LCII Half-Day Conference: Regulating Patent “Hold-Up”?

Readers who share this blogger's view that the CJEU decision in the matter Huawei ./. ZTE (see e.g. here)  still leaves room for discussion will be pleased to learn that the LCII wants to offer this room in the next event:

REGULATING PATENT “HOLD-UP”? AN ASSESSMENT IN LIGHT OF RECENT ACADEMIC, POLICY AND LEGAL EVOLUTIONS

Abstract: The patent hold-up theory has nurtured many policy developments in the past ten years. On the one hand, Standard Setting Organizations (SSOs) have been exploring changes to their licensing policies, in particular in relation to the commercial implications of FRAND pledges given by holder of Standard Essential Patents (“SEPs”). On the other hand, antitrust agencies and patent courts across the globe have been confronted with several waves of cases Those proceedings have generated a thick, diverse and somewhat inconsistent body of case-law on a wide array of topics, including the availability of injunctive relief, patent valuation, portfolio licensing, practicing and non-practicing entities, etc. This conference seeks to provide a 360° state of play on patent hold-up in contemporary antitrust and patent policy.

This Half-Day conference will take place in Brussels, on February 29th, 2016. The full Conference programme is available here, Registration here.

Speakers include the most prominent scholars, judges and advocate generals in the field such that the event will surely be beneficial to all those who attend.

Standard Essential Patents Lose Ground

Colm Ahern

PatLit has received the following item from Spain, written by Colm Ahern (of Elzaburu, Madrid) including Colm's comment on the Advocate General's opinion on a reference to the Court of Justice (CJEU) of a case outlined in a previous post:

The Advocate General’s conclusions in Huawei v ZTE (C‑170/13) which were published today amount to a significant departure from the very strict conditions laid down by the BGH in the Orange Book case regarding standard essential patents and anti-trust law. They also vindicate the Commission’s position which has been openly critical of Orange Book. 

The Advocate General rejects the application of the rules established by the BGH in the Orange Book case, because that dispute concerned a de facto standard whereas the patent in suit concerns a standard which was agreed as part of a standardization process undertaken by the European Telecommunications Standards Institute in which both Huawei and ZTE had taken part. Huawei had agreed to provide licenses to competitors on fair, reasonable, and non-discriminatory terms (FRAND).

The BGH held that the seeking of a cessation injunction by a patent holder with a dominant position, would only constitute abuse of that position if the alleged infringer had made un unconditional and binding license offer which could not be limited to cases where patent infringement had been proven. By contrast the Advocate General places the burden on the patent holder to first send a notice letter setting out not only the alleged infringement but also the terms of license offer under FRAND conditions of a type normally used. The alleged infringer could then respond with a counter-offer setting out alternative terms. The patent holder could only seek an injunction if the counter-offer were held not to be serious and to constitute a mere delaying tactic. The alleged infringer could also reserve the right to later challenge both patent validity and the existence of infringement.

If the CJEU now accepts the Advocate General’s conclusions, the rights held by owners of SEP patents under the “Orange Book Standard” will be significantly curtailed.

Commissioner Almunia discusses patent-related developments in EU competition law

Speaking at the European Competition Day [actually, it should read days...] earlier today, Joaquín Almunia, the Vice-President of the EU Commission responsible for Competition Policy, addressed several recent developments in competition law. The Commissioner briefly discussed the significance of the new Technology Transfer Block Exemption Regulation, and related Guidelines, which were adopted by the Commission on 21 March and will enter into force on 1 May. As noted in an earlier IPKat post, the new rules follow the path of Regulation 772/2004, but introduce several important changes in relation, inter alia, to the market share threshold applicable to non-competitors when the licensee owns a substitute technology, restrictions of passive sales, exclusive grant back provisions, non-challenge and termination clauses, and technology pools. According to Almunia, the new TTBER will encourage the conclusion of licensing agreements which have pro-innovation effects:

The second policy development I will mention is an example of how antitrust enforcement can be adapted to support innovation in Europe. I’m talking about the new rules for the assessment of licensing agreements adopted by the Commission last March. Through these agreements, innovative firms license the use of their patents, know-how and software to other companies. A good licensing system strengthens the incentives for research and development; helps to spread innovation; and allows licensees to bring new products and services to the market. However, the system can also be used to stifle competition. For instance, two companies can use a licensing agreement to divide markets between themselves instead of competing with each other. The rules we have approved in March will give better guidance to firms on how to license in ways that stimulate innovation and preserve a level playing field in the Single Market.

Commissioner Almunia has also recently discussed upcoming decisions of the European Commission in relation to antitrust issues arising in patent law, concerning, in particular, the enforcement of standard-essential patents. At the 62nd Spring Meeting of the ABA Section of Antitrust Law, at the end of March, Almunia said that the Commission is soon going to adopt final decisions in cases COMP/C-3/39.985 and COMP/C-3/39.939, which respectively investigated whether Motorola Mobility Inc. and Samsung have failed to honour the F/RAND commitments they gave to the European Telecommunications Standards Institute (ETSI). Last October, Samsung offered formal commitments to address the competition law concerns arising from the use of injunctive relief to enforce standard-essential patents, and the Commission proceeded to market test them (see earlier post). As reported by Law360, the antitrust proceedings have reached the end:

Now we will adopt in the coming weeks two decisions on standard-essential patents[.] In one of the cases [Motorola Mobility Inc.] we are preparing a decision based on Article 7, a prohibition decision, and in the other case [Samsung] we are preparing a decision based on commitments.

Almunia added that, while Motorola has chosen to discuss the matter before the Court of Justice, refusing to offer commitments, he is confident that the court will upheld the Commission's findings. 'In most of the cases', he concluded, 'we win the cases before the courts'.

EU Commission seeking comments on Samsung's proposed commitments concerning injunctions for standard-essential patents

In a press release issued yesterday, the European Commission invited interested third parties to submit comments on the formal commitments offered by Samsung to address competition concerns raised by its use of injunctions for the enforcement of standard-essential patents in the field of mobile communications. The proposed commitments follow a Statement of Objections notified to Samsung in December 2012, where the Commission took the preliminary view that, by seeking injunctions against Apple in various member states, for the alleged infringement of some mobile phone standard-essential patents, Samsung committed an abuse of a dominant position prohibited by EU antitrust rules (Art. 102 TFEU). According to the press release,

To address these concerns, Samsung has proposed to commit for a period of five years not to seek any injunctions on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets ("Mobile SEPs") against any company that agrees to a particular licensing framework.
The licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of FRAND terms by either a court or an arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.
The proposed commitments would cover the EEA. An independent trustee would advise the Commission in overseeing the proper implementation of the commitments.

There must be something wrong in this picture...

Essentially, Samsung offers a 5-year commitment (clause 14) not to seek injunctive relief, for any of its mobile SEPs, against a 'willing' potential licensee that agrees to comply with a specific framework for determining F/RAND terms (by signing and returning, within 30 days, Samsung’s Invitation to Negotiate). The first part of the proposal (clauses 1-4) sets out the negotiating procedure, which lasts for a maximum of 12 months (although the licensee may reduce the term to a minimum of six months, in case of unilateral licenses). Clause 2 lists several terminating events, while clause 3 circumscribes the perimeter of the commitments. Both clauses, in particular, contain provisions aimed at protecting Samsung from being required to comply with the proposed commitments when a potential licensee, which holds other mobile SEPs, has brought a claim for injunctive relief against Samsung or one of its customers, for infringement of those standard-essential patents. The proposal submits Samsung's obligations to a requisite of reciprocity, to the effect that, when a potential (cross-)licensee is seeking an injunction, and Samsung offers to be bound by the same process of F/RAND determination set out in the proposal, it is relieved from its obligation not to seek injunctive relief (clause 2.c), and may also terminate an on-going license (clause 3.f). The latter provision, for instance, clarifies that:

3. Nothing herein shall:

f.  preclude Samsung Electronics from terminating a Unilateral or a Cross-License concluded in the context of the Licensing Framework in the event the Potential Licensee files a claim for Injunctive Relief before any court or tribunal in the EEA against Samsung Electronics based on alleged infringement of any of the Potential Licensee's Mobile SEPs, where Samsung Electronics has offered or offers to be bound by the same process as set out in the Licensing Framework applied to it as licensee of such Mobile SEPs by signing and delivering the Annex B Invitation to Negotiate.

This mechanism should presumably kick into action when the potential (cross-)licensee, within the same 30-day period mentioned in clause 1, does not withdraw the action for injunctive relief, entering into negotiations under the licensing framework detailed in the proposed commitments. However, in light of the Commission's recent adversity towards strategic termination clauses, as highlighted by the draft proposal for a revised Technology Transfer Block Exemption Regulation (which proposes to exclude, from the safe harbour of the TTBER, any clauses that permit the licensor to terminate an agreement if the licensee challenges the validity of the licensed IPRs), there is reason to doubt that the potential licensee's recourse to injunctions, in the same situation in which Samsung agreed not to seek injunctive relief, may be a sufficient reason to relieve the latter from its obligations. Although Samsung's concern is understandable from a strategic and commercial perspective, such considerations should have no impact on the application of Article 102 TFEU.

Tired of SEPs? Try a good movie!

The second part of the proposal (clauses 5-11) describes the process for the third-party determination of F/RAND terms. If the parties cannot reach an agreement during the 12-month long negotiations, clause 5 establishes that they have an additional 60-day period to submit the matter to arbitration or court adjudication. Surprisingly, clause 6 states that, if the parties disagree on whether to demand the determination of F/RAND terms to a judge or a panel of arbitrators, they must commence an arbitration procedure. Samsung's proposed solution is certainly quite counter-intuitive, as one would expect court adjudication to be the appropriate choice, in case of disagreement. There are, of course, reasons that justify the recourse to arbitration, such as the inclusion, in the panel, of particularly experienced arbitrators (each with at least 10 years’ relevant experience in the telecommunications sector and/or in IP licensing - clause 9.b), the possibility that the arbitration procedure be faster than court adjudication, or the confidentiality assured by the process, and expressly prescribed by clause 9.e ('The arbitration will be conducted in strict confidence and the arbitral proceedings and decision shall be confidential'). At the same time, however, the final and binding decision that concludes the two-stage arbitration procedure (the decision of the first panel may be subject to a de novo appeal before a second arbitral tribunal, according to clause 9.f) would effectively preclude a party (barring exceptional circumstances) from obtaining court adjudication of the controversy, even if it did not agree to arbitration. The absurd consequence would be that a potential licensee wishing to retain its right to a court determination of F/RAND terms would be forced to reject Samsung's Invitation to Negotiate under the proposed commitments, incurring the risk that the SEP owner lawfully pursued injunctive relief against it. It is readily apparent that such consequence still represents an epiphany of the same competition concerns that the proposed commitments seek to address.

Florian Mueller, in his timely review of Samsung's proposal, highlighted similar issues concerning the arbitration/court adjudication mechanism, while also noting that 'a fundamental drawback of arbitration is that it's usually private -- under Samsung's proposal, it would be "conducted in strict confidence" --, so it does not result in the creation and refinement of a body of case law that gradually increases clarity'. This observation is particularly persuasive in light of the recent judgments of two US courts (Judge Robart here, Judge Holderman here), which provided long sought-after guidance on the determination of F/RAND royalty rates. The confidentiality surrounding arbitration would plausibly prevent the arbitral decisions from contributing directly to the debate on F/RAND licensing, although the licensing agreements incorporating F/RAND terms established by the arbitrators would still be examined, and their disclosure required, in judicial proceedings related to the same or comparable standard-essential patents (e.g. in the US, under Georgia Pacific factors n. 1, 2 and 12).

Other provisions of the proposed commitments concern the procedure for court adjudication (before 'the Patents Court, High Court of England and Wales (or any successor court), or the UPC, as is agreed between the Parties' - clause 10), further obligations with regard to non-circumvention (clauses 15-16), and the institution of a monitoring trustee (clauses 17-28). Clause 13 expressly states that the Commission may, on its own initiative or on the request of Samsung, reopen the proceedings to take into account the guidance given by the Court of Justice in case C-170/13, where a German court referred several questions concerning the issuance of injunctions against willing potential licensees (IPKat post here).

Joaquin Almunia, Commission Vice President

The Commission is eagerly awaiting your comments on Samsung's proposed commitments. There appear to be some critical points (the duration of the commitments, limited to 5 years, the termination clauses related to the licensee's conduct, the arbitration/court adjudication mechanism) which would deserve a more in-depth discussion. Further, the proposal indirectly suggests that the ex ante implementation of a policy on the enforcement of SEPs and on the determination of F/RAND commitments, binding on all SEP owners and potential licensees within the context of a specific standard-setting organization, would probably be more efficient in discouraging abusive behaviors, than requiring individual commitments. Whatever your opinion, however, PatLit invites you to share it with other readers, while Commission Vice President Almunia would not mind if you could also address your comments to him:

I am looking forward to receiving the feedback of other market players on Samsung’s proposals. Enforcing patents through injunctions can be perfectly legitimate. However, when patents are standard-essential, abuses must be prevented so that standard-setting works properly and consumers do not have to suffer negative consequences from the so-called patent wars. If we reach a good solution in this case, it will bring clarity to the industry.

Judicial determination of F/RAND royalties: direction set, still no easy task

On September 27, only a few months after Judge Robart's (W.D. Wash.) landmark judgment in Microsoft v Motorola, Judge Holderman (N.D. Ill.) provided the second judicial determination of F/RAND royalty rates, in a case concerning several patents owned by Innovation IP Ventures LLC and essential to the 802.11 standard (Wi-Fi). The patent owner had originally filed lawsuit against numerous commercial activities (coffee shops, hotels, restaurants,...), which offered wireless internet access to their customers or used it internally. Several manufacturers of electronic devices used for managing Wi-Fi networks, including Cisco, Motorola, NetGear and Hewlett-Packard, filed declaratory judgment actions against the patent owner, seeking a declaration of non-infringement and invalidity of Innovatio's patents, which, in turn, claimed that the devices manufactured by the plaintiffs infringed its SEPs. The court and the parties, which waived their right to a jury determination of damages, agreed to assess potential damages before determining the issues of validity and infringement.

The ruling first reviewed the method employed by Judge Robart to calculate F/RAND royalties, which revolved around the simulation of a hypothetical negotiation between the SEP owner and a potential licensee, at the time the infringement began. The negotiation was re-constructed under the framework of a modified version of the Georgia-Pacific factors, which took into account the peculiarities of the F/RAND context. The court described the methodology used in Microsoft v Motorola as a three-step process, as the judge is expected to evaluate (i) the importance of the patent portfolio to the standard (both in terms of numeric proportion, and technical contribution), (ii) the importance of the patent portfolio as a whole to the alleged infringer's products, and (iii) other licensing agreements concluded for comparable patents, to determine an appropriate F/RAND rate.

Judge Holderman endorsed this approach, but introduced minor modifications in light of the distinct circumstances of the two cases. First, the court decided to determine a single F/RAND rate for calculating damages, whereas, in Microsoft v Motorola, Judge Robart had identified a reasonable F/RAND range, to serve as a basis for the jury's evaluation of Motorola's conduct during negotiations. Second, the court chose not to adjust the F/RAND rate in light of pre-litigation uncertainty about the essentiality of a given patent, since it had already determined, in a separate proceeding, that all asserted patents were standard-essential. The ruling explained this choice in detail:

At the time of the hypothetical negotiation, the parties in actuality would not have known whether a given patent is valid or infringed, and the alleged infringer would have had the option of contesting these issues in court. Nonetheless, by the time the damages phase of an infringement suit arrives, the court has determined infringement and validity, thus foreclosing the hypothetical negotiator from benefiting from any uncertainty as to future court rulings. [...] Stated another way, the hypothetical negotiator could no longer leave the negotiating table to contest liability in court, and could no longer demand the benefit of uncertainty about a court's rulings. Accordingly, "[t]he hypothetical negotiation also assumes that the asserted patent claims are valid and infringed," [Lucent Techs Inc. v Gateway Inc.], because no hypothetical negotiation would have taken place if it were otherwise. The patent infringer gets no discount on its licensing fee because of uncertainty about its liability that has since been cleared up by litigation. Analogously, it would be inappropriate to adjust the RAND rate based upon pre-litigation uncertainty about the essentiality of a given patent. 

Before proceeding with the royalty calculation, Judge Holderman examined some of the issues that commonly surround the determination of F/RAND royalties in the standard-setting context:

• hold-up - the court recognized that this 'is a substantial problem that RAND is designed to prevent', to the effect that F/RAND royalties should 'reflect only the value of the underlying technology and not the hold-up value of standardization'. The judge noted that the ease with which a patent can be adopted into a standard is part of its intrinsic value, and should be taken into account when determining the appropriate royalty rate;
• royalty stacking - Judge Holderman concluded that courts should make sure that 'the asserted patents are not overvalued compared to the technological contribution they make to the standard', and that the overall royalty rates for all the SEPs included in the standard do not prevent its widespread adoption. En passant, the judge rejected the use of numeric proportionality as an appropriate methodology to set F/RAND rates; 
• reverse hold-up - the court observed that this issue does not merely concern the F/RAND context, and refused to give it any special consideration 'beyond what it receives in a typical patent case', adding, however, that it would evaluate whether the F/RAND royalty determined through hypothetical negotiations provided sufficient incentive for companies to invest in new technologies and participate in standard-setting processes.

The court took the date of adoption of the 802.11 standard (1997) as the date of the negotiation for all the patents (including those issued after that date). It also identified the Wi-fi chip as the appropriate royalty base, following the Federal Circuit's teachings in LaserDynamics Inc. v Quanta Computer Inc. ('it is generally required that royalties be based not on the entire product, but instead on the smallest salable patent-practicing unit'), and clarified that, in this case, the evaluation of the importance of the patent portfolio to the standard, and to the alleged infringers' products, effectively coincided.

The ruling held that Innovatio had not provided sufficient proof to support its alternative thesis, which suggested the use, as base for royalty determination, of the final selling price of the end-products, discounted by a 'feature factor' (the value of the end products attributable to the functionalities brought by the implemented standard - accordingly, Innovatio argued that Wi-Fi accounts for 10% of the value of a laptop, but 95% of that of an access point). Similarly, the court rejected Innovatio's arguments pointing to the use of a 6% licensing rate, to be applied on the final selling price of the end-products, adjusted to take into account the 'feature factor'. The patent owner asserted that the licensing rate was determined in light of allegedly comparable licensing agreements for other SEP portfolios, but the court found that none of the proposed licenses was appropriate for a comparative analysis in the F/RAND context (and also questioned the validity of this approach, highlighting the conflation of two steps - royalty base and royalty rate - of the royalty analysis).

Judge Holderman examined in detail the importance of Innovatio's patents to the 802.11 standard, as required by Georgia Pacific Factor 9 (advantages of the patented property over alternatives that could have been written into the standard before its finalization), addressing two issues highlighted by the parties. In this perspective, he clarified that the court (i) would consider patented alternatives, but 'recognize that they will not drive down the royalty in the hypothetical negotiation by as much as technology in the public domain', and (ii) would only take into account alternative technologies that were considered by the standard-setting body during the standardization process.

The court then proceeded with the analysis of comparable licensing agreements, under Georgia Pacific Factors 1 and 2, but found that none of the licenses cited by the parties could be used to determine an appropriate F/RAND royalty. In particular, it rejected the use of the VIA pool licensing agreement, employed by Judge Robart to set a reasonable royalty in Microsoft v Motorola, noting that such license did not include high-value patents, and thus could not provide an appropriate reference point to calculate royalties for Innovatio's SEPs, which were of moderate to moderate-high importance to the 802.11 standard. The court '[did] not take a position on the question of whether non-RAND licenses can ever be useful in determining a RAND rate'.

In light of the lack of comparable licenses, Judge Holderman assessed other methods for calculating royalties. He rejected the 'bottom up' approach, which focuses on the cost of implementing reasonable alternatives to the SEPs at issue, due to the lack of technologies alternatives to Innovatio's patents, and to the difficulty of conducting such analysis (as previously noted by Judge Robart in Microsoft v Motorola). Instead, he accepted the 'top down' approach:

In summary, the Top Down approach starts with the average price of a Wi-Fi chip. Based on that average price, Dr. Leonard [the manufacturers' expert] then calculated the average profit that a chipmaker earns on the sale of each chip, thereby isolating the portion of the income from the sale of the chip available to the chipmaker to pay royalties on intellectual property. Next, Dr. Leonard multiplied the available profit on a chip by a fraction calculated as the number of Innovatio' s 802.11 standard-essential patents, divided by the total number of 802.11 standard-essential patents. Dr. Leonard also provided several alternative calculations for this step by varying the denominator of the fraction to account for varying conclusions about the value of Innovatio's patents to the 802.11 standard.

The judge noted that this approach does not rely on other licenses, and takes into account both the principle of non-discrimination and the royalty stacking concerns, by setting the chipmaker's profit margin as the maximum potential royalty. Although the profit margin 'is not always dispositive for determining a RAND rate', especially when widespread infringement is present, Judge Holderman clarified that there was no reason, in light of the circumstances of the case, to question the appropriateness of this method. Thus, he applied the 'top down' approach, by:

1. identifying the average price of a Wi-Fi chip in the period 1997-2013, and the average profit margin, which respectively amounted to $14.85 and 12.1%. The court also determined the total number of patents essential to the 802.11 standard (3000);
2. assessing the value of Innovatio's portfolio to the standard, in relation to the other standard-essential patents. The judge concluded that the patents at issue, which are of moderate to moderate-high importance to the standard, 'are likely among the top 10% of all patents essential to the 802.11 standard', as '84% of the value in electronics patents is found in the top 10% of electronics patents';
3. multiplying the average chip price ($14.85) by the profit margin (12.1%), to identify the average profit ($1.80); and subsequently multiplying the latter by the value attributable to the top 10% of the 802.11 SEPs (84%), dividing it by the number of essential patents included in the top 10% (300), and multiplying the resulting pro-patent share by the number of patents included in Innovation's portfolio (19). 

The resulting F/RAND rate was 9.56 cents per Wi-Fi chip. The court concluded that this rate was 'comfortably within Judge Robart's reasonable range for a RAND rate', and that the difference with the F/RAND rate set for Motorola's patents was justified, due to the different contribution of Motorola's and Innovatio's patents to the standard: the first only provided minimal value to the standard, whereas the latter were of moderate to moderate-high importance.

Standard setting organizations and F/RAND: 'if it ain't broke, don't fix it'. Or should you?

As of late, the role of standard setting organizations (SSOs) in preventing hold-up has been the focus of a lively debate. The IPR policies of SSOs commonly require members to disclose any standard essential patents they hold, and to commit to licensing them on fair, reasonable and non-discriminatory terms. The F/RAND commitment, however, is frequently described as vague and uncertain, and may be weakened by the SEP holder's recourse to injunctive relief against a willing licensee, during negotiations. The resolution of the uncertainty surrounding F/RAND usually requires a judicial determination, and a long and complex trial, while a preliminary injunction against a third party that is willing to enter into a licensing agreement may yield anti-competitive effects, or be incompatible with the F/RAND commitment.

Joshua Wright (left) at the FTC's swearing-in ceremony

To address both issues, three leading US and EU economists recently suggested that SSOs should introduce new provisions in their IPR policies, (i) implementing a fast and low-cost process to adjudicate F/RAND disputes (arbitration or another ADR mechanism), (ii) requiring SEP holders to specify an acceptable cash price for their essential technologies, and (iii) restricting the use of injunctions and exclusion orders. The use of IPR policies to prevent hold-up had already been advocated in previous studies (here and here), both to attain a better definition of F/RAND commitments (including their transferability in case of sale of a SEP), and to ensure a comprehensive and timely disclosure of essential technologies.

In a speech delivered on September 12, at the Center for the Protection of IP (George Mason University), FTC's Commissioner Joshua Wright discussed the opportunity of modifying the current IPR policies of standard setting organizations, but observed that there is no economical theory or empirical evidence that suggests that introducing stricter terms, or excluding the availability of injunctive relief, effectively prevents hold-up. To the contrary, these modifications could deter participation in SSOs, and possibly result in reverse hold-up. The Commissioner explained that:

Much of the call for SSO contract reform - whether under the guise of possible antitrust enforcement or friendly advice on contract drafting - is based upon the notion that SSOs bear a special responsibility for constraining the market power of SEP holders. Indeed, the possibility of SSOs constraining the exercise of SEP holders’ market power is purported to be the primary benefit of filling gaps in SSO contracts. However, it is unlikely SSO contract reform can bear the burden its proponents place upon it. [...] It is important to recognize that SSOs are not necessarily in a position to constrain license terms for SEPs at will. SSOs compete to attract key players to join and contribute their technology to the standard and can be at the mercy of certain members with essential technologies. However, even assuming arguendo SSO contract terms can constrain market power newly created by adoption of the standard, that situation is clearly not always the case. For some SEPs, the relevant market power will be inherent in the underlying technology and the patents themselves, rather than conferred upon the SEP holder by the SSO as the result of the standard-setting process.

Evaluating the potential consequences of the use of the IPR policies of SSOs to restrict the use of injunctive relief or provide a more accurate delimitation of F/RAND commitments, Wright added that:

Requiring stricter SSO terms might make it less attractive for IPR holders to join the SSO process. The social costs associated with deterring participation in SSOs can outweigh any potential benefits associated with decreasing the probability of hold-up. This would lead to, in the short-term, SSOs more frequently selecting an inferior technology; it could also lead to a dichotomy between competing technologies, which would defeat the purpose of SSOs and deprive consumers of the well-understood benefits of standardization. Over the long-run, these reforms could undermine the very desirable purpose of SSOs, which among other things, facilitate compatibility and interoperability, reduce consumer costs, and advance innovation.

Interestingly, the Commissioner argued that the use of 'less precise contract terms' is fundamental to guarantee the flexibility needed to adapt to quickly changing market conditions, and that the availability and threat of injunctions prevents reverse hold-up and is 'a very important part of the bargaining process and [...] likely part of the benefit of the bargain conceived of by a contributing member of the SSO at the time it decided to participate in the standard'. The Commissioner observed that (i) although rates negotiated under the threat of injunctions are likely to be higher than rates negotiated without the threat of injunction, it does not follow that the former is above F/RAND', (ii) property rights allow the owner to exclude all others, and (iii) no maxim of contract interpretation justifies the idea that, by accepting the F/RAND commitment, SEP holders acknowledged that damages are adequate compensation for infringement. These conclusions unexpectedly conflict with those of several courts and authorities around the world, including the FTC itself. To name just a few:

• the US Department of Justice and US Patent and Trademark Office's Policy Statement of 8 January 2013 ('[a] patent owner’s voluntary F/RAND commitments may also affect the appropriate choice of remedy for infringement of a valid and enforceable standards-essential patent. In some circumstances, the remedy of an injunction or exclusion order may be inconsistent with the public interest');
• the FTC's Statement on the Public Interest of 6 June 2012 ('a royalty negotiation that occurs under the threat of an exclusion order may be weighted heavily in favor of the patentee in a way that is in tension with the RAND commitment');
• the EU Commission's perspective, as expressed in Google/Motorola, and in the recent Statements of Objections notified to Samsung and Motorola (according to Commission Vice President Almunia, '[w]hen companies have contributed their patents to an industry standard and have made a commitment to license the patents in return for fair remuneration, then the use of injunctions against willing licensees can be anti-competitive');
• several US cases, including Apple v Motorola, Microsoft v Motorola, and Realtek Semiconductor v LSI (a F/RAND commitment 'implies a promise not to seek injunctive relief either domestically [...] or abroad').

In particular, the Commissioner's view rejects Judge Posner's persuasive statement in Apple v Motorola:

I don’t see how, given FRAND, I would be justified in enjoining Apple from infringing the ‘898 unless Apple refuses to pay a royalty that meets the FRAND requirement. By committing to license its patents on FRAND terms, Motorola committed to license the ‘898 to anyone willing to pay a FRAND royalty and thus implicitly acknowledged that a royalty is adequate compensation for a license to use that patent. How could it do otherwise? How could it be permitted to enjoin Apple from using an invention that it contends Apple must use if it wants to make a cell phone with UMTS telecommunications capability - without which it would not be a cell phone. 

Although Wright rightfully highlighted that there is no guarantee that improving IPR policies could provide beneficial effects, his reasoning on imprecise, but flexible F/RAND commitments, and on the importance of injunctions in the bargaining process, is likely to prove controversial (see Professor Cotter here). It is reasonable to think, however, that even Commissioner Wright would welcome the introduction of a fast and low-cost process to adjudicate F/RAND disputes, as suggested by US and EU economists, a solution that could protect the interests of both SEP holders and licensees. What do readers think? What is the best way to strengthen F/RAND commitments, while preserving the parties' freedom to negotiate?