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Print articleThe Anti-trust/IP Interface in the Standard Setting Arena and Beyond- Rambus and Qualcomm
November, 2007 - Sebastian McMichael
There is a distinct (and dynamic) overlap between competition law and intellectual property rights, no more evident than from the European Commission's investigations into, and the European Court's judgement in, Microsoft. In a similar vein, the Commission is investigating each of Qualcomm and Rambus for potential abuses of a dominant position (through the allegedly unlawful exploitation of IP rights) in the standard setting arena. No doubt buoyed by U.S. precedent and its success before the European Court in Microsoft, these investigations demonstrate a confident Commission seeking to balance the sometimes conflicting aims of IP protection and competition law in the context of dynamic and fast moving technology markets. It also marks the return to the dominance arena of a regulator recently pre-occupied with its fight against cartels and, of course, its draining fight against Microsoft.
Lying in wait: Rambus ambushed by the Commission
On 30 July, the Commission issued Rambus with a Statement of Objections (broadly, the formal initiation of a Commission investigation) for engaging in "intentional deceptive conduct in the context of the standard-setting process [relating to dynamic access memory chips]...by not disclosing the existence of the patents which it later claimed were relevant to the adopted standard". Such "patent ambush" constitutes, in the Commission's view, an abuse of the dominance obtained by Rambus through its IP rights. Intrinsically linked with this allegation is a further allegation that Rambus charged unreasonable royalties in connection with its patents- put simply, the Commission's preliminary view is that without its "patent ambush", Rambus would not have been able to charge the royalty rates it currently does.
This is the first time that the Commission has addressed the issue of "patent ambush" under EC competition law. However, there would not appear to be any obvious (theoretical) difficulties in slotting the "abuse" comfortably within the traditional EC concept of an abuse of a dominant position.
Further, Rambus has already been penalised in the US for its behaviour. The Federal Trade Commission issued an order in August 2006 and in February 2007 finding that Rambus had engaged in illegal monopolisation and imposed a remedy- the setting of maximum royalty rates- applicable to US patents and foreign patents to the extent that they relate to import or export of relevant products into or from the US. Rambus is currently challenging the FTC's decision in the U.S. courts.
In a good example of complementary regulatory enforcement, the Commission's justification for also going after Rambus is that Rambus is enforcing its patents against companies applying the relevant standards in Europe. These companies are not generally able to seek relief on the basis of the FTC decision. Should the Commission conclude that Rambus has indeed abused its dominant position, then the likely remedy will be, like the FTC's, the setting of a reasonable and non-discriminatory royalty rate.
Qualcomm: Counter-offensive without an ambush
The Commission's investigation into Qualcomm (announced on 1 October) differs slightly from the Rambus case, as the investigation focuses not on a patent ambush, but rather the setting of an unfair royalty rate. Once again, however, the battle-ground is the standard setting arena, in particular Qualcomm's alleged dominance of third-generation mobile phone standards. Specifically, a number of chip and handset makers have alleged that Qualcomm has reneged on a commitment to license on "fair, reasonable and non-discriminatory terms" the patents on which the 3G standard WCDMA is based. The Commission has indicated that its probe of Qualcomm's activities is a "matter of priority", though we are still at a preliminary stage and an extensive (and lengthy) informal investigation can now be expected.
The impact of competition law on standard setting bodies
Both Rambus and Qualcomm illustrate a more general need for standard setting bodies to consider the existence of patents during the standard setting process. Indeed, the Commission has in the past taken issue with standard setting procedural rules which, in its view, do not reasonably serve to flush out possible patents. Therefore, ETSI- the European Telecommunications Standards Institute- was required to modify its procedural rules to make explicit, inter alia, that a participating member has a continuing duty, both during and after standard development, to inform ETSI of any essential IPR and to do so in a timely fashion.
The extent of the obligations on both a standard setting body and on (non) participating members does, however, remain grey at the edges. The impact of competition law should be considered at an early stage to mitigate the risk of competition law scuppering or impacting on what are often highly labour intensive and time consuming standard setting procedures.
Competition law in the Innovation Arena- Brave New World with a touch of 1984
Without doubt, the Commission is turning up the heat on technology giants. In addition to Rambus and Qualcomm, Intel is being investigated for allegedly pressurising computer makers to buy its microprocessors rather than those its rival Advanced Micro Devices. The Commission is also investigating whether agreements between Apple and record companies relating to iTunes, violate EC competition law by preventing users in one country buying music from a site elsewhere.
In the UK, the OFT has undoubtedly held of investigating alleged abuses of dominance pending the outcome of the Commission's tussle with Microsoft. Rather ironically, it has now received a complaint from the British Educational Communications and Technology Agency (the government's lead partner in the strategic development and delivery of its e-strategy) in relation to schools software licensing arrangements. According to a press release issued by BECTA, the complaint relates to alleged anti-competitive practices by ....guess who!...Microsoft... in the schools software marketplace and in relation to Microsoft's approach to document interoperability. The OFT has commented that that it will consider the complaint "carefully".
A clear message to the technology industry is that while competition law must compromise to protect the innovation rewarded by patents and the like, Big Brother is watching you, decked in camouflage and ready to ambush.
Lying in wait: Rambus ambushed by the Commission
On 30 July, the Commission issued Rambus with a Statement of Objections (broadly, the formal initiation of a Commission investigation) for engaging in "intentional deceptive conduct in the context of the standard-setting process [relating to dynamic access memory chips]...by not disclosing the existence of the patents which it later claimed were relevant to the adopted standard". Such "patent ambush" constitutes, in the Commission's view, an abuse of the dominance obtained by Rambus through its IP rights. Intrinsically linked with this allegation is a further allegation that Rambus charged unreasonable royalties in connection with its patents- put simply, the Commission's preliminary view is that without its "patent ambush", Rambus would not have been able to charge the royalty rates it currently does.
This is the first time that the Commission has addressed the issue of "patent ambush" under EC competition law. However, there would not appear to be any obvious (theoretical) difficulties in slotting the "abuse" comfortably within the traditional EC concept of an abuse of a dominant position.
Further, Rambus has already been penalised in the US for its behaviour. The Federal Trade Commission issued an order in August 2006 and in February 2007 finding that Rambus had engaged in illegal monopolisation and imposed a remedy- the setting of maximum royalty rates- applicable to US patents and foreign patents to the extent that they relate to import or export of relevant products into or from the US. Rambus is currently challenging the FTC's decision in the U.S. courts.
In a good example of complementary regulatory enforcement, the Commission's justification for also going after Rambus is that Rambus is enforcing its patents against companies applying the relevant standards in Europe. These companies are not generally able to seek relief on the basis of the FTC decision. Should the Commission conclude that Rambus has indeed abused its dominant position, then the likely remedy will be, like the FTC's, the setting of a reasonable and non-discriminatory royalty rate.
Qualcomm: Counter-offensive without an ambush
The Commission's investigation into Qualcomm (announced on 1 October) differs slightly from the Rambus case, as the investigation focuses not on a patent ambush, but rather the setting of an unfair royalty rate. Once again, however, the battle-ground is the standard setting arena, in particular Qualcomm's alleged dominance of third-generation mobile phone standards. Specifically, a number of chip and handset makers have alleged that Qualcomm has reneged on a commitment to license on "fair, reasonable and non-discriminatory terms" the patents on which the 3G standard WCDMA is based. The Commission has indicated that its probe of Qualcomm's activities is a "matter of priority", though we are still at a preliminary stage and an extensive (and lengthy) informal investigation can now be expected.
The impact of competition law on standard setting bodies
Both Rambus and Qualcomm illustrate a more general need for standard setting bodies to consider the existence of patents during the standard setting process. Indeed, the Commission has in the past taken issue with standard setting procedural rules which, in its view, do not reasonably serve to flush out possible patents. Therefore, ETSI- the European Telecommunications Standards Institute- was required to modify its procedural rules to make explicit, inter alia, that a participating member has a continuing duty, both during and after standard development, to inform ETSI of any essential IPR and to do so in a timely fashion.
The extent of the obligations on both a standard setting body and on (non) participating members does, however, remain grey at the edges. The impact of competition law should be considered at an early stage to mitigate the risk of competition law scuppering or impacting on what are often highly labour intensive and time consuming standard setting procedures.
Competition law in the Innovation Arena- Brave New World with a touch of 1984
Without doubt, the Commission is turning up the heat on technology giants. In addition to Rambus and Qualcomm, Intel is being investigated for allegedly pressurising computer makers to buy its microprocessors rather than those its rival Advanced Micro Devices. The Commission is also investigating whether agreements between Apple and record companies relating to iTunes, violate EC competition law by preventing users in one country buying music from a site elsewhere.
In the UK, the OFT has undoubtedly held of investigating alleged abuses of dominance pending the outcome of the Commission's tussle with Microsoft. Rather ironically, it has now received a complaint from the British Educational Communications and Technology Agency (the government's lead partner in the strategic development and delivery of its e-strategy) in relation to schools software licensing arrangements. According to a press release issued by BECTA, the complaint relates to alleged anti-competitive practices by ....guess who!...Microsoft... in the schools software marketplace and in relation to Microsoft's approach to document interoperability. The OFT has commented that that it will consider the complaint "carefully".
A clear message to the technology industry is that while competition law must compromise to protect the innovation rewarded by patents and the like, Big Brother is watching you, decked in camouflage and ready to ambush.
