In the world of technology, Standard Setting Organizations (“SSOs”) play a crucial role in helping to facilitate innovation. They do so by creating industry standards that ensure quality and promote and enable the development of new, compatible technologies. To be included in such a standard, SSOs typically require participants to both disclose patents owned that would become essential to the standard and to license such essential patents to all other participants on fair, reasonable, and non-discriminatory (“FRAND”) terms. But what happens when such participants are alleged to have violated such SSO and FRAND commitments? Can such violations constitute an antitrust violation? The 9th Circuit’s recent decision in FTC v. Qualcomm Inc. instructs that such violations are properly viewed as contractual and rarely rise to the level of an antitrust violation.
SSOs generally require participating patent holders to provide timely disclosure of their patents and agree in advance to license their patents thought to be essential to the standard on FRAND terms (i.e., standard essential patents or “SEPs”).1 FRAND obligations require the patentee to license freely to all qualified participants, whether or not they are competitors. Further, royalties to the owners of these SEPs are generally measured by the value that the contributed patent makes to the standard, which is generally measured “ex ante,” or prior to the patent’s adoption into a standard, though that premise has been a topic of dispute.2 Thus, 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 market prior to the time it was declared essential.
This SEP process has produced controversy and disputes. For example, patentees may attempt to evade a general FRAND requirement that an SEP owner must license unconditionally to all users of the standard and on non-discriminatory terms. Some SEP owners that manufacture products using that standard (and the SEPs) may prefer not to license a particular SEP to anyone. Or they may impose exclusive dealing or minimum market share requirements on licensees. Alternatively, the SEP owner may refuse to license the SEP for competing devices that practice the SEP, in violation of FRAND obligations to license to all qualified users on non-discriminatory terms. While these various attempts to evade FRAND obligations may very well breach a patentee’s contractual obligations to an SSO and its participants, they may also disrupt or prevent competition. Accordingly, parties, commentators, and policy makers have also advocated and argued that such abuses may constitute violations of federal and international competition laws.
In the U.S., whether a patentee’s breach of its FRAND commitment also violates the federal antitrust laws depends on whether the conduct in question causes competitive harm of a sort that the antitrust laws recognize. For Section 1 of the Sherman Act, this requires a relevant agreement that is reasonably calculated to reduce market output. If the conduct is in accord with other arguably procompetitive justification, a court must also assess market power and anticompetitive effects. For Section 2 of the Sherman Act or Section 3 of the Clayton Act, a party must demonstrate conduct that is unreasonably exclusionary and has an anticompetitive effect.
The U.S. Court of Appeals for the Ninth Circuit recently opined on whether such FRAND violations may properly be brought as antitrust violations. In deciding FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020), the Ninth Circuit held that such violations are best addressed as a matter of contract or patent law, not antitrust law.
A. District Court Opinion
In 2017, the U.S. Federal Trade Commission (“FTC”) filed a complaint in the Federal District Court for the Northern District of California, seeking to enjoin Qualcomm’s SEP licensing practices related to certain wireless communications and semiconductor microchip patents. The FTC alleged that Qualcomm’s practices...
