1. Standards and competition policy EU-China Workshop on Application of Anti-monopoly Law in Intellectual Property Area Changsha, 11. – 12. March 2010 Peter Hoeltzenbein, General Policy Division, Bundeskartellamt peter.hoeltzenbein@bundeskartellamt.bund.de

2. Overview Introduction Case Study: Standard Barrels Case Study: Patent Ambush Standard Setting

3. INTRODUCTION

4. Standardisation Agreements Standardisation agreements aim at defining technical or quality requirements with which current or future products, production processes, services or methods may comply Standardisation agreements cover in particular technical specifications in product or services markets where compatibility and interoperability with other products or systems is essential

5. Relevant Markets The product and service markets to which the standard relates The markets pertaining to the technologies included in the standard (in particular, where this technology is covered by IPR)

6. Benefits of standards The joint setting of standards encourages the development of new markets (telephony, mobile telephony, internet, computer technology) Standards maintain and enhance quality, provide information and ensure interoperability Standard setting decreases market segmentation which increases competition on the relevant product markets

7. Negative Effects The standard setting process gives opportunities –to reduce or eliminate price competition downstream –to limit or to control production or technical development Standardisation agreements may create entry barriers –for competing technologies –for products which do not comply with the standard Standardisation may increase the market power of companies which hold IPR which is essential for making use of the standard

8. CASE STUDY: STANDARD BARRELS

9. Facts (1) The German chemical industry was looking for a barrel which leaves less residue when emptied and which offers other useful features The German Association of the Chemical Industry encouraged four German barrel producers to develop a new barrel Major German chemical companies eventually agreed on the barrel developed by Mauser

10. Facts (2) This barrel was protected by a patent owned by Mauser Mauser granted free licences to three other German barrel producers (those who also had been approached by the German chemical industry) The Mauser’s barrel became an industry standard Mauser granted licences in exchange for a licence fee to certain barrel producers in other European countries

11. Facts (3) Mauser refused to grant a licence to the German barrel producer X X produced and offered the barrel nonetheless Mauser took X to court and claimed that X had infringed its patent X filed a counterclaim claiming that Mauser was abusing its dominant position on the market on which it offered licences for his patent X even requested a free licence

12. Findings of the court (1) Competition law is applicable even though the grant and exercise of patent right is – in principle – governed by patent law

13. Findings of the court (2) Market definition –Licensing of Mauser’s patent constitutes a technology market in its own right the design of the barrel is predetermined by an industry standard the barrel cannot be offered without using the IPR –In such a case competing barrel “technologies” can no longer be regarded equivalent substitutes Dominance –Mauser is dominant because it is the only “supplier” on this market

14. Findings of the court (3) Abuse? –In principle, a patent owner is at liberty to decide at what terms and to whom he licences his patent The effect of an IPR is the possibility to exclude others from using the protected IP This exclusivity is no exception from competition, it is a means of competition which requires competitors to substitute instead of merely imitating the innovator’s efforts This rationale remains valid no matter whether the patent owner is dominant or not –In the interest of protecting technological progress, a patent protects the potential of the invention to develop its formal exclusivity into an economic monopoly an the market

15. Findings of the court (4) Abuse? –There would have to be additional circumstances before an abuse may be assumed –Here, access to the downstream product markets for barrels depended on Mauser’s patent due to a factual norm the patented technology has not to prove itself against competing technologies  Under these “additional circumstances”, the patent owner must not discriminate between (potential) licensees without objective justification  Given the circumstances of the case, Mauser might even be required to grant X a free licence

16. Conclusions Competition law applies in parallel to patent law However, a patent is a means of competition Absent additional circumstances, a dominant patent owner will not act abusively (even if he attains or holds an economic monopoly) The fact that the industry has agreed on a proprietary standard may establish such additional circumstances

17. CASE STUDY: PATENT AMBUSH

18. Facts (1) The standard setting organisation JEDEC developed an industry standard for certain memory chips –JEDEC compliant memory chips represent around 95 % of the market and are used in virtually every PC –Sales of these chips exceed 35 billion US-Dollar

19. Facts (2) Rambus used to be a member of JEDEC concealed that it had patents relevant to the standard left JEDEC after the standard was adopted claimed high royalties only after the standard became generally accepted by the industry

20. Facts (3) JEDEC could possibly have used another technology had Rambus disclosed its patent in time In any event, Rambus had arguably not been able to negotiate unreasonably high licence fees (possibly none at all) had it disclosed its patent in time

21. Findings of the European Commission (1) Rambus is dominant –Licences for Rambus’ technology constitute a market in its own right there are no equivalent substitutes now that the whole industry is relying on the standard it would be too costly and time consuming to change the standard in a way that Rambus’ patents would not be infringed

22. Findings of the European Commission (2) Abuse –at the time of concealment Rambus was not yet dominant –However, at the time of claiming unreasonable royalties Rambus had become dominant –Given the circumstances (previous concealment of the patents) claiming royalties was found to be abusive

23. Findings of the European Commission (3) Decision –Rambus proposed after long proceedings to refrain from claiming unreasonable royalties –The European Commission made these commitments binding on Rambus –(Rambus avoided a significant fine)

24. Conclusions It often takes years to establish a standard In the process there is often flexibility with respect to the characteristics of the standard –The standard setting body may be able to adjust the standard to avoid relying on certain patents –However, once a patented technology is included, the industry will often be locked in!  Essential IPR holders may have incentives to misuse the standard setting process

25. STANDARD SETTING

26. „Prevention is better than cure“ A well designed agreement on the standardisation process may help to avoid ensuing abusive practices A standardisation agreement is subject to competition law itself The European Commission is about to publish Guidance on the treatment of standardisation agreements under competition law (prohibition of anti-competitive agreements)

27. “Rules” (1) The procedure should be open, non- discriminatory and transparent –All relevant actors should be able to participate in the process leading to the selection of the standard Companies participating in the standard setting process should at all times remain free –to develop alternative standards and –to produce products which do not comply with the standard

28. “Rules” (2) Companies involved in the selection of a standard should be fully informed about available technical options and the associated IPR, but also to the likely cost of that IPR –Companies participating in the standard setting should be obliged (not just encouraged) to make reasonable efforts to identify any potentially essential IPR to disclose that they have (or believe to have) essential (pending) IPR before the standard is agreed

29. “Rules” (3) If companies are obliged to issue their most restrictive licensing terms, this will not be regarded as a restriction of competition –it allows the standard setting organisation to take an informed decision also from a pricing perspective –technical or commercial advantages of a more expensive alternative technology should outweigh the price advantage of cheaper (or even royalty-free) technology

30. “Rules” (4) Companies whose IP is included in the standard (and any subsequent owner of this IPR) should be irrevocably obliged to provide third parties access to their IPR on –fair –reasonable and –non-discriminatory terms (so called FRAND-terms)

31. “Rules” (4) Companies whose IP is included in the standard (and any subsequent owner of this IPR) should be irrevocably obliged to provide third parties access to their IPR on –fair –reasonable and –non-discriminatory terms (so called FRAND-terms)

32. QUESTIONS?

33. THANK YOU FOR YOUR ATTENTION!