On June 22, 2004, President Bush signed into law the Standards Development Organization Advancement Act of 2004 (H.R. 1086) (the "Act"), which provides antitrust safeguards to certain standards development organizations if they follow the notice procedures in the statute and conduct their activities within the scope of that notice. Recognizing that standard setting can promote competition, such as by ensuring a common interface for products that may be substituted for one another, the Act is designed to help facilitate the development of voluntary consensus standards -- technical standards written by non-profit standard developing organizations that are used by the industry and the government.
There are three principal provisions in the Act. First, it limits damage liability to actual damages, rather than treble damages, in federal or state civil antitrust actions for standards development organizations that use an open, transparent, and voluntary consensus-based approach to adopting standards. The Act does not protect companies that participate in standards setting organizations from liability for treble damages; it only protects the organizations and their full-time employees from such liability.
Second, the Act requires that the rule of reason be used to evaluate antitrust claims for "standards development activity." Under the rule of reason approach, a court weighs the pro-competitive aspects of activity against the anticompetitive ones, rather than focusing solely on potential harm. The statute defines "standards development activity" broadly as all activities that reasonably relate to the standards process. It excludes activities that involve the exchange of cost, sales, profitability, price, marketing or distribution information not reasonably required to develop a voluntary consensus standard or any anticompetitive activity for a for-profit entity that stands to gain from participation in any standard-setting activity.
Third, the Act provides that standards setting organizations that prevail in a civil action may recover attorney’s fees and costs if the court determines that the plaintiff’s conduct during the litigation "was frivolous, unreasonable, without foundation, or in bad faith."
The Filing Requirement
To qualify for the Act’s protection, standards development organizations must file a timely notification with the FTC and the DOJ that contains certain specified information:
- Timing: File no later than 90 days after the enactment of the Act, or 90 days after beginning a standards development activity, whichever is later;
- Information: Disclose the name of the standards development organization and its principal place of business; and provide documents showing the nature and scope of the standard development activity.
After receipt of the filing, the agencies are required to publish notices in the Federal Register of the standard development organization describing the organization and its standard-setting activities in general terms. The FTC or DOJ will make this notice available to the organization before filing and notifications can be withdrawn before publication. The protection of the Act, however, will only be received if the notice is published.
The Act amends the National Cooperative Research and Production Act of 1993 (NCRPA) which provides similar, but broader protection, to joint ventures that engage in research, development, and production. See 15 U.S.C. § 4303.
Congress decided that these amendments were necessary to correct for an inadvertent increase in the vulnerability of standard-setting organizations resulting from passage of the National Technology Transfer and Advancement Act of 1995. The NTTAA was enacted to replace out-moded governmentwritten standards with voluntary consensus standards, but because it caused a shift from governmentsponsored standard setting activities to private-sponsored ones, those activities were no longer immune from antitrust liability, exposing some organizations to treble damage liability. Congress concluded that such organizations, as non-profits serving a cross section of the industry which develop and implement their standards in an open, transparent and voluntary consensus manner, were unlikely to engage in anticompetitive conduct. By removing the threat of treble damage liability, Congress believed it would facilitate the development of pro-competitive standards. See generally H.R. Rep. Rep. 108-125 (2003).
Qualifying standard development organizations continue to be subject to the antitrust laws, but will no longer face the threat of treble damage liability. Thus, the statute provides an incentive to encourage the development of standards but because Congress did not amend the statute broadly to cover all types of standard-setting activities, the coverage is limited. The Act applies to organizations with no commercial interest in the technical specifications contained in the standards and only those that employ a consensus process; it does not apply to the corporations and their employees who participate in the organization.
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