You Can't Take It Back When It Comes to Standards

By Carl Ford November 28, 2012

I know talking about patents can be as much fun as watching grass grow in slow motion. The world is filled with two strategies when it comes to patents: putting them in standards that promise fair, reasonable and non-discriminatory use, or avoiding the standards and trying to make money by being better or unique and protected. In other words, one looks to make money on interoperating and one looks to make money being proprietary

Both strategies keep lawyers engaged, and normally they eventually have a one-way convergence, when the work-around makes it so that a unique model no longer has as much to offer as the Metcalfe effect of interoperating.

Interoperating almost always involves standards bodies and the standard bodies demand that “just and reasonable” be applied to all referenced standards.

However, what happens when the standards bodies get hoodwinked or when a new owner comes and looks to remonetize the asset?

We are getting to see a real live example of this with the FTC’s recent ruling against BOSCH GMBH. 

Here is the pertinent part;

The FTC complaint also alleges that SPX has been pursuing a strategy of suing to enjoin competitors from using patents that may be necessary to meet the standards for manufacturing ACRRR devices.

According to the complaint, SPX holds patents that other companies may need in order to make ACRRR devices that comply with standards set by an industry standard-setting group called SAE International.  Standard setting is a cornerstone for many high-tech and manufacturing markets, and encourages innovation and investment in new products, according to the FTC.  By agreeing to standards, companies can ensure that the numerous components can work together seamlessly, often called “interoperability.” 

Setting a standard, however, can confer market power to the owner of a patent that is deemed essential to the standard, according to the agency.  The holder of a SEP – even if it is relevant only to a small component of a much larger and more complex device – can use the threat of an injunction to “hold up” a licensee for an excessive royalty or prevent a competitor from complying with the standard, thereby effectively keeping it out of the market entirely.  To avoid this problem, technology companies involved in setting a standard often commit to license SEPs on “fair, reasonable and non-discriminatory” terms – known as FRAND terms.

The FTC alleged that, as a member of SAE International, SPX agreed to abide by SAE rules that require companies to license their SEPs on FRAND terms.  However, SPX allegedly reneged on these commitments and pursued injunctions blocking competitors from using the standardized technologies, even though the competitors were willing to license the technology on FRAND terms.  The FTC charged that this practice had the tendency of harming competition and undermining the standard setting process.

So now that the FTC has ruled, we will see what can be done to avoid this problem in M2M implementations.

Edited by Rich Steeves

Partner, Crossfire Media

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