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DOJ Urges Standard-Setting Organizations to Adopt Clearer Licensing Rules
Practical Law Legal Update 4-521-8718 (Approx. 4 pages)
DOJ Urges Standard-Setting Organizations to Adopt Clearer Licensing Rules
by PLC Antitrust
| Law stated as of 19 Oct 2012 • USA (National/Federal) |
The Antitrust Division of the Department of Justice (DOJ) recommended that standard-setting organizations (SSOs) adopt clearer policies for the licensing of standard-essential patents (SEPs) to minimize patent hold-up and litigation. The DOJ urged SSOs to consider six policy proposals that would help clarify typical standards commitments.
As part of the DOJ's ongoing focus on standard essential patents (SEPs), Deputy Assistant Attorney General Renata B. Hesse gave a speech at the International Telecommunication Union Patent Roundtable, urging standard-setting bodies to adopt clearer licensing policies to prevent the opportunistic use of SEPs. Her speech closely followed Congressional testimony that Acting Assistant Attorney General Joseph Wayland gave in July 2012.
SEPs are patents that are essential to a particular technology and standardized for interoperable use. Holders of SEPs may take advantage of the standardization process and cause, what is referred to as, patent hold-up by either:
- Excluding competitors from a market by refusing to license the SEP.
- Charging exorbitant and unfair licensing fees for the SEP.
Patent hold-up has the potential of hurting consumers when potential licensees either:
- Decline to incorporate the standard technology.
- Pass on the licensing cost to the consumer.
Hesse described this type of patent hold-up as particularly concerning when alternatives for the standard existed before it was set, but were now likely obsolete.
Hesse acknowledged that most standards bodies currently have policies that encourage their participants to commit to licensing SEPs using RAND (reasonable and non-discriminatory) terms in the US or FRAND (fair, reasonable and non-discriminatory) terms in Europe.
However, Hesse explained that these terms are often ambiguous, as they do not clearly set out what a reasonable and non-discriminatory fee is. This lack of clarity is evidenced by the high number of current patent-related lawsuits, particularly in the telecommunications industry. Hesse recommended the use of more well-defined policy rules to minimize ambiguity and allow the standards body, rather than a court or other intermediary, to interpret the scope of the organization's own licensing commitments.
Hesse cited two real-world examples of RAND-clarifying policies. The first policy required association members who owned SEPs to disclose their highest royalty rates and most restrictive licensing terms and created an arbitration procedure to resolve disputes related to compliance with the patent policy. The second policy allowed, but did not require, participants to declare their most restrictive licensing terms.
Noting that these types of policies are rarely adopted, Hesse urged standards bodies to consider the following RAND- and FRAND-clarifying policies to increase transparency and better promote fair use of SEPs:
- Enact procedures to identify patents for which the patent holder has not agreed to license on RAND and FRAND terms and consider whether to include that technology in the standard.
- Clarify that licensing commitments:
- bind current patent holders and later patent purchasers alike; and
- apply to all users of the standard, whether or not a member of the standards body.
- Allow licensees to license RAND-encumbered SEPs on a cash-only basis, while also:
- prohibiting mandatory patent cross-licensing; and
- permitting voluntary cross-licensing.
- Limit the ability of RAND- and FRAND-committed patent holders to use an injunction to exclude a willing and able licensee from the market.
- Decrease the cost of determining RAND and FRAND licensing terms by, for example:
- setting RAND and FRAND rate guidelines; or
- mandating arbitration for disputes about RAND and FRAND commitments.
- Devise ways to ensure that patent holders actually believe that their patents are essential to the standard.
Hesse reiterated that the DOJ does not require the use of any of these proposals. She encouraged standards bodies to use the business review process should adoption of one or more of these policies potentially impact competition. The DOJ's business review process allows companies to receive guidance on business activities before they take place.