Antitrust-Standard Setting Joseph Grinstein & David Healey Federal Circuit – Eastern District of Texas Bench Bar September 26, 2011 For Discussion Only Fed Cir-ED Tex Bench Bar 1

Basic Principles of Antitrust Law Antitrust laws: – Are regulatory laws, that – protect competition in a market, by – prohibiting unreasonable restraints on trade by competitors (Section 1), and unfair trade practices to attempt to or monopolize a market (Section 2). No one cares about you: – Antitrust laws protect competition not competitors. – The “market” or “competition” is the victim. – Market participants enforce laws in private lawsuits acting as “private attorney generals”. For Discussion Only Fed Cir-ED Tex Bench Bar 2

Antitrust Laws v. Patent Laws Monopoly is the power to control output and/or price. Antitrust laws bar monopolies over markets gained through unfair business practices. Patent laws give a patentees monopolies over inventions for a period of time. A monopoly over a market is not the same as a monopoly over an invention. Antitrust and Patents collide only when the monopoly over the invention is also a monopoly over a market. For Discussion Only Fed Cir-ED Tex Bench Bar 3

SSOs are “rife with opportunities for anticompetitive activity”. Am Soc'y of Mech. Eng'rs v. Hydrolevel Corp., 456 U.S. 556 (1982). For Discussion Only Fed Cir-ED Tex Bench Bar 4

Standards, Antitrust, Patents Standards are most common in “networks” – Products and components that must function together to deliver value: e.g., 3 prong socket in a wall + electrical plug on a lamp. – Other examples: WCDMA/UMTS standards for mobile phones – “handshake” between base station and handset. JEDEC standards for semiconductors – Size, “pin” assignments for DRAMs. For Discussion Only Fed Cir-ED Tex Bench Bar 5

Standards and Product Certification Standards also are created for product certification (e.g., safety standards): – Underwriters Laboratories “UL” tested. – Standards for electrical conduit – incorporated into fire codes. For Discussion Only Fed Cir-ED Tex Bench Bar 6

Where there is no need for a standard, SSO action can be subterfuge for illegal conduct by competitors. National Macaroni Manufacturers Association v. F.T.C., 345 F.2d 421 (7 th Cir. 1965)(No need for standards for noodles for compatibility or safety) For Discussion Only Fed Cir-ED Tex Bench Bar 7

Sources of Standards Government – Gasoline additives – Building codes – e.g., wire conduit for fire codes Private Consortia – Phillips and Sony for Compact Discs – SanDisk, Toshiba, Panasonic for SD Cards Industry Groups: – 3GPP/ETSI – WCDMA/UMTS standards – JEDEC – Semiconductors For Discussion Only Fed Cir-ED Tex Bench Bar 8

Established Principles Standards Setting Organizations (“SSO”s) typically include horizontal competitors: Participants in a standards group must: – Disclose IP asserted as essential to implement a technology under consideration as a standard. – Disclose whether IP will be licensed for implementation of the standard on reasonable and nondiscriminatory grounds (RAND or FRAND). – Commitments made to standards groups are binding contractual commitments. – Compliance with rules of SSO is not a defense to antitrust liability. For Discussion Only Fed Cir-ED Tex Bench Bar 9

Open Questions for SSOs What is RAND or FRAND? – Same royalty that would be charged absent selection of technology by competitors as a standard? – Compensation for contribution to the technology? – As much as the market will pay, traditional U.S. rule in private patent licensing? What does disclosure mean? – Periodically? – At time of working group meetings? – What to disclose? – Specific patents, claims, applications? For Discussion Only Fed Cir-ED Tex Bench Bar 10

The “SSO License?” Do SSO participants have a “license” to each other’s essential patents? – Is the license to all patents asserted against standard or just those claims found to infringe? – What does “essential” mean in implementation of the standard? “Technically essential” vs. “commercially necessary”? By patent or by claim? Tied to disclosure by patentee? For Discussion Only Fed Cir-ED Tex Bench Bar 11

Injunctions and Standards? If patentee makes a RAND or FRAND offer and infringer refuses to pay, can the patentee get an injunction? – Does infringer’s breach negate the “standards license”, permitting injunctive relief? – Who decides if the offer was RAND or FRAND? Patentee? Court? Infringer/DJ Action? Group? For Discussion Only Fed Cir-ED Tex Bench Bar 12

Private Consortia Private consortia create standards: – Can be pro-competitive by permitting for different manufacturers to make compatible products. – Can be much faster to implement than SSO standards. – Independent pools can regulate/prevent licensing abuses. For Discussion Only Fed Cir-ED Tex Bench Bar 13

Private Consortia Problems of private consortia “tipping” the market: – Compatible form factors might add nothing to technical performance (e.g., shape of a plastic card or cassette). – Royalties might be disproportionate to contribution. – Royalties might be stacked on top of separate licenses to individual member’s patents on underlying technology. – Royalties might raise barriers to entry to new technology or products. – Rights to use improvements to the technology might be granted back to original members, reducing incentive to innovate. For Discussion Only Fed Cir-ED Tex Bench Bar 14

Government Selected Standards Do same rules apply as with SSOs? Does Noerr-Pennington exception bar antitrust claims based on lobbying government? Is there a difference between a private group that creates standards for government agencies as opposed to standards adopted by a government agency process? For Discussion Only Fed Cir-ED Tex Bench Bar 15

“Monopsony” Monopsony is a “buyer’s cartel”: – Force small companies to license cheap, or – On unfavorable terms. For Discussion Only Fed Cir-ED Tex Bench Bar 16

Patent Reform, Princo and Standards Patent Reform – The good – may be basis for exception to “no joinder” rule as standard can be basis to prove infringement. – The bad – Federal Circuit has expanded jurisdiction under Section 19, H.R (see p ), traditionally hostile to antitrust claims: Compare Image Technical Services v Kodak, to In re Xerox; see In re Princo, dissent. For Discussion Only Fed Cir-ED Tex Bench Bar 17

Selected Cases No patent misuse in licensing patent pool for private standard if patentee sues on tying patent (infringed patent) rather than tied patent, even if so do so would violate antitrust laws. – Princo Corp. v. Int'l Trade Comm'n, 616 F.3d 1318 (Fed Cir. 2010)(en banc), cert. denied, __ U.S. ___ (2011). Standard setting commitments are binding. – Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007). Compliance with SSO rules is not a defense to antitrust claims. – Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 US 492 (1988). Failure to timely disclose alleged infringement by standard may be estoppel. – Stambler v. Diebold, Inc., 11 U.S.P.Q. 2d 1709 (E.D.N.Y.1988), aff'd, 878 F.2d 1445 (Fed.Cir. 1989). For Discussion Only Fed Cir-ED Tex Bench Bar 18

Fraud or non-disclosure in government standard-setting can be actionable. – In re Union Oil Co., 138 F.T.C. 1 (2004). Promotion of product as industry standard in formal SSOs and in market can result in implied license. – Wang Labs., Inc. v. Mitsubishi Elecs. Am., Inc., 103 F.3d 1571 (Fed.Cir.1997). Members of SSO cannot leverage patentee into unfavorable license or exclude patented technology from consideration of standard, “monopsony” (buyer’s cartel). – Addamax v. Open Software Foundation, 888 F. Supp. 274 (D. Mass. 1995), aff'd, 152 F. 3d 48 (1998). Patent does not equal a monopoly of a market or market power. – Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006). For Discussion Only Fed Cir-ED Tex Bench Bar 19

This PPT is available by request to presenters: or The PPT is also posted on “Learning and Lessons” page at For Discussion Only Fed Cir-ED Tex Bench Bar 20