For our economy to be in its best condition, we need to focus on growing our economy, generating more jobs, and maintaining competitiveness within our country.[1] One way to encourage a healthy, growing economy is to promote innovation.[2] Innovation is a significant component of our market. Since World War II, 75 percent of U.S. growth can be attributed to innovation.[3] Given how important innovation is to the U.S. market, it is not surprising that issues concerning innovation and patent law often conflict within the framework and policies of antitrust law.[4] Both patent and antitrust laws promote “dynamic efficiency” by regulating property and the market, while incentivizing innovation.[5] The policies under patent and antitrust law must be properly aligned to enhance consumer welfare.[6] Unfortunately, there is a growing concern in the respective fields concerning standard setting.[7] Standard setting is the process where standard setting organizations (“SSOs”) assign a technology for a given standard. SSOs are responsible for developing, promulgating, or producing technical standards that address the needs of adopters (i.e., people or industries).[8]
Standardization has proven advantageous to our market.[9] As such, standard setting encourages the production of quality products.[10] The operability standards assure suppliers that its products will work efficiently with others and enable inter-operability and inter-changeability among various products.[11] Moreover, the operability standards allow an intellectual property holder to exercise unearned monopoly power.[12] However, increased patent litigation, caused by the abuses allowed under the current standard setting process,indicates the need for reform.
Market participants’ multilateral and unilateral actions, which may violate antitrust laws, stagnate the potential of operability standards.[13] Patent law policies consider inventions superior to substitutes.[14] However, these policies do not sanction superiority to an innovator, who has “already sunk resources into making the technology a part of new products,” or prevent “intellectual property holders from threatening to take the use of its invention away after the fact.”[15] Alarmingly, earned power is gradually taken from an intellectual property owner, while exorbitant offerings are given to a patent holder.[16] It is clear that the current measures prefer monopoly power to technology. The concern rests with the availability of these measures for use and the allowance of such use to become the standard.
Another issue occurs when the deceptive actions of patent holders cause excessive deviation from the intended use of operability standards.[17] Patent holders have misled the SSOs into believing that they do not hold essential intellectual property.[18] Such deception deprives the SSO from selecting a rival technology without undue burden and prevents the remaining intellectual property holders from standardizing their respective technologies.[19] In actuality, the SSOs could get “secured protection against the patent holder” and prevent the holder from later asserting the patent to block use of the standard.[20] When the SSOs select a deceptively procured technology as the commercially adopted standard, the result is irreversible injury and burden because it is too time-consuming and costly to select another.[21] This corrupt tactic allows the patent holder to hold up the market and implicitly authorizes greater licensing royalties than permitted under non-deceptive conditions. Under such conditions, disclosure of essential intellectual property would have been made prior to an announcement of the selected standard.[22]
To some, it may seem as though the pro-competitive benefits outweigh the risks of standard setting.[23] However, when deception is used in standard setting processes, a participant effectively injures the SSOs, benefits from unearned power, and receives greater royalty charges: all to the detriment of fellow patent holders.[24] Thus, it is clear that the anti-competitive harms exceed the benefits gained; this process is no longer a viable option.[25]
A number of scholars agree that SSOs must do more to regulate standard setting processes.[26] Many scholars have discussed and approved various potential solutions to this problem. However, these solutions fail to consider the potentially advantageous effects of actions supplementing one another, in unity. Thus, an effective solution should include a three-tier course of action: tier one of safeguard measures, tier two of active application, and tier three of curing methods.
In the first tier, the safeguard measures must be strengthened. Employing inventive programs to monitor the relevant market would improve market participant compliance. This theoretical program would supplement the SSOs’ previous strategies by attempting to mitigate risks of hold-ups procured by abusive measures.[27] The SSOs emphasized the use of clearer disclosure rules to determine the extent of a patent search and the consequences of searches failing to meet the threshold disclosed in the roles.[28] Further, the SSOs have accentuated the necessity for government awareness of its standards, since the government is able to act as a barrier to free trade and rent-seeking opportunities.[29] Thus, the government carries a pivotal role in influencing sufficient, standard-setting evaluation procedures to private organizations.[30]
It is important to remember that enhanced consumer welfare is predicated on well-informed market participants.[31] Thus, participation in incentive programs of well-informed participants, in conjunction with clearer rules and government guidance,[32] will surely resolve patent hold up issues. Relatedly, enhanced consumer welfare is also predicated on opportunities to participate in up-front negotiations.[33] In other words, these well-informed market participants must be encouraged to participate and apply gained information. Participant application is crucial inthe second tier.[34] In this tier, the market participant must comply with the procedures concerning fellow patent holders. Failure to comply may lead to greater consequences.[35] Court action through infringement litigation, royalty fees, and patent validity determinations will help deter violations and promote compliance.[36]
The third and last tier will revolve around the cure. Although a well-informed market participant seeks to avoid litigation and punishment, a patent holder may allow a hold up through either ignorant mistake or conscious disregard. Accordingly, the SSOs should create and routinely practice an ex-ante contract in the framework[37] to cure patent hold up issues.
However, even with a perfect performance in each tier, the concern of patent hold-up and its potentially chilling effects on innovation may worsen.[38] Therefore, my ultimate proposal includes a more drastic measure: implementing a wholly different set of rules, with specific descriptions of the minimum heightened standard from present requirements, that must be fulfilled in order to avoid liability. Although implementing a new set of rules entails onerous experimentation by the SSOs,[39] patent hold ups are gaining notoriety as they undermine standard setting efficiencies and discourage participation in such procedures.[40]
But are SSOs actions responsive? By applying weak and futile measures, we risk the health of our market. Interoperability standards enrich competition between competing products.[41] Due to the overwhelming ramifications of hold ups, innovation is stifled, the significance of interoperability standards will diminish, and competition will decrease, thus leaving our markets vulnerable. Action must be taken.
[1] Christine A. Varney, Assistant Attorney General, U.S. Dep’t of Justice, Promoting Innovation Through Patent and Antitrust Law and Policy (May 26, 2010), https://www.justice.gov/atr/speech/promoting-innovation-through-patent-and-antitrust-law-and-policy.
[2] See id.
[3] Id.
[4] Id.
[5] Id.
[6] Id.
[7] Fed. Trade Comm’n, Potential Pro-Competitive and Anticompetitive Aspects of Trade/Business Associations (Oct. 16, 2007), https://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-other-international-competition-fora/ustradeass.pdf.
[8] Standards Organization, Wiki, https://en.wikipedia.org/wiki/Standards_organization.
[9] Varney, supra note 1.
[10] Id.
[11] Fed. Trade Comm’n, supra note 7.
[12] See id.
[13] Varney, supra note 1.
[14] Id.
[15] Id.
[16] Id.
[17] Fed. Trade Comm’n, supra note 7.
[18] See id.
[19] Id.
[20] Id.
[21] Id.
[22] Joshua D. Wright, Commissioner, Fed. Trade Comm’n, SSOs, FRAND, and Antitrust: Lessons from the Economics of Incomplete Contracts, Fed. Trade Comm’n (2013), https://www.ftc.gov/sites/default/files/documents/public_statements/ssos-frand-and-antitrust-lessons-economics-incomplete-contracts/130912cpip.pdf.
[23] See id.
[24] Varney, supra note 1.
[25] Fed. Trade Comm’n, supra note 7.
[26] Kai-Uwe Kuhn, Justifying Antitrust Intervention in ICT Sector Patent Disputes: How to Address the Hold-Up Problem, Competition Pol’y Int’l (2013), https://www.competitionpolicyinternational.com/assets/Uploads/Kuhn2.pdf
[27] Varney, supra note 1.
[28] Id.
[29] See id.
[30] Id.
[31] Id.
[32] Id.
[33] Varney, supra note 1.
[34] Id.
[35] Id.
[36] Kuhn, supra note 26.
[37] Id.
[38] Id.
[39] Varney, supra note 1.
[40] Wright, supra note 22.
[41] Id.
