Solutions to Patent Hold-up beyond FRAND: An SOS to SSOs

Date01 June 2014
Published date01 June 2014
Subject MatterArticle
THE ANTITRUST BUL L E T I N :Vol. 59, N o. 2/Summ er 2014 :183
Solutions to patent hold-up beyond
While standard setting has well-recognized benefits to industry and
consumers alike, the process is also subject to possible abuse by own-
ers of standard essential patents (SEPs), who may through patent
hold-up frustrate the efficient implementation of the standard. Even
when a standa rd-setting o rganizatio n (SSO) require s covenants t o
license on fair, reasonabl e and nondiscrimi natory (FRAND) te rms,
threats of injunctions and other tactics by SEP owners have potential
anticompetitive effects. SSOs may play a useful role, beyond securing
FRAND commitments, in further reducing the prospect of patent
hold-up. While some policymakers and SSOs have embraced ex ante
licensing negotiations as a means to prevent hold-up, there are also
other, non moneta ry solu tions to c onsid er. This art icle sug gests a
number of n onmone tary solu tions, i ncludin g limits o n injunct ive
relief, increased discl osure of prior licensing r ates, and mandatory
ADR, that SSOs may adopt to streamline the licensing of FRAND-
encumbered patents and thus reduce hold-up.
KEY WORDS:SSO, FRAND, hold-up, antitrust, injunction, ADR
© 2014by Federal Legal Publications, Inc.
* Partner, Drinker Biddle & Reath LLP.
** Associate, Drinker Biddle & Reath LLP.
AUTHORS’ NOTE: The views expressed in this article are ours and do not necessarily
reflect those of the firm’s clients.
The international system pursuant to which standard setting organi-
zations (SSOs) vet and adopt technical standards applicable to many
of our most popular consumer products—known as de jure stan-
dards—is in need of some help, and the SSOs are in a position to offer
it. Chief among the present problems with the system is the inability
of parties to readily agree on the royalty rates covering the patents
essential to practice the de jure standards (also known as standard
essential patents or SEPs), and the prospect of anticompetitive effects
if owners of SEPs refuse to license their patents on reasonable terms.
An injunction or an exclusion order based on a single SEP has the
potential to block the sale or importation of products incorporating
thousands of different patented technologies.
Few seriously question the value of SSOs, such as the Institute of
Elect rica l and Ele ctron ics En ginee rs (IE EE) and t he Int ernationa l
Telecommunication Union (ITU), to enhance the interoperability of
technical devices and, in the process, spur the globalization of markets
and international competition. Healthy competition between manufac-
turers of smartphones, for example, would not be possible if Apple’s
iPhone could no t interact with t he same wireless network as Sam-
sung’s Galaxy phone. However, at the same time as it enhances com-
petition in the consumer markets, the adoption of de jure standards
necessarily favors some patents and their owners to the exclusion of
others. The winners in the standard setting process—the owners of
SEPs—may acquire enhanced market power and, with it, the ability to
demand exorbitant royalty rates by threatening to deny implementers
of the technical standardsaccess to their essential technology.
As explained below, the SSOs’ traditional solution to this “patent
hold-up” problem has been to require participants in the standard
setting proc ess (1) to disc lose in advance any patents that may be
essential to the de jure standard and (2) to commit to license any SEP
on fair, reasonable, and nondiscriminatory (FRAND) terms.1Typi-
184 :THE ANTI T R U S T BULLETIN:Vol. 59, No. 2/Summer 2014
1When the word “fair” is omitted, commitments to license patents on
reasonable and nondis criminatory terms a re known as RAND obligati ons.
This article will generally refer to FRAND commitments, unless addressing a
RAND commitment in the context of a specific de jure standard.
cally, SSOs have not gone further in getting involved in the licensing
of SEPs or in the determination of what constitutes compliance with
FRAND commitments. For example, the IEEE’s bylaws provide that:
“The IEEE is not responsible for identifying Essential Patent Claims
for which a license may be required, for conducting inquiries into the
legal validity or scope of those Patent Claims, or for determining
whether any licensing terms or conditions provided in connection
with submission of a Letter of Assurance, if any, or in any licensing
agreements are reasonable or nondiscriminatory.”2
This article will examine the potential anticompetitive effects that
remain after owners of SEPs have made FRAND commitments and
what solutions exist to minimize such effects. The focus here will be
on solutions to the problem of patent hold-up that do not involve ex
ante discussion s of royalty rates.3T his article will focus instead on
nonmonetary solutions, such as voluntary restrictions on rights to
injunctive relief, disclosure of past royalty rates and terms, and provi-
sions for mandatory alternative dispute resolution, which can be
inco rpor ated i nto th e byla ws and o pera ting d ocum ents o f SSOs .
Through the implementation of such nonmonetary solutions, SSOs
can play a significant role in solving the ongoing problem of patent
The development of de jure standards carries with it the prospect
of both substantial procompetitive benefits and significant anticom-
petitive effects. The challenge is to minimize the latter without sacri-
ficing the former. Recent experience has shown that FRAND
commitments may be a necessary but not always sufficient solution to
the problem of patent hold-up.
SO L U T I O N S T O HO L D -U P :185
2See IEEE Standards Ass’n, Standards Board Bylaws 17 (Dec. 2013), avail-
able at
[hereinafter IEEE Bylaws].
3Some SSOs, such as VMEbus International Trade Association (VITA)
and IEEE, have ado pted provisions fo r patent owners to ma ke more rate-
specific assurances about future royalty rates as a way to further combat the
problem of patent hold-up. See infra section IV.

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT