New Developments in RAND and Standard-Essential Patents – A Conference Recap

By TAP Guest Blogger

Posted on November 8, 2012

This conference summary is written by Patrick Goold.
On October 26th, 2012, the Berkeley Center for Law & Technology hosted a day-long conference entitled “Rand Revisited: Current Developments in the Law of Standard-Essential Patents.” The conference enabled lawyers and economists from academia, law firms, corporations and regulatory bodies to search for solutions to one of the most troublesome issues at the interface between intellectual property, contract law and competition policy.
The modern world relies on technical standards. In order for one device to interoperate with another, certain norms must be set in place. The two devices must use the same standardized products and processes to enable communication; much in the same way that human conversation requires participants to agree on which language to speak. Standard setting organizations (SSOs) exist as one way for market actors to agree on which products and processes will become standardized.
But what happens when the SSO choses a standard that is covered by patents? The patents are now standard essential patents (SEPs) and therefore all implementors are required to obtain a license from the patent holders. The new market power obtained by patent holder may allow her to charge exorbitant license fees and harm competition (the ‘patent hold-up’ problem). To avoid this outcome, SSOs typically require their members to make commitments to license their SEPs on ‘reasonable and non-discriminatory terms’ (RAND). But the status of these commitments is uncertain. Are they enforceable in court? Under what area of law are they enforceable? What is a ‘reasonable’ royalty rate? Can an implementor be prevented using the patented technology if the parties cannot agree on license terms? What happens if an SEP is transferred? These are just some of the unanswered questions.
In the first panel, patent litigators described how courts are approaching these problems. Some US courts have indicated that injunctive relief is unavailable, but equivalent remedies may be available in the International Trade Commission and foreign courts.  No court has actually determined a RAND royalty, but a court in the Western District of Washington is scheduled to make such a determination in November.
            Audio for this panel: RAND in the Courts
A panel of law professors then discussed the trends in the law. Of the many issues considered, perhaps the most intriguing was that of the appropriate legal regime for resolving these problems. Is this a matter that we should tackle under the rubric of contract law? Professor Mark Lemley upheld this position saying that it is a better alternative to using antitrust law. Antitrust in this regard, requiring lengthy determination of the relevant market and market harm, will be far more cumbersome. Professor Colleen Chien questioned whether this is really a matter for private law, or are RAND commitments public declarations requiring public law solutions? Professor Robert Merges noted that, even if we accept private law as the appropriate legal framework, contract law may have limitations. If we characterize the contract as existing between the SSO and the patent holder, then other members who seek to enforce the contract are merely third-party beneficiaries. The third-party status may be a barrier to effective contract enforcements and therefore, perhaps equity may be a better regime. Professor Merges made the case for a doctrine of ‘standards estoppel.’ The professors generally agree that injunctions were unavailable in US courts under the eBay v MercExchange case, and that the ITC could use public interest considerations to refuse exclusion orders.
            Audio for this panel: Academic Perspectives
The most enlivened discussions during the afternoon centered on the role of the SSO in resolving these issues. Panel three started with the perspectives of economists, anti-trust experts and regulators. Professor Michael Carrier made the argument that SSOs should do more to clarify the situation. They could set simple rules on whether injunctive relief should be allowed and whether the RAND commitment transfers with the patent. Professor Carl Shapiro suggested that the SSOs may indeed be causing harm to competition by not performing important tasks such as defining which patents are truly essential. However, the counter argument is that the RAND commitment allows market actors to reach an agreement without first laboriously determining all of the details. In this way it functions like an incomplete contract. Other issues discussed by this panel included an attempt to conceptualize the harm done by RAND violations and whether or not courts considering granting injunctive relief should take into account the implementor’s good faith attempts to gain a license.
            Audio for this panel: Economic and Regulatory Perspectives
The discussion on the role of SSOs continued into the final panel, where corporate representatives offered their views. Amy Marasco of Microsoft provided an update on what two major SSOs (the European Telecommunications Standards Institute and the International Telecommunication Union Standardization Sector) are currently doing to address the problems. These bodies are discussing what clarifications, if any, should be made on their part. But progress is understandably slow; there is general agreement that RAND commitments should bind the transferee of a patent, but much debate about limitations on injunctive relief and attempts to define RAND. This panel also discussed whether RAND commitments could be extended to those who don’t participate in the standard setting process or whether it can cover patents that, while not essential to practice the standard, are essential for a product to be commercially successful.
Audio for this panel: Corporate Perspectives
Patrick Goold is the Microsoft Research Fellow at the Berkeley Center for Law & Technology at U.C. Berkeley School of Law.