The standardisation chapter of the draft guidelines on horizontal cooperation agreements

1. The standardisation chapter of the draft guidelines on horizontal cooperation agreements Maastricht University / Stockholm Network Brussels, 1 June 2010 Prof. Damien Geradin

2. Draft guidelines on horizontal cooperation agreements • The draft guidelines cover various types of agreements, including information exchange agreements, R&D agreements, etc. • The draft guidelines also include a chapter on standardization agreements, which is considerably more detailed that the similar chapter in the existing guidelines (2001) • The draft guidelines have been issued for public consultation (until June 25, 2010) • The European Commission is currently reading (or listening to) the comments made by interested parties

3. What do the draft guidelines seek to achieve? • Commission terminated three investigations at the end of 2009: Rambus (settlement), Qualcomm (Commission dropped charges) and IPCOM (Commission welcomed IPCOM’s decision to make FRAND commitments). • Commission considers that since standards-related cases are very hard to deal with ex post, it is preferable to address issues on an ex ante basis. • The draft guidelines offer the Commission an excellent opportunity to tackle potential standards-related abuses ex ante (although one can question whether this is the right instrument).

4. Focus of the draft guidelines’ chapter on standardization • Commission states that “standardisation agreements generally have a positive economic effect” (¶ 258) , but that they can also “give rise to restrictive effects on competition” (¶ 261). • Given the “particular risks” created standardisation involving IPRs, the draft guidelines will focus on such agreements (¶ 262).

5. Restrictions by “object” • The draft guidelines make clear that standardization agreements cannot be a fig leaf for cartels: • “Agreements that use a standard or standard terms as part of a broader restrictive agreement aimed at excluding actual or potential competitors restrict competition by object within the meaning of Article 101(1)” (¶ 267) • “Any efforts to reduce competition by using the disclosure of essential IPR or most restrictive licensing terms prior to the adoption of a standard as a cover to jointly fix prices of products” constitute restrictions of competition by object. (¶ 267) • Restriction by “object” are in practice per se illegal under Article 101 TFEU.

6. Restrictions by effects • Restrictions by effects fall under Article 101(1), but can be exempted under Article 101(3) TFEU. They can fall outside the scope of Article 101(1) in certain conditions (safe harbor). • Possible restrictions: • “[T]he establishment of standards …can create or increase the market power of those IPR holders and in some circumstances lead to abuses of a dominant position.” (¶ 275) • The draft guidelines seem particularly concerned with “patent ambush” and “hold up” (¶ 280).

7. The safe harbor mechanism • Standard-setting agreements may fall outside the scope of Article 101(1) if the following conditions are met: • Participation in SSOs and procedure for adoption of standards is “unrestricted and transparent” and there is no obligation to comply with the standard in question (¶ 277) • IPR policies should require “good faith disclosure” of IPRs that might be essential for the implementation of a standard before that standard is agreed. (¶ 281, emphasis added). IPR policies should require that essential IPR holders “make reasonable efforts to identify existing and pending IPR reading on the potential standard.” (Id.) • IPR policies should require that “all holders of essential IPR in technology which may be adopted as part of a standard provide an irrevocable commitment in writing to license their IPR to all third parties on fair, reasonable and non-discriminatory terms.” (¶ 282)

8. Meaning of the “FRAND” commitment • “FRAND commitments are intended to prevent IPR holders from making the implementation of a standard difficult by refusing to license or requesting unfair or unreasonable fees (in other words excessive fees) after the industry has been locked in to the standard and/or charging discriminatory royalty fees.” (¶ 283, emphasis added). • “[T]he assessment of whether fees imposed for patents in the standard-setting context are unfair or unreasonable, will be based on whether the fees bear a reasonable relationship to the economic value of the patents.” (¶ 284, emphasis added).

9. Issues for discussion? • Are the draft guidelines suitable for all types of standardization agreements? • Are “patent ambush” and “hold up” instances so serious and frequent to require the sort of ex ante “remedies” proposed by the Commission? • Are the draft guidelines on horizontal agreements well suited to address unilateral conduct? • Are the conditions set by the Commission for SSOs and their members well tailored to the problems they seek to address? • Is the formulation of these conditions sufficiently clear to avoid implementation problems? • Do the draft guidelines sufficiently balance the interests of essential patent holders and standards implementers? • What will be the practical consequences of the guidelines for SSOs?

10. Contacts Prof. Damien Geradin Howrey LLP 9-31, Avenue des Nerviens 1040 Brussels – Belgium Tel: + 32 2 741 10 11 Email: geradind@howrey.com