Friday, June 15, 2012

EU antitrust chief stresses responsibility of regulators, courts and industry for FRAND

European Commission Vice President JoaquĆ­n Almunia, the EU commissioner in charge of competition policy and enforcement, delivered a speech today at the International Bar Association's antitrust conference in Madrid. The vice president's speech is entitled "Higher Duty for Competition Enforcers". The full text of the manuscript is available on the Commission's website. In the following I'll quote the passage on FRAND issues paragraph by paragraph and add my comments below each paragraph.

"As to the third principle [of the European Commission's guidelines on horizontal cooperation agreements], we need to clarify what are the implications of FRAND and how FRAND negotiations should be conducted. These questions are the core of a few cases we have opened recently involving companies such as Apple, Samsung, Motorola and Microsoft."

With the exception of a small number of German judges, courts and regulators in the industrialized world agree that the question of "how FRAND negotiations should be conducted" means that patent holders can't just make any demand they want and seek injunctive relief if blatantly unreasonable demands aren't met. Under the German Orange-Book-Standard line, which some German courts apply to all FRAND defenses even though there was no FRAND pledge at issue in the Orange Book ruling by the German Federal Court of Justice, right holders can do anything as long as they don't refuse an offer at the outer limit of legality, in which case the only immediate consequence is that injunctive relief is denied. There are strong indications that the European Commission disagrees with the German courts and expects patent holders to honor their FRAND licensing commitments to a greater extent than the aforementioned German judges require.

At the end of the paragraph quoted above, four company names are mentioned. Two of those are complainants/witnesses (Apple and Microsoft), and the other two are companies whose conduct is being investigated (Motorola and Samsung).

"One issue in these cases is the use of court injunctions that can infringe the principle of effective access inherent to FRAND. We need to find good answers soon, because consumers cannot be held hostage to litigation. Both competition authorities and the courts should intervene to ensure that standard-essential patents are not used to block competition."

After a general reference to FRAND negotiations, this paragraph focuses on the pursuit of injunctive relief. The vice president is right that injunctions over standard-essential patents hold consumers hostage, and that both competition authorities and courts should not allow this to happen. However, at this stage the courts are part of the problem in only one EU member state: Germany. And even in Germany the number of courts that are responsible for this problem is very small. Obviously, it would have political implications if the vice president singled out a very few German courts in a public speech like this. Also, in many EU member states the approach of the courts toward FRAND standards has not been tested yet. There are some pretty positive examples in the Netherlands and, more recently, also in the UK, and indications in France and Italy, where Apple averted preliminary injunctions against the iPhone 4S primarily on the grounds of patent exhaustion but the courts also indicated a FRAND-friendly stance. But there's always a risk of other countries following the German lead, however misguided that one may be.

While I totally agree that the courts have an important role to play, I don't think certain German courts will change for the better until they have to. In the meantime, the Commission has considerable leverage over FRAND abusers, and if it provided clarification of EU competition law in this area (such as through decisions on particular cases), that could also have an effect on how the courts deal with FRAND.

"However, industry too has a role to play in guaranteeing the proper functioning of the standardisation system. I would therefore strongly encourage industry players to come together in the relevant standard-setting organisations and elaborate clear rules on the basis of these guiding principles to prevent the misuse of standard-essential patents."

I interpret this final part of the Commissioner's remarks on FRAND as political support for those who advocate stronger FRAND rules within ETSI, a particularly important standard-setting organization. Apple wrote a related letter to ETSI, which Cisco endorsed. I heard from different, independent sources that FRAND was a big issue at a recent ETSI conference, and the debate appears to be heavily politicized. The European Commission played some role in the creation of ETSI but it can't make decisions that only ETSI's members get to vote on.

ETSI is not the only SSO that matters in this context, but it's a particularly important one, and if ETSI fleshed out what FRAND is supposed to mean, it could set an example that other SSOs might follow.

It will obviously take time to improve the FRAND rules of major SSOs. And whenever that happens, its direct effect will be limited to standards that are defined under the new rules, though it's possible that new rules would also have some persuasive value in certain courts (not too likely in Germany, though).

New SSO rules would also have to be blessed by the European Commission -- not in a formal sense, but SSOs like ETSI would certainly want to ensure that their rules are considered compliant with EU competition law.

Vice President Almunia's speech today demonstrated once again that FRAND standards continue to be a top priority to him. He appears determined to deal with today's problems at the regulatory level; he calls on the courts to make their contribution, which is absolutely right even if it will fall on deaf ears in some places; and he wants industry players to improve the rules set by SSOs. That's a strategic plan.

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