Special Issues Associated with Standard-Setting Organizations

• Pages: 131-151

131

CHAPTER VI

SPECIAL ISSUES ASSOCIATED WITH STANDARD-

SETTING ORGANIZATIONS

Competitors within an industry may join together and agree to adopt

a particular industry standard in a process referred to as “standard-

setting.” Commonly, standards are set through a collaborative process

by which industry participants form standard-setting organizations

(SSOs), whose mission it is to “establish functional and interoperability

standards so that different firms’ products will work together.”

1

In

addition to increasing product compatibility within an industry, SSOs

also seek to provide solutions to technical problems that would otherwise

suppress the industry or a particular product.

Thus, the activities of SSOs have the potential to significantly

increase efficiency and can also help to make products less costly to

produce and more cost-effective for c onsumers to purchase.

2

The

collective nature of SSOs, however, can give rise to antitrust concerns.

Because the firms choosing to work through an SSO are often

competitors within a given industry, an agreement among them about

which standard to adopt can effectively reduce c ompetition and

consumer choice while influencing the development of a particular

market.

3

The Guidelines do not expressly address SSOs or their

1. Gerald F. Masoudi, Deputy Assistant Att’y Gen., U.S. De p’t of Justice,

Objective Standards and the Antitrust Analysis of SDO a nd Patent Pool

Conduct, Address before the Annual Comprehensive Co nference on

Standards Bodies and Patent Pools Law Seminars Inter national (Oct. 11,

2007), available at http://www.usdoj.gov/atr/public/sp eeches/

227137.htm.

2. See Mark A. Lemley, Intellectual Property Rights a nd Standard-Setting

Organizations, 90 CAL. L. REV. 1889, 1896 (2002).

3. For instance, the adoption of a single industry standar d can sometimes

preclude an industry from seeking further innovation, t hus resulting in the

perpetuation of inferior and often obsolete technolog y. In the intellectual

property context, SSOs often present situations in which a single

company owns proprietary rights that cover a pro posed standard, thus

preventing the adoption of the standard without the per mission of the IP

owner. See id. at 1893.

132 Intellectual Property Guidelines Origins and Ap plications

processes. The 2007 IP Report and recent case l aw provide significant

guidance in this area, however.

A. Per Se Rule vs. the Rule of Reason

A major antitrust issue raised by SSOs is whether the act of

competitors jointly ne gotiating licensing terms constitutes a per se

violation of Section 1 of the Sherman Act. In t he 2007 I P Report, t he

agencies announced that they would “generally expect to apply the rule

of reason to evaluate conduct such as multilateral ex ante licensing

negotiations,” noting that such activity can have significant

procompetitive benefits.

4

But the agencies were quick t o point out that

they would still condemn as per se illegal those activities “designed to

reduce or eliminate competition among members of an SSO—such as bid

rigging . . . or naked price fixing . . .—even if these activities are cloaked

by multilateral ex ante licensing negotiations for the purported purpose

of setting a standard.”

5

B. “Patent Ambush” and the Hold Up Problem

In addition to joint negotiation among competitors regarding

licensing terms, SSOs are also potentially problematic from an antitrust

standpoint because of the potential for unilateral conduct by an SSO

member engaging in exclusionary or otherwise deceptive conduct

regarding the existence of intellectual property rights during the

standard-setting process. Specifically, a patent holder may try to conceal

its patents and/or patent applications while participating in a SSO, then

bring patent infringement lawsuits against SSO members once the

standard utilizing the intellectual property holder’s patents has been

adopted.

SSOs tha t incorporate technology protected by intellectual property

rights also run the risk of a patent “hold up” problem.

6

This occurs when

4. US Dep’t of Justice & Fed. Trade Comm’n, Antitrust E nforcement and

Intellectual Property Rights: Promoting Innovation and Co mpetition 37

(2007), available at www.usdoj.gov/atr/public/heari ngs/ip222655.pdf

[hereinafter 2007 IP REPORT].

5. Id.

6. See Joseph Farrell, John Hayes, Carl Shapiro & Theresa S ullivan,

Standard Setting, Patents, and Hold-Up, 74 ANTITRUST L.J. 603 , 603-04

(2007).