THE ELUSIVE ROLE OF COMPETITION IN THE STANDARD-SETTING ANTITRUST DEBATE

  • January 2017
  • 20 Stan. Tech. L. Rev. 93
  • Article

The smartphone patent wars sparked a crisis. As global patent litigation accelerated, an arms race characterized by competing alliances and massive portfolio acquisitions ensued. Inevitably, 4G and 3G wireless protocols adopted by standard-setting organizations (SSOs) came under fire. Because UMTS, GSM, LTE, and other specifications are indispensable for mobile devices, standard-essential patents (SEPs) became a central object of procurement and assertion efforts. A recurring claim was hold-up: certain SEP owners, having assured SSOs that they would license their essential technologies on reasonable and nondiscriminatory (RAND) terms, sought to enjoin smartphone makers from practicing industry standards. Charged with protecting consumers, antitrust enforcers experienced pressure to do something.

The FTC and other competition agencies responded aggressively, clamping down on perceived efforts by owners of RAND-encumbered SEPs to hold-up standard implementers. They happened upon the rule that such patentees violate antitrust law if they try to enjoin a “willing licensee”—essentially a “no-injunction rule.” While that approach has intuitive appeal, it violates core antitrust principles. In America, part of the problem lies in the FTC’s reliance on section 5 of the FTC Act to capture conduct that goes beyond the reach of the Sherman Act.

The no-injunction rule breezes past the key question, which is whether the pertinent conduct harms competition. Seemingly oblivious to the fact that they challenge behavior outside antitrust’s remit, enforcers the world over have made an antitrust problem of acts that do not always—or even generally—damage the competitive process. This Article explains that certain SEP-related conduct assailed by antitrust-enforcement bodies is not a problem born of the competitive process. Rather, it reflects incomplete contracting at the time of standardization, ensuing choices by firms to lock into technologies for which they lack licenses, and harm that can occur only when a court would likely grant the sought-after relief. Absent deception that harms competition in an upstream technology-licensing market, such situations do not involve anticompetitive conduct by an SEP owner. Divorced from such harm, attempted hold-up in breach of a RAND-licensing promise sounds in contract.

These considerations require rethinking contemporary enforcement actions in the standard-setting arena. They also call into question how the FTC and other antitrust agencies view the laws that they are responsible for enforcing. Yes, antitrust plays an important economic role, but only in policing market-imposed constraints on conduct. The tortured jurisprudence in the standard-setting field would regain coherence were enforcers to cabin antitrust to its appropriate role. For standards, that means allowing the institutions that society has entrusted to resolve disputes—the courts and International Trade Commission—to do so, and to tackle larger questions of hold-up under the rubric of contract law when harm to competition is absent. 

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