which it later claimed were included in the standard –Rambus subsequently claimed “unreasonable royalties” –Without patent abuse Rambus’ licence fee would have been lower –Remedy: Reasonable and non-discriminatory royalty Case on-going

Qualcomm - FRAND Qualcomm owns patents included in the CDMA (2G) and WCDMA (3G) standards Art 82 complaints lodged by Ericsson, Nokia, TI, Broadcom and others alleging abuse of dominance by Qualcomm for charging excessive license fees: –“essential patent holders should not be able to exploit the extra power they have gained as a result of having technology based on their patent incorporated in the standard” –Qualcomm should license on Fair Reasonable and Non- Discriminatory terms

Qualcomm - FRAND Commission opens formal investigation (Oct 2007) Nokia/Qualcomm settlement (July 2008) Others to follow?

Microsoft - OOXML ISO: Open Document Format (ODF) MS new document format for Office: Open Office XML OOXML first rejected but later approved Creating choice or abuse of dominance? Case on-going

Forced Licensing of IP-rights Dominant companies required to license IP-right (e.g. interoperability information) if: –Refusal to license relates to a product indispensable to the exercise of an activity on a neighbouring market –Refusal excludes effective competition –Refusal prevents appearance of new product or technical development –No objective justification Case T-201/04 Microsoft (2007)

Conclusion Extensive obligations on dominant technical companies in standards setting context Companies use Article 82 as a “sword” to achieve strategic advantages European Commission forum of choice for US and European companies National company authorities keen but limited resources