FTC Seeks Input on Patent Holdup in Standards Development

At intervals, the Federal Trade Commission (FTC) and Department of Justice (DoJ) have undertaken public initiatives intended to support the standards development process from the antitrust perspective.  In each case, I've found the regulators to be open minded and genuinely interested in understanding the marketplace.  Often, the goal of their information gathering efforts is to later issue guidelines that encourage good behavior, and make clear what they consider to be over the line.  The result is that it makes it easier and safer for stakeholders to participate actively in the standard setting process.  Regulators in the European Union follow the same practice.

Last week, the FTC announced a new standards development process fact-finding effort, this time announcing a workshop intended to help them better understand whether "patent holdup" is causing a problem in the marketplaceIt's open to the public, and you're free to submit written comments as well.

"Patent holdup" refers to the situation where the owner of a patent requires the payment of more than "reasonable and non-discriminatory" royalties or other fees from implementers of a standard.  When the owner of the patent wants to maximize the yield, it will wait until the standard has already become widely adopted, and therefore difficult or impossible to change (to render it non-infringing) without great expense.  When this happens, commentators refer to a "submarine patent," because the hostile party takes everyone by surprise when it suddenly emerges onto the scene.

Regulators are particularly interested in such situations, because once a standard has become widely adopted, the owner of such a patent acquires monopoly power over the market for those products.  It can charge as much as it wants, or only grant licenses to some parties, or charge some parties more than others. 

Unfortunately, there’s nothing that can be done if a company innocently realizes that it happens to own a patent that has already been implemented by hundreds of vendors.  It can start demanding royalties, or sell the patent to someone else whose business model is to demand first, and sue later. 

But there is something that can be done if the patent owner is a member of the standard setting organization (SSO) that developed the standard in question, because the owner can be made to agree to the terms of the SSO’s intellectual property rights (IPR) policy as a precondition to being allowed to become a member.

Because there’s nothing an SSO (or a regulator) can do if the patent owner isn’t a member, most of the focus is therefore on how an SSO can best run its process in order to prevent members from launching a submarine patent attack.  Unless an SSO’s IPR policy is clear and consistently enforced, thought, a member might get away with such a practice anyway, as Rambus, a semiconductor patent licensing firm, did more than a decade ago, giving rise to an endless string of public and private law suits against it.

The FTC went to great time and expense trying to convict Rambus, alternatively losing, winning and finally losing through a long string of proceedings that I’ve covered at length over the years (a summary is here).  European regulators had a go at it, too, ultimately settling with Rambus.  Perhaps it is this experience as much as anything that is leading the FTC to announce a workshop that will explore three methods for preventing patent holdup by members of an SSO:

(1) patent disclosure rules of standard setting organizations;

(2) commitments given by patent holders that they will license users of the standard on reasonable and non-discriminatory (“RAND”) terms; and

(3) ex ante licensing negotiations by patent holders, before the standard is adopted.

The Commission intends to examine these issues from practical, economic and legal perspectives, and under antitrust, contract, patent and consumer protection law .

The first item refers to the practice already followed by just about all SSOs: requiring members of working groups to disclose any "necessary claims" (i.e., patent claims that would be "necessarily infringed" by an implementation of the draft standard) before it is finally adopted.  That way, if the patent owner intends to withhold a RAND license, the working group can try and "design around" the necessary claim. 

The second item is a bit less straightforward than it appears, because there is no hard and fast definition of what "reasonable and non-discriminatory" means, and companies periodically sue each other over this commitment.  But the terms that a patent owner charges one implementer are almost always confidential, so how does one vendor know whether its been discriminated against, or not?  Similarly, if two big companies already have a cross license agreement in place, and no money changes hands, is a little company discriminated against if it has to pay a license fee?  And so on.

The third question involves the most controversial practice, because "ex ante discussions" refers to disclosure of licensing terms by the owner of a necessary claim before a draft standard is finally adopted.  If such disclosure is required, then there’s the possibility that a different kind of antitrust violation might occur, with the other members of the group trying to bargain the patent holder down.  In this case, the market power is working unfairly in the other direction – the many against the one.  As a result, those few SSOs that do require (VITA) or permit (IEEE) ex ante licensing term disclosure sought regulatory review of their intended processes before they launched them.

If these topics are of interest, you can find out below how to participate and/or send in comments in advance.  Hopefully, we’ll see some interesting guidance from the FTC some time after the workshop is held.

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 IP Rights in Standard Setting

The Federal Trade Commission is engaged in a policy project to examine the legal and policy issues surrounding the problem of potential patent “hold-up” when patented technologies are included in collaborative standards. As part of the project, the Commission will conduct a workshop and seeks views of consumers and the legal, academic, and business communities on the issues to be explored in this project.

Background of the Project

Collaborative standard setting plays an important role in the modern economy. In areas such as information and communications technology, for example, the usefulness of complex products and services often depends on the interoperability of components and products of different firms. To enhance the value of these complex products, private firms – including competing manufacturers, their customers and suppliers – frequently participate in standard-setting organizations to set technological standards for use in designing products or services.

When standards incorporate technologies that are protected by patent rights, there is a possibility for “hold-up” by a patent owner – a demand for higher royalties or other more costly or burdensome licensing terms after the standard is implemented than could have been obtained before the standard was chosen. Hold-up can subvert the competitive process of choosing among technologies and undermine the integrity of standard-setting activities. Consumers can be harmed if manufacturers are able to pass on higher costs resulting from hold-up.

The project will examine three ways to try to prevent hold-up: (1) patent disclosure rules of standard setting organizations; (2) commitments given by patent holders that they will license users of the standard on reasonable and non-discriminatory (“RAND”) terms; and (3) ex ante licensing negotiations by patent holders, before the standard is adopted. The Commission intends to examine these issues from practical, economic and legal perspectives, and under antitrust, contract, patent and consumer protection law.

Event Details


June 21, 2011
Time: TBD


FTC Conference Center
601 New Jersey Avenue, NW
Washington, DC 20001


The Commission invites interested persons to submit written comments on issues related to this workshop. Comments to inform discussion at the workshop must be received by June 14, 2011. All comments in response to the Federal Register Notice are due by July 8, 2011.

Comments should be captioned “Patent Standards Workshop, Project No. P11-1204” and submitted according to the instructions below.

To File Electronically:

Comments filed in electronic form should be submitted by using the following weblink:  https://ftcpublic.commentworks.com/ftc/standardsproject and following the instructions on the web-based form. 

To File in Paper Form:

A comment filed in paper form should include “Patent Standards Workshop, Project No. P11-1204” both in the text and on the envelope, and mail or deliver two copies to the following address:

Federal Trade Commission/Office of the Secretary
600 Pennsylvania Avenue, N.W.
Room H-135 (Annex X)
Washington, DC 20580

Because postal mail in the Washington area and at the Commission is subject to delay, please consider submitting your comments in electronic form, as described above. The FTC requests that you send any comment by courier or overnight service, if possible.

To Request Confidential Treatment:

Comments containing material for which confidential treatment is requested must be filed in paper form, must be clearly labeled “Confidential,” and must comply with Commission Rule 4.9(c).  Comments should not include any sensitive personal information, such as an individual’s Social Security Number; date of birth; driver’s license number or other state identification number or foreign country equivalent; passport number; financial account number; or credit or debit card number.  Comments also should not include any sensitive health information, such as medical records and other individually identifiable health information.


The event is free and open to the public. All attendees will be required to display a current driver’s license or other valid form of photo identification. The Conference Center is accessible to people with disabilities. If you need an accommodation related to a disability, please call Carrie McGlothin at             202-326-3388      . Such requests should include a detailed description of the accommodations needed and a way to contact you if we need more information.

Pre-registration for this workshop is not necessary, but is encouraged, so that we may better plan for the event.

To pre-register, email your name and affiliation to standardsproject@ftc.gov.

NOTE: When you pre-register, we will collect your name, affiliation, and your email address. This information will be used to estimate how many people will attend. We may use your email address to contact you with information about the workshop.


Under the Freedom of Information Act (“FOIA”) or other laws, we may be required to disclose to outside organizations the information you provide when you pre-register. The Commission will consider all timely and responsive public comments, whether filed in paper or electronic form, and as a matter of discretion, we make every effort to remove home contact information for individuals from the public comments before posting them on the FTC website.

The FTC Act and other laws we administer permit the collection of your pre-registration contact information and the comments you file to consider and use in this proceeding as appropriate. For additional information, including routine uses permitted by the Privacy Act, see the Commission’s comprehensive Privacy Policy.