Safeguarding the Standard: Standards Organizations, Patent Hold-up, and other Forms of Capture

• Published date: 01 March 2012
• Author: Michael A. Lindsay
• DOI: 10.1177/0003603X1205700102
• Date: 01 March 2012
• Subject Matter: Article

Safeguarding the standard:

Standards organizations,

patent hold-up, and other

forms of capture

BYMICHAEL A. LINDSAY*

Standards development requires cooperative effort by individuals

and firms with divergent interests. Standards development organiza-

tions (SDOs) are subject to capture by a single firm or a group of

firms. Historically, capture has been viewed through the prism of

antitrust law. Patent hold-up can be conceptualized as another form

of capture, and whether or not hold-up violates the antitrust laws, it

can harm the SDO and impede the commercial adoption of its stan-

dards. SDOs have a number of remedies available to them, but an

SDO must carefully consider their appropriateness and effectiveness.

KEY WORDS:Standards; standards development; patents; hold-up; capture;

antitrust.

THE ANTITRUST BULLETIN:Vol. 57, No. 1/Spring 2012 :17

* Member of the Minnesota bar, chair of Dorsey & Whitney LLP’s

Antitrust Practice Group, and adjunct professor at the University of St.

Thomas School of Law.

AUTHOR’S NOTE: I represented the Institute of Electrical and Electronics Engineers

on its amicus curiae brief filed in Broadcom Corp. v. Qualcomm Inc. The views

expressed in this article, however, are solely mine.

© 2012 by Federal Legal Publications, Inc.

Successful standards can create or expand markets in various ways.

Standards can define safety parameters that make it possible for

products to be purchased with confidence and reduce information

and other transaction costs. Standards can create pathways to inter-

operability that increase a product’s value to consumers—and thus

stimulate demand for the interoperable products. Thus, a standards

development organization (SDO) that is true to the standards mission

wants to publish standards that will significantly improve the experi-

ence of consumers and other end-users—and thus will invite wide-

spread industry adoption.

The inherently cooperative nature of standards development cre-

ates two interrelated issues. First, a standards development effort will

bring competitors together to discuss areas in which they might oth-

erwise compete.1Thus, the standards development effort requires

safeguards against anticompetitive activity. Second, by increasing

demand for products, standards create wealth (or at least the poten-

tial for the standard’s implementers to create wealth). This wealth,

however, is not automatically allocated in a way that rewards relative

contribution to the wealth creation. Thus, the collective effort needs to

be organized to provide sufficient incentives to motivate participation

but that also to prevent ex post reallocation of those incentives in

unanticipated ways.

Historically, courts have focused on the first issue—the potential

for anticompetitive behavior that inheres in a cooperative enterprise

among competitors.2Today, however, litigants—and therefore

18 :THE ANTITRUST BULLETIN:Vol. 57, No. 1/Spring 2012

1The working group that puts together a draft standard will usually

include potential implementers of the standard (that is, firms that will com-

pete with each other in producing compliant implementations), but it may

also include users (particularly institutional users) of compliant implementa-

tions. As the standard progresses through the development process, other

stakeholders are more likely to become involved by, for example, comment-

ing and voting on a draft standard completed by a working group.

2See, e.g., Allied Tube v. Indian Head, Inc., 486 U.S. 492, 500 (1988) (“no

doubt that the members of such [private standard-setting] associations often

have economic incentives to restrain competition and that the product stan-

dards set by such associations have a serious potential for anticompetitive

harm”); Am. Soc’y of Mech. Eng’rs v. Hydrolevel, 456 U.S. 556, 571 (1982).

courts—focus on a different kind of harm: the problems of patent

hold-up and patent stacking, that is, the use (or misuse) of patents to

capture some portion of the value that the collective effort produces.

Sometimes hold-up behavior is challenged as an anticompetitive

practice under the antitrust laws.3Even behavior that does not violate

the antitrust laws, however, can still harm the SDO and the prospects

for its standards.

I. INTRODUCTION TO STANDARDS

Standards are the products of individual efforts organized for the

creation of a common good. The first component—individual effort—

is typically funded by corporations or other entities with an economic

interest in the outcome.4Typically, the individuals participating in

standards development are simultaneously volunteers and paid

FORMS OF CAPTURE :19

3See, e.g., Rambus Inc. v. Federal Trade Comm’n, 522 F.3d 456 (D.C. Cir.

2008) (reversing FTC decision) (“[T]he Federal Trade Commission determined

that Rambus, while participating in the standard-setting process, deceptively

failed to disclose to the [standard-setting organization] the patent interests it

held in four technologies that were standardized . . . . Finding this conduct

monopolistic and in violation of § 2 of the Sherman Act, 15 U.S.C. § 2, the

Commission went on to hold that Rambus had engaged in an unfair method

of competition and unfair or deceptive acts or practices prohibited by § 5(a) of

the Federal Trade Commission Act.”); Statement of the Federal Trade Com-

mission, In re Negotiated Data Solutions LLC, No. 0510094 (Jan. 23, 2008),

available at http://www.ftc.gov/os/caselist/0510094/080122statement.pdf

(“The Complaint in this matter alleges that N-Data reneged on a prior licens-

ing commitment to a standard-setting body and thereby was able to increase

the price of an Ethernet technology used by almost every American consumer

who owns a computer. Based on the facts developed by staff during the

investigation, we find reason to believe that this conduct violated Section 5 of

the FTC Act.”).

4Having an economic interest in the outcome drives the company to

participate, but that does not mean the company has no interest in letting oth-

ers benefit as well. See generally Jonathan M. Barnett, The Host’s Dilemma:

Strategic Forfeiture in Platform Markets for Informational Goods, 124 HARV. L. REV.

1861 (2011) (discussing Nokia’s half-billion-dollar acquisition of the Symbian

operating system, which Nokia then donated to a nonprofit organization, and

its subsequent invitation to competitors to serve on the nonprofit’s board and

other governance bodies).