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27 Antitrust 30 (2012-2013)
FRAND Wars and Section 2

handle is hein.journals/antitruma27 and id is 232 raw text is: CO0V ER S TOR IE S

FRAND Wars and Section 2

BY JOSEPH KATTAN

HE PROPER ANTITRUST TREATMENT
of patentees' breaches of licensing commitments
to standard-setting organizations (SSOs) is now
at the forefront of intellectual property antitrust
law. Claims that patentees have breached com-
mitments to license standard-essential patents (SEPs) on fair,
reasonable, and nondiscriminatory or on reasonable and
nondiscriminatory (collectively F/RAND) terms have been
the subject of both government enforcement actions and pri-
vate litigation. Among the participants in these legal battles
are some of the biggest technology companies in the world,
including Microsoft, Apple, Google, and Samsung. They
have waged their battles in the courts and before the antitrust
enforcement agencies in both the United States and Europe,
and before the International Trade Commission, where own-
ers of F/RAND-encumbered SEPs have sought exclusion
orders to bar the importation of standard-compliant prod-
ucts. As SEP owners have increasingly sought to block the sale
of standard-compliant products-typically in support of out-
sized royalty demands-standard implementers have
responded by invoking F/RAND commitments as the basis
for legal defenses, counterclaims, and affirmative claims.
The recent influx of cases involving F/RAND commit-
ments reflects the critical importance of interoperability stan-
dards to the computing, networking, and communications
industries, in which compliance with standards is a prereq-
uisite for market participation. The criticality of SEPs in
these industries has created opportunities for SEP owners to
block rivals in downstream product markets, raise rivals'
costs, or monetize the patent portfolios of businesses that are
no longer competitive.
This article explains the framework within which SSOs
require standard-setting participants to make F/RAND com-
mitments and the nature of the bargain that patent owners
make by encumbering their patents with such commitments.
It then addresses the antitrust implications of F/RAND com-
mitments. In particular, while courts have held that breach-

es of F/RAND commitments made deceptively with the
intent to breach may violate Section 2 of the Sherman Act,1
they have not reached the question whether a breach may vio-
late Section 2 in the absence of evidence that the SEP owner
made the commitment with the intent to breach. The Federal
Trade Commission has taken the position that such breach-
es may violate Section 5 of the FTC Act,2 but has suggested
that they might be outside the reach of Section 2.1 This arti-
cle shows that absence of deception at the SSO level is not an
impediment to Section 2 liability.
The Hold-up Problem and F/RAND Commitments
The importance of interoperability standards is well known.
Standards play a critical role in the computing, networking,
communications, and electronics industries, among others,
by enabling different manufacturers' products to exchange
information with and work alongside each other. As one
court has noted, standards facilitate the sharing of informa-
tion among purchasers of products from competing manu-
facturers, thereby enhancing the utility of all products and
enlarging the overall consumer market.4 Standards also
lower costs by increasing product manufacturing volume
and increase price competition by eliminating 'switching
costs' for consumers who desire to switch from products
manufactured by one firm to those manufactured by anoth-
er.'5 The adoption of standards may also accelerate the adop-
tion of new technologies by reducing the risk for both tech-
nology companies and their customers that new technologies
in which they invest may become obsolete.6
SSOs play a central role in facilitating the development
and adoption of new standards by bringing together diverse
stakeholders to develop standards cooperatively. It is com-
monly recognized, however, that the system of cooperative
standard setting, which is fundamentally procompetitive, is
vulnerable to abuse. An early generation of antitrust cases in
the standards area involved incumbent firms' capture of the
standard-setting process to exclude emerging technologies
by making them noncompliant with industry standards.7 A
more recent generation of cases has centered on allegations
that SSO participants breached obligations to disclose their
ownership of and intention to enforce SEPs against standard
implementers.' More recently still, the focus has shifted to
F/RAND commitments, which most SSOs require as a con-
dition of participation in standard development.

30  ANTITRUST

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