Global IP Issues in Standard-Setting Activities US Perspective

1. Global IP Issues in Standard-Setting Activities US Perspective Michele Herman Woodcock Washburn LLC

2. Trends • The RAND Debate • Patent Ambush is the Claim De Jure • US antitrust agencies generally avoiding intervention

3. Standards and IP Basics:The Standards Setting Organization • Each SSO is unique • Governance • Structure • Standards Development Processes • Scope of Activities • IPR Policy • Each Patent Policy is unique but may have common attributes • Ex Ante Disclosure of patents, not terms • License Commitments or Statements • Reasonable and Non-Discriminatory (RAND) including reasonable royalties or with zero royalties (RANDZ) • Businesses decide to participate based on value of participation v. burdens imposed by IPR Policy

4. Disclosure and Licensing Commercial Product B Commercial Product A • Sample Disclosure Policy "Essential PatentClaim" shall mean any Patent Claim the use of which was necessary to create a compliant implementation of either mandatory or optional portions of the normative clauses of the Standard when, at the time of the Standard's approval, there was no commercially and technically feasible non-infringing alternative. An Essential Patent Claim does not include any Patent Claim that was essential only for Enabling Technology or any claim other than that set forth above even if contained in the same patent as the Essential Patent Claim. Full implementation of standard Related product features Essential Claims

5. What is RAND? • A commitment is not a license • Must offer a license • No exclusive licenses • Common terms and conditions found in standards-related patent licenses • Royalties or fees • Field of use • Reciprocity • Defensive termination • Patentee and Licensee agree on mutually acceptable terms and conditions

6. Standards and IP Basics: The Process – A P discloses essential patents WG/SSO votes on proposed standard P joins SSO P provides RAND assurance P joins WG WG members are informed of P’s disclosure Proposed standard is approved Bilateral Ex-Ante negotiations A and P negotiate A requests license terms for its commercial product & business plans from P A and P agree on mutually acceptable terms P evaluates A’s request and offers terms P believes are RAND A votes to approve the proposed standard

7. Standards and IP Basics: The Process – B P discloses essential patents WG/SSO votes on proposed standard P joins SSO P provides RAND assurance WG considers other options P joins WG WG members are informed of P’s disclosure Proposed standard is rejected and returned to WG Bilateral Ex-Ante negotiations B and P negotiate B requests license terms for its commercial product & business plans from P B and P do not agree on mutually acceptable terms P evaluates B’s request and offers terms P believes are RAND B objects to the proposed standard on the basis that B was unable obtain a RAND license

8. Standards and IP Basics: The Process – C P discloses essential patents WG/SSO votes on proposed standard P joins SSO P provides RAND assurance C creates commercial implementation of standard which infringes P’s disclosed patents P joins WG WG members are informed of P’s disclosure Proposed standard is approved Bilateral Ex-Post negotiations C and P negotiate C and P do not agree on mutually acceptable terms P becomes aware of C’s implementation and offers a license to C on terms P believes are RAND Commercial Dispute

9. Standards and IP Basics: The Process – D WG/SSO votes on proposed standard P joins SSO D creates commercial implementation of standard which infringes P’s patents P joins WG Proposed standard is approved Bilateral Ex-Post negotiations D and P negotiate D and P do not agree on mutually acceptable terms P becomes aware of D’s implementation and offers a license to D Patent Ambush P intentionally does not disclose essential patents

10. RANDZ versus RANDInnovation Models Product Development Firms Pure Innovation Firms

11. RANDZ versus RANDServices Models Telecommunications operators IT support and maintenance providers System Integrators

12. A Proposed Solution: Ex-Ante Joint Negotiations P discloses essential patents WG/SSO votes on proposed standard P joins SSO P provides RAND assurance and terms A, B, C and D create commercial implementations of standard which infringes P’s disclosed patents P joins WG WG members are informed of P’s disclosure Proposed standard is approved Joint negotiations Bilateral Ex-Post negotiations A and P, B and P, C and P, and D and P negotiate independently Parties agree on mutually acceptable terms or fail to agree A, B, C, and D vote to approve the proposed standard

13. The Ex Ante Joint Negotiations Debate • Promote public disclosure of royalties and license terms, not only patents • The debate is NOT about the timing of disclosure it is simply about how the disclosure is made • a single set of public terms for all implementers • The debate is also NOT about more transparency • it is about promoting collective negotiations over ex ante bilateral negotiations

14. Battlegrounds • The Problem • Does one exist? • Is RAND broken? • Proposed Ex Ante Solution • Does it address patent ambush? • Is it more efficient? • Are the unintended risks justified by the problem allegedly addressed? • Motivation • Why are large patent owners on different sides of the debate? • Are the proposed solutions a guise for harming competing business models?

15. Standards and IP: Landscape • Today more than 16,455 standards are approved as International Standards (about 1800 more in the pipeline) and 11,500 as American National Standards. • Thousands more are adopted by industry associations, consortia, and other SSOs on a global basis • The number of disputes that result in litigation per year is typically in single digits • The vast majority of these cases involve fact patterns where the patent owner is accused of intentionally withholding the fact that it owned Essential Claims until after investments were made in commercial implementations

16. Patent Ambush is the Claim De Jure • May be raised as an affirmative defense or counterclaim • Fraud • Monopolization • Attempted Monopolization • Unfair Business Practices • Waiver • Equitable Estoppel • Implied License • Laches • Promissory Estoppel • Breach of Contract • Third Party Beneficiary

17. Patent Ambush is the Claim De Jure • Comparable to over use of inequitable conduct claims "[T]he habit of charging inequitable conduct in almost every major patent case has become an absolute plague." Burlington Indust., Inc. v. Dayco Corp., 849 F.2d 1418, 1422 (Fed. Cir. 1988) "'Inequitable conduct' is not, or should not be, a magic incantation to be asserted against every patentee." FMC Copr. v. Manitowoc Co., 835 F.2d 1411, 1415 (Fed. Cir. 1987). Inequitable conduct "has been overplayed, is appearing in nearly every patent suit, and is cluttering up the patent system." Kimberly-Clark Corp. v. Johnson & Johnson, 745 F.2d 1437, 1454 (Fed. Cir. 1984) inequitable conduct is a "much-abused and too often last-resort allegation." Preemption Devices, Inc. v. Minnesotat Min. and Mfg. Co., 732 F.2d 903, 908 (Fed. Cir. 18\984).

18. Recent Litigation • Rambus • Fraud (CAFC) v. antitrust (FTC – on appeal) • Patent policy interpreted based on “expectations” of members. CAFC and FTC decisions not reconcilable. • Compulsory Licenses • Broadcom v. Qualcomm • ETSI (remanded for further proceedings) • Antitrust claims alleged, but only a commercial dispute   •  JVT (on appeal)  • Waiver for failure to disclose based on “expectations” of the members where the expectations were contrary to the written policy.  • Patents were found not infringed and therefore not essential but incomprehensibly subject to a disclosure duty. • Golden Bridge • Allegations supported a per se illegal boycott (patent invalidated)

19. US antitrust agencies generally avoiding intervention • Ex Ante Disclosure of Royalties/License Terms to the SSO • VITA and IEEE Business Review Letters • DOJ has no present intention to enforce based on the facts presented • Does not represent DOJ encouragement to adopt ex ante policies “I am often asked to explain the larger message from Department decisions such as those reflected in the VITA and IEEE letter. My first reaction is that the Department was evaluating specific facts or proposed facts, which is how we always operate. The Department is not in the business of endorsing particular approaches to intellectual property licensing and it does not rule out any other, different approach to SDO patent policies; one size does not fit all.” Gerald Masoudi, Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice, speech on May 10, 2007

20. US antitrust agencies generally avoiding intervention • Collective Negotiations • Agencies recognize risk of buyer-cartel behavior “Under the patent laws, innovation should be rewarded, particularly where it results in a patent that is essential on its own merits. It makes no sense to endorse the innovative effort represented by SDOs while disdaining the innovative effort represented by a patent or other intellectual property. SDO buyer-cartel behavior has the real potential to damage innovation incentives, and therefore is properly the subject of antitrust scrutiny.” Hill Wellford, Counsel to the Assistant Attorney General, Counsel to the Assistant Attorney General, Antitrust Division, U.S. Department of Justice, speech March 29, 2007 • Agencies also recognize pro-competitive benefits “ “In most cases, it is likely that the Agencies would find that joint ex ante activity undertaken by an SSO or its members to establish licensing terms as part of the standard-setting process is likely to confer substantial procompetitive benefits by avoiding hold up that could occur after a standard is set, and this would be an important element of a rule of reason analysis. … Nonetheless, joint ex ante licensing negotiations may raise competition concerns in some settings.” Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, FTC/DOJ April 2007 (the “IP2” Report)

21. Views Of Other US Antitrust Authorities “Joint negotiations with intellectual property owners by members of a standard-setting organization with respect to royalties prior to the establishment of the standard, without more, should be evaluated under the rule of reason.” Antitrust Modernization Commission Report

22. Summary • Policies that encourage ex ante joint negotiations do not: • address patent ambush scenarios, • may inject inefficiencies into the process, and • result in other negative consequences. • Such policies are not favored or disfavored by US authorities • US antitrust agencies are unlikely to bring an enforcement action against an SSO that adopts an ex ante license terms disclosure policy but might bring an action for situations that could arise under such policies. Each situation will be evaluated on its own merits.

23. Thank you