Antitrust Enforcement in Standard Setting Cooperation – Breaches of licensing commitments

(IPRinfo 1/2008)

Juha Vesala
LL.M., Researcher, University of Helsinki

Antitrust authorities and courts in the US and the EU are currently faced with claims that a breach of a commitment to license patents that are necessary for the implementation of a cooperatively set standard at fair, reasonable and non-discriminatory (‘FRAND’) terms can constitute an antitrust infringement. I will examine some recent cases concerning a breach of a licensing commitment and the underlying EC competition law issues.

In contrast to ‘patent ambush’ cases, in these cases essential IPRs are not misleadingly concealed. Instead, the allegations are based on that the breach of a licensing commitment made in order to get the technology incorporated into a standard constitutes similar anti-competitive means of acquiring market power.

Breach of FRAND commitment as unlawful monopolization
In the apparently first major antitrust case involving an alleged breach of a FRAND commitment, Broadcom alleges, inter alia, that Qualcomm has monopolized the market for the mobile communications technology WCDMA by failing to respect its commitment to license certain technologies at FRAND terms.

While the US district court (in 2006) had granted a summary judgment in favour of Qualcomm, the Court of Appeals remanded the case in 2007.

The court stated that unlawful monopolization is at hand when 1) in a consensus-oriented private standard setting environment 2) a company makes an intentionally misleading licensing commitment, 3) this commitment is relied upon by the standard setting organization when including the technology into the standard, and 4) the patent holder subsequently breaches the commitment.

The Court’s opinion draws parallels between a misleading licensing commitment and its subsequent breach on one hand and patent ambush, prohibited as monopolization, on the other. The latter was established in the Federal Trade Commission’s (‘FTC’) decision (July 2006) concerning Rambus.

Breach of commitments as unfair competition
In January 2008, the FTC issued a complaint and an order for settlement regarding a breach of a licensing commitment. A holder of a patent on an Ethernet autonegotiation technology had committed to licensing its patents at USD 1000 per licensee implementing the standard. A subsequent patent holder, though aware of the licensing commitment, demanded substantially higher royalties.

According to the FTC, this conduct constituted unfair competition and an unfair trade practice prohibited in Section 5 of the FTC Act.

Two of the five commissioners, however, dissented on, in particular, whether an infringement had been properly shown. The majority emphasised the importance of curbing such behaviour in order to safeguard the viability of standard setting cooperation. They reassured that the FTC’s competence under the section 5 had not been exceeded.

German court finds licensing terms unreasonable
In its (unpublished) decision of February 2007, the Landgericht Düsseldorf reportedly held that the terms of licensing demanded by Siemens from Amoi were unreasonable and that the licensing fees were excessive in comparison to those attainable under a ‘free market’.

Siemens had demanded a royalty-free cross licence that was not limited to the technology concerned. Neither did the licensing fees take the possibility of cumulative royalties into account. That constituted an abuse of a dominant position by Siemens, as the company had during standard setting cooperation committed to FRAND licensing.

Commission’s investigation on unreasonable terms
In October 2007, the European Commission informed that it was investigating a complaint alleging that Qualcomm has abused its dominant position through its licensing practices. Few details of the specific claims or the investigation have been made public.

The Commission has, however, stated that in considering whether Qualcomm’s licensing terms are unreasonable and thus constitute an exploitative abuse, the fact whether the firm has imposed licensing terms in breach of its FRAND licensing commitments made earlier in the standard setting cooperation can be a decisive factor.

Legal issues in EC competition law
The acquisition of a dominant position by a non-dominant firm is not prohibited in EC law, unlike the unlawful acquisition of monopoly power can be under US law. Therefore, the European Commission is forced to focus on the conduct of firms once they have become dominant through a false licensing commitment.

This same approach – addressing subsequent unreasonable terms and excessive licensing fees – has been adopted in the Commission’s investigation of Rambus’s alleged patent ambush.

It is well settled that excessive prices or unreasonable terms can constitute an abuse of a dominant position. Nevertheless, the precise standards for liability and the preconditions for Commission’s intervention in a market are not quite clear. These underlying legal issues might soon be clarified, as the Commission’s pending review of Article 82 EC is expected to address both exploitative and exclusionary abuses.

However, it is clear from earlier statements that the Commission acknowledges, as a matter of policy, the competition concerns related to licensing problems in a standard setting environment. Unfortunately, no specific guidance exists yet on the Commission’s approach towards standard setting related licensing practices.

Developing workable policies is definitely not made easier by the fact that the economics of standard setting cooperation and related licensing remain complex and somewhat controversial.

Cases referred to:
US Court of Appeals for 3rd Circuit, 4 Sept 2007, Broadcom v. Qualcomm, 501 F.3d 297

Federal Trade Commission, Negotiated Data Solutions, FTC File No. 051 0094 (FTC 2008).

European Commission, DG Competition. Texas Instruments / Qualcomm, COMP/39.247 (2007). (1 Oct. 2007)

Addition on 3 July 2009/phh concerning the Rambus antitrust case in the EU.
The Press Release on 12 June 2009 in the EU news database RAPID: “The Commission market tests commitments proposed by Rambus concerning memory chips”

Addition on 3 July 2009/phh concerning the Rambus antitrust case in the EU.
See also the comment by Andy Updegrove on June 22 2009 “The EC Settlement: Rambus, Writs and the Rule of Law”in the Standards blog: