The US Department of Justice has announced that it will not challenge a proposal by the Institute of Electrical and Electronics Engineers, Inc. (IEEE) to update the IEEE Standards Association’s patent policy.
The IEEE is a nonprofit organization with more than 400,000 members in 160 countries worldwide. Among other things, the IEEE sets standards for electrical and electronic devices. These standards make it possible for devices made by different companies to work together.
The IEEE standards are set by industry consensus. The development of a new standard is usually triggered by formal request. The sponsor then recruits and assembles a Working Group to develop the standard. Participants are volunteers, and may be manufacturers, buyers, users, or regulators of a product, material, or service.
Antitrust Scrutiny
Because there is the risk that the members of industry associations could work together to pursue anticompetitive goals, such as price-fixing, such associations are often subject to antitrust scrutiny.
For example, in 2013 the American Antitrust Institute submitted a petition to the US Department of Justice entitled “Request for Joint Enforcement Guidelines on the Patent Policies of Standards Setting Organizations.”
The AAI requested that the Department of Justice issue specific guidelines for patent policies and hold standards organizations liable for not adopting safeguards.
Before formally updating its patent policy, the IEEE had requested a business review letter from the Department of Justice’s Antitrust Division to assure that the change would not run afoul of US antitrust laws. In its letter of approval, the Department of Justice noted that industry standards can have procompetitive benefits, such as lowering costs for consumers and encouraging efficiency and innovation. For example, the DOJ lauded the removal of the prior industry standard of requiring cross-licensing between members because “compulsory cross-license can, in some cases, decrease incentives to innovate.”
Under the new IEEE policy, the holder of a patent that might potentially become essential to an IEEE standard must designate one of four options for licensing its technology:
- The patent owner will make a license available, without charge, to an unrestricted number of applicants for uses implementing the standard.
- The patent owner will make a license available under “reasonable rates, with reasonable terms and conditions that are demonstrably free of any unfair discrimination,” to an unrestricted number of applicants.
- The patent owner will not enforce its patent rights against any person or entity complying with the industry standard.
- The patent owner is unwilling or unable to license its patent rights without compensation or under reasonable rates, or agree that it will not enforce its patent rights.
FRAND Terms
As we’ve discussed, most standards-essential patents are licensed under terms that are supposed to be “fair, reasonable, and nondiscriminatory” (FRAND).
Courts have not always agreed on what’s “reasonable” when it comes to patent licensing. The new IEEE policy defines a “reasonable” rate as “appropriate compensation . . . excluding the value, if any, resulting from the inclusion of [the patent claims] technology in the IEEE standard.”
According to the IEEE,
This provision reduces the possibility that a patent holder that has made an IEEE RAND Commitment could hold up implementers of a standard and obtain higher prices (or more favorable terms) for its invention than would have been possible before the standard was set.
Also, under the new IEEE policy, patent holders will be limited in their ability to seek injunctions against companies that are willing to license essential patents.
The IEEE’s revised policies – and the DOJ’s support of such changes – are anticipated to help bring clarity to this otherwise convoluted and litigious area of law. In helping to define FRAND and setting forth the obligations and rights of members of the IEEE, we can expect that such changes can help reduce litigation and increase competition and it’s likely that we will see similar updates in other standard setting organizations in the near future.
If you have questions about standards-essential patents and patent licensing, please contact our office.
