Monday, October 14, 2013
Posted by Jorge Contreras (American University)
There has been a surge of interest lately in commitments to license patents on terms that are “fair, reasonable and non-discriminatory” (FRAND). This interest has been sparked, in large part, by a number of high-profile legal battles being waged in courts and administrative agencies around the world. The patents at issue in these cases often cover industry standards that were developed in collaborative trade associations known as standards-development organizations (SDOs).
For at least the past two decades, SDOs have sought to reduce the risk that adopters of their standards will be subjected to excessive royalty demands (sometimes called patent hold-up). One of the principal means devised to reduce hold-up has been requiring that SDO participants commit to license their patents to adopters of a standard on FRAND terms.
But while the principal focus of litigants and regulators in recent years has been on patent commitments made within SDOs, parties have increasingly made voluntary public patent commitments in settings outside of SDO-based standards development, but which are characterized by a similar desire for interoperability and inter-vendor compatibility. Such commitments can take the form of covenants not to sue, promises to license on royalty-free or FRAND terms, or clarifications of previous commitments that have been made. As an example of the latter, in February 2012 Microsoft, Google and Apple all released public statements clarifying their interpretations of FRAND commitments they have previously made. These clarifying statements were not made within the disclosure structures of the relevant SDOs, but in a free-form manner that was eventually relied upon by the U.S. Department of Justice in its investigation of patent acquisitions proposed by each company.
One area in which non-SDO patent commitments are becoming increasingly common is open source software. For example, in 2004-05, a handful of firms publicly announced that they would not assert patents against use of the open source Linux operating system. Some large patent holders also issued blanket assurances covering substantial portfolios of patents and products, including IBM’s public commitment not to assert approximately 500 patents against open source software products, and Google’s more recent “Open Patent Non-Assertion Pledge”. Others, under the umbrella of the non-profit Open Web Foundation, have made commitments to license a wide variety of software interfaces, tools and specifications on FRAND terms. Finally, some firms have made public FRAND-like commitments to enable compatibility with their own proprietary platforms. One such commitment is contained in Microsoft’s well-known Interoperability Principles, which state that Some of Microsoft’s Open Protocols are covered by patents. Microsoft will indicate on its website which protocols are covered by Microsoft patents and will license all of these patents on reasonable and non-discriminatory terms, at low royalty rates.
Although such commitments are not made as part of an SDO standard-setting process, they serve similar goals of ensuring interoperability and compatibility among products offered by different vendors. As such, they can efficiently clear the landscape of potential patent impediments to widespread adoption of common interoperability standards and protocols, producing welfare gains similar to those enabled by FRAND commitments made with SDO-developed interoperability
Despite their growing popularity, the legal effect of non-SDO patent commitments is not entirely clear. The prevailing theoretical framework for SDO-based FRAND commitments is contract law (a patent holder enters into a “contract” with an SDO for the benefit of third party vendors whose products implement the relevant standards). But as I have previously argued, contract law is poorly-matched to the diversity of FRAND commitments made within the SDO context. But if contract law does not work well with commitments made in SDOs, where documents at least resembling contracts are signed, contract law is even more inadequate as an enforcement framework for non-SDO patent commitments, in which none of the classical elements of contract formation (consideration, offer, acceptance, meeting of the minds) are present. Likewise, promissory estoppel, another likely avenue for enforcing these commitments, is difficult to prove without a showing
of specific reliance by the infringing party.
Thus, if non-SDO patent commitments are to be enforced (as they should be), a new theory is needed. Others have proposed theoretical models for enforcing FRAND commitments in the SDO context that are grounded in property and antitrust law. I have recently proposed a “market reliance” theory that combines principles of promissory estoppel with a presumption of reliance adapted from the securities law “fraud on the market” theory. Whatever enforcement theory the
courts eventually adopt, it is likely that non-SDO patent commitments will continue to play an important role in efficiently clearing the way for the adoption of welfare-enhancing interoperability standards and protocols. As a service to the standards research community, the Program on Information Justice and Intellectual Property (PIJIP) at American University’s Washington
College of Law has established a new public web resource listing and describing non-SDO patent commitments.
The site, which was launched this week, already includes 62 different non-SDO patent commitments covering thousands of patents. We hope to continue to add information to the site, and invite the submission of additional non-SDO patent commitments by the public. In order to preserve a record of these commitments, given the ephemeral nature of individual web sites, we have also created PDF versions of every commitment that is listed, and will do our best to create a permanent record of any modifications to these commitments. Please let us know if you believe that a public patent commitment has been altered, amended or retracted.
Non-SDO patent commitments enable patent holders to assure the market that they will not enforce their patents in unexpected ways against other market participants. Such assurances clear the way for product interoperability and open development communities and can benefit the entire market.
We hope that this new collection of non-SDO patent commitments will improve understanding among scholars, regulators, courts, and industry participants and encourage the expansion of their use throughout the networked economy.