EU Competition Official Addresses Standard-Essential Patent Abuse in Bar Association Speech

This posting was written by Cheryl Beise, contributor to IP Law Daily.

Speaking today at the International Bar Association Antitrust Conference in Madrid, Joaquín Almunia, European Commission Vice President responsible for Competition Policy, emphasized the need for reform of the standard-setting process. In his address titled “Higher Duty for Competition Enforcers,”  Alumnia added his voice to the growing international concern over the abuse of standard-essential patents to block competition.

Alumnia acknowledged the importance of standard-setting organizations in integrating markets, making products and services available, and ensuring the technical interoperability of devices, but said more needs to be done to ensure that the standard-setting process is “competitive, open, and transparent.”

Standards should be set and adopted in an open and transparent manner to prevent established market leaders from sidelining innovative technologies, Alumnia said. “I think that we need to have a constructive conversation with stakeholders and with regulators on the best way to achieve this goal.”

Standard-essential patent owners also must provide access to their technologies on fair, reasonable, and nondiscriminatory (FRAND) terms. The problem of standard-essential “patent ambush” requires clarification in the implications of FRAND and how FRAND negotiations should be conducted, according to Alumnia.

In particular, Alumnia expressed concern about the use of court injunctions to circumvent the effective access inherent to FRAND patents. “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,” Alumnia said.

Industry also has a role to play in guaranteeing the proper functioning of the standardization system, Alumnia added. “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.”

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Apple Fails to State Antitrust Claims Against Samsung for Standards Setting Abuse

This posting was written by Cheryl Beise, Editor of CCH Guide to Computer Law.

The federal district court in San Jose, California held on October 18 that Apple, Inc. failed to allege sufficient facts to support its claims that rival Samsung Electronics Ltd. violated Section 2 of the Sherman Act by abusing a private standard setting process for mobile wireless technology.

The court dismissed Apple’s claims under Section 1 of the Sherman Act as incompatible with its allegations supporting its section 2 claims. Apple’s California Unfair Competition Law claim predicated on Samsung’s Sherman Act violations also was dismissed.

Global Patent War

The ruling was the first blow to Apple in the U.S. in its global war with Samsung regarding several utility and design patents related to both parties' mobile device technologies. Cases are pending in at least ten countries. The Federal Court in Sydney, Australia issued an October 13 temporary ban on the sale of Samsung's Galaxy 10.1 tablets. In August, a court in Dusseldorf, Germany temporarily halted sales of Galaxy 10.1 tablets, while a court in The Hague banned sales of the South Korean company’s Galaxy S, S II smart phones.

According to the district court, Apple failed to allege sufficient facts to meet Fed.R.Civ.Pro. 9(b)’s heightened pleading standard in support of its Sherman Act monopolization claim. Apple contended that Samsung fraudulently induced the European Telecommunications Standards Institute (ETSI), a standard setting organization (SSO) for mobile wireless carrier technology, to adopt a standard incorporating a Samsung patent as essential technology.

Specifically, Samsung allegedly failed to disclose intellectual property rights in its patent and breached a promise to license its essential technology on fair, reasonable, and non-discriminatory (FRAN) terms to ESTI members.

Anticompetitive Conduct

In order to establish anticompetitive conduct for failure to disclose intellectual property rights, a plaintiff must show that there was an alternative technology that the SSO was considering during the standard setting process and that the SSO would have adopted an alternative standard had it known of the patent holder's intellectual property rights.

The court found that Apple failed to allege sufficient facts to support a plausible inference that if Samsung had disclosed its intellectual property rights to the ETSI, a viable alternative technology performing the same functionality would have been incorporated into the UMTS standard, or that the relevant functionality would not have been incorporated into the standard at all.

False Declarations

Apple's allegations that Samsung submitted false FRAND declarations were not sufficient to put Samsung on notice of the particular misconduct that created the basis of the alleged fraud, in the court’s view. Apple did not set forth facts establishing when the alleged false FRAND declarations were made, by whom they were made, or with regard to which patents were they made. The court granted Apple leave to amend its Sherman Act sec. 2 claims.

The court dismissed Apple’s restraint of trade claim under Section 1 of the Sherman Act without leave to amend. To state a violation under Section 1, a plaintiff must show a unity of common purpose or a common design and understanding, or a meeting of minds in an unlawful arrangement.

Unilateral Conduct

Apple’s allegation that Samsung unilaterally subverted ETSI’s collaborative standard-setting process in order to restrain trade was not reconcilable with its allegation that Samsung contracted with, combined with, or conspired with ETSI or is members to restrain trade, according to the court. Apple necessarily failed to allege a concerted action between Samsung and ETSI necessary to state a claim under Section 1, the court held.

The decision in Apple Inc. v. Samsung Electronics Co. Ltd., 11-CV-01846-LHK, will appear in CCH Trade Regulation Reporter and CCH Guide to Computer Law.

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