Antitrust

S H E A R M A N & S T E R L I N G L L P | 1 0 3 establish the basis of competition. The selected technology may lack effective substitutes precisely because the SSO chose to include it in the standard and it may be costly to switch to a different technology after the standard is set. Standards often include patented technology and a patent that protects technology essential to a standard is referred to as an SEP. Once the industry is locked into a standard that lacks competitive alternatives, the SEP holder may have the power to extract higher royalties, or impose less favorable licensing terms, than it otherwise could have gained in a competitive market. Such costs may be passed down to consumers. To ensure that any would-be SEP holder does not abuse its bargaining power, SSOs typically require intellectual property (IP) rights holders — in order to be considered for inclusion in a standard — to agree to make licenses to their patented technologies available to industry participants on FRAND terms. Such commitments are intended to strike a balance between, on the one hand, the interests of SEP owners to have the 'winning' technology and to be appropriately compensated and, on the other hand, the interests of SEP implementers to have effective access to the standard. Antitrust enforcement in the standard- setting context in the United States has previously focused largely on interpreting and enforcing FRAND commitments. The FTC in particular has taken seven significant enforcement actions over the past two decades — across both Republican and Democratic administrations. Most recently, for example, the FTC filed a complaint against Qualcomm, Inc. in January 2017 alleging, in part, that Qualcomm refused to license its cellular SEPs, and otherwise extracted non-FRAND rates and license terms, in violation of Section 5 of the FTC Act. In a partial summary judgment a federal district court ruled, on November 6, 2018, that Qualcomm must make its SEPs available for licensing, including to its competitors. On May 21, 2019, the district court ruled that the FTC had demonstrated monopoly power in the market for certain modem chips. It further found that the licensing practices violate sections 1 and 2 of the Sherman Act and constitute an unfair method of competition under Section 5 of the FTC Act. DOJ POLICY SHIFT While the DOJ has not historically pursued antitrust enforcement action against FRAND violations, it had, prior to AAG Delrahim assuming the position of head of the Antitrust Division of the DOJ, articulated policy views consistent with the FTC's enforcement efforts. Befitting his status as the first registered patent lawyer to head the Division, Delrahim has repeatedly spoken publicly to explain how the DOJ under his leadership will approach legal issues at the intersection of antitrust and IP. In November 2017, Delrahim expressed concern that antitrust enforcers had strayed too far in the direction of accommodating the concerns of technology implementers over IP creators. Rather than focus on the patent 'hold-up' problem, in which an SEP holder threatens to delay licensing until its royalty demands are met, Delrahim said that the more serious impediment to innovation is the 'hold-out' problem, which arises where SEP implementers underinvest in the technology, or threaten not to take a license at all, until their royalty demands are met. Delrahim expressed skepticism about using antitrust law to address the hold- up problem, noting that SSOs and their members are in the best position to police private licensing commitments through contractual and other common law or non-antitrust statutory remedies. Antitrust authorities should instead focus on the potential for collusive behavior by SSOs and their participants. Indeed, in 2018, the DOJ reportedly opened an investigation into potential collusion relating to a WiFi connectivity standard under development at the Institute of Electrical and Electronics Engineers SSO. A N T I T R U S T E N F O R C E M E N T I N T H E U N I T E D S T A T E S H A S P R E V I O U S LY F O C U S E D L A R G E LY O N I N T E R P R E T I N G A N D E N F O R C I N G F R A N D C O M M I T M E N T S CONTINUED >

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