Does IEEE’s IP policy comply with competition law?

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There is a large body of legal and economic literature on standard-essential patents (SEPs) and competition law that focuses on the availability of injunctive relief and strategic behaviour of SEPs’ holders. There is much less literature on the role of standard-setting organisations (SSOs) and their IP policies (I dealt with this topic here).

The IP policies of SSOs became a hot topic in 2015, when the Institute of Electrical and Electronics Engineers (“IEEE”), one of the most relevant SSOs active in the information and communication technology (“ICT”) sector, modified its IP policy with an effort to better clarify the “reasonable and non-discriminatory” (“RAND”) commitments that SEPs’ owners are supposed to accept through the submission of a letter of assurance (“LOA”).

SEP holders and purchasers of technology have traditionally experienced issues in agreeing on what is fair, reasonable and non-discriminatory and courts have had similar problems in developing rules on this. This has caused a debate on whether SSOs can do more to make FRAND more concrete.

Eventually, IEEE has done so through reforming its IP policy. According to the amendments, the determination of reasonable rates should now include the consideration of the value contributed by the patented invention to the “relevant functionality of the smallest saleable compliant implementation”.  In addition, the new policy states that any interested party – on a non-discriminatory basis – can obtain a license on SEPs to produce a compliant implementation.

The reference to the “smallest saleable compliant implementation” (i.e.: components like microchips and semiconductors) raised significant tension between SEP holders and purchasers of technology. Indeed, SEP-holders have traditionally calculated royalties as a percentage of the price of the end-use product which incorporates the patented technology and they are worried that reasonable rates calculated at a “component” level (i.e.:) will be too low and will prevent them from reaping the fruits of their investments and from fostering the inventive circle.

The adoption of IEEE’s new IP policy raises also some legal questions. Some relate to the concept of reasonability, some other to the issue of non-discrimination. Answering to these questions is all but easy, and for a deeper comprehension of them I refer to my paper. However, some general hints can immediately be provided.

  1. Are the new IEEE’s IP policies in line with competition law, insofar as they provide companies involved in negotiating SEPs with a definition of “reasonable royalty” which may influence decisions on price?

The Department of Justice already assessed whether the new policy entails a breach of US antitrust law and it concluded that it does not. However, considering the outcome of IEEE‘s reform as a buyers‘ side cartel under EU competition law might be theoretically affordable to a certain extent, applying CJEU‘s case law, but such a purist vision of antitrust law is likely to collide with the unique peculiarities of the standard-setting world. The non-exhaustive nature of the criteria provided by IEEE to define the “reasonable rates” is supposed to leave parties and courts free to appreciate the impact of the “smallest saleable compliant implementation” rule on the incentive to innovate on a case-by-case basis. Indeed, the new framework should not prevent SEP holders from proving that their SEPs bring a significant added value to the end-use product and that the royalty has to be calculated on the price of the latter.

  1. If a component maker asks for a licence from the SEP holder, would the SEP holder be obliged to grant it under the updated FRAND policy of IEEE (according to which a license , so incurring in the exhaustion of its rights toward downstream manufacturers using those components?

This is a relevant question, as IEEE’s new IP policy require that a license on SEPs is granted to any applicant. In the US, courts have recognized the contractual nature of LOAs and therefore the DoJ and the FTC are not likely to use antitrust law against conducts in breach of SSOs´ bylaws. Also in Europe, although in some jurisdictions courts have explicitly recognized the antitrust defence as a protective tool against patent holdup, competition law does not appear to be an adequate response to the refusal to license to component makers. Refusing to license to component makers or imposing restrictive clauses to avoid exhaustion does not amount to an anticompetitive conduct since it does not produce foreclosure effects. Indeed, an SEP holder has no incentive at all to sue a component manufacturer for patent infringement, because a successful outcome of the lawsuit would exhaust its patent rights and the use of the patented technology by the manufacturers of the final product active on the downstream market would be royalty-free. Consequently, in the normal course of commerce component makers will not be prevented from using the patented technology without a license and will not be foreclosed from the market.

The debate between SEP-holders and the so-called implementers is still open on many issues (for example, on whether the application of the new IP policy should have any retroactive effects on projects started before the approval of the reform). This uncertainty is affecting the development of important technical standards related to technologies like 5G and 6G, essential for the diffusion of the so-called “Internet of Things”. Here you find an email thread – publicly available – where it is possible to read the on-going exchange of emails between the participants to the IEEE-SA Standards Board Patent Committee.

marco.lobue@belex.com

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