Saturday, October 27, 2018

Law360 Piece on FRAND and Antitrust

I am happy to announce that on Monday Law360 will be publishing my analysis, titled FRAND and Antitrust:  Misconceptions Vs. Reality.  A copy is available here.


  1. Hi Thomas,

    As always, thank you for such interesting articles that create chances to continue the discussion on FRAND & Antitrust. When I read the title of your article, "Misconceptions vs Reality", I had my fingers crossed that you were going to correct mis-characterizations and provide a reality gut check for the antitrust bar.

    As someone who goes to these things and talks to developers and has been in the world of standards for quite a while, allow me a brief opportunity to provide a reality check on the misconceptions I noticed in the first paragraph. To begin with, the first phrase "Prior to setting technical standards for their products". This is wrong. Technical Standards Organizations, or Standard Development Organizations, do not provide products but rather produce technical specifications that a downstream company will create products in compliance, or conformity, with the standard such that the products from said downstream companies will be inter-operable with one another. This is a gross over-simplification.

    As to the second phrase, "...standard setting organizations typically require their members to disclose any issued or pending patents that would read on a standard the SSO is considering," This is not typically happen, but may in very limited circumstances. SDOs do not require disclosure. They encourage it, i.e., patents "should be" disclosed. I would like to refer you to the Common Patent Policy of the ITU/ISO/IEC as well as the ETSI IPR Policies, as starting points. True there maybe some SDOs that require disclosure, but it is important to note that the phrase is not true for all SDOs. In fact, I would argue that this is in the slim minority of SDOs that would actually require disclosure.

    And lastly the third phrase, "...and to commit to licensing these standard-essential patents..." This is also incorrect. SDO IPR Policies, often say the patent holder is "prepared to grant" licenses on FRAND terms and conditions. Patent holders, by submitting a licensing declaration commit to this. They commit to being "prepared to grant" a license on FRAND terms and conditions. The example I often give is if I need to lose weight, buying a gym membership means I have prepared myself to lose weight. If, however, I get a gastric sleeve, I have committed to it. This is a critical distinction as it dramatically affects the "but for" rationale of the antitrust bar.

    I would note that later you do mention that the obligation to disclose patents is voluntary, so I'm not sure how that squares with the first paragraph. Maybe you can explain that to me?

    My last point is this notion that SDO's select patents, or select one patent over another. This is just not the case. Developers that attend these meetings spend 100's of hours figuring out the best technology based on the previous meetings and decisions therefrom. I would argue that patents are a result of the development not an input to the development. This may not always be the case, but given the dynamic work that goes on it is truly hard to anticipate from contribution to contribution where the result will end-up.

    All of that said, if you can point me to SDOs that have IPR policies that comport with your view, then I would be interest to learn of them. I realize there are differing views on these subjects and am delighted you have taken the time to read this far. And again, I am truly grateful for your view and opportunity to listen to you at the recent FTC Hearings.

    Sincerely, Jim

  2. Hello, and thank you for your comments. Here are my responses:
    1. I agree that I should have drafted that first sentence more carefully. SDOs don't make or sell products, though of course some of their members do, which is what I was trying to convey.
    2. It might have been better to say "require or encourage," or words to that effect that I have used in other work, to be more comprehensive. But on my understanding a number of SDOs do, in effect, require disclosure. Maybe it just comes down to a disagreement over the meaning of words like "should" or "shall." See, e.g, the ETSI disclosure policy, which states "Subject to Clause 4.2 below, each MEMBER shall use its reasonable endeavours, in particular during the development of a STANDARD or TECHNICAL SPECIFICATION where it participates, to inform ETSI of ESSENTIAL IPRs in a timely fashion. In particular, a MEMBER submitting a technical proposal for a STANDARD or TECHNICAL SPECIFICATION shall, on a bona fide basis, draw the attention of ETSI to any of that MEMBER's IPR which might be ESSENTIAL if that proposal is adopted."
    3. Similarly, maybe we just disagree whether a statement that a firm is "prepared to grant licenses" is the same as a commitment to grant them. I'm not alone in understanding such language to equal a commitment, though I would agree that courts don't read such language as creating a FRAND license of its own force.
    4. Since the decision whether to belong to an SDO is voluntary, an SDO-imposed obligation (if that is what it is) to disclose and to license on FRAND terms would be an obligation voluntarily assumed by an SDO member.
    5. I don't think I said anywhere in the piece that SDOs select patents. But they do select standards that in turn read on patents.

  3. Hi Thomas,

    Thank you for your responses. If you will allow me a sur-reply...

    In your (2), you raise a compelling point regarding the ETSI policy, which essentially starts with "Subject to Clause 4.2..." Clause 4.2 says, "The obligations pursuant to Clause 4.1 above do however not imply any obligation on MEMBERS to conduct IPR searches." I understand this to say, 4.1 is an obligation (to use reasonable endeavors to inform in a timely fashion) but there is no obligation to conduct an IPR search, i.e., the SDO has qualified the obligation to inform. I think that could lead one to conclude that if an SDO required disclosure, regardless, then it wouldn't put a restriction on the obligation to a sub-set of IPR's.

    For example, if Attendee Anne from Acme Corp attends a meeting and submits a contribution that gets accepted, wherein that contribution was written by her and she did not submit it for patenting by her company using its internal process, then when Employee Bob from Acme Corp, who doesn't attend the technical meetings, submits an idea for patenting within Acme Corp that broadly reads on Anne's proposal, for example, the Company Member has no obligation to conduct an IPR search, per 4.2. Nor does it have an obligation under 4.1, assuming Attendee Anne had no idea about Employee Bob's patent. It is possible for different groups to not know what the others are involved in and patenting, within a given organization.

    Further, under the Common Patent Policy of the ITU/ISO/IEC, the language used is "Should": "any party participating in the work of ITU, ISO or IEC should, from the outset, draw the attention of the Director of ITU-TSB, the Director of ITU-BR, or the offices of the CEOs of ISO or IEC, respectively, to any known patent or to any known pending patent application".

    Continuing to your (3), I believe the "prepared to grant" phrase was addressed in the Huawei / ZTE litigation in the EU that involves the concept of a willing licensee, which begs the question as to what is a "willing licensee." As for US case law, I believe many courts have glossed over that language and just focused on a litigator argued "commitment to license on FRAND". The phrase "prepared to grant" reminds me first year contracts and whether advertising created an enforceable bi-lateral agreement.

    Lastly, as to your (5), you did say, "[the SSO] would have incorporated a different patent" and "the SSO chose the SEP owner's patent over another." And we'll disagree on whether SDO's "select standards." I argue that SSOs (standard SETTING organizations) will select standards (as you suggest) like which side of the road to drive on or whether to use the English or Metric system. While, conversely, SDOs (standards DEVELOPMENT organizations) do technical development to create a standard.

    One last point I'd like to raise to assist with clarifying a mis-conception I hear Carl Shapiro raise all of the time, as recently as at the 11/1 FTC Hearings...he says these SDOs involve work among competitors. This is not always the case. In fact at ETSI and many others, company participants do not even compete with each other in the open market. If you look at the membership of ETSI, it is 42% manufacturers and 58% research, government, etc. Of the 42% in the manufacturing category there involves every level of the supply chain from operators, to chip makers, to device manufacturers, etc. So this notion that SDO's are a bunch of competitors getting together to collude on a technology is simply a mis-characterization and wrong.

    Appreciate the opportunity to discuss with you and your views on these fun and exciting topics.

    Kindly, Jim

    1. Thanks again for your comments. My understanding is that SSOs generally don't require firms to do patent searches, but rather only to disclose patents of which they are aware--similar to the requirement imposed by Patent Rule 56. I didn't think I was implying anything else.

      I also agree on the "willing licensee" point. That is pretty much standard doctrine now throughout the world, that even when there is a FRAND commitment in place a SEP owner can seek injunctive relief against an unwilling licensee.

      On the issue of SSOs involving competitors, I think Carl Shapiro--and people who take a very different view of certain issues relating to patents, such as Makan Delrahim--are stating only that SSOs are composed in substantial part of competitors, rather than exclusively or perhaps even predominantly, of competitors. SSOs sometimes have run afoul of antitrust law when their competitors-members have reached agreement on policies that served to exclude other potential competitors. Carl Shapiro, and most antitrust economists to my knowledge, nevertheless are not advocating for SSO polices to be broadly condemned as violating antitrust law.

      Finally, I should have phrased "First, as in example 1 some courts might permit a monopolization claim to go forward based on allegations that the SEP owner deceived the SSO by making a FRAND commitment it never intended to keep, and as a result the SSO chose the SEP owner’s patent over another" more carefully as "the SSO chose a standard incorporating the SEP owner's patent over another." I guess I thought that was implicit, but it was imprecise on my part. So thank you for calling my attention to it.