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Relationship Between Intellectual Property Right

Enforcement in the Technology Standardization Process andCompetition Policy
Research Fellow: Ryushi Ito
Standardization of technical specifications has seen progress mainly in the informationindustry, with the aim to accelerate product development and dissemination. Standardization
also allows consumers to enjoy convenience associated with product compatibility. In recent years,
the standard setting operations have often been carried out by establishing a standards
organization. In such standard setting process, a member of a standards organization could
engage in an opportunistic act wherein the member takes a persuasive action to have thetechnology that is covered by the member’s intellectual property included in the standards while
concealing the existence of such intellectual property, and enforces the intellectual property after
the technology has been included in the standards to demand a large amount of royalties. In orderto prevent such acts, members are often sought to disclose whether or not they hold any relevant
intellectual property in advance under the organization’s patent policy. This report explores theapplicability of antitrust law to acts in violation of such patent policy by taking hints from cases
observed in the United States, and also examines alternative measures for preventing
opportunistic acts.

I

This report analyzes the standard
setting process in standards organizations.
Specifically, this report aims to examine how
the hold-up problem that arises from
intellectual property owners concealing theirrights in the formulation of ex post facto
standards in standards organizations andenforcing their rights afterwards could be
prevented or regulated under competition
policy.

Introduction

Technology standardization has various
benefits. However, if a patent or otherintellectual property exists for the technology
involved
inthestandardization,
consideration must also be given to its effecton the market. Meanwhile, the demand forthe technology may increase if it is adopted
as a standard or recognized as a de facto
standard. Thus, in such a case, thetechnology must be distinguished fromordinary patented technology.
Opportunistic acts are sometimes
observed where an intellectual property
owner takes action in the standard setting
process within a standards organization tohave the technology covered by his or her
right included in the standard while
concealing his or her right, and enforces theright after the standard has been set. This
problem has already begun to surface in the
United States. Japan may also face the sameproblem in the future.

II

Status of Legal Theories in the
United States—Standards Organizations andAntitrust Law—

Under antitrust law, collective standard
setting activities could pose a problem in
relation to Section 1 of the Sherman
Antitrust Act (hereinafter referred to as the“Sherman Act”) that prohibits contracts in
restraint of trade, Section 2 of the Act thatprohibits monopolization,
attempts to1

determination will be made as to whether or
not there was an injury under competition
policy based on whether the restraining act
in question is one that promotes, or one thatsuppresses, competition.
The following can be said as a result ofidentifying
inconcreteterms
thedetermination methods under the rule ofreason and examining how the rule should beapplied. The following process is used when
applying the rule of reason. First, theplaintiff must prove that the agreement in
the standards organization is anticompetitive.
Then, if the plaintiff has satisfied thisrequirement of proof, the standards
organization must prove the procompetitiveeffect of the agreement. If the standards
organization has satisfied this requirement,
the plaintiff must further prove that the
anticompetitiveeffectexceeds
theprocompetitive effect.
In principle, when applying the rule ofreason to standards organizations or otherbusiness
associations,courtsandenforcement authorities have used two basic
analysis methods.
The first analysis method is the quick
look rule of reason. This is a determination
method that does not require a detailed
market analysis. It is applied when the
restraining act in question has apparently
induced a rise in the price and a decline in
the production volume. According to thisapproach, inhibition of competition ispresumed and the burden of proof shifts tothe defendant.
Therefore, the defendant would have toclaim and prove that the act has a
procompetitive effect. When this claim andproof are recognized as justification, the court
will make the ordinary determination under
the rule of reason.
It is construed under case law that cases
to which this quick look rule of reason should
be applied are those where the restraining
act has an obviously anticompetitive effectand an observer with even a rudimentary
understanding of economics could conclude
that the act has an anticompetitive effect on
customers and markets.

monopolize, and conspiracy to monopolize
and Section 5 of the Federal Trade
Commission Act (hereinafter referred to as
the “FTC Act”) that prohibits deceptive
practices and unfair methods of competition.
The enforcement authorities evaluate astandard setting process of a standards
organization in terms of competition policy
basedonAntitrust
GuidelinesforCollaborations
among
Competitors(Competitor Collaboration Guidelines) andAntitrust Guidelines for the Licensing ofIntellectual Property.
The requirements for application of
antitrust law to standards organizations are
as follows. The first is an antitrust injury, or
more specifically, (i) a causally linked injury
and (ii) an antitrust injury. Under case law,
an injury arising from a standardization
process in a standards organization isdetermined by whether or not it is an injury
of the type the antitrust laws were intended
to prevent and which reflects the
anticompetitive effects of the alleged
violating act.
The second is a contract in restraint oftrade. In many cases, this requirement ispresumed if the act has been conducted by astandards
organization.
However,anindependent act by a standards organization
would be construed to be the same as an act
by a single business operator.
The standardization itself does notnecessarily restrain trade. Therefore, thedetermination under competition policy will
be made based, in principle, on the rule ofreason.
Nevertheless,whenastandardization process is evaluated as a
naked restraint such as when it is used as ameans to camouflage price fixing, thedetermination will be made based on the per
se rule.
According to developments in case law,
the stance of the courts toward a standards
organization’s expulsion of its member haschanged from application of the per se rule toapplication of the rule of reason. Under therule of reason, there is a basic idea that trade
restriction does not apparently induce injury
under competition policy. Under this rule,2

approach taken for joint ventures orconcerted actions between competitors, whicharenotnecessarily
relatedtostandardization.
With regard to (ii), there is a possibility
that the manufacturer of the product thatwas not adopted as a standard or the patent
owner of the technology that was not adopted
as a standard will allege the standards
organization’s act to be an elimination ofcompetitors and a violation of antitrust law.
Likewise, after the adoption of a standard, astandards
organization
may
grant
certification on whether or not a certain
product complies with the standard. Thereare cases where a sticker is adhered to acertified product being sold in order toindicateclearlythecertificationofcompliance with the standard. In this case,there is a possibility that a business operator
that could not acquire the certification will
make the same allegation as above. In suchcases, courts have made a determinationfrom the angle of whether or not the standard
has been set through enforcement of thestandards organization’s market power andwhether or not the standard has been set
with an anticompetitive intention or purpose.
With regard to (iii), a member of astandards organization sometimes enforces
intellectual property in an opportunisticmanner that cannot be justified by theexistence of a competitive advantage. In somesuch cases, it is not necessarily clear whether
the act should be recognized as intellectual
property enforcement. Therefore, such act, inprinciple, will also be determined under therule of reason.

The second analysis method is the fullrule of reason. This approach requires
detailed market analysis. As mentioned
above, even when the quick look rule ofreason is adopted, if the defendantsuccessfully proves justification, the full ruleof reason would be adopted. When a standard
setting process in a standards organization is
to be determined under this method, theplaintiff must prove that the restraining act
is likely to injure competition by creating or
enhancing the defendant’s market power orthat the act had an actual detrimental effecton competition by causing a rise in the priceor a decline in the production volume.
In the case of making a determination
through this approach, it is necessary to firstdemarcate the relevant market. A market in
the context of a standard setting process
could include not only the market of the
product sold to customers, but also themarket of sales licensing and technology
licensing, and what is called the innovation
market.
In many court decisions, the defendant isconstrued to be exempted from application of
antitrust law when the plaintiff fails to provethe defendant’s market power in the relevantmarket. In these decisions, the courts seem toconstrue proof of the market power to be arequirement for application of the rule ofreason. This means that there is a safe
harbor rule to exempt the accused fromliabilities under antitrust law when theaccused party’s market power in the relevantmarket is small.
The anticompetitive effects associatedwith standard setting can be classified into
the following categories: (i) the problem ofstandards organizations and membership; (ii)selection and adoption of a standard; and (iii)the problem of destruction of the standard
setting process.
With regard to (i), courts seem to
examine such problem from the angle ofwhether or not the standards organization or
the standard itself has market power andwhether or not such market power has great
relevance to effective competition for themembers. This approach coincides with the

III Examination of U.S. Cases
Many standards organizations havecome to set rules on the disclosure of patents
and other intellectual property from theviewpointofpreventing
opportunistic
activities by members, as mentioned in theprevious chapter. Such rules are often
referred to as a patent policy.
A patent policy seeks for its members to3

referred to as “RFG”). The point at issue wasan allegation that, similar to the Dell case,
CARB’s member Unocal failed to disclose or
misrepresented the relevant information.
Although this case also involved other points
of dispute, it can be regarded as a casesimilar to the Dell case.
The facts of the Rambus case are similar
to those of the earlier two cases. Rambus is acompany in the dynamic random accessmemory (DRAM) industry. Since a need forstandardization arose due to technicalproblems in the industry, a standard settingorganization called the JEDEC Solid State
Technology Association (hereinafter referred
to as “JEDEC”) was established. Rambus
participated in JEDEC.
JEDEC had a patent policy, which
required its members to disclose any patents
they possessed for technology relevant to the
proposed standards. Although the committee,
which set the standards, made an inquiry toRambus on this point, Rambus did not makea specific comment, and later withdrew fromJEDEC.
In the end, JEDEC adopted the proposed
standards. Rambus had continued theprocedure to acquire patents concerning thetechnology relevant to the JEDEC standards
and had succeeded in acquiring many suchpatents.
Rambusconcluded
licensingagreements with DRAM manufacturers andsued those who did not agree to the licensing
on allegations of patent infringement.
Although the series of acts carried out by
Rambus presented an issue, the FTC issued
an opinion to reverse the initial decision thatfound no violation of antitrust law inRambus’ conduct. It concluded that Rambus’
deceptive act was an exclusionary act that
constituted a violation of Section 2 of theSherman Act, and that Rambus unlawfully
monopolized the relevant markets inviolation of Section 5 of the FTC Act.

grant a license either royalty-free or underreasonable and non-discriminatory (RAND)
terms when the relevant technology has been
adopted as a standard. Under the patent
policy, a person who becomes a member of astandards organization and who wishes tohave the technology that is covered by his or
her intellectual property included in thestandard would be required to disclose
information on the technology. Thus, thepatent policy is expected to prevent
opportunistic activities such as concealing
one’s intellectual property and enforcing theintellectual property rights after the
standard has been set to demand a highamount of royalty. There are three notablecases in which violation of a patent policy
became an issue: the Dell case, the Unocal
case, and the Rambus case.
In the Dell case, the matter at issue wasan allegation that Dell, which was a member
of
the
Video
Electronics
Standards
Association (hereinafter referred to as“VESA”), failed to disclose its acquisition ofpatents relevant to the standard setting at astandard setting committee. More specifically,
VESA’s standard became commerciallysuccessful immediately after its approval,
and Dell informed certain VESA members
who were manufacturing computers using
the new design standard that theirimplementation of the VL-bus was a violationof Dell’s exclusive rights.
The FTC asserted that these acts were inviolation of Section 5 of the FTC Act, butsince Dell agreed not to enforce its patent
relating to VESA’s standard, this case wasconcluded by a consent agreement. Although
this case did not see a conclusive legal
resolution as Dell entered into a consent
agreement, it indicated the possibility ofoccurrence of cases where enforcement by an
intellectual property owner in a standards
organization would be considered as anopportunistic act.
In the Unocal case, the California Air
Resources Board (hereinafter referred to as“CARB”) initiated a procedure to decide on astandard governing the composition of low
emissions, reformulated gasoline (hereinafterIV DevelopmentsofAcademic
Theories in the United States
When information disclosure is being
4

procompetitive.
Mueller, who tries to address this issue
through imposition of a duty of disclosure,advocates that the duty of disclosure should
be obligated and that legal measures should
be taken against persons who breach thisduty.
In empirical terms, however, as clarified
by Lemley’s study, this problem has its root in
the fact that the details of the duty to disclose
information under the patent policy areunclear. As an actual problem, convincing
answers have yet to be derived for difficult
questions including the scope of the duty of
disclosure, the necessary timing for making
the disclosure, and how much disclosure
needs to be made in order to perform thisduty.
An approach of focusing on the licensing
terms and restraining the inflation of patentvalue ex post facto has been proposed. Thisapproach can be characterized by the attempt
to solve the issue by establishing a system forlicensingnegotiations
bystandards
organizations.
Nevertheless,thisapproach
also
assumes that there is a clear ex ante
disclosure duty. If this ex ante disclosure
duty has not been fully performed, it will notlead to fundamental resolution.
Furthermore, the views developed in the
United States are divided between those
supporting and those denying the applicationof antitrust law for regulating enforcement
by intellectual property owners in standards
organizations.
The article by Teece & Sherry considers
the applicability of antitrust law from astandpoint whereby even if a patentee wereto distort the standard setting process, theact could create social benefits in line withcost reduction of the standards. It derives a
conclusion from an economic perspective
whereby a socially efficient method is notnecessarily adopted when determining
whether or not certain technology of acompany holding patents should be adopted
as a standard. The article mentions thefollowing as its specific reasons. First, in astandards organization, the number ofsought under the patent policy of a standard
setting organization, opinions are divided
over whether or not this disclosure should beconstrued as an obligation.
An article by Janice Mueller indicatesthat patentees participating in a standard
setting organization have a duty to disclosethe existence of any issued and pending
patents during the period of suchparticipation. Based on this, Mueller
advocates that, in the case of a tradeassociation (in other words, not a public but a
private standard setting organization), a
compulsory license should be required from aperson who has breached this duty. Mueller
states that when the nondisclosure wasintentional, the doctrine of patent misuse,
which denies the patentee’s claims for an
injunction and damages, should be applied.
In contrast, an article by Mark Lemleyindicates a doubtful view on imposing a dutyof information disclosure under the patent
policy of a standard setting organization,
based on an empirical study on such patent
policies. In this empirical study, Lemley has
made an examination based on an empiricalinvestigation of the internal rules, such as
patent policies, of as many as 43 standard
setting organizations in the United States.
On the basis of this examination, Lemley
points out that it can be difficult to introduce
a compulsory factor in seeking patentees toobserve the duty of disclosure, since thedetails of information disclosure rules under
the patent policies are actually not uniform
and the scope of information to be disclosed isdiverse. He states that it is particularly
difficult in practice to impose a duty of
disclosure merely for being a member.
Another article that similarly indicates a
doubtful view on obligating members ofstandard setting organizations to disclose
information is an article by David Balto.
David Balto considers that the introductionof a disclosure obligating system with binding
force could present a question of a trade-off tobusiness operators considering participation
in a standard setting organization. However,
he also indicates that the establishment ofsuch a disclosure system in itself could be5private monopolization under the first
sentence of Article 3.
The cases in which the enforcement ofintellectual property rights constitutes
private monopolization are when a person inpossession of patents for which licenses areindispensable for carrying out businessactivities, rejects the grant of licenses to third
parties.
Conventionally, the regulation principle
for this problem has cast doubt on thelegality of high price setting, irrespective ofthepossession or non-possession of
intellectual property. The reason for this is asfollows. A solitary price increase by amonopolistic company is an outstanding
example of the lack of competition and,because of this, administrative intervention
in such price increase involves notably
adverse effects. From this viewpoint, the act
that has caused such a situation and the
direct effects and influences thereof have
conventionally been made subject to thedetermination of illegality.
In relation to the purpose of this report,such a question would be important as anargument for the applicability of theregulation on opportunistic conduct where an
intellectual property owner in a standards
organization takes a persuasive action tohave his or her rights included in thestandard, and enforces the patent rights
when such rights have actually been includedin the standard or when the standard has
spread so as to require high levels of license
fees or to reject a license to those who do notagree to paying such license fees.
The examination of the applicability ofanti-monopoly law against opportunistic
conduct needs to be distinguished from casesof ordinary licensing rejection against single
business operators. The problem is that aperson is not only prevented from being able
to be competitive when the licensing has been
rejected, but he or she is unable to trade
because a lock-in effect has been generated
by the relevant standards.
U.S. academic theories are developing in
the direction of proposing an institutional
design to have the standards organizations

members who will use the patent (potential
licensees) is larger than that of patentees, so
it is highly likely that rules advantageous forthe members who will use the patent would
be set in place. Second, the actual
participants in a standards organization areoften engineers and they are likely to bebiased toward intellectual property. Third,
royalties are treated by manufacturers andconsumers as private costs. Thus, based onthese assumptions, the article asserts that
antitrust law should be applied cautiously.
Such views that focus on social costs are
criticized from a standpoint that focuses on
the demand for standards. Mark R. Pattersonstates in his article that makes critical
discussions using the article by Teece &Sherry, that the royalty to be paid to thepatentee for the technology included in thestandards should be decided based on its
technical contribution and demand. Thissuggests a view that a reward should not be
granted even for the increased value and thedemand attributable to the network
externality
associatedwiththeestablishment of the standards. According toPatterson’s view, the applicability of antitrust
law would be examined from a stance
whereby demand for a royalty could be
prevented for the portion of the invention
that has not technically contributed to thestandards.

V

Suggestions for Japanese Law

In Japan, there are not many instanceswhere a standardization-related act has beendisputed under anti-monopoly law, and all ofsuch disputed cases are related to patentpools. However, these types of disputes arelikely to surface in the future.
The Anti-Monopoly Act, Article 2,paragraph 5, provides that such businessactivities, by which any entrepreneur
excludes or controls the business activities ofother entrepreneurs, that cause a substantial
restraint of competition in any particularfield of trade, shall be referred to as “privatemonopolization” activities, and prohibits
6

receive a license under RAND terms bynegotiating
directlywithintellectual
property owners.
However, this approach also has its
problems. There are criticisms that,essentially, a standards organization is notsuitable for coordinating rights and that it is
not clear whether this approach can prevent
an intellectual property owner fromdemanding a higher level of royalties thanthose under RAND terms after the standard
has been set.

7