By David L. Newman, Arnstein & Lehr LLP 

(David L. Newman is a partner in the Intellectual Property Practice Group at Arnstein & Lehr LLP. Mr. Newman’s experience includes handling litigation involving intellectual property, preparing and prosecuting applications for obtaining various types of intellectual properties, and opinion work involving business methods, computers, consumer goods, electronic commerce, mechanical devices, medical devices and telecommunications. He can be reached at 312.876.7184 or dlnewman@arnstein.com.) 

Has Samsung “failed to honor its irrevocable commitment given in 1998 to the European Telecommunications Standards Institute (ETSI) to license any standard essential patents relating to European mobile telephony standards on fair, reasonable and non-discriminatory (FRAND) terms?”  That was the issue that the European Commission announced at the end of January it would fully investigate.   

However, in order to thoroughly analyze Samsung’s conduct, the EC may have to look beyond ETSI’s porous FRAND terms that designate licensing guidelines for patented technology.

The EC investigation began last November amid a slew of  patent infringement lawsuits between Samsung and Apple, which heightened awareness of the potential monopolization that may occur when patented technology is standardized.   

The restrictive rights inherent in intellectual property ownership occasionally run contrary to the goals of industry-wide adoption.  Thus, many standard development organizations (SDOs) have instituted FRAND rules that allow for the standards setting process to move forward while reducing patent hold-up or ambush.

Patent hold-up occurs where a standard is promulgated that includes technology covered by a patent(s); usually without a full disclosure of the licensing terms for such patent(s) prior to adoption of the standard.  Following adoption of the standard, the technology adopters may be required to license the patent(s) at unfavorable terms.   

The ETSI standard at issue in the Samsung investigation involves 3G mobile telecommunications technology and covers patented features from many standards participants — hence creating a patent “thicket.”  Avoidance of patent thickets has led to the development of patent pools, where groups of patent owners contribute their patents so that broad ranges of technology may be distributed.

Many technologies we use today have flourished due to patent pools, such as in the cellular telephone market and video compression technology (e.g. 3G, MPEG-2, respectively).  By setting up management groups to take oversight of the patenting and licensing of pools of patents, many conflicts surrounding distribution of such technology may be alleviated.

Similarly, many SDOs have attempted to manage potential conflicts by developing patent policies that require owners to provide for licensing of essential/ necessary patents on FRAND terms.  These policies are also aimed at helping standards adopters deal with patent thickets.  However, the FRAND provisions have been unclear and have led to a lack of specificity with respect to disclosure requirements, licensing terms and alternative dispute resolution (ADR) mechanisms to help to arrive at such terms.¹  

A recent report by the U.S. Federal Trade Commission stated, “[F]RAND was not defined and provided little guidance in licensing negotiations.”² Some have criticized FRAND and RAND³ obligations as being disadvantageous to licensees and patentees.⁴ The European Commission must confirm the commitments Samsung made with ETSI, determine what licensing terms Samsung has offered to Apple — if any — and whether the ETSI patent policy was violated in order to support anti-trust findings.   

Standards organizations commonly institute FRAND patent polices.  The core of the ETSI patent policy (Availability of Licenses, Section 6) requires a FRAND commitment as follows :

When an essential IPR (intellectual property right) relating to a particular standard or technical specification is brought to the attention of ETSI, the Director-General of ETSI shall immediately request the owner to give within three months an irrevocable undertaking in writing that it is prepared to grant irrevocable licenses on fair, reasonable and non-discriminatory terms and conditions under such IPR to at least the following extent: i) Manufacture, including the right to make or have made customized components and sub-systems to the licensee’s own design for use in manufacture; ii) sell, lease, or otherwise dispose of equipment so manufactured; iii) repair, use, or operate equipment; and iv) use methods. (The above undertaking may be made subject to the condition that those who seek licenses agree to reciprocate.) (emphasis added)

Such FRAND terms may not go far enough to prevent Samsung from aggressively enforcing its patents.  By way of a hypothetical example, Samsung might offer to settle its patent infringement lawsuit asserting its 3G patents against Apple based on a license requiring payment of a 10 percent royalty rate.  If Samsung could show it had entered other licenses at such a rate in similar circumstances, it could allege that such a license offer was compliant with FRAND terms.

This demonstrates that the phrase “fair, reasonable and non-discriminatory” is “inherently ambiguous.”⁵ What may seem “reasonable” to one licensor may not be considered “reasonable” to another licensor — even in the same industry dealing with similar technology.

Further, what a licensor considers “reasonable” is often times not what a licensee would consider “reasonable.”  As a result, merely requiring a licensor to agree to provide “fair, reasonable and non-discriminatory” terms, as delineated by the ETSI policy, may not provide an appropriate level of overall “fairness” to standards adopters.

Samsung might also claim that Apple had not offered to reciprocate and provide appropriate license offers to Samsung.  Following a detailed analysis of recent litigation amongst standard’s participants, a doctoral thesis concluded that, “[T]he lack of definition of (F)RAND’s and the ambivalent policies of most SDOs do not prevent opportunistic behavior [i.e. patent ambush].”⁶ 

The European Commission may have to find conduct beyond whether Samsung violated the ETSI FRAND requirement in order to make a case for antitrust violations.  For example, in other standards violations cases the charges went well beyond mere technical violation of an SDO’s patent policy and focused on whether conduct amounted to fraud.⁷  

Further, the European Commission may have to confirm whether Apple was an ETSI member and capable of benefitting from the ETSI FRAND policy commitments made by Samsung.  If Apple also participated in the development of the 3G standard, it too may be open to investigation with respect to Apple’s patent enforcement activities.  Also, the EC may find Samsung’s conduct at issue if Samsung never offered a license to Apple under Samsung’s 3G patents that are essential to the standard.

In view of the EC Guideline and Block Exemption Regulations adopted January 2011 (Guideline), the EC may also question whether ETSI’s patent policy is adequate.  The Guideline encouraged SDOs to have their members unilaterally disclose, prior to setting a standard, the maximum rate to be charged for IPRs if included in a standard.  Section 6 of ETSI’s policy does not require disclosure of a maximum rate to be charged, which may have been one factor allowing Samsung to aggressively assert its patents.

The Samsung scenario is not unique.  SDOs other than ETSI have also been struggling for compliance with their patent policies.   

For example, Google recently provided assurances to the standards group for the Institute of Electrical and Electronics Engineers (IEEE) that it would abide by Motorola Mobility’s previous commitment to license on RAND terms following Google’s acquisition of Motorola Mobility Holdings, Inc. (MMI).  However, Google stressed that such a RAND commitment only applies “with respect to the Essential Patent Claims included in patents that it is acquiring from MMI” and does not apply to Google’s other intellectual property rights.⁸ 

In view of the aggressive tactics being used during these smart-phone and tablet battles, it is yet to be seen whether SDO patent policies are strong enough to prevent all anti-competitive conduct.

NOTES

¹           Another alternative are FRAND-Z terms.  FRAND-Z (zero i.e. royalty-free) policies address some concerns;  but FRAND-Z fails to compensate a patent owner for her research development efforts (but may allow for broad technology usage that may provide for generation of revenue for related, add-on services or products).

²           FTC Report: The Evolving IP Marketplace: Aligning Patent Notice and Remedies with Competition, p. 22, March 7, 2011 (“FTC 2011 IP 3 Report”); available at http://www.ftc.gov/opa/2011/03/patentreport.shtm (last visited Nov. 1, 2011).

³           Reasonable and Non-Discriminatory (RAND) terms are similar to FRAND terms.  Hereinafter, “FRAND” will be used throughout the article to mean “RAND or FRAND.”

⁴           John W. Schlicher, Settlement of Patent Litigation and Disputes, p. 307 (ABA Pub. 2011).

⁵           Larry M. Goldstein et al., Technology Patent Licensing: An International Reference On 21st Century Patent Licensing, Patent Pools and Patent Platforms, p. 330 (Aspatore Books 2004)(“Goldstein”).

⁶           Claudia Tapia, Industrial Property Rights - Technical Standards and Licensing Practices (FRAND) in the Telecommunications Industry, p. 137,  ¶368 (Carl Heymanns Verlag Pub. 2010).

⁷           See Rambus Inc. v. Infineon Techs. AG, 164 F.Supp2d 743, 767 (E.D., Va 2001); No. 3:00CV 524, slip.op.at 35 (E.D. Va. Aug. 9, 2001)(Assertions of failure to disclose patents related to SRAM patents for JEDEC standard, in violation action of Virginia State Fraud laws.)

⁸           February 8, 2012 letter from Allen Lo, Google Deputy General Counsel, to Gordon Day, President IEEE (available at:  http://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&cd=4&sqi=2&ved=0CDUQFjAD&url=http%3A%2F%2Fwww.google.com%2Fpress%2Fmotorola%2Fpdf%2Fsso-letter.pdf&ei=xG1OT43nL5CpsAK4tOgg&usg=AFQjCNEg6D8d_ws4mlKVs1Z_jFfh3osqmw&sig2=LBcW_gX5quhDZmi2XVOf2g).