Standards, Essential Patents and Antitrust

Posted by D. Daniel Sokol

Jorge Padilla, Compass Lexecon, Standards, Essential Patents and Antitrust.

ABSTRACT: Standard essential patents (SEPs)—patents that read on a standard and are declared essential to practising that standard by their owners—have attracted the attention of competition authorities all over the world. The alleged abuse of the market power conferred by SEPs was the core issue investigated by the US and EU competition authorities in relation to Rambus’s conduct; it was the chief concern behind DG Comp’s investigation of Qualcomm’s licensing practices; it was considered by the US and EU competition authorities when reviewing the merger between Google and Motorola and the recent patent aggregation mergers involving, among others, Nortel’s patent portfolio; and, of course, it is centrestage of the ongoing reviews of Samsung’s and Motorola’s licensing practices.

What explains the recent popularity of SEPs with the competition agencies? First, standardisation plays a key role in several industries; most prominently in the telecoms, software, and hardware industries. Second, the number of patents in some standardised industries has grown very significantly. Third, many of those patents have been declared essential to practising standards. Fourth, some competition authorities have concluded that (a) standardisation restricts competition and thus creates market power and (b) SEP ownership automatically confers dominance. And, lastly, standardised industries are populated by asymmetric companies: some of them have SEPs while others don’t; some of them are pure innovators while others are pure implementers and yet others are vertically integrated. Asymmetry engenders dispute and dispute attracts regulatory attention when regulators are persuaded, as some appear to be, that commercial courts are likely to be unable to deal effectively with the complexities of SEP pricing and non-pricing disputes.