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University of Florida
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Friday, October 1, 2010

Comments to the Commission's Draft Horizontal Guidelines-Standardization

Posted by D. Daniel Sokol

Anne Layne-Farrar & Jorge Padilla (LECG) provide Comments to the Commission's Draft Horizontal Guidelines-Standardization.

ABSTRACT: This brief paper sets out our comments on Section 7 of the Draft Guidelines on the applicability of Article 101 of the TFEU to horizontal co-operation agreements ("Draft Guidelines") and, in particular, on the criteria for assessment of standardization agreements.

We have three main comments:

  • First, technology owners participating in a standard-setting process compete to have their technologies selected into the standard. A standardization agreement is a horizontal cooperation agreement among users of the standard, which collectively select the technologies used in their products. It is not a horizontal cooperation agreement among technology owners. Therefore, any restriction imposed on the licensing terms offered by technology owners holding essential intellectual property rights ("IPR") in a standard under the umbrella of Article 101 would be unjustified, as it would limit the ability of non-dominant IPR holders to set licensing terms on market terms.
  • Second, the Draft Guidelines identify three sufficient conditions for a finding of no infringement of Article 101(1). A careful reading of the Draft Guidelines suggests that the very same conditions are necessary conditions for an exemption. It follows that under the rules set out in the Draft Guidelines no agreement that infringes Article 101(1) could be exempted under Article 101(3). We believe this is inconsistent with the rule of reason approach that characterizes the assessment of cooperation agreements under Article 101.
  • Third, we believe the rules set out in the Draft Guidelines for the treatment of standardization agreements under Article 101 risk chilling innovation and, in some industries, also undermining the process of standardization. This is because those rules impose a compulsory licensing obligation on technology companies with essential IPR on the standard, which places a cap on their expected returns to investment.

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