Competition Issues in Standard Setting: The New Horizontal Guidelines Simonetta Vezzoso, Trento University Trento University March 16, 2011

Standards everywhere, but mostly unnoticed

Standards: de jure, de facto, open, proprietary… Anticipatory, Enabling and Responsive Standardization Standard Setting Organizations - International Telecommunications Union (ITU) International Organization for Standardization (ISO) Institute for Electrical and Electronics Engineers (IEEE) - Worldwide Web Consortium (W3C) - Internet Engineering Task Force (IETF) - etc. Safety, Health, Compatibily (etc) Standards Some Basics

Economic significance of standards Economies of scale (reduction of variety) Reduction of information asymmetry (less adverse selection) Reduction of transaction (e.g. search costs) and communication costs Network externalities Lock-in avoidance Part of the institutional infrastructure relevant to incremental innovation Etc.

Hindrances to effective standard adoption Users’ reluctance to move to new standard (also because of switching costs) Inappropriate timing of standardization (too early or too late relative to the stage of technology maturity) Opportunism of market participants

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.” Adam Smith, The Wealth of Nations (1776)

Classification Societies Register Society (1760) IACS - International Association of Classification Societies (1968) - more than 90% the world's cargo carrying tonnage COMMISSION DECISIONCOMMISSION DECISION of 14/10/2009 relating to a proceeding under Article 101 TFEU (ex art. 81 ECT) Case SHIP CLASSIFICATION

Competition Assessment: Relevant Markets product or service market or markets to which the standard relates relevant technology market (inter-technology competition) Market for standard-setting

T1T5 T4 T3 T2 S SSO P P LICENCE MMM M

Standards: Art. 101 Issues promotion of horizontal price fixing exclusion of competitors allocation of markets and territories Anticompetitive SSO policies should prevent collusive behaviour among SSO members

Standards: Art. 102 Issues  SSO’s context Patent Ambush Patent hold-up: breach of FRAND obligations Patent infringement cases e.g. German Supreme Court, Standard-Spundfass, 2004

ART. 101 TFEU ART.102 TFEU

COMMUNICATION FROM THE COMMISSION Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co- operation agreements (O.J )

Key Points Prevention of collusive behaviour and of art. 102 abuses «safe harbour» FRAND commitment ex-ante IPR disclosure («good faith»; «reasonable endevours» pro-competitiveness of ex-ante disclosure maximum royalty rates

Conclusion Standards and Art.101 issues: guidance really helpful? Effective prevention of IPR ambush and/or hold-up? Effective guidance on difficult economic and legal issues?  Need for a new, «holistic» approach to standardization  SSO rendered increasingly «necessary» in high-tech industries also by an inadequate IPR policy