Antitrust Law Daily Wrap Up, STRATEGIC PERSPECTIVES: Standard Setting and Antitrust: SSOs, SEPs, F/RAND and the Patent Holdup, (Mar 14, 2014)

Standards and standard setting have been thrust into the forefront of antitrust and intellectual property news, in part by the “Smartphone Wars” patent litigation in which competing cell phone manufacturers seek injunctive relief in court or an importation exclusion order from the International Trade Commission. At the heart of the issue is standard setting by private standard setting organizations (SSOs) and patent holders whose technology is included in the standard, often referred to as a standard essential patent (SEP).

The inclusion of patent technology in a standard can create market power that did not exist before the standard. Such market power flows from the fact that the creation of standards-compliant products make the cost of switching to alternative technology more costly and difficult. Attempts by the holder of an SEP to obtain higher royalty rates from implementers than the patent holder would have been able to obtain prior to the standard are often referred to as “patent holdup.” A patent holdup has a number of anticompetitive effects, including causing consumers to pay more for products where the manufacturers have paid higher royalties for technology.

Standards setting organizations seek to counter the patent holdup problem by establishing rules that require holders of the patented technology that might be essential to the standard to disclose the technology prior to the creation of the standard and to commit to license the SEP under reasonable and nondiscriminatory terms (RAND), sometimes referred to as “fair, reasonable and nondiscriminatory” terms (F/RAND).

Antitrust risks arise for patent holders who fail to inform the SSO of their potentially essential technology or who make a F/RAND commitment and then back out of it, as well as for members of SSOs who abuse the standard setting process by conspiring to establish a favored technology as part of the standard.

In this article, leading antitrust practitioner Jeffrey M. Cross of Freeborn & Peters LLP explores some of the antitrust risks facing an SSO and its members and discusses the steps that an SSO can take to achieve its goals, while reducing the risk of liability.

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