STANDARD-SETTING ABUSE: THE CASE FOR ANTITRUST CONTROL
b r u e g e l
p o l i c y b r i e f
. See, for example,Shapiro (2001), Layne-Farrar
(2007), andMariniello (2011).
1EX-POST ABUSE AND EUCOMPETITION POLICY
The discussion about the role thatcompetition policy enforcementshould play in correcting marketdistortions arising from the adop-tion of standards has beendragged into case-specific mat-ters. Contributions by practition-ers and academics have beensponsored to support patent-holders’ and licensees’ opposingviews, given the lack of scientificconsensus on a unique methodol-ogy to enforce antitrust control.Companies have often beenaccused of using courts or com-petition authorities for strategicpurposes, in order to enhancetheir bargaining positions relativeto counterparts while negotiatingpatent access prices. Under-standing the role that competitionauthorities can play thereforerequires taking a step back.
1.1 FRAND and the ex-post/ex-ante comparison
After the adoption of a standard(ie ex-post), the chosen technol-ogy normally lacks crediblesubstitutes: switching to compet-ing technologies becomesrelatively too expensive for manu-facturers. The owner of thepatented technology might thushave additional market power rel-ative to locked-in licensees, andmight exploit this power to chargehigher access rates. In the eco-nomic literature this phenomenonis referred to as ‘hold-up’
. Toreduce the risk of hold-up, stan-dard-setting organisations oftenrequire patent holders to disclosetheir standard-essential patentsbefore the adoption of the stan-dard (ie ex-ante) and to commit tolicense on FRAND terms.Arguably, the primary purpose of FRAND is to render the adoption of the standard ‘competition-neutral’in that it should aim at strippingplayers of any additional marketpower accruing to them solelybecause the standard de-factorules out any other potentiallycompeting technology. At thesame time, patent holders shouldnot be deprived of the reward theyare entitled to for their R&D effortsunder normal competitive condi-tions. Making that effective inpractice is a tough challenge foracademics and practitionerssince it requires being able to dis-entangle the effect on prices dueto the restriction of competitionfrom the effect due to the qualityof the new technology. Swansonand Baumol (200
) have sug-gested benchmarking FRAND tothe price that would haveemerged ex-ante in the context of an auction-like setting in whichtechnologies bid (in the form of lower access prices) to becomethe standard. Although thatapproach has some merits, it hasan intrinsic limit: ex-ante, little isknown about the value of thetechnologies at stake (seeMariniello, 2011). The value of technologies materialises onlywhen the standard is effectivelyimplemented, when patent hold-ers weigh the relevance of their
BOX 1: THE MAIN EU ANTITRUST CASES
A brief description of the main antitrust cases investigated by the EuropeanCommission is given below. No substantial precedent has yet been set, andclear-cut guidance on enforcement against unilateral abuse is still missing.For more on types of infringements, see section 1.
The Rambus case:
A case of patent ambush. Rambus was accused of having intentionally withheld information about patents that later wereclaimed to be relevant to the standard. Rambus settled with the Commis-sion, agreeing on a five year cap on its royalty rates.
The Qualcomm case:
Qualcomm was alleged to have infringed its FRANDcommitments relating to UMTS*, the 3G mobile phone standard set by theEuropean Telecommunications Standards Institute (ETSI). After three yearsof investigation, the Commission closed the proceeding with no decision.
The Nokia vs IPcom case:
IPCom was accused of not abiding by the FRANDcommitment given to ETSI by the previous owner of its essential patents,Bosch. After Nokia’s complaint to the Commission, IPCom declared it wasready to abide by FRAND. The Commission welcomed IPCom’s public decla-ration without formally opening an investigation.
The Samsung case:
Samsung was accused of not abiding by its FRANDcommitment by seeking injunction relief in an attempt to block Apple’shandset sales. In December 2012, the Commission sent a formal State-ment of Objections to Samsung.
The Google-Motorola case:
As in the Samsung case, Google-Motorola wereaccused of not abiding by its FRAND commitment by seeking injunctionrelief against Apple and Microsoft. In January 2013, a settlement betweenGoogle and the Federal Trade Commission in the US limiting Google’s abilityto seek injunction relief was signed.
* Universal Mobile Telecommunications System