In a speech last October, Neelie Kroes summed up the Commission’s stance (at the time) toward standard setting and, in doing so, highlighted a key area of policy debate: the role of government. In particular, she stated that:
“A more productive type of intervention [as compared to ex post antitrust/competition based on Article 82 or the Sherman Act] is, however, when the Commission follows the adage that ‘prevention is better than cure’. In other words, it is a lot better if we can prevent abuses of standard setting processes from occurring in the first place rather than have individual problem cases coming onto our radar screen.”
In another speech two months later, Kroes stated that:
“Should the need arise, then the Commission will also step in to support standard setting bodies, to help to design their rules so as to avoid ‘capture’ of a standard by a ‘patent ambush’ after it has been adopted.”
Whether government agencies – be they the European Commission, the U.S. Federal Trade Commission, or any other like body ¬¬– should play an active and indeed proactive role in standard setting IPR policy remains controversial. It seems clear that ex post intervention, in the form of government agency cases aimed at alleged anticompetitive behaviors like patent ambush, is well ensconced.
The U.S. has had a number of FTC cases of that sort (including Dell and more famously Rambus), as does the EC (including its own investigation of Rambus). But the FTC has stepped further afield as well, relying on Section 5 of the FTC Act to bring claims of unfair business practices against Negotiated Data when it attempted to alter one of its patent’s terms, terms which had been announced by the patent’s previous holder to the members of IEEE. Many commentators expressed their concern over the FTC’s untethering of the Sherman Act, or even any claims of deceptive practices, from the claims in the Negotiated Data matter.
Perhaps even more controversial are certain policy prescriptions that call for a more proactive role for government intervention, along the lines envisioned by Kroes in the above quotes. For instance, some have called for a cap on licensing fees for patents deemed essential for a standard, setting the maximum rate equal to the “incremental value” the IPR contributes. Others have called for a rule preventing patent holding SSO members that have committed to license on FRAND terms from ever seeking an injunction in those instances when the parties cannot agree on licensing terms or when the standard implementers are found to have infringed the patent.
Given the dearth of self-motivated SSO IPR policy reform, it has been suggested that policy changes of these sorts could be accomplished by government edict or at least through coordinated court practice, so that firms participating in SSO efforts would face the restrictions regardless of the particular SSO involved.
There seems to be broad consensus that some sort of IPR policy changes are in order for standards bodies in general, but a number of issues and caveats remain. Chief among these are the inevitable, even if unintended, consequences of some ill-thought-through proposals. We cannot stop with an assessment of whether the proposed policy change might alleviate a perceived problem in standard setting; we must also think through the full range of incentives that the proposal would lead to.
For example, imposing a rule that states patent holders can charge no more than the incremental value their patents contribute to the standard makes a number of assumptions: that the innovations have been developed, that patent holders have already joined the SSO, that “incremental value” can be objectively agreed upon, and that once agreed “incremental value” appropriately compensates the patent owner for the cost and risk involved in the R&D.
Once mandated, a licensing cap could be expected to have detrimental effects on innovative firms’ incentives to conduct R&D and to join in cooperative standard setting. Likewise, most people would agree that transparency and consensus in standard setting decision-making processes are desirable, but note also that the higher the degree of openness and consensus, the slower the standard setting process is. Important tradeoffs in the guise of speed-to-market must be kept in mind, and will of course differ across standards and industries making one-size-fits-all rules inappropriate. Factors like these help to explain the differences we see across SSOs, but which likely would be ignored by any government mandated rules.
Whether government intervention can be appropriately sensitive to market needs, diversity in SSO membership and the full range of implications of policy change on participants’ incentives is debatable.
