|
George
correctly points out that by "February," I actually meant "December 5, 2005 in
Ft. Lauderdale, where it is was 70 degrees, while my wife and kids were
enduring subzero weather back home, and I still haven't heard the end of
it." Sorry for the typo.
In your email below, Michael, you refer to a meeting
in February. Was there another meeting in February where the
topic of a Business Review letter was discussed or are you
referring to the Patcom meeting last December?
----- Original Message -----
Sent: Wednesday, March 22, 2006 10:18
PM
Subject: Re: [PP-DIALOG] Application of
per se rule to ex ante joint conduct
Michelle: I represent the IEEE. As
recently as this month, I have fielded questions from IEEE participants on
how they, as engineers, can make cost-benefit comparisons between competing
technology proposals if they don't know the "cost" side of that equation --
including the likely (or at least the announced maximum) royalty and other
Ts &Cs. That is not to say that they want to debate whether the
terms are fair, or whether (consistent with a RAND commitment) their
company can get better than the announced maximum. It is just to
say, taking the patent-holder at its word, is the perceived comparative
benefit worth the comparative cost.
The proposal now on the table is intended to
facilitate the process by permitting patentholders to make the unilateral
decision to disclose the maximum terms that they will require, and to do so
in a manner that permits those using the information to know that it is
binding and can be relied upon. I find it difficult to get too
excited about the legal risk where the maximum "agreement" at issue is an
"agreement" (if that's what it is) that participants will hear what people
have to say, should they choose to say anything, and make the same kinds of
decisions that they have to make today, but with better (or at least less
imperfect) information.
Gil and Bob have pointed to the primary sources of
antitrust enforcers' views on a patentholder's unilateral disclosure of
terms, and Richard has made the fair point that the enforcers also spoke
about "joint discussion" and joint negotiation -- topics that are not on the
table today. Moreover, as was stated at the February meeting, the IEEE
currently expects to seek a business review letter from the FTC or DOJ,
which would provide very specific antitrust-enforcement guidance based
on the proposal as described.
As
to the point (elsewhere in this discussion thread) that the IEEE should
avoid legal risk for fear that the rules might change again, and to the
extent that the business-review process does not allay that concern, let me
put it this way. Like everyone else in this vale of tears, the IEEE
faces all manner of risk, both business and legal, and yes, we must always
be mindful that the nature and degree of legal risk can change over
time. But we can't very well ignore the real risks of today based
on fear that we might see the return of the "Nine No-Nos" (or,
heaven forfend, disco, leisure suits, and other artifacts
of the 1970s).
Of course it is important to consider the entirety of Chariman
Majoras's comments, which recognized the continuing potential for
anticompetitive effects arising from ex ante
conduct.
Thus, she stated that "joint ex ante royalty discussion that are
reasonably necessary to avoid hold up do not warrant per se
condemnation. Rather, they merit the balancing undertaken in a rule
of reason review." (at page 7) Accordingly, "[i]t may . .
. be appropraite to consider whether joint ex ante royalty
discussions are reasonably necessary to mitigate hold up." (at page
9) This remains important because "joint ex ante royalty
discussions, of course, can offer an opportnity for SSO members to reach
side price-fixing agreements that are per se illegal." (at
10)
Moreover, as Chairman Majoras stated, "'[h]old up' by no means is
invevitable. For example, if the chosen standard has to compete with
rival standards, the owner of the SSO's chosen technology may end up with
little market power. If users can respond to a supra-competitive
royalty rate by defecting to a rival standard, the patent holder will find
itself unable to obtain anything more than the competitive price. . .
. Moreover, even if an intellectual property owner can obtain a
royalty rate higher than those of other technology owners, members of the
organization that chose the standard are not necessarily being held
up. The higher royalty rate may be explained by the superiority of
its technology. That is, its peerless technology - developed through
'superior skill, foresight, and inudstry' - may explain the ability to
charge a premium." (at 3)
Accordingly, policies that require joint royalty determinations
may find no support for antitrust purposes based upon a hold up
theory.
Further, Chairman Majoras recognized that "even absent antitrust
concerns, SSO members may refrain from such discussions for business
reasons alone." (at 11) "Thus," she made clear, "by pointing
out the potential for joint ex ante royalty discussions to mitigate or
eliminate the hold-up problem, I don nto mean to suggest that such
discussions in SSOs are required. I simply offer my view that
conducting legitimate joint ex ante discussions does not warrant per se
condemnation." (at 12.)
Then Assistant Attorney General Pate also identified the
balance that is needed in this area. He commented that "[t]here is a
possiblity of anticompetitive effects from ex ante license fee
negotiations, but its seems only reasonable to balance that concern
against the inefficiencies of ex post negotiations and licensing hold
up. . . . . Barriers to discussing licensing rates may
not be enitrely law-related. Some standard setting participants do
not want the distraction of considering licensing terms. Engineers
and other tecnical contriubtors may prefer to leave the lawyers at home
and limit idscussions to technical issues alone. So there may be
powerful incentives to keep the status quo." (at
9-10)
So, it may just be a truism that more information early in the
process is good, and as Bob suggests I don't think either the FTC or DOJ
would object to that. Once you go past that point, however, the
issues become a lot more complicated and both Chairman Majoras and then
Assistant Attorney General Pate were careful to acknowledge the balance
and consideration of issues that needs to be undertaken even if the
discussion is focused solely on antitrust issues and avoids all of the
other practical issues
entirely.
Richard S. Taffet, Esq.
Bingham McCutchen LLP
399 Park Avenue
New York, New
York 10022-4689
T: (212)
705-7729
F: (212) 702-3603
email: richard.taffet@bingham.com
cell: (914) 582-2477
Michelle, Gil's reference to FTC
Chairman Majoras's Sept. 2005 speech is also responsive to your inquiry
in a subsequent Saturday email asking for "specifics where enforcement
agencies support more material information in standards-setting"
including "upfront material license terms . . . ." As Chairman Majoras
observed in that same speech, "if owners stated their royalty rates
upfront, then price could become part of the competition among
technologies for incorporation into the standard." She more generally
sought in that speech to knock down unwarranted antitrust concerns that
have "unduly prevented announcements of pricing intentions . . . that
may, in fact, provide procompetitive benefits."
Three months earlier,
then-Assistant Attorney General Hew Pare, Chief of DOJ's Antitrust
Division, gave his own speech along the same lines. He noted, for
example, that "a difficulty with RAND . . . is that the parties tend to
disagree later about what level of royalty rate is reasonable"; he
recognized how ex ante disclosures and indeed even ex ante negotiations
over royalty rates could address that problem; and, in response to some
expressed antitrust concerns over such steps, he observed that "[i]t
would be a strange result if antitrust policy is being used to prevent
price competition."
Gil's note provides
the website for Chairman Majoras's speech. The website for Assistant
Attorney General Pate's speech is as follows:
Hi Michelle,
Thank you for your thoughtful
questions. I have tried to respond in-line
below.
Gil
Ohana
Director, Antitrust and Competition
Cisco
Systems, Inc.
300 E.
Tasman Drive
MS
10/2
San
Jose, CA 95134
United
States of America
Phone:
+1 408 525 2853
Mobile:
+1 408 203 5301
E-mail:
gilohana@cisco.com
I've seen conflicting positions in this
dialog about the voluntariness of disclosure of terms. It leaves
me confused what is expected policy. The package of proposals
appear designed to not only provide licensing position options under
an LOA, but an assurance of guaranteed commercial prices and licensing
terms in advance of the standard being available to the general
public. If these proposals move IEEE to a regime that requires
licenses or mandates an assurance of a license or blanket license as a
condition of participation or contribution, IEEE may want to have
outside counsel advise it further about imposing that type of policy
agreement.
I believe that the rules changes being
proposed for consideration by PatCom only provide for the assurance of
commercial prices and licensing terms as one option that a participant
that contributes what it believes are essential patents may
provide. As a supporter of the changes, the way I see them
working is that the other participants will draw their own conclusions
from the choice that their fellow participant makes. Some of
them may be more inclined to vote in favor of the inclusion of a
particular technical contribution in a final IEEE standard if they are
assured in advance that the technology will be available to them on
set terms. For others the existence of a detailed licensing
commitment may matter less.
I will let IEEE comment
on the legal advice it may have received from IEEE counsel. As
you may be aware, there have been a number of recent statements from
US and European competition authorities that have expressed the view
that, to quote FTC Chairman Deborah Majoras, “a
patent holder’s voluntary and unilateral disclosure of its maximum
royalty rate … is highly unlikely to raise antitrust scrutiny."
(Chairman Majoras' speech is available at http://www.ftc.gov/speeches/majoras/050923stanford).
I assume that this and other pronouncements by the Justice Department
Antitrust Division, the Federal Trade Commission, and the European
Union have given IEEE's antitrust counsel comfort with the proposed
rules changes, but again, they can speak for
themselves.
I would also like to know how
voluntary disclosure will work in practice:
> Will
IEEE expect and request or call for public disclosure of confidential
rates/terms from members?
> Will IEEE allow its work groups to
take any negative presumptions without disclosed terms? How is that
voluntary?
> Can IEEE PatCom reject the terms if they don't
satisfy some criteria it determines appropriate?
> Rates are
much more complicated than fixed lumpsum fees. How will maximum
rates be useful to IEEE process? Will they mislead rather than
clarify?
On the first question, it is not at all unsual for
patentholders to disclose a licensing program including detailed
terms. Once disclosed, of course, those terms become
non-confidential. Also, to go back to an earlier point, the
disclosure of terms is only one option that a patentholder may
choose. If it wishes to keep its detailed tersm confidential, it
is free to check the RAND box and invite questions from licensees
regarding its terms.
As to "negative
presumptions" that working groups may draw from a failure of a
patentholder to disclose terms, my view is that individual
participants may well draw a negative presumption. In the
situation in which there are two substitute technologies competing for
inclusion in a standard, the fact that one of the submitters has
disclosed concrete licensing terms may be seen by other participants
as a reason, all other things being equal, to favor that
technology. In my view, that's a good thing.
On your question regarding IEEE PatCom
rejecting terms, I will let the PatCom members speak to this point,
but my understanding is that there is no expectation that the adoption
of the proposed rules changes would change the role of PatCom in
reviewing LoAs, which will remain focused on compliance with the
formal requirements of the IEEE rules, not the substance of particular
LoAs.
As to your last point, I agree that licensing
terms are more complicated than fixed lumpsum fees. My own view,
however, is that more information about licensing intentions, made
available earlier in the standards development process, is better than
less information made available later. We can trust participants
(and the counsel that represent them) to assist in untangling detailed
disclosures.
> Is IEEE promoting licensing terms
through its LOA process by accepting and collecting license rates and
T&Cs?
> If IEEE
accepts by signing the conditional terms under a LOA contract, has it
agreed the terms are acceptable or that it accepts the commercial
conditions offered?
Here too, I will let IEEE speak for itself, but from the
perspective of an observer of IEEE-SA and PatCom, I don't believe IEEE
sees its role as "promoting" particular license terms or Ts
and Cs. Likewise, I don't believe IEEE sees its role
as validating the acceptability (or, for that matter, the
"reasonableness") of proposed terms when it accepts an
LoA.
> It's a simple example Don
provides below, but why do Working Groups want/need to get into the
level of the type of discussion alluded beyond the LOA?
Working groups, and individual members of working
groups, may feel that more information regarding the terms under
which particular essential patents will be provided assists them in
making decisions regarding which technologies to support for
inclusion in a standard. In a world where the
only disclosure permitted is RAND, participants in a working group may
feel that they are being asked to make those decisions
without much information on which to compare alternative technology
proposals or decide whether a marginal feature should be
included as a mandatory part of a standard. This
problem is compounded by the lack of consensus as to what either
"reasonable" or "non-discriminatory" means, and specifically
whether a commitment to license patents on "reasonable" terms in any
way constrains a patentee from charging what the market will
bear.
I
agree that rules against discussion in meetings or development of the
standard must be tight and strongly enforced by IEEE over its
participants. Practically speaking, if terms are being requested
to provide information to IEEE process, how will IEEE/engineer
participants avoid the temptation of discussing them?
We agree that legal risks should be
minimized in IEEE development process to the greatest extent possible.
Participants should be able to expect that more certain, less risk
environment and efficient process. I assume that this is a universal
principal we all share and is not controversial. I don't see that it
is in IEEE interests to discourage participation in development in any
way due to uncertain process or risks of legal exposure.
Recent agency statements regarding the antitrust risks
associated with disclosure of licensing terms may give a more
realistic picture of the antitrust risks that IEEE and participants in
IEEE working groups face from rules that permit disclosure of
licensing terms. As to the desire for mitigation of legal
risk, mitigation of legal risk is certainly one value that is
important in the process of creating standards and commercializing
standards-compliant products. Another value that Cisco and
other companies that participate regularly in standard-setting believe
is important is transparency in standard-setting, so that participants
and other implementers of standards-compliant products know as early
as possible what terms they will need to accept to implement
standards-compliant products. The proposed rules changes
regarding the definition of "reasonable" and the option to
disclose at least a not-to-exceed royalty rate support that
goal.
Thanks,
Michelle
From: Don Wright [mailto:don@LEXMARK.COM]
Sent: Tuesday, March 14, 2006 5:32 PM
To:
PP-DIALOG@listserv.ieee.org
Subject: Re: [PP-DIALOG]
Application of per se rule to ex ante joint
conduct
Amy:
The NEED for the change in
what is now clause 5.3.8 of the SASB Ops Manual will be a part of the
discussion in agenda item 6.2.6. I want PatCom to first decide whether
to recommend allowing for the voluntary disclosure of not-to-exceed
rates before we propose any specific language changes to 5.3.8. I
don't want to waste everyone's time arguing about the word changes
there unless and until PatCom decides to recommend allowing the
disclosure.
I tend to agree with you that the language needs a
little "tightening" especially to insure group negotiation of pricing
does not happen in standards development meetings. On the other hand,
I don't know how we can forbid "discussion" in the meetings because
that might preclude the following:
Party 1: "We've committed to
charge $10,000 to use our patent"
Party 2: "Is that a one time fee,
an annual fee or something else?"
Party 1: "That's a one time
fee."
Is the above a discussion? Many would answer yes. Should
it be forbidden? Personally, I don't think so.
The question
then becomes how to draw the line to allow for the above and other
similar interchanges while not allowing overt negotiation in standards
development meetings.
Should PatCom decide to recommend
allowing disclosure, I will welcome your suggestions for
wording!
***************************************************************************
Don
Wright don@lexmark.com
f.wright@ieee.org / f.wright@computer.org
Director of Standards
Lexmark International Past Chair, IEEE SA Standards
Board
740 New Circle Rd Chair, Patent Committee
IEEE SASB
Lexington, Ky 40550 Member-at-large, IEEE CS
SAB
859-825-4808 (phone) Member, IEEE-ISTO Board
of Directors
603-963-8352 (fax) Member, W3C Advisory
Committee
***************************************************************************
"Amy Marasco (LCA)"
<amarasco@microsoft.com>
Sent
by: PP-DIALOG@ieee.org
03/14/2006 07:43
PM
To:
<don@LEXMARK.COM>,
<PP-DIALOG@listserv.ieee.org>
cc:
Subject: RE:
[PP-DIALOG] Application of per se rule to ex ante joint
conduct
Don, will this clause be discussed at the
upcoming PatCom meeting? With all due respect, I am concerned that the
wording in what was ops-manual-clause 5-3-9-v3.doc does not
sufficiently delineate what activity is permitted when and under what
rules or parameters. For example, can proposed licensing terms be
discussed at a technical committee meeting and, if so, what are the
procedures governing that activity?
Many thanks,
Amy
From: Don Wright [mailto:don@LEXMARK.COM]
Sent: Tuesday, March 14, 2006 1:44 PM
To:
PP-DIALOG@listserv.ieee.org
Subject: Re: [PP-DIALOG]
Application of per se rule to ex ante joint conduct
Amy, et al:
If you examine
the agenda for the December 5th PatCom Meeting (http://standards.ieee.org/board/pat/1205patagen.html) and look at the attachment to agenda item
5.3, you'll find a ZIP file containing a document named
ops-manual-clause-5-3-9-v3.doc. This was proposed to address the issue
of allowing the disclosure of licensing rates but not allowing group
negotiation of those rates at a standards development meeting. PatCom
could decide otherwise at any time but the committee has been heading
toward your (a) item below and not your (b) item.
(BTW: Due to
recent changes made in the Standards Board Operations Manual
(http://standards.ieee.org/guides/opman/index.html), that clause is now
5.3.8)
"Amy Marasco (LCA)"
<amarasco@microsoft.com>
Sent
by: PP-DIALOG@ieee.org
03/12/2006 01:24
PM
To: "Skitol,
Robert A." <Robert.Skitol@DBR.COM>,
<PP-DIALOG@listserv.ieee.org>
cc:
Subject: RE: [PP-DIALOG] Application of per se rule to
ex ante joint
conduct
I guess I am a little confused by the
exchange of e-mails in this
string. I am wondering if there is any
degree of consensus around the
notion that there is a difference
between:
(a) the disclosure of possible licensing terms (I say
"possible" because
it is likely that not all licensees will end up
with the exact same
license), and
(b) the discussion or
negotiation of such terms as a group under the
auspices of a
standards body or as part of a standards-setting
activity.
In other words, is there any consensus that the
PatComm should continue
to debate the former, but that IEEE should
expressly prohibit the
latter?
My reading of the Hydrolevel
case is that ASME was held liable because
it permitted arguably
anti-competitive conduct under its roof and under
its "apparent
authority". Doesn't it seem that, based on the Hydrolevel
and
Golden Bridges decisions, IEEE as a standards-setting
organization
would better protect itself and its members from
possible antitrust
claims by prohibiting group discussions or
negotiations of commercial
licensing terms under its auspices than
by facilitating such activity?
Whatever IEEE determines are the
appropriate parameters, I think that
they should be spelled out
very clearly so that everyone understands
exactly what activity is
permitted under IEEE's rules and what is not.
I suspect that we can
all agree that any ambiguity in this regard would
be
problematic.
-----Original Message-----
From: Skitol,
Robert A. [mailto:Robert.Skitol@DBR.COM]
Sent: Friday, March 10, 2006 9:36
PM
To: PP-DIALOG@listserv.ieee.org
Subject: Re: [PP-DIALOG]
Application of per se rule to ex ante joint
conduct
Richard
conflates the idea of encouraging unilateral disclosure
of material
license information -- the main proposal now before the
IEEE's
PatCom -- with "collective negotiation" and "collusive" conduct
of
the kind alleged in the Golden Bridges case, which nobody is
now
advocating for the IEEE. There is no credible basis whatsoever
for any
suggestion that the unilateral disclosure policy idea now
before PatCom
would increase antitrust risk or any other litigation
exposure to IEEE
or participants therein. To the extent the
proposal would result in
participants' disclosures of more license
information during standard
setting, it would do precisely what (a)
Congress expressly encouraged
SDOs to do in its enactment of the
SDOAA two years ago (see House
Report) and (b) both Assistant
Attorney General Pate and FTC Chairman
Majoras expressly encouraged
SDOs to do in their speeches within the
past year. Numerous
published in-depth analyses (many cited in Chairman
Majoras's
speech) confirm the complete antitrust legality as well
as
affirmative desirability of more meaningful information
disclosures
along these lines. I am unaware of even a single
contrary analysis,
published or otherwise, that even begins to
refute the supportive
literature on this subject. As already noted,
both enforcement agencies
endorse the idea of an unqualifiedly
"good" result from more rather than
less material information being
available during a standard-setting
proceeding.
Richard's
suggestion of an antitrust problem with IEEE's adoption
of a
definition of "reasonable" is equally vacuous. IEEE
already
encourages patent owners to make RAND commitments. How can
it suddenly
become an antitrust problem to explain or
clarify what RAND is intended
to mean for this purpose? Is the
world better off with controvery and
confusion over what RAND
means? That is a formula for more litigation of
the sort that is
already burdening IEEE and other SDOs' standards.
The irony is
that, while policy changes of the kind now under
consideration
would entail no new legal risk of any kind, failure to act
on them
would leave unaddressed the all-too-real existing risk of
abusive
patent holdup conduct in connection with IEEE standards. This is
a
reality of the status quo that has already generated
litigation
messes, past and present. No need to get more specific
about them unless
Richard wants to do so. Suffice it to say that
failure to address in any
manner existing conditions enabling those
disputes to have evolved and
enabling more such disputes to arise in the future is nothing
less than
irresponsible.
Instead of chasing antitrust ghosts
boo-hooing about any move
forward, we should worry more about
exposure from (a) continued
collective suppression of highly
material license information during
standard setting; and (b)
continued collective refusal to adopt measures
to prevent
anticompetitive manipulations of IEEE processes. Grounds for
real
concern on those fronts can be found in (a) United States
v.
National Society of Professional Engineers, 435 U.S. 679 (1978);
and (b)
American Society of Mechanical Engineers v. Hydrolevel
Corp., 456 U.S.
556 (1982).
-----Original Message-----
From:
Taffet, Richard S. [mailto:richard.taffet@BINGHAM.COM]
Sent: Friday, March 10, 2006 3:32
PM
To: PP-DIALOG@LISTSERV.IEEE.ORG
Subject: Re: [PP-DIALOG]
Application of per se rule to ex ante
joint
conduct
Gil
Thank you for your
comments.
First, it may be that your perspective is focused
narrowly on the agenda
posted for the March 27 meeting. If so, I
can see how you are having
trouble in understanding how the Golden
Bridges decision may have an
impact on discussions at the IEEE
PatCom, and how the decision may cause
some concern even with the
issues that have been teed up for the next
meeting.
However,
we certainly have no control over how the agenda is set, or how
the
PatCom is going to tackle all of the issues that have been
raised
over the past 9 to 10 months. As you commented yesterday,
neither you
nor I have any vote in what the PatCom does, and the
Chair has made it
clear that he is not bound to abide by any
consensus of interested
parties. Accordingly, I think it is very
important for all interested
parties and the IEEE organization to
be sensitive to how specific issues
that might be on the instant
agenda will lead to the discussion of
future issues that have
already been identified and proposed for
discussion. Included in
this group of issues that may be discussed in
the future is a
policy that would have license terms decided by "[a]
group of
licensees negotiating collectively with owners of
competiting
technologies." (source: June 2005 submission to DOJ and
FTC). As you
pointed out in connection with that possibility there
may be competitive
justifications for that type of arrangements,
but whether there are or
not would not change the fact that a per
se antitrust claim could be
asserted in connection with such
conduct, and depending on the pleading
such a claim could very
easily survive a motion to dismiss, or applying
the
Golden Bridges' type of reasoning a motion for summary
judgment.
So, I think it is reasonable to consider specific
proposals that may be
discussed early in the process for some
reason in the context of the
broader proposals that have been made
and which underlie this effort. I
do not think it is too far of a
stretch to think that there is some plan
to establish positions,
for example in connection with the LoA, that
will then compel
policy changes that might not otherwise be supported if
addressed
in the first instance from a full policy position. Indeed,
the
email from the PatCom chair to Larry Bassuk yesterday, as
I
understand it, says exactly this -- that the LoA is not intended
to be
amended to reflect current policy, but is to be used to drive
future
changes in the policy. I am not sure why it is not a
legitimate
comment, as I believe Larry made, to suggest that this
is not a proper
approach, but the Chair has indicated that he will
not entertain such
discussion. Putting aside whether this
procedural step itself, coupled
with the indication that decisions
will not be made based on a consensus
of interested parties, raises
some issues, including as might be
asserted under an Allied Tube
analysis, it does suggest that there may
be some strategy that is
being pursued to progress the IEEE policy to
include matters not
identified on the March 27 agenda.
Included in such later to be
addressed issues may be your proposal for
collective negotiation of
license terms. Whether such collective
negotiations occur ex ante
(as I assume you would prefer) or ex post, it
would seem not to
matter for the Golden Bridges' decision apply.
Similarly,
mandatory rate caps, which have also been proposed and is on
the
agenda for the March 27 meeting, may foster a far greater
likelihood
of claims such as is the subject of the Golden Bridges
case. Here, too,
I think you would agree from the perspective of
antitrust counselling
that while justifications may be offered, the
practical fact that even a
rule providing for voluntary rate caps
could lead to uncontrolled
discussions (outside the meeting room as
alleged in Golden Bridges) that
then are implemented in the meeting
to set rates collectively. Again,
the fact that justifications may
exist and that a rule of reason
analysis should be applied, or that
the rule is nominally voluntary, is
not going to stop a claim from
being asserted or the possibility of a
court rejecting the
justifications and application of the rule of
reason. That risk,
which as illustrated by Golden Bridges (as well as
the Conexant
case in which TI prevailed but was still required to
litigate) is
not fanciful or remote.
When viewed in context the issue of
whether to include the definition of
"reasonable rates, terms and
conditions" as proposed, or any definition
of
what reasonable rates and license terms will be, in an LoA also
could
give rise to what may be alleged as a garden variety per se
unlawful
antitrust violation. The proposed definition is
particularly problematic
because it would impose a standard upon
patent owners that is not
supported by law. Notwithstanding that
some commentators, as identified
by Scott Peterson, have discussed
that from economists perspective it is
possible to identify value
attributable to a patent itself and an
additional amount to the
fact that the patented technology is
standardized, this assessment
is not universally accepted, and it is the
very rare commentator
that has suggested that patent owners should be
stripped of the
value of their IP based upon such an analysis. Nor
would this
theory apply in each case, as you have acknowledged, for
example
where there is only a single patented alternative
under
consideration for standardization. Such a step, even in the
standards
context, also would be fundamentally
contrary to patent law.
Accordingly, it is certainly conceivable
that one could allege that an
SDOs adoption of such a rule
constitutes concerted action (especially
where consensus is not the
basis for the decision). Moreover, because
the proposed definition
only includes selective factors, and not many
other factors that
would be relevant to a full determination of what a
willing
licensor and willing licensee would agree to at the time of
the
negotiations, it could be argued too that it is equivalent to a
price
fixing agreement. Again, the purpose of this point is not to
say that
such a claim would necessarily succeed, but rather to
point out that it
may survive a motion to dismiss. This may not be
a Golden Bridges' type
allegation, but I don't think the IEEE
should be limiting itself to only
those type of antitrust theories.
(This comment also does not address
the fact that in my view,
wearing an SDO hat, this is just bad policy
because it would impose
a rigid definition that is not applicable to
many situations that
arise in the standards process.)
Likewise, although not related
to the Golden Bridges' decision, the
approach of the LoA is
problematic because it could have the exact
contrary effect than I
had thought was intended. Rather than providing
information early
in the standards development process, it could result
in causing
patent owners to wait until the very last minute to disclose
IP and
to submit an LoA. This likelihood is already more probable than
not
because of the fact that any LoA will not be binding
and
irrevocable. The very real problem is that it may be impossible
to
identify what is an "essential patent" until the standard is
well along
the way to being final. Accordingly, unless a patent
owner wishes to
give a blanket license (which as proposed would
apply to all essential
patents whether disclosed or not, which
itself reflects a fundamental
change from the ANSI policy), it runs
the risk of having to make
licensing commitments without even
knowing whether its IP is essential.
If such IP is then subjected
to a collective negotiation of terms or
mandatory rate caps, prices
for non-essential competing patents would be
fixed as would rates
for essential patents. I think you do understand
the potential
antitrust risk there.
Similarly, the proposed LoA's approach to
Organizational Knowledge could
exacerbate these problems,
especially for companies that themselves are
not members, but who's
employees are members. How would the concept of
Organizational
Knowledge as proposed even apply in that circumstance?
Further, how
could an employee who has nothing to do with licensing
issues or
his employer's patent portfolio be in a position to bind
his
company, much less affiliates, successors and
assigns?
Further, the proposal to make the LoA binding by
having it signed by the
IEEE also involves antitrust issues. Such a
step clearly would allow
the argument that the concerted action
element of a Section 1 Sherman
Act claim is satisfied, and any
anticompetitive effects achieved through
implementation of the
LoAs, especially under a rule of reason analysis,
would require
extensive analysis, and resulting costs and times.
I hope these
comments help you. Please understand they are not being
offered for
any purpose other than to express what I believe may result
in less
efficient, and thereby less procompetitive, standards
development.
These are my views regarding the standards process, and
should not
be ascribed to any particular company that I may or may
not
represent. I hope you take them in that way, and that you do
not think
that they are offered to counterbalance your positions. I
do think it
would be a very bad result, however, if rules are
adopted, no matter how
well
intentioned, that will not accommodate all stakeholders'
interests
in the IEEE type of open standards body, and that will
give rise to even
the prospect of greater litigation risks, to say
nothing of liability
risks. I think this would be especially
unfortunate if such rules are
adopted because of a flawed process
or a failure to consider all of the
very complex variables that
exists in standards development, as well as
in connection with the
current state of technology, competition and
licensing.
Look
forward to seeing you soon.
Richard S. Taffet,
Esq.
Bingham McCutchen LLP
399 Park Avenue
New York, New York
10022-4689
T: (212) 705-7729
F: (212) 702-3603
email: richard.taffet@bingham.com
cell: (914)
582-2477
-----Original Message-----
From: Gil Ohana
(gilohana) [mailto:gilohana@cisco.com]
Sent: Thursday, March 09, 2006 7:27
PM
To: Taffet, Richard S.; PP-DIALOG@listserv.ieee.org
Subject:
RE: [PP-DIALOG] Application of per se rule to ex ante
joint
conduct
Thanks Richard. I'm not aware that the
issue of royalty caps, which as
we both know is alive in ETSI, is
on the IEEE-SA agenda. I'm also not
aware that the rules changes
that PatCom is being asked to consider, as
you put it, "rules that
will invariably (at least allegedly) lead to
fixing of license
terms by joint conduct." PatCom is being asked to
consider rules
that will give patricipants in standard-setting and
implementers of
IEEE standards more information about what terms they
will have to
accept to practice those standards. I'm missing how that
leads to
"fixing of license terms."
On your suggestion regarding agenda
efficiency and the views you ask me
to present, all I can say in
response is that it was you, not me, that
posted the Golden Bridge
opinion in what could be seen as an attempt to
raise in the minds
of PatCom members the specter of antitrust risk as a
reason not to
favor the ex ante proposals. Further to my prior postings
in
response, perhaps you can make your reasoning explicit. You are
a
leading practitioner that has been engaged in standard-setting
and
antitrust issues since for a while, and your views would, I'm
sure, be
illuminating.
Gil Ohana
Director, Antitrust and
Competition
Cisco Systems, Inc.
300 E. Tasman Drive
MS
10/2
San Jose, CA 95134
United States of America
Phone: +1
408 525 2853
Mobile: +1 408 203 5301
E-mail:
gilohana@cisco.com
-----Original Message-----
From:
Taffet, Richard S. [mailto:richard.taffet@bingham.com]
Sent: Thursday, March 09, 2006 3:44
PM
To: Gil Ohana (gilohana);
PP-DIALOG@listserv.ieee.org
Subject: RE: [PP-DIALOG] Application of per se rule to ex ante
joint
conduct
I certainly agree wholeheartedly with your
point that it is important to
consider how enforcement agencies
will consider changes in SDO rules.
Some may be positive and some
may be negative, as I understand has been
the reaction of the EC
officials to certain positions in ETSI.
I am not too concerned
with agenda efficiency, however. I am more
concerned that whomever
is making the decision does so on a fully
informed basis and not to
advance a specific agenda.
I think specifically when you get
into issues such as royalty caps, and
rules that will invariably
(at least allegedly) lead to fixing of
license terms by joint
conduct, grave concerns should exist.
Likewise, I would think
that if agenda efficiency is the primary
motivating factor here,
please do share with us your views how each of
the proposals that
have been made will not conclusively allow any claim
of concerted
action or an anticompetitive effect. If you can do that by
first of
next week, we will have a basis to continue the dialog.
Richard
S. Taffet, Esq.
Bingham McCutchen LLP
399 Park Avenue
New
York, New York 10022-4689
T: (212) 705-7729
F: (212)
702-3603
email: richard.taffet@bingham.com
cell: (914)
582-2477
-----Original Message-----
From: Gil Ohana
(gilohana) [mailto:gilohana@cisco.com]
Sent: Thursday, March 09, 2006 6:17
PM
To: Taffet, Richard S.; PP-DIALOG@listserv.ieee.org
Subject:
RE: [PP-DIALOG] Application of per se rule to ex ante
joint
conduct
Thanks Richard. For better or worse,
neither of us is a member of the
Patent Committee. I'm hoping that
the people that actually get to do
the voting are monitoring this
list, and they would benefit from hearing
your views as to why the
specific legal theory asserted by the plaintiff
in the Golden
Bridge case you chose to post to the list is relevant to
the votes
they will be asked to cast on the 27th. They also may benefit
from
understanding more generally, particularly in the wake of
the
various statements regarding the issue of ex ante disclosure
rules and
antitrust risks that have been made by the European
Commission and the
leadership of both US federal antitrust
agencies, what role
consideration of antitrust risk should play in
their consideration of
the various proposals for the changes to the
IEEE-SA rules involving ex
ante disclosure of licensing
comitments.
That is not an easy question, and it merits careful
consideration from
the members of PatCom (after all, if you're
right about the connection
you seem to posit between between ex
ante rules and increased antitrust
risk, then IEEE-SA would seem to
have a significant organizational
interest at stake in avoiding the
"messy and unpredictable" process of
antitrust litigation). I'm hoping that you share my goal of
addressing
those issues in advance of the meeting so that we can
proceed through
the agenda efficiently.
Best
regards,
Gil Ohana
Director, Antitrust and
Competition
Cisco Systems, Inc.
300 E. Tasman
Drive
MS 10/2
San Jose, CA 95134
United States of
America
Phone: +1 408 525 2853
Mobile: +1 408 203
5301
E-mail: gilohana@cisco.com
-----Original
Message-----
From: Taffet, Richard S. [mailto:richard.taffet@bingham.com]
Sent: Thursday, March 09, 2006 2:57
PM
To: Gil Ohana (gilohana);
PP-DIALOG@listserv.ieee.org
Subject: RE: [PP-DIALOG] Application of
per se rule to ex ante joint
conduct
Gil
What's your
rush? What conclusions will you draw? I am not sure what
the basis
will be to conclude anything one way or the other, or
what
signficance it will have in what the IEEE is considering on
the merits.
If there is a need for you to find out more information
on a particular
schedule, give me a call and we can schedule a time
to discuss each of
the proposals and each of their implications. If
it is important to
you, we can try to schedule such a call in
advance of the March 27
meeting Let me know.
Richard S.
Taffet, Esq.
Bingham McCutchen LLP
399 Park Avenue
New York,
New York 10022-4689
T: (212) 705-7729
F: (212)
702-3603
email: richard.taffet@bingham.com
cell: (914)
582-2477
-----Original Message-----
From: Gil Ohana
(gilohana) [mailto:gilohana@cisco.com]
Sent: Thursday, March 09, 2006 5:28
PM
To: Taffet, Richard S.; PP-DIALOG@listserv.ieee.org
Subject:
RE: [PP-DIALOG] Application of per se rule to ex ante
joint
conduct
Richard, why wait for the meeting? You
have the chance to enlighten all
of us now.
To frame the
question again, I'm not asking you generally for your view
of why
ex ante disclosure rules increase the risk that SDOs and
companies
participating in standard-setting will face antiturst
ligitation.
I'm going back to the Golden Bridge decision you chose to
bring to
the attention to the list and asking you to explain which of
the
specific rules changes that IEEE-SA's Patent Committee
would
increase the risk that IEEE-SA or participants in IEEE-SA's
technical
working groups would face group refusal to deal claims.
It's a simple
enough question, and if your response is that you'll
need all the time
between now and March 27 to think of an answer,
then we'll draw the
appropriate conclusions. I'm optimistic (there
I go again) that we
won't have to wait that long.
Gil
Ohana
Director, Antitrust and Competition
Cisco Systems,
Inc.
300 E. Tasman Drive
MS 10/2
San Jose, CA
95134
United States of America
Phone: +1 408
525 2853
Mobile: +1 408 203 5301
E-mail:
gilohana@cisco.com
-----Original Message-----
From:
Taffet, Richard S. [mailto:richard.taffet@BINGHAM.COM]
Sent: Thursday, March 09, 2006 2:14
PM
To: PP-DIALOG@listserv.ieee.org
Subject: Re: [PP-DIALOG]
Application of per se rule to ex ante joint
conduct
I am
sure the PatCom chair will afford us plenty of time to discuss
how
the IEEE proposals could raise the same type of claims as
alleged in the
Golden Bridges case. I think you are also truly the
optimist in
thinking that rules, which have already engendered
significant debate
when merely being proposed, will lead to
anything but more litigation.
Words have a funny way of being
interpreted in interesting ways in the
context of
lawsuits.
Richard S. Taffet, Esq.
Bingham McCutchen
LLP
399 Park Avenue
New York, New York 10022-4689
T: (212)
705-7729
F: (212) 702-3603
email:
richard.taffet@bingham.com
cell: (914)
582-2477
-----Original Message-----
From: Gil Ohana
(gilohana) [mailto:gilohana@cisco.com]
Sent: Thursday, March 09, 2006 5:10
PM
To: Taffet, Richard S.; PP-DIALOG@listserv.ieee.org
Subject:
RE: [PP-DIALOG] Application of per se rule to ex ante
joint
conduct
Thanks Richard. Recognizing your point
that the 3GPP standards are
being revised, what Golden Bridge has
alleged is a group refusal to deal
by a number of large potential
licensees, effectuated through an
informal agreement reached in what the opinion terms is an
"offline
session." I'm still not seeing the connection between any
of the
proposed rules changes that IEEE-SA is considering and the
conduct
alleged in Golden Bridge. Nothing about, for example,
permitting
patentees disclosing essential patents to an IEEE-SA
working group to
state a "not to exceed" royalty or attaching to
their LoA a binding
licensing commitment would in any way increase
the exposure that IEEE-SA
or participants in IEEE-SA working groups
face under the antitrust laws
from the kinds of claim asserted by
Golden Bridge.
So I go back to the point made in my earlier
e-mail: are you just trying
to remind us that participants in
standard-setting face antitrust risk?
Or are you trying to argue
that there is something specific in the
proposed IEEE-SA rules
changes that the Patent Committee is to consider
in a few weeks
that increases the risk IEEE-SA and participants in
IEEE-SA
standards working groups face from group refusal to deal
claims?
It's easy enough to mention ex ante and antitrust
risk in the same
sentence and hope that people associate the two.
But, after the
endorsement of ex ante disclosure rules provided
both in Chairman
Majoras' speech and in the press release the
European Commission issued
in December following the change to
ETSI's rules, it would be helpful to
the
debate if you could provide a more specific causal linkage
between
the rules that IEEE-SA is considering adopting and
increased antitrust
risk to IEEE-SA or its members.
One more
thing: I agree with you that litigation is "messy
and
unpredictable." Of course, a major benefit of the adoption of
ex ante
rules is that they avoid the need for companies seeking to
implement a
standard to avoid the need to litigate patent disputes
with patentees
that seek to define what a "reasonable" royalty is
expansively. Those
cases, too, can be "messy and
unpredictable."
Gil Ohana
Director, Antitrust and
Competition
Cisco Systems, Inc.
300 E. Tasman Drive
MS
10/2
San Jose, CA 95134
United States of America
Phone: +1
408 525 2853
Mobile: +1 408 203 5301
E-mail:
gilohana@cisco.com
-----Original
Message-----
From: Taffet, Richard S. [mailto:richard.taffet@bingham.com]
Sent: Thursday, March 09, 2006 1:45
PM
To: Gil Ohana (gilohana);
PP-DIALOG@listserv.ieee.org
Subject: RE: [PP-DIALOG] Application of
per se rule to ex ante joint
conduct
Not sure your very
careful attempt to distinguish the import of this
case from the
discussion of joint ex ante is terribly meaningful, or
would be
found persuasive by either a court or a plaintiff's lawyer
who
seeks to address ex ante conduct that eliminates the inclusion
of a
patented technology in a standard or deprives a patent owner
of
flexibility in licensing terms. Not suggesting that the
allegations
of the case have merit, but there are quite a number of
companies that
now are spending a lot of money and time litigating
for what might be
considered competitively benign
conduct.
Happy to discuss these points further, but one fact I
think you will
agree is that especially in the 3GPP context,
standards are continuously
being revised, and there is no simple
conclusion that can be reached
when a standard is final. So, in
connection with this specific case,
the elimination of of Golden
Bridge's technology was part of the
evolution of the 3GPP
standard.
Accordingly, the key take away might be that nice
theories can always be
justified, but legal claims and litigation
are messy and unpredictable
-- which leads to high costs and less
efficiency in standards
development.
Speak to you
soon.
Richard S. Taffet, Esq.
Bingham McCutchen LLP
399
Park Avenue
New York, New York 10022-4689
T: (212)
705-7729
F: (212) 702-3603
email:
richard.taffet@bingham.com
cell: (914)
582-2477
-----Original Message-----
From: Gil Ohana
(gilohana) [mailto:gilohana@cisco.com]
Sent: Thursday, March 09, 2006 4:34
PM
To: Taffet, Richard S.;
PP-DIALOG@listserv.ieee.org
Subject: RE: [PP-DIALOG] Application of
per se rule to ex ante joint
conduct
Richard, thank you
for providing the Golden Bridge opinion. As I read
the opinion, it
stands for the (uncontroversial) position that a group
refusal to
deal among competitors that collectively have market power
can
violate Section 1 of the Sherman Act. Aside from the fact that
the
particular group refusal to deal alleged happened in the
context of
standard-setting, I'm having trouble understanding how
the case relates
to (as the title of your e-mail states) "ex ante
joint conduct". Per
the facts of the opinion, the discussion among
the defendants that led
to Golden Bridge's technology being dropped
as an optional feature of
the
3GPP standard occurred after the 3GPP standard had already
been
approved by 3GPP. See Opinion at 2 ("In 1999 cPCH [Golden
Bridge's
patented technology] was adopted by 3GPP as an optional
part of the 3GPP
standard."). The allegedly anticompetitive acts
Golden Brdge is
complaining of did not occur until years
later.
If your goal is to remind participants in IEEE
standard-setting that
antitrust issues swirl around
standard-setting, then the Golden Bridge
opionion is a useful
reminder of that point. But if (as I suspect from
the title of your
e-mail) your goal is to suggest that the antitrust
risks standards
bodies or their participants face are increased by the
adoption of
those bodies of ex ante disclosure rules, then I must admit
that
the support the Golden Bridge opinion provides for that
proposition
is escaping me.
Gil Ohana
Director, Antitrust
and Competition
Cisco Systems, Inc.
300 E. Tasman Drive
MS
10/2
San Jose, CA 95134
United States of America
Phone: +1
408 525 2853
Mobile: +1 408 203 5301
E-mail:
gilohana@cisco.com
-----Original Message-----
From:
Taffet, Richard S. [mailto:richard.taffet@BINGHAM.COM]
Sent: Thursday, March 09, 2006 11:27
AM
To: PP-DIALOG@listserv.ieee.org
Subject: [PP-DIALOG]
Application of per se rule to ex ante joint conduct
The recent
decision from the United States District Court for the
Eastern
District of Texas is another example where joint ex ante
standards
conduct relating to IP was alleged to violate the antitrust
laws,
including under a per se theory. In this case, defendants'
motion
for summary judgment was denied, including on the ground
that per se
treatment might be appropriate. Even without the issue
of whether the
conduct should be considered under a per se or rule
of reason approach,
the fact is the case is now going to trial and
will involve all of the
costs and uncertainties that necessarily
result.
<<show_case_doc.pdf>>
Richard S.
Taffet, Esq.
Bingham McCutchen LLP
399 Park Avenue
New York,
New York 10022-4689
T:
(212) 705-7729
F: (212) 702-3603
email:
richard.taffet@bingham.com
cell: (914)
582-2477
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