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Commission investigation will provide patent licence clarity, says expert


Technology firms may better understand the prices they can charge rivals to licence their standard-essential patents when the European Commission concludes its investigations into whether two major industry players' licensing activities breached competition laws, an expert has said.

Patent law specialist Indradeep Bhattacharya of Pinsent Masons, the law firm behind Out-Law.com, said that the Commission's investigations involving Samsung and Motorola Mobility might provide some guidance as to  when licensing terms for standard-essential patents in the technology sector can be considered 'reasonable'. The Commission is currently investigating whether both firms have abused positions of market dominance in the way they have asserted their rights to standard-essential patents for certain mobile telephony and media compression technology.

Standards are agreed technical specifications to ensure that a single technology is used across an industry, often with the goal of achieving interoperability of products regardless of the manufacturer.

Companies can opt to send their experts to forums created by standards setting bodies in order to help develop standards but, in return, most standards setting organisations insist that companies agree to licence any intellectual property they own that is essential to implementation of that standard on fair, reasonable and non-discriminatory (FRAND) terms.

UN-backed agency the International Telecommunication Union (ITU) has announced that it has called a meeting of technology companies, standards bodies and Governments in an attempt to "address rampant patent litigation" around the globe. It said that there is a "growing lack of adherence to standards bodies’ existing patent policies" that needs to be "tackled".

The ITU said that problems with standard-essential patent licensing has particularly affected the technology sector. It said that patent holders in the industry can push up the cost of devices by making "unreasonable" demands for compensation for others' usage of their patented technology.

Bhattacharya said though that the Commission's findings in relation to the Samsung and Motorola Mobility investigations could help clarify what terms can be considered 'reasonable' and build on findings of the EU's General Court in upholding the Commission's earlier ruling that the way Microsoft licensed use of its technology to rivals was anti-competitive.

"The recent decision of the EU General Court in the Microsoft abuse of dominance case gives some idea on how the EU will likely approach the issue of what constitutes ‘reasonable’ in the FRAND/RAND licensing context, even though this was not a standards related case," he said. "The General Court essentially endorsed the EU Commission’s approach in requiring Microsoft to license its technologies on reasonable terms, though the Court was clear that it was not the Commission's role to actually tell the company of what a fair rate would be."

"The decision suggests that the relevant commercial framework, the technology context within which the relevant standard operates, along with how significant or innovative he technology is, will all be important factors in determining what is ‘reasonable’. Within this framework, there could be different rates that could be ‘reasonable’ and it is up to the individual rights holders to work out what these are. The General Court said that it was not up to the Commission to dictate particular rates or require companies to take particular courses of action" Bhattacharya said.

The expert added that regulators could also consider the way the rights holder conducts themselves with potential licensees as a factor in determining whether licensing terms are reasonable. Setting licensing terms that make it very difficult for companies from participating or unreasonably refusing to negotiate on terms are likely to be viewed negatively. He said, though, that fast-moving innovations in the technology sector currently make it difficult to assess when terms are 'reasonable' or not. 

"The issue presents a major challenge to owners of standard essential patents in particularly, rapidly moving areas such smartphones and tablets," Bhattacharya said. "This is because the underlying technologies, the nature of the industry and the commercial framework within which these products are sold are rapidly evolving and converging. In this context it is pretty difficult to get a real sense of how to define ‘reasonable’ as there can be no real benchmark."

"For instance, I think it is an open question whether groundbreaking technologies that required significant upfront capital investments justify a higher rate than for more incremental developments. The regulators will also probably look at similar licensing arrangements for other companies in assessing what is reasonable.   In reality, though, these types of issues are probably not going to become all that more clear until we see what happens in the existing Samsung and Motorola investigations," he said.

In April the European Commission launched two investigations into whether Motorola abused a dominant market position in breach of EU competition laws. It said it had received complaints from Apple and Microsoft about the way Motorola had asserted patent rights over the use of standards-essential mobile device technology.

The Commission is also investigating whether Samsung abused a dominant market position in the mobile phone industry. The Commission said that Samsung was obliged to licence the use of patents relating to 3G mobile and wireless technology to rivals on FRAND terms but may have breached this requirement when trying to enforce its patent rights against those rivals in court.

The European Commission is responsible for investigating possible abuses of dominant market position under the Treaty on the Functioning of the European Union (TFEU).

Such abuse can include by "directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; limiting production, markets or technical development to the prejudice of consumers; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage" amongst other possible abuses, the TFEU states.

EU Competition Commissioner Joaquín Almunia last month called on companies to develop new rules that elaborate on the FRAND principles in order to guarantee "the proper functioning of the standardisation system."

The ITU's 'roundtable' on patents is scheduled for 10 October. In a statement the organisation's Secretary-General admitted that it is a "balancing act" to acknowledge both patent holders' rights and user requirements as well as the needs of the market.

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