AAI Calls on DOJ and FTC to Create Joint Enforcement Guidelines on the Patent Policies of Standard Setting Organizations

The American Antitrust Institute (AAI) has petitioned the Department of Justice (DOJ) and Federal Trade Commission (FTC) to issue joint enforcement guidelines on the patent policies of standard setting organizations (SSOs).

“Guidelines are urgently needed to spur SSOs to adopt sound patent policies that reduce the likelihood of anticompetitive patent holdup behavior and ultimately protect consumer interests,” said AAI President Bert Foer.

In the May 23 petition, the AAI states collaboratively developed standards are at the heart of the information and communication technology sector. Standards promote interoperability, downstream competition, and innovation. For example, standards allow companies around the world to manufacture smartphones that are compatible with the wireless networks of U.S. carriers.

Collaboration among actual and potential competitors, however, carries the risk of anticompetitive conduct harmful to consumers. Participants in SSOs can use the cover of collaboration to engage in collusive, exclusionary, and monopolistic behavior. To ensure that standard setting works in the interest of consumers, SSOs must enact and enforce policies to prevent anticompetitive activity.

In the standard setting arena, patent holdup has been a serious and recurring problem in recent years. Through deception or false promises to license their patents on “reasonable and non-discriminatory terms” (RAND), some patent holders have persuaded SSOs to incorporate their technologies into the adopted standard. Patents that are necessary for manufacturing standard-compliant products are known as “standard essential patents” (SEPs).

“After manufacturers have spent millions of dollars and significant time to produce standard-compliant products, owners of SEPs have demanded monopolistic royalties and threatened to seek injunctions and exclusion orders against companies that fail to comply, leaving manufacturers the option to either agree to the patent holder’s extortionate terms or see their products kept off the market,” explained Foer. “With the potential loss of a large revenue stream from injunctions and exclusion orders, manufacturers typically comply with the patent holder’s royalty demands. This type of holdup behavior can result in higher prices, reduced product quality, and diminished innovation.”

In its petition, the AAI suggested the DOJ and FTC should provide an antitrust safe harbor to SSOs that adopt and enforce the following patent policies:

    1. Mandatory disclosure of relevant patents as well as anticipated and pending patent applications, supported by good faith reasonable inquiry;
    2. Royalty-free licensing of patents that are not disclosed in violation of disclosure obligations and consequently incorporated into a standard;
    3. Commitment to license SEPs on RAND terms;
    4. Prohibition on SEP owners seeking injunctions and exclusion orders against any willing licensee;
    5. Stipulation that licensing commitments run with the SEP;
    6. Cash-only license option for individual SEPs; and
    7. Efficient, cost-effective process to resolve disputes over RAND royalty and non-royalty terms.