Balance and Standardization: Implications for Competition and Antitrust Analysis

• Author: Justus Baron, Jorge L. Contreras, and Pierre Larouche
• Position: Senior Research Associate at Northwestern University Pritzker School of Law, Center on Law, Business, and Economics (CLBE)/Presidential Scholar and Professor of Law at the University of Utah S.J. Quinney College of Law and the Director of its Program on Intellectual Property and Technology Law/Associate Dean and Professor of Law and Innovation...
• Pages: 425-485

BALANCE AND STANDARDIZATION: IMPLICATIONS

FOR COMPETITION AND ANTITRUST ANALYSIS

J

USTUS

B

ARON

J

ORGE

L. C

ONTRERAS

P

IERRE

L

AROUCHE

*

Most technical standards development organizations (SDOs) have adopted

internal policies embodying “due process” criteria such as openness, balance

of interests, consensus decision making, and appeals. Contrary to popular be-

lief, efforts to balance different interest categories in SDO deliberations did

not originate in response to antitrust requirements. Rather, to achieve broad

acceptance and legitimacy of their standards, SDOs have long sought some

degree of “balance of interests” among different stakeholder groups, typically

encouraging active participation by product manufacturers, product users, and

unaffiliated experts.

1

Accordingly, balance requirements are an accepted fea-

ture of SDO organization, and most stakeholders view them as desirable.

2

* Justus Baron is a Senior Research Associate at Northwestern University Pritzker School of

Law, Center on Law, Business, and Economics (CLBE). Baron’s Research at CLBE has bene-

fited from financial support from Qualcomm and Intel. Jorge Contreras is a Presidential Scholar

and Professor of Law at the University of Utah S.J. Quinney College of Law and the Director of

its Program on Intellectual Property and Technology Law; he has served as legal counsel to the

Internet Engineering Task Force (IETF), a group discussed in this article, and as a member of

both ASTM International and the Institute of Electrical and Electronics Engineers (IEEE), also

discussed herein. Pierre Larouche is Associate Dean and Professor of Law and Innovation at the

Faculty of Law, Universit´e de Montr´eal. The authors thank Igor Nikolic and the other partici-

pants at the European University Institute, Conversation on Patents, Innovation and Competition,

September 2020, for their valuable feedback and comments on an earlier version of this article. A

more comprehensive history of the development of SDO balance requirements in the United

States and European Union can be found in Justus Baron, Jorge L. Contreras & Pierre Larouche,

Balance Requirements for Standards Development Organizations: A Historical, Legal and Insti-

tutional Assessment (Univ. of Utah College of Law Research Paper No. 430, Jan. 2021).

1

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1880 at 9, 194 (2019).

2

See Justus Baron, Jorge Contreras, Martin Husovec & Pierre Larouche, Making the Rules:

The Governance of Standard Development Organizations and Their Policies on Intellectual

Property Rights 119 (Joint Res. Ctr. Science for Pol’y Report EUR 29655 EN, Nikolaus Thumm

ed., Mar. 2019) [hereinafter JRC Report] (89% of surveyed stakeholders believed that “SDOs

should ensure balance among different types of stakeholders when considering a significant new

policy or policy change.”).

425

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[Vol. 84

Similarly, a significant number of public regulations list balance among the

procedural features of standards development that SDOs are expected to fol-

low, e.g., for their standards to qualify for government use or to be regarded

as authoritative expressions of the state of the art.

Until recently, relatively little scholarly research has considered the history,

scope, and interpretation of SDO balance requirements. A series of recent

events and disputes, however, has focused attention on this understudied area

of SDO governance and policy, particularly as it pertains to policies concern-

ing intellectual property rights (IPRs). The recent focus on balance require-

ments is rooted in a growing number of conflicts between firms (“patent-

centric” firms) that seek to earn royalty revenue from licensing patents that

are essential to an SDO’s standards (standards-essential patents or SEPs) and

firms that primarily seek to earn revenue from sales of standardized products,

faster time to market, and the broad availability of compatible products

(“product-centric” firms).

3

For example, the revision of the patent policy of the Institute of Electrical

and Electronics Engineers (IEEE) in 2015 sparked allegations of imbalance.

4

Both the policy itself and the decision-making process that led to its adoption

were criticized as being unbalanced to the detriment of patent-centric firms.

The ensuing public debate involved multiple SDO participants, SDOs, and the

U.S. Department of Justice Antitrust Division.

5

The DOJ also took an active interest in balance at the American National

Standards Institute (ANSI), and in 2018 sent a letter urging ANSI “to have

balanced representation in its decisional bodies” tasked with proposing

changes to the implementation of ANSI’s patent policy.

6

In 2018, a software testing company, NSS Laboratories, filed an antitrust

complaint against various software vendors and the Antimalware Testing

Standards Organization (AMTSO), alleging that AMTSO’s standards devel-

3

See Jorge L. Contreras, Technical Standards and Ex Ante Disclosure: Results and Analysis

of an Empirical Study, 53 J

URIMETRICS

J. 163, 206–07 (2013) (introducing terminology and

noting that many product-centric firms also hold substantial patent portfolios).

4

See, e.g., J. Gregory Sidak, Testing for Bias to Suppress Royalties for Standard-Essential

Patents, 1 C

RITERION

J. I

NNOVATION

301 (2016); Nicolo Zingales & Olia Kanevskaia, The IEEE-

SA Patent Policy Update Under the Lens of EU Competition Law, 12 E

UR

. C

OMPETITION

J. 195

(2016).

5

See infra Part II.N.

6

Letter from Andrew C. Finch, Principal Dep. Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of

Justice, to Patricia Griffin, Vice President & Gen. Counsel, Am. Nat’l Standards Inst., at 1 (Mar.

7, 2018) [hereinafter DOJ ANSI Letter].

2022] B

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427

opment processes and standards were biased toward the interests of software

vendors, to the detriment of software testing companies.

7

And in 2019, the DOJ concluded an investigation of the standards develop-

ment processes of the GSM Association (GSMA), which establishes standards

for mobile network operators, and issued a favorable business review letter

after GSMA made significant changes to its processes.

8

These changes ad-

dressed the DOJ’s concerns that GSMA’s previous processes had unfairly fa-

vored the interests of telecommunications network operators over the interests

of other companies, such as vendors of telecommunications devices and

equipment.

In each of these cases, it was suggested that SDOs may have violated (or

were at risk of violating) antitrust laws by reaching decisions through

processes that insufficiently balanced the interests of different commercial

groups. But what does “balance of interests” mean in an SDO comprised of

self-selected volunteer participants—both individuals and organizations—and

when does absence of such balance constitute a violation of the antitrust laws?

The legality of joint standards development activities by competing firms

under the antitrust laws hinges on weighing the pro- and anticompetitive ef-

fects that they produce. Following recognized and accepted standardization

processes alone may not immunize an SDO and its members from antitrust

liability,

9

and failure to abide by such processes alone does not necessarily

constitute a violation of antitrust laws.

10

Nevertheless, the weighing of pro-

7

Complaint, NSS Labs, Inc. v. Crowdstrike, Inc., Case No. 3:18-cv-05711 (N.D. Cal. filed

Sept. 18, 2018).

8

See Letter from Makan Delrahim, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to

Timothy Cornell, Esq., Clifford Chance US LLP, at 4 (Nov. 27, 2019) [hereinafter DOJ GSMA

Letter].

9

James Anton and Dennis Yao, for example, argue that, while “procedural considerations

have played a primary role in the antitrust analysis of standard setting,” standardization processes

following due process are capable of producing anticompetitive effects. In their view, the en-

forcement of antitrust laws with respect to standards development should not be limited to as-

sessing standardization procedures but should also assess “the substantive reasonable basis for a

standard.” James J. Anton & Dennis A. Yao, Standard-Setting Consortia, Antitrust, and High-

Technology Industries, 64 A

NTITRUST

L.J. 247, 248 (1995). With respect to the determination of

patent policies, Melamed and Shapiro argue that SDO deliberations—irrespective of the voting

process—may result in “highly undesirable outcomes,” and that “SSO procedures and FRAND

rules should be evaluated based on whether they lead to reasonable SEP royalties.” A. Douglas

Melamed & Carl Shapiro, How Antitrust Law Can Make FRAND Commitments More Effec-

tive, 127 Y

ALE

L.J. 2110 (2017). They argue that the SDO and its members may face antitrust

liability for SDO rules that are insufficient to curb anticompetitive conduct by SEP holders. Id.

10

See A

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ANDBOOK OF

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SPECTS OF

S

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59 (2d ed.

2011) (“[C]ourts emphasize that the failure to comply with strict due process is not enough, by

itself, to demonstrate that a product certification decision violates the antitrust laws.”). In fact,

U.S. courts have traditionally been reluctant to scrutinize too closely the specific procedural

requirements of a given organization. See, e.g., Consol. Metal Prods. v. Am. Petroleum Inst.,

846 F.2d 284, 297 (5th Cir. 1988) (stating that federal courts should not “become boards of