Update on the antitrust ghost in the standard-setting machine

Richard Stern’s Micro Law column in the May-June 2005 issue of IEEE Micro (“The Antitrust Ghost in the Standard-Setting Machine”) captured the essence of a long-running obstacle to addressing the anticompetitive patent “hold-up” (the term refers to the practice of pointing a gun at someone to induce him to share his wealth) that undermines the open-standards objectives of standards developing organizations (SDOs). That obstacle is the misconceived fear of antitrust liability if an SDO allows any consideration of license intentions beyond vague or vacuous commitments to reasonable and nondiscriminatory (RAND) licensing during the course of a standardsetting process. Recent statements from top officials of both the Antitrust Division of the US Department of Justice (DOJ) and the US Federal Trade Commission (FTC) support Stern’s conclusions that the antitrust ghost is a sham excuse for inaction, that the time has come for its “exorcism,” and that antitrust concerns should no longer inhibit SDOs’ “adoption of measures that deter the abuse of RAND promises.” Both enforcement agencies have thereby given a welcome boost to proposals of that very kind that are now before the IEEE’s Patent Committee (PatCom). DOJ weighs in On 3 June 2005, Assistant Attorney General Hewitt Pate (shortly before his departure as antitrust division chief) addressed this subject in one part of a speech on “Competition and Intellectual Property in the US: Licensing Freedom and the Limits of Antitrust.” Noting the problematic nature of RAND commitments because affected parties “tend to disagree later about what level of royalty rate is reasonable,” he reported that SDOs have told DOJ that antitrust concerns cause them to avoid any discussion of actual royalty rates. He then observed, “It would be a strange result if antitrust policy is being used to prevent price competition.” Although noting “a possibility of anticompetitive effects from exante license fee negotiations,” he pointed out that “it seems only reasonable to balance that concern against the inefficiencies of ex-post negotiations [negotiations by standards adopters for RAND licenses after a standard has been adopted that uses patented technology] and licensing holdup.” In this connection, he cited with approval a provision in the European Union’s recently adopted intellectual property licensing guidelines to the effect that “firms normally should be allowed to negotiate royalty rates [during] a standard setting effort, as well as after a standard is set.”