1 Anti-trust issues in standardisation bodies Nicholas Banasevic DG Competition, European Commission (Speaking in a personal capacity - the views expressed are not necessarily those of the European Commission) ABA Brown Bag 22 June 2007

2 Overview Importance of standards Importance of standards The economic and legal framework The economic and legal framework Standards and pricing - ex ante royalty setting Standards and pricing - ex ante royalty setting Patent ambush Patent ambush Conclusion Conclusion

3 IMPORTANCE OF STANDARDS

4 Growing importance of standards Globalising, knowledge-based economy Globalising, knowledge-based economy More and more products have to work together More and more products have to work together Of particular importance in IT/communications Of particular importance in IT/communications Standards-related issues have increased in prominence Standards-related issues have increased in prominence What are the anti-trust issues? What are the anti-trust issues?

5 THE ECONOMIC AND LEGAL FRAMEWORK

6 Cost-benefit analysis (Carl Shapiro) Costs Costs Potential limitations in product variety Potential limitations in product variety Potential market power of company controlling a standard Potential market power of company controlling a standard Benefits Benefits Open standards provide certainty Open standards provide certainty Network effects Network effects Protection from stranding Protection from stranding

7 Commission’s approach Context is specific Context is specific But recognises the benefits of standardisation But recognises the benefits of standardisation Commission Communication Commission Communication Horizontal Anti-Trust Guidelines Horizontal Anti-Trust Guidelines Subject to conditions Subject to conditions Transparency of process Transparency of process No restrictions that are not indispensable No restrictions that are not indispensable Available to all who wish to enter Available to all who wish to enter

8 Do standards confer market power? Possibly Possibly Depends on importance of standard in market Depends on importance of standard in market Depends on lock-in (sunk costs, network effects) Depends on lock-in (sunk costs, network effects) What are the implications for the price? What are the implications for the price? Does RAND have a constraining effect? Does RAND have a constraining effect? Important to also consider whether there would be market power without the standard Important to also consider whether there would be market power without the standard

9 Do standards confer ‘incremental’ market power? Possibly Possibly Depends on ex ante alternatives Depends on ex ante alternatives What would have happened ex ante is a good benchmark What would have happened ex ante is a good benchmark Unique, innovative technologies will be appropriately valued Unique, innovative technologies will be appropriately valued

10 STANDARDS AND PRICING - EX ANTE ROYALTY SETTING

11 Complaints of high royalties Many different complementary technologies in one standard Many different complementary technologies in one standard All with essential patents All with essential patents ‘Patent stacking’ ‘Patent stacking’ High royalty High royalty

12 Ex ante régime (I) Potentially economically more efficient Potentially economically more efficient Prices announced/set before standard is agreed Prices announced/set before standard is agreed Allows competition on both price and technology Allows competition on both price and technology

13 Ex ante régime (II) US Business Review Letters US Business Review Letters EU Technology Transfer Guidelines EU Technology Transfer Guidelines Role of anti-trust agencies should not be prescriptive as regards choice of scheme Role of anti-trust agencies should not be prescriptive as regards choice of scheme

14 PATENT AMBUSH

15 Patent ambush Prevention better than cure Prevention better than cure Encourage standards bodies to have clear rules Encourage standards bodies to have clear rules ETSI ETSI How might specific patent ambush cases be dealt with? How might specific patent ambush cases be dealt with?

16 CONCLUSION

17 Conclusion Benefits of standardisation recognised Benefits of standardisation recognised but the context is important but the context is important Ideally, competition authority does not want to intervene in individual cases Ideally, competition authority does not want to intervene in individual cases Important for standards bodies to design the most efficient rules Important for standards bodies to design the most efficient rules

18 Anti-trust issues in standardisation bodies Nicholas Banasevic DG Competition, European Commission (Speaking in a personal capacity - the views expressed are not necessarily those of the European Commission) ABA Brown Bag 22 June 2007