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Volume 105

Article

FRAND and Antitrust

Herbert Hovenkamp, James B. Dinan University Professor, University of Pennsylvania Law School and The Wharton School.

15 Sep 2020

 Standard Setting Organizations (SSOs) create technology standards in order to ensure product or service quality, promote compatibility and interoperability of networked products, and facilitate the competitive development of new technologies.1On the role of the antitrust laws in standard setting, see 2 HERBERT HOVENKAMP ET AL., IP AND ANTITRUST: AN ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY LAW, § 35 (3d ed. 2015 & 2020 Supp.) [hereinafter HOVENKAMP ET AL., IP AND ANTITRUST]; 13 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶¶ 2230–35 (4th ed. 2019). Standard-setting in patent-rich environments often requires participants to disclose relevant patents that they own and license patents essential to the standard to all participants on fair, reasonable, and nondiscriminatory (FRAND) terms. A statement issued in December 2019 by three federal agencies acknowledges the value of FRAND commitments and described them as occurring: 

where a patent holder has voluntarily agreed to make available a license for the patent on reasonable and non-discriminatory (RAND) terms or fair, reasonable, and nondiscriminatory (FRAND) terms while participating in standards-setting activities at a standards-developing organization (SDO).2UNITED STATES PATENT AND TRADEMARK OFFICE, NAT’L INST. STANDARDS TECH. & DEP’T OF JUSTICE, POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENTS SUBJECT TO VOLUNTARY F/RAND COMMITMENTS 1 n.2 (2019), https://www. uspto.gov/sites/default/files/documents/SEP%20policy%20statement%20 signed.pdf [https://perma.cc/RR85-YZKT] [hereinafter POLICY STATEMENT]. The terms “RAND” and “FRAND” today are usually used interchangeably.

As the statement indicates, the essence of FRAND is that it is the product of a voluntary agreement among the participants, requiring them to make their patents available on FRAND terms. 

Antitrust best achieves its purpose when it takes markets as it finds them, and then protects them from threats to competition. The antitrust tribunal must understand the market before it and the rationales and effects of its various rules. Then it considers whether a challenged restraint might operate anticompetitively so as to cause unnecessary consumer harm. For more than a century, antitrust jurisprudence has approached markets in this way. For example, Justice Brandeis’s opinion in the Board of Trade case3Chi. Bd. of Trade v. United States, 246 U.S. 231 (1918). began by describing the Board’s operation as a market. From that point the Court’s job was to ascertain whether the challenged rule operated anticompetitively to undermine this purpose.4Id. at 239–40 (explaining how the purpose of the challenged “call” rule operated to protect the integrity of the Board’s price making). The Court dismissed the complaint. In the NCAA case nearly seventy years later it did the same thing—acknowledging the valuable market created by this joint venture of colleges to promote amateur intercollegiate athletics. It condemned a restraint on competition that reduced output and harmed consumers and was not central to the NCAA’s purpose.5NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85 (1984) (striking down rule limiting the number of times a school could have its games televised). The list of cases in which the Supreme Court has followed this template so as to protect the competitive integrity of standard setting or other collaborative market processes is long.6See, e.g., Allied Tube & Conduit Corp. v. Indian Head, 486 U.S. 492 (1988) (anticompetitive agreement in context of building materials standard setting); Am. Soc’y Mch. Eng’rs v. Hydrolevel Corp., 456 U.S. 556 (1982) (anticompetitive manipulation of standard setting process); Goldfarb v. Va. State Bar, 421 U.S. 773 (1975) (use of lawyer ethics rules to fix price of title search); Radiant Burners, Inc. v. People’s Gas Light & Coke Co., 364 U.S. 656 (1961) (sustaining allegation that standard setting organization used process anticompetitively to exclude product without regard to merit); United States v. Am. Med. Ass’n, 317 U.S. 519 (1943) (government suit against AMA for standard opposing prepaid health care); see also O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015), cert. denied, 137 S. Ct. 277 (2016) (striking down NCAA rule limiting athlete compensation); Wilk v. Am. Med. Ass’n, 719 F.2d 207 (7th Cir.1983) (striking down AMA standard intended to exclude chiropractors).

In a particularly myopic decision involving the FRAND process, the Ninth Circuit made no attempt to understand that process or how the antitrust laws could be used to protect it from anticompetitive restraints.7Qualcomm, Inc. v. FTC, 969 F.3d 974, 2020 WL 4591476 (9th Cir. Aug. 11, 2020). That was not entirely the court’s fault. Part of the blame lies with the Antitrust Division of the Justice Department, which intervened in the proceeding and seemed more intent on protecting Qualcomm than the competitive integrity of the FRAND process.8See United States’ Statement of Interest Concerning Qualcomm’s Motion for Partial Stay of Injunction Pending Appeal, Qualcomm, Inc., 2020 WL 4591476 (No. 19-16122), 2019 WL 3306496.

While the FRAND process has been highly productive, it is also fragile. Firms are tempted to make commitments at the beginning when the incentive to join is large, but renege on them later when they can profit by doing so. At least in this particular case, private FRAND enforcement had not worked very well. Qualcomm had been able to violate FRAND commitments in order to exclude rivals and obtain higher royalties than FRAND would permit, largely with impunity. Other firms will very likely follow Qualcomm’s lead. If that happens the FRAND system will fall apart, doing irreparable injury to the modern wireless telecommunications network or, at the very least, diminishing the leadership role of the United States in preserving effective network competition. 

While governments can be heavily involved in standard setting,92 HOVENKAMP ET AL., IP AND ANTITRUST, supra note 1, § 35.01[C][1]. the implementation of technical standards in information technologies is largely the work of private actors. Government involvement is limited mainly to enforcement of contract, intellectual property, or antitrust law. As private actors, those involved in standard setting or compliance are fully subject to the federal antitrust laws. 

This Article addresses one question: when is an SSO participant’s violation of a FRAND commitment an antitrust violation, and if it is, of what kind and what are the implications for remedies? It warns against two extremes. One is thinking that any violation of a FRAND commitment is an antitrust violation as well. In the first instance FRAND obligations are contractual, and most breaches of contract do not violate any antitrust law. The other extreme is thinking that, because a FRAND violation is a breach of contract, it cannot also be an antitrust violation. The question of an antitrust violation does not depend on whether the conduct breached a particular agreement but rather on whether it caused competitive harm. This can happen because the conduct restrained trade under section 1 of the Sherman Act, was unreasonably exclusionary under section 2 of the Sherman Act, or amounted to an anticompetitive condition or understanding as defined by section 3 of the Clayton Act.10See Clayton Act § 3, 15 U.S.C. § 14 (2018) (condemning certain sales “on the condition, agreement, or understanding” that the buyer will not deal in the goods of a competitor). Section 5 of the Federal Trade Commission Act is said to reach everything that the Sherman Act reaches plus some additional conduct, but we look mainly at Sherman and Clayton Act standards. 15 U.S.C. § 45; see FTC v. Brown Shoe Co., 384 U.S. 316 (1966). The end goal is to identify practices that harm competition, thereby injuring consumers. 

The Ninth Circuit’s Qualcomm decision will make antitrust violations in the context of FRAND licensing much more difficult to prove, even in cases where anticompetitive behavior and consumer harm seem clear.11See Qualcomm Inc., 969 F.3d 974, 1003, 2020 WL 4591476 (declin[ing] to ascribe antitrust liability in . . . dynamic and rapidly changing technology markets without clearer proof of anticompetitive effect”). Indeed, in this case the court itself acknowledged the harm to consumers but appeared to think that they were not entitled to protection.12See discussion infra notes 13–14 and accompanying text. If this decision stands, FRAND obligations will to a larger extent have to be settled through private litigation and the federal antitrust enforcement agencies will have a diminished role. Anticompetitive behavior by one firm that is not effectively disciplined will lead others to do the same thing. 

Not only did the Ninth Circuit reject application of the antitrust laws in this case, it also appeared to repudiate antitrust’s consumer welfare principle, saying: 

. . . [T]he district court correctly defined the relevant markets as “the market for CDMA modem chips and the market for premium LTE modem chips.” Nevertheless, its analysis of Qualcomm’s business practices and their anticompetitive impact looked beyond these markets to the much larger market of cellular services generally. Thus, a substantial portion of the district court’s ruling considered alleged economic harms to OEMs—who are Qualcomm’s customers, not its competitors—resulting in higher prices to consumers. These harms, even if real, are not “anticompetitive” in the antitrust sense— at least not directly—because they do not involve restraints on trade or exclusionary conduct in “the area of effective competition.”13 Qualcomm, 969 F.3d at 992 (emphasis in original) (citation omitted).

The quotation is from the Supreme Court’s decision in Ohio v. American Express Co.,14138 S. Ct. 2274, 2285 (2018). where the Supreme Court said only that a relevant market is “the area of effective competition.” The Ninth Circuit panel apparently believed that antitrust harm could occur only to producers inside the relevant market, which typically excludes most customers. The Ninth Circuit did not quote the Supreme Court’s decision one year later in Apple v. Pepper,15149 S. Ct. 1514 (2019). that “Ever since Congress overwhelmingly passed and President Benjamin Harrison signed the Sherman Act in 1890, ‘protecting consumers from monopoly prices” has been “the central concern of antitrust.’”16Id. at 1525 (quoting 2A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST

The very reason we condemn restraints under the antitrust laws is because they result in lower output and higher prices, harming consumers. The Ninth Circuit panel appeared to believe that higher prices for OEMs—that is, the manufacturer customers who purchase chips for inclusion in their devices— is not the kind of injury that concerns the antitrust laws. Rather, it must be harm to competitors. 

Customers are often, even typically, not producers in the relevant market. Nevertheless, they are clearly antitrust’s protected class. For example, while exclusive dealing in the first instance might deny selling opportunities to a rival producer, we condemn it because it threatens price increases to their buyers and those who purchase from them. Indeed, the reason we have market power requirements in antitrust cases in the first place is to distinguish harms to rivals that are likely to result in market price increases from those that are not. Competitor exclusion in a competitive market is not an antitrust violation because, while it injures the competitor is does no consumer harm. That is the all-important difference between business torts and antitrust law. 

Patent holders who participate in SSOs generally agree to provide timely disclosure of their patents or patent applications that are reasonably expected to read on the participants’ technology.17On SSO members’ duty to disclose, see, for example, Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1015–19 (Fed. Cir. 2008) (holding that Qualcomm breached its duty to disclose patents that reasonably might be necessary to practice the standard); Apple Inc. v. Samsung Elecs. Co., 2012 WL 1672493, at *13 (N.D. Cal. May 14, 2012) (holding that Apple sufficiently pled that Samsung breached its duty to disclose intellectual property rights to the SSO); Joseph Farrell et al., Standard Setting, Patents, and Hold-up, 74 ANTITRUST L.J. 603, 628 (2007) (showing that SSOs may provide that “if members . . . do not ‘adequately and timely disclose’ essential patents, then those patents must be licensed royalty-free.”) (citation omitted); Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CALIF. L. REV. 1889, 1919–21 (2002) (exploring the application of disclosure obligations and equitable estoppel in the SSO context) [hereinafter Standard-Setting Organizations]; Peter S. Menell, Economic Analysis of Network Effects and Intellectual Property, 34 BERKELEY TECH. L.J. 219, 301–02 (2019) (comparing two cases alleging that SSO members breached their disclosure duties);. However, establishing antitrust liability for failure to disclose has proven difficult. See, e.g., Rambus Inc. v. FTC, 522 F.3d 456, 469 (D.C. Cir. 2008) (finding no antitrust liability for failure to predisclose that simply increased prices but did not exclude a known technology); Wi-LAN Inc. v. LG Elecs., Inc., 382 F. Supp. 3d 1012, 1023 (S.D. Cal. 2019) (“Allegations of anticompetitive conduct based [on] a fraudulent FRAND declaration theory also must satisfy [a] heightened pleading standard.”). They also agree in advance to license their patents thought to be essential to the standard on FRAND terms.18Questions about measurement of FRAND royalties have produced significant case law and literature but are outside the scope of this Article. For good discussions, see Jorge L. Contreras, Fixing FRAND: A Pseudo-Pool Approach to Standards-Based Patent Licensing, 79 ANTITRUST L.J. 47, 78–87 (2013); Jorge L. Contreras, Global Rate Setting: A Solution for Standards-Essential Patents, 94 WASH. L. REV. 701, 713–22 (2019). See generally Norman V. Siebrasse & Thomas F. Cotter, The Value of the Standard, 101 MINN. L. REV. 1159 (2017). The Patent Act itself does not impose this obligation. Patentees who are not involved in SSOs have no obligation other than market pressures to submit their patents to a standard or engage in FRAND licensing.19See 35 U.S.C. § 271(d)(4) (2018).

In networked technologies, however, these market pressures can be substantial. For example, if a patentee refuses to commit its patented technology to an industry standard, the SSO is likely to adopt a different standard that is not believed to infringe those patents.20See D. Scott Bosworth et al., FRAND Commitments and Royalties for Standard Essential Patents, in COMPLICATIONS AND QUANDARIES IN THE ICT SECTOR: STANDARD ESSENTIAL PATENTS AND COMPETITION ISSUES 19, 26 (A. Bharadwaj et al. eds., 2018). Or if a patentee refuses to commit to license a patent to all comers on a nondiscriminatory basis, then the SSO may respond by seeking an alternative standard.21See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 876 (9th Cir. 2012) (“Microsoft II”) (citing Lemley, Standard-Setting Organizations, supra note 17 at 1902, 1906). These actions are driven by the SSO’s goal of competitive creation of a technology when interoperability among diverse producers is a necessary component. Just as any producer, firms involved in the implementation of networked technology seek to minimize their costs by avoiding unnecessary or unnecessarily costly patents. Such avoidance is a socially valuable form of cost minimization. 

The FRAND obligation generally requires patentees to license freely to all qualified participants, whether or not they are competitors of the patent holder.22The IP policy of the Telecommunications Industry Association: stated: “A license under any Essential Patent(s), the license rights which are held by the undersigned Patent Holder, will be made available to all applicants under terms and conditions that are reasonable and non-discriminatory.” FTC v. Qualcomm, Inc., 2018 WL 5848999, at *3 (N.D. Cal. Nov. 6, 2018); accord Microsoft II, 696 F.3d at 876; id. at 885 (stating that FRAND obligation requires firm to license to “all comers”); see also Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, 1031 (9th Cir. 2015) (“Microsoft III”) (“[A]n SEP holder cannot refuse a license to a manufacturer who commits to paying the RAND rate.”(emphasis added) ); FTC v. Qualcomm, Inc., 411 F. Supp. 3d 658, 671–72 (N.D. Cal. 2019) (“For example, under the intellectual property policy of the Telecommunications Industry Association (‘TIA’), a SSO, a SEP holder must commit to TIA that ‘A license under any Essential Patent(s), the license rights which are held by the undersigned Patent Holder, will be made available to all applicants under terms and conditions that are reasonable and non-discriminatory.’” (quoting Qualcomm, Inc., 2018 WL 5848999, at *3). Further, they must settle royalty disputes in a reasonable manner—if necessary, through a third party, such as a court or arbitrator.23See, e.g., HTC Corp. v. Telefonaktiebolaget LM Ericsson, 2019 WL 277479, at 3–5 (E.D. Tex. Jan. 22, 2019) (discussing duty to arbitrate), appeal dismissed, 2019 WL 4126536 (5th Cir. June 18, 2019); Interdigital Tech. Corp. v. Pegatron Corp., 2016 WL 234433, at *10 (N.D. Cal. Jan. 20, 2016) (compelling arbitration); ASUS Comput. Int’l v. InterDigital, Inc., 2015 WL 5186462, at *7 (N.D. Cal. Sep. 4, 2015) (similar); see also HOVENKAMP, ET AL., IP AND ANTITRUST, supra note 1, § 35.05; Jorge L. Contreras & David L. Newman, Developing a Framework for Arbitrating Standard-Essential Patent Disputes, 2014 J. DISP. RESOL. 23, 26–29 (2014); Mark A. Lemley & Carl Shapiro, A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents, 28 BERKELEY TECH. L.J. 1135, 1152–60 (2013). See generally J. Gregory Sidak, Mandating Final-Offer Arbitration of FRAND Royalties for Standard-Essential Patents, 18 STAN. TECH. L. REV. 1 (2014) (discussing Lemley-Shapiro arbitration). If reference to an arbitrator is contractually specified, such agreements may also be subject to compulsory arbitration under the Federal Arbitration Act.249 U.S.C. §§ 1–2 (2018); see, e.g., ASUS Computer, 2015 WL 5186462, at *2–3 (discussing the Federal Arbitration Act). See generally Contreras & Newman, supra note 23, passim (same).

The FRAND system facilitates competition by assuring new firms as well as existing ones that they will be able to operate on the networked technology. Royalties to the owners of these patents are generally measured by the value that the contributed patent makes to the standard.25See, e.g., Microsoft III, 795 F.3d at 1040 (considering “the objective value each [patent] contributed to each standard, given the quality of the technology and the available alternatives as well as the importance of those technologies to Microsoft’s business”); see also Thomas F. Cotter, Erik Hovenkamp & Norman Siebrasse, Demystifying Patent Holdup, 76 WASH. & LEE L. REV. 1501, 1507–08 (2019) (royalties generally reflect “the technology’s economic value”). Importantly, tribunals seek to measure these values “ex ante,” or prior to the patent’s adoption into a standard and at a time when there is a fuller range of competitive alternatives.26See, e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009) (“The hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing negotiation scenario and to describe the resulting agreement. In other words, if infringement had not occurred, willing parties would have executed a license agreement specifying a certain royalty payment scheme.”); Microsoft Corp. v. Motorola, Inc., 2013 WL 2111217, at *17–20 (W.D. Wash. Apr. 25, 2013) (“This approach attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.”). Once the standard is adopted and implementers have incorporated it into their own technologies, a standard essential patent is likely to be in a much stronger position, approaching monopoly in some cases.27See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, 1 INNOVATION POL’Y & ECON. 119, 122–24. (2000). Patents that are committed in this way are described as “standard essential patents” (SEPs), or as being “FRAND encumbered.”28E.g., FTC v. Qualcomm, Inc., 2017 WL 2774406, at *6 (N.D. Cal. June 26, 2017). Qualcomm was able to evade this “ex ante” requirement by insisting on purchaser acceptance of a license on its own terms before it would sell chips.29See discussion infra text at notes 103–04.

Having a patent declared standard essential can increase its value considerably, mainly because the promise of a license at a reasonable rate steers developmental decision making in favor of that particular technology. When a firm makes a commitment to develop its products under a particular standard, it wants assurance that it will have a durable right to operate under that standard at reasonable royalty rates. This process naturally leads to the creation of considerable path dependence in standards. It encourages firms to develop their own technology in ways that ensure interoperability but that can be costly to reverse after the fact.30Cotter, Hovenkamp, & Siebrasse, supra note 25, at 1562–63. On path dependence, see Steven N. Durlauf, Path Dependence, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS 10094 (3d ed. 2018); Douglas Puffert, Path Dependence in Technical Standards, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS 10106, 10106–13 (3d ed. 2018). On standardization and path dependence, see generally Joseph Farrell and Garth Saloner, Standardization, Compatibility, and Innovation, 16 RAND J. ECON. 70 passim (1985).

This phenomenon of increased value for SEPs also motivates patent owning firms to “over-claim”—that is, to assert that patents are standard essential when subsequent litigation or evaluation determines that they are not. While FRAND agreements require participants to declare relevant patents thought to be essential, the rate of actual declaration far exceeds any rational boundary. As many as one-third to more than half of declared SEPs are very likely not essential to the standard for which they were declared,31See Robin Stitzing, Pekka Saaskilahti, Jimmy Royer & Marc Van Audenrode, Over-Declaration of Standard Essential Patents and Determinants of Essentiality fig. 1(Sept. 4, 2018), https://papers.ssrn.com/sol3/papers.cfm?ab stract_id=2951617 [https://perma.cc/B9BQ-EV9C]; see also CYBER CREATIVE INST. CO., EVALUATION OF LTE ESSENTIAL PATENTS DECLARED TO ETSI 19–21 (2013), http://www.cybersoken.com/file/lte03EN.pdf [https://perma.cc/4VP6-264A] (concluding that roughly 56% of patents declared essential to ETSI standard were in fact so and showing that there was also a wide range among individual companies). For good commentary, see Jorge L. Contreras, Essentiality and Standards-Essential Patents, in THE CAMBRIDGE HANDBOOK OF TECHNICAL STANDARDIZATION LAW: COMPETITION, ANTITRUST, AND PATENTS 209, 226 (Jorge L. Contreras ed., 2017). and allegations about the practice of over-declaring are currently being litigated as potential antitrust violations.32Lenovo (United States), Inc. v. Interdigital Tech. (IDC), case 1:20-cv-00593LPS (D. Del. April 9, 2020) (complaint, alleging over-declaring by IDC). See also https://www.essentialpatentblog.com/2020/04/lenovo-motorola-file-antitrustclaims-against-interdigitals-standards-setting-participation-and-patent-licensing-practice-lenovo-v-interdigital/ (last visited Aug. 8, 2020) (discussing the case). In fact, overall infringement rates for SEP patents are not materially different from those for non-SEP patents.33Mark A. Lemley & Timothy Simcoe, How Essential are Standard-Essential Patents?, 104 CORNELL L. REV. 607, 627 (2019). The authors conclude that findings of infringement of SEP and non-SEP patents occur at about the same rate, roughly 30%. As a result, SEPs “don’t seem to be all that essential, at least when they make it to court.” Id. at 608. A declaration of non-infringement means that, although the patent might be valid, it does not in fact read on the defendant’s particular device or process. In effect, the patent is not a part of the defendant’s technology, and thus cannot be essential. The problem is exacerbated by the fact that, for the most part, SSOs have no process up front for reviewing or questioning individual participants’ declarations that a patent they are offering is in fact both valid and standard essential.34See id. at 610.

Ex ante, a patent may offer one of many alternative technological paths to a certain goal. However, ex post, after a standard has been adopted and others have developed their technologies in reliance, the range of acceptable alternatives can decrease dramatically. As a result, the patent whose path is adopted becomes much more valuable.35See Jay P. Kesan & Carol M. Hayes, FRAND’s Forever: Standards, Patent Transfers, and Licensing Commitments, 89 IND. L.J. 231, 233–35 (2014); William F. Lee & A. Douglas Melamed, Breaking the Vicious Cycle of Patent Damages, 101 CORNELL L. REV. 385, 404–09 (2016); Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991, 1994–2010 (2007). In that case, a firm’s ability to evade the FRAND obligation by charging selectively higher royalties to some licensees or conditioning licenses on the purchase of other technology can be extremely lucrative for the patentee but costly to implementers of the standard and disruptive of the SSO’s developmental goals.36See, e.g., FTC v. Qualcomm, Inc., 411 F. Supp. 3d 658, 785–87 (N.D. Cal. 2019) (finding that defendant attempted to leverage higher royalty rates by taking advantage of ex post SEP status plus its threat to withhold products from licensee who challenged the higher rates). In its Qualcomm decision noted above, the Ninth Circuit did not indicate any awareness of these motivations or their potential for harm.37See discussion supra notes 7–10 and accompanying text.

In general, the goal of FRAND is to make patents available to participants at a price equivalent to what the patent would have been worth in the more competitive market prior to the time it was declared essential. The relevant question is what was the value of the patent’s contribution to the standard at a time when competitive alternatives may have been available, as opposed to a later time when other firms have dedicated themselves to the standard?38See Cotter, Hovenkamp & Siebrasse, supra note 25, at 1517–29.

This approach is simply a variant of the proposition that even a monopoly market can be made competitive if we require competing firms to bid for the opportunity to be the monopolist.39See Erik Hovenkamp, Tying, Exclusivity, and Standard-Essential Patents, 19 COLUM. SCI. & TECH. L. REV. 79, 90 (2017); Harold Demsetz, Why Regulate Utilities?, 11 J.L. & ECON. 55, 58 (1968); Richard A. Posner, The Appropriate Scope of Regulation in the Cable Television Industry, 3 BELL J. ECON. & MGMT. SCI. 98, 110–11 (1972); Oliver E. Williamson, Franchise Bidding for Natural Monopolies— in General and with Respect to CATV, 7 BELL J. ECON. 73, 76–77 (1976). Even though a natural monopoly entity such as a public utility has the market power of any monopolist, someone must still choose who gets to be the monopolist.40On whether the large internet platforms are natural monopolies, see Herbert Hovenkamp, Antitrust and Platform Monopoly, 130 YALE L.J. (forthcoming 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3639142. The winner will be the firm that promises the most competitive behavior, provided that it can be held to that commitment. Once the auction is over and the winner has been selected, however, it will have an incentive to renege on its auction promise and charge whatever price its newly acquired monopoly status provides. FRAND creates similar incentives, as the Qualcomm case illustrates. 

Alternative proposals to the effect that the FRAND patentee and the licensee should split the difference between value to the patentee and value to the implementer41See, e.g., J. Gregory Sidak, What Makes FRAND Fair? The Just Price Contract Formation, and the Division of Surplus from Voluntary Exchange, 4 CRITERION J. INNOVATION 701, 727–31 (2019) (analyzing difference surplus splits). improperly take an ex post rather than ex ante view of value and asks the royalty tribunal to divide evenly the difference between the seller’s (patentee’s) willingness to accept and the buyer’s (licensee’s) willingness to pay after FRAND status has been established. That may be a useful way of thinking about price in a bilateral monopoly,42The traditional solutions to the bilateral monopoly problem are ones in which output is joint maximizing but price is indeterminate within a significant range. See Roger D. Blair, David L. Kaserman, & Richard E. Romano, A Pedagogical Treatment of Bilateral Monopoly, 55 S. ECON. J. 831, 834 (1989). However, Nash-Cournot bargaining theory predicts that under a wide range of assumptions bargaining will lead to an even split of the difference. That makes it critical that the proper beginning parameters of bargaining be settled. The split prior to a SEP declaration will occur at a lower place than it will ex post because the patentee’s (seller’s) reservation price will be lower. See Gordon C. Rausser, Johan Swinnen, & Pinhas Zusman, The Nash Solution to the Bargaining Problem, in POLITICAL POWER AND ECONOMIC POLICY: THEORY, ANALYSIS AND EMPIRICAL APPLICATIONS 30–49 (2011). For a comprehensive empirical survey of experimental tests, see Po-Hsuan Lin et al., General Economic Principles of Bargaining and Trade: Evidence from 2000 Classroom Experiments (Sept. 15, 2018) (unpublished manuscript), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3250495. but only after the bilateral monopoly has formed. The competitive solution is to give the seller the price it would have obtained in a competitive market, which is manifestly not an even division of the surplus. Rather, it is a competitive return to the seller.43E.g., Demsetz, supra note 39, at 65; Posner, supra note 39, at 111 (stating that franchise bidding leads to “a price that will not include any monopoly toll”).

The SEP process has produced several disputes. Often these are simply about the size of the royalty and how it must be measured. However, patentees may also attempt to evade the general FRAND requirements that a SEP must be licensed without condition to all users of the standard and on nondiscriminatory terms. Some owners of SEPs who also make products that practice them may prefer not to license a particular patent to anyone. Or they may impose exclusive dealing or loyalty discount requirements on licensees.44On these practices when involving SEPs, see Erik Hovenkamp, Tying, Exclusivity, supra note 39, at 107–09; A. Douglas Melamed & Carl Shapiro, How Antitrust Law Can Make FRAND Commitments More Effective, 127 YALE L.J. 2110, 2126–28 (2018). Alternatively, the owner of a FRAND-encumbered patent may tie it to an unregulated device. While FRAND license rates are determined by a third-party tribunal, product prices are not. By tying a patent license to its own manufactured device, the patentee might be able to obtain its full post-commitment monopoly return. In that case the seller can obtain an overcharge on the device that operates to offset the reduced FRAND royalty. This use of tying in this way to avoid regulated rates is well known in antitrust.45On the use of tying arrangements for rate regulation avoidance, see 9 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1715b, (4th ed. 2018). On this use in the context of FRAND, see Hovenkamp, supra note 39, at 102–105; Melamed & Shapiro, supra note 44, at 28. The owner of a FRAND patent may also refuse to license it to competitors in the market for devices that practice the patent, once again in violation of its FRAND obligation to license to all qualified users on nondiscriminatory terms.46See supra note 22. . The result is reduced competition in the downstream market for devices or processes that employ the patent at issue, and in extreme cases even the creation of monopoly. 

While these various attempts to evade FRAND obligations very likely breach the patentee’s contractual obligations, only a subset also constitute antitrust violations. This does not mean that the standard-setting and FRAND process in which the conduct occurred is irrelevant to antitrust analysis. To the contrary, as in any antitrust case, it forms part of the market environment in which conduct must be evaluated. In her 2019 Qualcomm decision, Judge Lucy Koh addressed tying and exclusive dealing claims under general antitrust principles, and refusal to deal claims under the standards that the Supreme Court had developed in its Aspen47Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). and Trinko48Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP 540 U.S. 398 (2004). decisions.49FTC v. Qualcomm Corp., 411 F. Supp. 3d 658, 696–97 (N.D. Cal. 2019). Although her opinion devoted considerable space to the importance of standard essential patents and the relevance of FRAND commitments, she addressed the antitrust claims by applying well established antitrust principles that require a showing of restraint of trade or anticompetitive exclusion.50See infra text accompanying notes 98–107; see also 2 HOVENKAMP ET AL., IP AND ANTITRUST, supra note 1, § 35.05. Nevertheless, anticompetitive effects become more transparent when one views the extent to which they undermined an output- and innovation-enhancing joint enterprise whose social value was not being called into question. 

SSOs operated by multiple firms are joint ventures.51For treatment of SSOs as joint ventures, see 13 AREEDA & HOVENKAMP, supra note 1, Ch. 22B, 22C; Melamed & Shapiro, supra note 28, at 2119. For bona fide joint ventures that are not simply fronts for cartels, the purpose of the antitrust laws is not to destroy the venture or undermine its purpose, but rather to evaluate how the challenged restraint operates within the venture and condemn unreasonably harmful restraints.52See 7 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW, Ch. 15 (4th ed. 2017). For example, when the Supreme Court struck down the NCAA joint venture’s limitation on nationally televised football games, the purpose and effect were to make the NCAA behave more competitively, in the process increasing its output.53See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 120 (1984). SSOs should be addressed in the same manner. The goal of the standard setting venture is to facilitate competitive operation and entry, interoperability, as well as preserve appropriate competitive incentives for research and development. 

Antitrust analysis necessarily involves testing conduct against these goals, but only to the extent of looking for practices that are anticompetitive. This means it must identify practices that reduce market wide output unreasonably and increase prices, or that are unnecessarily exclusionary or harmful to consumers in other ways. 

A firm’s violation of its FRAND commitment is very likely a breach of contract, as several decisions have held.54E.g., Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 889 (9th Cir. 2012); In re Innovatio IP Ventures, LLC Patent Litig., 921 F. Supp. 2d 903, 923 (N.D. Ill. 2013); see also Realtek Semiconductor Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1005, 1008 (N.D. Cal. 2013) (holding that FRAND commitment was an enforceable contract precluding patentee from bringing ITC claim for infringement before it offered a license). The FRAND contract is incomplete, in the sense that not every term is specified in detail. But participants are subject to a contractual duty to bargain in good faith, with some terms being filled in by courts or other tribunals as necessary. The breach of contract question does not depend on whether the conduct reduced market output or excluded a rival unreasonably. It certainly does not depend on the existence of any party’s market power. Remedies are ordinarily contract damages or an injunction. Nonparties to the contract will typically be able to obtain relief only to the extent that they are third-party beneficiaries. However, the courts have had little difficulty concluding that participating members of the SSO are third-party beneficiaries of FRAND commitments.55See, e.g., Realtek Semiconductor Corp.,946 F. Supp. 2d at 1005–06 (holding that product developer was third-party beneficiary entitled to enforce FRAND obligation); Microsoft Corp. v. Motorola, Inc., 864 F. Supp. 2d 1023, 1032–33 (W.D. Wash. 2012) (similar); Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 5416941, at *4 (W.D. Wis. Oct. 29, 2012) (similar). In all events, challengers will not be able to obtain antitrust law’s treble damages unless they can prove an antitrust violation. 

Whether a firm’s breach of a FRAND commitment also violates the antitrust laws depends on whether the conduct in question causes competitive harm of a sort that the antitrust laws recognize.56E.g., McGlinchy v. Shell Chem. Co., 845 F.2d 802, 813 (9th Cir. 1988) (finding that the supplier’s breach of contract was not an antitrust violation because it did not cause competitive harm); Orion Pictures Distribution Corp. v. Syufy Enters., 829 F.2d 946, 949 (9th Cir. 1987) (finding that although defendant’s conduct was a breach of contract, it did not violate the antitrust laws in the absence of market power). In the case of section 1 of the Sherman Act5715 U.S.C. § 1 (2018). this requires a showing of a relevant agreement that is likely to reduce market output. If the conduct is reasonably ancillary to other arguably procompetitive activity, the court must also assess market power and anticompetitive effects. In the case of section 2 of the Sherman Act or section 3 of the Clayton Act, which reach mainly tying and exclusive dealing, it will require a showing of market power plus conduct that is unreasonably exclusionary. 

The antitrust harm results, not from the breach of the FRAND obligation per se. Rather, it results from the creation of monopoly and higher prices for consumers. The Ninth Circuit got this issue precisely wrong, holding that the district court incorrectly focused on downstream harm to buyers when it should have looked at harm to rivals.58Qualcomm, Inc. v. FTC, 969 F.3d 974, 2020 WL 4591476 (9th Cir. Aug. 11, 2020). That confuses contract or tort law with antitrust law. 

To read more, click here: FRAND and Antitrust.

References

↑ 1. On the role of the antitrust laws in standard setting, see 2 HERBERT HOVENKAMP ET AL., IP AND ANTITRUST: AN ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY LAW, § 35 (3d ed. 2015 & 2020 Supp.) [hereinafter HOVENKAMP ET AL., IP AND ANTITRUST]; 13 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶¶ 2230–35 (4th ed. 2019).
↑ 2. UNITED STATES PATENT AND TRADEMARK OFFICE, NAT’L INST. STANDARDS TECH. & DEP’T OF JUSTICE, POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENTS SUBJECT TO VOLUNTARY F/RAND COMMITMENTS 1 n.2 (2019), https://www. uspto.gov/sites/default/files/documents/SEP%20policy%20statement%20 signed.pdf [https://perma.cc/RR85-YZKT] [hereinafter POLICY STATEMENT]. The terms “RAND” and “FRAND” today are usually used interchangeably.
↑ 3. Chi. Bd. of Trade v. United States, 246 U.S. 231 (1918).
↑ 4. Id. at 239–40 (explaining how the purpose of the challenged “call” rule operated to protect the integrity of the Board’s price making). The Court dismissed the complaint.
↑ 5. NCAA v. Board of Regents of Univ. of Okla., 468 U.S. 85 (1984) (striking down rule limiting the number of times a school could have its games televised).
↑ 6. See, e.g., Allied Tube & Conduit Corp. v. Indian Head, 486 U.S. 492 (1988) (anticompetitive agreement in context of building materials standard setting); Am. Soc’y Mch. Eng’rs v. Hydrolevel Corp., 456 U.S. 556 (1982) (anticompetitive manipulation of standard setting process); Goldfarb v. Va. State Bar, 421 U.S. 773 (1975) (use of lawyer ethics rules to fix price of title search); Radiant Burners, Inc. v. People’s Gas Light & Coke Co., 364 U.S. 656 (1961) (sustaining allegation that standard setting organization used process anticompetitively to exclude product without regard to merit); United States v. Am. Med. Ass’n, 317 U.S. 519 (1943) (government suit against AMA for standard opposing prepaid health care); see also O’Bannon v. NCAA, 802 F.3d 1049 (9th Cir. 2015), cert. denied, 137 S. Ct. 277 (2016) (striking down NCAA rule limiting athlete compensation); Wilk v. Am. Med. Ass’n, 719 F.2d 207 (7th Cir.1983) (striking down AMA standard intended to exclude chiropractors).
↑ 7. Qualcomm, Inc. v. FTC, 969 F.3d 974, 2020 WL 4591476 (9th Cir. Aug. 11, 2020).
↑ 8. See United States’ Statement of Interest Concerning Qualcomm’s Motion for Partial Stay of Injunction Pending Appeal, Qualcomm, Inc., 2020 WL 4591476 (No. 19-16122), 2019 WL 3306496.
↑ 9. 2 HOVENKAMP ET AL., IP AND ANTITRUST, supra note 1, § 35.01[C][1].
↑ 10. See Clayton Act § 3, 15 U.S.C. § 14 (2018) (condemning certain sales “on the condition, agreement, or understanding” that the buyer will not deal in the goods of a competitor). Section 5 of the Federal Trade Commission Act is said to reach everything that the Sherman Act reaches plus some additional conduct, but we look mainly at Sherman and Clayton Act standards. 15 U.S.C. § 45; see FTC v. Brown Shoe Co., 384 U.S. 316 (1966).
↑ 11. See Qualcomm Inc., 969 F.3d 974, 1003, 2020 WL 4591476 (declin[ing] to ascribe antitrust liability in . . . dynamic and rapidly changing technology markets without clearer proof of anticompetitive effect”).
↑ 12. See discussion infra notes 13–14 and accompanying text.
↑ 13. Qualcomm, 969 F.3d at 992 (emphasis in original) (citation omitted).
↑ 14. 138 S. Ct. 2274, 2285 (2018).
↑ 15. 149 S. Ct. 1514 (2019).
↑ 16. Id. at 1525 (quoting 2A PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST
↑ 17. On SSO members’ duty to disclose, see, for example, Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004, 1015–19 (Fed. Cir. 2008) (holding that Qualcomm breached its duty to disclose patents that reasonably might be necessary to practice the standard); Apple Inc. v. Samsung Elecs. Co., 2012 WL 1672493, at *13 (N.D. Cal. May 14, 2012) (holding that Apple sufficiently pled that Samsung breached its duty to disclose intellectual property rights to the SSO); Joseph Farrell et al., Standard Setting, Patents, and Hold-up, 74 ANTITRUST L.J. 603, 628 (2007) (showing that SSOs may provide that “if members . . . do not ‘adequately and timely disclose’ essential patents, then those patents must be licensed royalty-free.”) (citation omitted); Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CALIF. L. REV. 1889, 1919–21 (2002) (exploring the application of disclosure obligations and equitable estoppel in the SSO context) [hereinafter Standard-Setting Organizations]; Peter S. Menell, Economic Analysis of Network Effects and Intellectual Property, 34 BERKELEY TECH. L.J. 219, 301–02 (2019) (comparing two cases alleging that SSO members breached their disclosure duties);. However, establishing antitrust liability for failure to disclose has proven difficult. See, e.g., Rambus Inc. v. FTC, 522 F.3d 456, 469 (D.C. Cir. 2008) (finding no antitrust liability for failure to predisclose that simply increased prices but did not exclude a known technology); Wi-LAN Inc. v. LG Elecs., Inc., 382 F. Supp. 3d 1012, 1023 (S.D. Cal. 2019) (“Allegations of anticompetitive conduct based [on] a fraudulent FRAND declaration theory also must satisfy [a] heightened pleading standard.”).
↑ 18. Questions about measurement of FRAND royalties have produced significant case law and literature but are outside the scope of this Article. For good discussions, see Jorge L. Contreras, Fixing FRAND: A Pseudo-Pool Approach to Standards-Based Patent Licensing, 79 ANTITRUST L.J. 47, 78–87 (2013); Jorge L. Contreras, Global Rate Setting: A Solution for Standards-Essential Patents, 94 WASH. L. REV. 701, 713–22 (2019). See generally Norman V. Siebrasse & Thomas F. Cotter, The Value of the Standard, 101 MINN. L. REV. 1159 (2017).
↑ 19. See 35 U.S.C. § 271(d)(4) (2018).
↑ 20. See D. Scott Bosworth et al., FRAND Commitments and Royalties for Standard Essential Patents, in COMPLICATIONS AND QUANDARIES IN THE ICT SECTOR: STANDARD ESSENTIAL PATENTS AND COMPETITION ISSUES 19, 26 (A. Bharadwaj et al. eds., 2018).
↑ 21. See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 876 (9th Cir. 2012) (“Microsoft II”) (citing Lemley, Standard-Setting Organizations, supra note 17 at 1902, 1906).
↑ 22. The IP policy of the Telecommunications Industry Association: stated: “A license under any Essential Patent(s), the license rights which are held by the undersigned Patent Holder, will be made available to all applicants under terms and conditions that are reasonable and non-discriminatory.” FTC v. Qualcomm, Inc., 2018 WL 5848999, at *3 (N.D. Cal. Nov. 6, 2018); accord Microsoft II, 696 F.3d at 876; id. at 885 (stating that FRAND obligation requires firm to license to “all comers”); see also Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, 1031 (9th Cir. 2015) (“Microsoft III”) (“[A]n SEP holder cannot refuse a license to a manufacturer who commits to paying the RAND rate.”(emphasis added) ); FTC v. Qualcomm, Inc., 411 F. Supp. 3d 658, 671–72 (N.D. Cal. 2019) (“For example, under the intellectual property policy of the Telecommunications Industry Association (‘TIA’), a SSO, a SEP holder must commit to TIA that ‘A license under any Essential Patent(s), the license rights which are held by the undersigned Patent Holder, will be made available to all applicants under terms and conditions that are reasonable and non-discriminatory.’” (quoting Qualcomm, Inc., 2018 WL 5848999, at *3).
↑ 23. See, e.g., HTC Corp. v. Telefonaktiebolaget LM Ericsson, 2019 WL 277479, at 3–5 (E.D. Tex. Jan. 22, 2019) (discussing duty to arbitrate), appeal dismissed, 2019 WL 4126536 (5th Cir. June 18, 2019); Interdigital Tech. Corp. v. Pegatron Corp., 2016 WL 234433, at *10 (N.D. Cal. Jan. 20, 2016) (compelling arbitration); ASUS Comput. Int’l v. InterDigital, Inc., 2015 WL 5186462, at *7 (N.D. Cal. Sep. 4, 2015) (similar); see also HOVENKAMP, ET AL., IP AND ANTITRUST, supra note 1, § 35.05; Jorge L. Contreras & David L. Newman, Developing a Framework for Arbitrating Standard-Essential Patent Disputes, 2014 J. DISP. RESOL. 23, 26–29 (2014); Mark A. Lemley & Carl Shapiro, A Simple Approach to Setting Reasonable Royalties for Standard-Essential Patents, 28 BERKELEY TECH. L.J. 1135, 1152–60 (2013). See generally J. Gregory Sidak, Mandating Final-Offer Arbitration of FRAND Royalties for Standard-Essential Patents, 18 STAN. TECH. L. REV. 1 (2014) (discussing Lemley-Shapiro arbitration).
↑ 24. 9 U.S.C. §§ 1–2 (2018); see, e.g., ASUS Computer, 2015 WL 5186462, at *2–3 (discussing the Federal Arbitration Act). See generally Contreras & Newman, supra note 23, passim (same).
↑ 25. See, e.g., Microsoft III, 795 F.3d at 1040 (considering “the objective value each [patent] contributed to each standard, given the quality of the technology and the available alternatives as well as the importance of those technologies to Microsoft’s business”); see also Thomas F. Cotter, Erik Hovenkamp & Norman Siebrasse, Demystifying Patent Holdup, 76 WASH. & LEE L. REV. 1501, 1507–08 (2019) (royalties generally reflect “the technology’s economic value”).
↑ 26. See, e.g., Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301, 1325 (Fed. Cir. 2009) (“The hypothetical negotiation tries, as best as possible, to recreate the ex ante licensing negotiation scenario and to describe the resulting agreement. In other words, if infringement had not occurred, willing parties would have executed a license agreement specifying a certain royalty payment scheme.”); Microsoft Corp. v. Motorola, Inc., 2013 WL 2111217, at *17–20 (W.D. Wash. Apr. 25, 2013) (“This approach attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began.”).
↑ 27. See Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, 1 INNOVATION POL’Y & ECON. 119, 122–24. (2000).
↑ 28. E.g., FTC v. Qualcomm, Inc., 2017 WL 2774406, at *6 (N.D. Cal. June 26, 2017).
↑ 29. See discussion infra text at notes 103–04.
↑ 30. Cotter, Hovenkamp, & Siebrasse, supra note 25, at 1562–63. On path dependence, see Steven N. Durlauf, Path Dependence, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS 10094 (3d ed. 2018); Douglas Puffert, Path Dependence in Technical Standards, in THE NEW PALGRAVE DICTIONARY OF ECONOMICS 10106, 10106–13 (3d ed. 2018). On standardization and path dependence, see generally Joseph Farrell and Garth Saloner, Standardization, Compatibility, and Innovation, 16 RAND J. ECON. 70 passim (1985).
↑ 31. See Robin Stitzing, Pekka Saaskilahti, Jimmy Royer & Marc Van Audenrode, Over-Declaration of Standard Essential Patents and Determinants of Essentiality fig. 1(Sept. 4, 2018), https://papers.ssrn.com/sol3/papers.cfm?ab stract_id=2951617 [https://perma.cc/B9BQ-EV9C]; see also CYBER CREATIVE INST. CO., EVALUATION OF LTE ESSENTIAL PATENTS DECLARED TO ETSI 19–21 (2013), http://www.cybersoken.com/file/lte03EN.pdf [https://perma.cc/4VP6-264A] (concluding that roughly 56% of patents declared essential to ETSI standard were in fact so and showing that there was also a wide range among individual companies). For good commentary, see Jorge L. Contreras, Essentiality and Standards-Essential Patents, in THE CAMBRIDGE HANDBOOK OF TECHNICAL STANDARDIZATION LAW: COMPETITION, ANTITRUST, AND PATENTS 209, 226 (Jorge L. Contreras ed., 2017).
↑ 32. Lenovo (United States), Inc. v. Interdigital Tech. (IDC), case 1:20-cv-00593LPS (D. Del. April 9, 2020) (complaint, alleging over-declaring by IDC). See also https://www.essentialpatentblog.com/2020/04/lenovo-motorola-file-antitrustclaims-against-interdigitals-standards-setting-participation-and-patent-licensing-practice-lenovo-v-interdigital/ (last visited Aug. 8, 2020) (discussing the case).
↑ 33. Mark A. Lemley & Timothy Simcoe, How Essential are Standard-Essential Patents?, 104 CORNELL L. REV. 607, 627 (2019). The authors conclude that findings of infringement of SEP and non-SEP patents occur at about the same rate, roughly 30%. As a result, SEPs “don’t seem to be all that essential, at least when they make it to court.” Id. at 608.
↑ 34. See id. at 610.
↑ 35. See Jay P. Kesan & Carol M. Hayes, FRAND’s Forever: Standards, Patent Transfers, and Licensing Commitments, 89 IND. L.J. 231, 233–35 (2014); William F. Lee & A. Douglas Melamed, Breaking the Vicious Cycle of Patent Damages, 101 CORNELL L. REV. 385, 404–09 (2016); Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991, 1994–2010 (2007).
↑ 36. See, e.g., FTC v. Qualcomm, Inc., 411 F. Supp. 3d 658, 785–87 (N.D. Cal. 2019) (finding that defendant attempted to leverage higher royalty rates by taking advantage of ex post SEP status plus its threat to withhold products from licensee who challenged the higher rates).
↑ 37. See discussion supra notes 7–10 and accompanying text.
↑ 38. See Cotter, Hovenkamp & Siebrasse, supra note 25, at 1517–29.
↑ 39. See Erik Hovenkamp, Tying, Exclusivity, and Standard-Essential Patents, 19 COLUM. SCI. & TECH. L. REV. 79, 90 (2017); Harold Demsetz, Why Regulate Utilities?, 11 J.L. & ECON. 55, 58 (1968); Richard A. Posner, The Appropriate Scope of Regulation in the Cable Television Industry, 3 BELL J. ECON. & MGMT. SCI. 98, 110–11 (1972); Oliver E. Williamson, Franchise Bidding for Natural Monopolies— in General and with Respect to CATV, 7 BELL J. ECON. 73, 76–77 (1976).
↑ 40. On whether the large internet platforms are natural monopolies, see Herbert Hovenkamp, Antitrust and Platform Monopoly, 130 YALE L.J. (forthcoming 2021), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3639142.
↑ 41. See, e.g., J. Gregory Sidak, What Makes FRAND Fair? The Just Price Contract Formation, and the Division of Surplus from Voluntary Exchange, 4 CRITERION J. INNOVATION 701, 727–31 (2019) (analyzing difference surplus splits).
↑ 42. The traditional solutions to the bilateral monopoly problem are ones in which output is joint maximizing but price is indeterminate within a significant range. See Roger D. Blair, David L. Kaserman, & Richard E. Romano, A Pedagogical Treatment of Bilateral Monopoly, 55 S. ECON. J. 831, 834 (1989). However, Nash-Cournot bargaining theory predicts that under a wide range of assumptions bargaining will lead to an even split of the difference. That makes it critical that the proper beginning parameters of bargaining be settled. The split prior to a SEP declaration will occur at a lower place than it will ex post because the patentee’s (seller’s) reservation price will be lower. See Gordon C. Rausser, Johan Swinnen, & Pinhas Zusman, The Nash Solution to the Bargaining Problem, in POLITICAL POWER AND ECONOMIC POLICY: THEORY, ANALYSIS AND EMPIRICAL APPLICATIONS 30–49 (2011). For a comprehensive empirical survey of experimental tests, see Po-Hsuan Lin et al., General Economic Principles of Bargaining and Trade: Evidence from 2000 Classroom Experiments (Sept. 15, 2018) (unpublished manuscript), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3250495.
↑ 43. E.g., Demsetz, supra note 39, at 65; Posner, supra note 39, at 111 (stating that franchise bidding leads to “a price that will not include any monopoly toll”).
↑ 44. On these practices when involving SEPs, see Erik Hovenkamp, Tying, Exclusivity, supra note 39, at 107–09; A. Douglas Melamed & Carl Shapiro, How Antitrust Law Can Make FRAND Commitments More Effective, 127 YALE L.J. 2110, 2126–28 (2018).
↑ 45. On the use of tying arrangements for rate regulation avoidance, see 9 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1715b, (4th ed. 2018). On this use in the context of FRAND, see Hovenkamp, supra note 39, at 102–105; Melamed & Shapiro, supra note 44, at 28.
↑ 46. See supra note 22.
↑ 47. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).
↑ 48. Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP 540 U.S. 398 (2004).
↑ 49. FTC v. Qualcomm Corp., 411 F. Supp. 3d 658, 696–97 (N.D. Cal. 2019).
↑ 50. See infra text accompanying notes 98–107; see also 2 HOVENKAMP ET AL., IP AND ANTITRUST, supra note 1, § 35.05.
↑ 51. For treatment of SSOs as joint ventures, see 13 AREEDA & HOVENKAMP, supra note 1, Ch. 22B, 22C; Melamed & Shapiro, supra note 28, at 2119.
↑ 52. See 7 PHILLIP E. AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW, Ch. 15 (4th ed. 2017).
↑ 53. See NCAA v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 120 (1984).
↑ 54. E.g., Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 889 (9th Cir. 2012); In re Innovatio IP Ventures, LLC Patent Litig., 921 F. Supp. 2d 903, 923 (N.D. Ill. 2013); see also Realtek Semiconductor Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1005, 1008 (N.D. Cal. 2013) (holding that FRAND commitment was an enforceable contract precluding patentee from bringing ITC claim for infringement before it offered a license).
↑ 55. See, e.g., Realtek Semiconductor Corp.,946 F. Supp. 2d at 1005–06 (holding that product developer was third-party beneficiary entitled to enforce FRAND obligation); Microsoft Corp. v. Motorola, Inc., 864 F. Supp. 2d 1023, 1032–33 (W.D. Wash. 2012) (similar); Apple, Inc. v. Motorola Mobility, Inc., 2012 WL 5416941, at *4 (W.D. Wis. Oct. 29, 2012) (similar).
↑ 56. E.g., McGlinchy v. Shell Chem. Co., 845 F.2d 802, 813 (9th Cir. 1988) (finding that the supplier’s breach of contract was not an antitrust violation because it did not cause competitive harm); Orion Pictures Distribution Corp. v. Syufy Enters., 829 F.2d 946, 949 (9th Cir. 1987) (finding that although defendant’s conduct was a breach of contract, it did not violate the antitrust laws in the absence of market power).
↑ 57. 15 U.S.C. § 1 (2018).
↑ 58. Qualcomm, Inc. v. FTC, 969 F.3d 974, 2020 WL 4591476 (9th Cir. Aug. 11, 2020).

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