United States: FTC Announces Hearing On Patent "Hold Up" In Standards Setting

On 10 May 2011, the Federal Trade Commission (FTC) announced that it will be conducting a workshop on the specific problem of patent "hold up" in standard-setting organizations (SSOs).¹ This workshop, which is open to the public, will take place at the FTC in Washington, D.C. on 21 June 2011. We plan to attend the workshop to monitor these developments on behalf of interested clients and to assist clients in considering or preparing comments for the workshop.

The FTC and Department of Justice (DOJ) have recognized that the standard-setting process furthers innovation and leads to better products and more competition. However, they have also expressed concern that SSOs can raise antitrust risk. Once a certain technology is incorporated into a standard, it can make it more difficult for a manufacturer to switch to another technology later. If the technology is protected by intellectual property rights that were not disclosed to the SSO before the technology was adopted, the patent holder may demand a higher royalty or more costly licensing terms from manufacturers than it would have obtained if it had disclosed the standard. The FTC in particular has expressed concern that this can undermine the integrity of the standard-setting process and, ultimately, harm consumers if manufacturers pass on these extra costs to their customers.²

The FTC is examining three ways to prevent this problem of patent hold-up:

1. Adequacy of SSO disclosure rules. The FTC believes that the "ability of disclosure rules to protect consumers from patent hold-up is unclear."³ For example, disclosure is typically required only of issued patents, not pending applications. In addition, disclosure is usually only required of patents that are known to the company's representative in the SSO; disclosure does not require a full search of the company's patent portfolio.

2. Requirement that a patent holder commit to reasonable and non-discriminatory (RAND) licensing. This is the most common practice used by SSOs to prevent patent hold up, but the FTC questions whether it is effective. Some critics of this practice express concern that leaving the negotiation of licensing terms until after the standard-setting process is complete, usually long after the standard is implemented, still gives the patent holder excess leverage.

3. Negotiating license terms prior to choosing the standard. Some SSOs allow or require the negotiation of specific royalty and licensing terms during the standard-setting process, before the standard is adopted. However, the FTC notes that there is not widespread use of ex ante licensing today.

The FTC is seeking comments on several questions related to these issues, which are listed in the FTC's Federal Register notice. Comments must be received by the FTC on or before 8 July 2011.

Footnotes

1 Press Release, Federal Trade Commission, FTC to Host Public Forum on Competition Issues in Standard-Setting (9 May 2011), www.ftc.gov/opa/2011/05/standardsetting.shtm

2 The FTC has brought several enforcement actions involving standard setting and also has pending investigations involving these issues in which we have advised clients.

3 Request for Comments and Announcement of Workshop on Standard-Setting Issues (9 May 2011), www.ftc.gov/os/fedreg/2011/05/110509standardsettingfrn.pdf

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