This blog often deals with the competition law implications of owning Standards Essential Patents ('SEPs') and of the obligations accepted by patentees under the IP policies of the various Standards Setting Organisations ('SSOs') which tend to result in widespread licensing of those patents. This month's CLIP is an article by Natacha Estèves (subscription needed) examining whether patent pledges made outside SSOs may give rise to concerns under EU competition law. The article concludes that while there are some slight concerns with some of the obligations that accompany some of the existing patent pledges, for the most part voluntary patent pledges are likely to be compatible with EU competition law.
What is a patent pledge
The article adopts the Contreras definition1 of patent pledges as "[public] commitments voluntarily made by patent holders to limit the enforcement or other exploitation of their patents". While one example of a patent pledge is a FRAND commitment given in the context of an SSO as mentioned above, the article focuses on patent pledges made outside SSOs. The author refers to the pledge by Tesla in 2014 that it "will not initiate patent lawsuits against anyone who . wants to use . [its technology]" as a classic example of such a pledge.
Estèves notes that patent pledges can be split into two types: co-ordinated and unilateral. The former are made by members of a specific group according to a predetermined format or agreement, and the latter are made by a single undertaking acting independently. Examples of co-ordinated patent pledges analysed in the article include the Open Invention Network, the License-on-Transfer Network, and the Defensive Patent Licence. In addition to the Tesla pledge mentioned above, the author also refers to other unilateral patent pledges such as IBM's patent pledge in 2005 and Google's Open Patent Non-Assertion Pledge in 2013.
Co-ordinated patent pledges under Article 101 TFEU
The article analyses the competition law treatment of co-ordinated patent pledges by analogy with that of multi-party licensing. Estèves comments that co-ordinated patent pledges are also similar to patent pools in that both involve the formation of a group where patent holders cross-license their patents. According to the author, the major difference between the two arrangements is that the objective of co-ordinated pledges is to protect members from litigation rather than to facilitate licensing to outside licensees. In Estèves' view, this makes multi-party licensing a better analogy.
The article suggests that, even if the Technology Transfer Block Exemption (TTBER) and the related safe harbour2 do not apply, agreements relating to co-ordinated patent pledges are compatible with Article 101 TFEU as long as: the patents are licensed royalty-free so there is no risk of price fixing; the pledges are non-exclusive; and the pledges or underlying agreements do not contain sales, output or field of use restrictions, tying and bundling, or non-compete obligations. In the examples considered, this is particularly the case as the process by which the pledging group is created is transparent and there is nothing to suggest that sensitive information is exchanged between members, reducing or removing the risk of collusion. Finally, Estèves notes that co-ordinated patent pledges are likely to be welfare enhancing as they encourage innovation by removing the chilling effect that might result from the fear of litigation, ensuring freedom to operate.
Unilateral patent pledges under Article 101 and 102 TFEU
(a) Article 102
The article highlights the potential risk under Article 102 of exclusionary abuse, and particularly the concern that the pledgor could engage in predatory behaviour, incurring losses in the short term to foreclose actual or potential competitors to maintain or enhance market power. However, the author comments that predatory pricing is not a strong fit for this type of behaviour. She explains that prices are predatory when set below or above certain costs incurred by the dominant undertaking;3 where the cost incurred is zero, as is the case with producing a licence or indeed with offering a unilateral patent pledge, the standard test for predatory pricing is not satisfied. Estèves also notes that in a complaint to the European Commission in 2013 over Google's offering of the Android operating system at below-cost, Google's offering of Android royalty-free was not addressed as a predatory pricing strategy.4 Estèves' conclusion is that it is unlikely that there would be significant competition law issues with unilateral patent pledges under Article 102.
(b) Article 101
On the assumption that unilateral pledges give rise to some form of agreement between pledgor and pledgee Estèves also considers that the competition law considerations arising from a unilateral pledge would be similar to those under multipartite pledges. The sample unilateral pledges analysed in the article are not dependant on the acceptance by the pledgee of hardcore restrictions. They are also royalty-free and non-exclusive. Notwithstanding this, however, Estèves suggests that issues may arise in the context of specific provisions in particular pledges such as, for example, defensive termination clauses. Similar to non-assertion clauses in more quotidien licence agreements, such clauses entitle the pledgor to withdraw the benefit of the pledge from beneficiaries in certain circumstances, such as if they file a lawsuit asserting patents against the pledgor. Estèves suggests that defensive termination provisions may be drafted excessively widely so as to inhibit competition. She notes that if the benefit of a patent pledge may be lost in the event of any patent attack against not only the pledger but also any other company benefitting from the pledge or a similar pledge and/or a third party benefitting from goods or services provided under the pledge this could impede beneficiaries' incentives to innovate and obtain their own intellectual property giving rise to risks under Article 101.
The article provides an interesting overview of an area not widely discussed under EU competition law. It is likely to be of interest to those in sectors in which patent pledges are given and also those considering offering a pledge not to enforce patents, whether in a co-ordinated forum or through a unilateral patent pledge. Whilst the article is a fairly broad overview, the author's key takeaway is clear: patent pledges are likely to be regarded as pro-competitive, but those involved with such pledges should ensure that any restrictions or obligations relating to or resulting from the pledge are carefully analysed, paying particular attention to any effect on incentives to innovate.
1. Jorge Contreras, "Patent pledges" (2015) 47 Arizona State Law Journal 543, 546.
2. Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements (Guidelines)  OJ C89/3, para.157.
3. As per the test established in AKZO Chemie BV v Commission of the European Communities (C-62/86) EU:C:1991:286.
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