Back to Basics Part 2 – Injunctions and Licensing

One of the excuses used by Germany’s Federal Court of Justice in the VoiceAgeEVS v. HMD case to justify an injunction was its finding that injunctions are necessary to encourage implementers to take a license.  But SEP licensing is not a goal of standard development.  Let me say that again – SEP licensing is not a goal of standard development.  SEP licensing by those who participate in the development of a standard is tolerated only because it is believed to support one of the goals of such development.  But we should not lose sight of the other goals and competition law requirements of standard development. It’s time to go back to the basics that the German court ignored (see Back to Basics – An Overview of Competition Law, Standard Development and Standard Setting for an earlier post about this issue).

Standard development involves a group of competitors, often both horizontal and vertical, that get together to collectively develop technology.  For each of the world’s most important standards, the group of competitors invariably involves many of the largest companies in the applicable field. The group of competitors invariably (even without contemplating any market power provided by patents) collectively dominate the market for the applicable technology (and some members of the group usually also have individual market dominance).  When this group of competitors with collective market dominance jointly get together to develop new technology, it creates obvious competition law concerns.

Standard development, however, generally gets a pass from competition law authorities because, when done appropriately and with reasonable safeguards, standards benefit consumers and the public good.  There are three essential requirements for this to happen: (a) the development of useful technology (“standards”) for the “benefit of the market, consumers and society at large” (to quote ETSI’s mission statement)[1]; (b) the widespread adoption of the standard (sometimes termed implementation) so that the market is robust and consumers have choices; and (c) mechanisms to ensure that standard development does not devolve into an anti-competitive endeavor or cause significant anti-competitive harms. 

I will say it again: patent licensing is not part of these essential requirements. Nor is it part of the goals of any standard development organization.  SEP licensing is not development of useful technology, is not a mechanism for its widespread adoption and is not a mechanism to ensure that standard development does not harm to competition.  Patent licensing by SDO participants is tolerated based on the belief that SEP licensing encourages the first goal, i.e. some people believe that SEP licensing encourages companies to participate in standard development.[2]  But SEP licensing is not in and of itself core to standard development, nor to why such development so often gets a pass from competition law authorities.

In contrast, the FRAND obligation is one of the core reasons why standards so often get a pass from the competition law authorities.  The FRAND obligation the most-oft used safeguard to ensure that standard development does not devolve into an anti-competitive endeavor or cause significant anti-competitive harms.  But without robust enforcement of the FRAND obligation, standard development and SEP licensing can easily become anti-competitive.

These competition law issues, and the FRAND obligation that is intended to safeguard against anti-competitive problems, mean that SEPs are not ordinary patents.  SEPs result from the concerted actions of a group of competitors.  The FRAND obligation is an important part of balancing the three requirements – participation, adoption and prevention of competition harm. 

The German Federal Court of Justice considered none of this.  Instead, it treated standard essential patents as if they were garden variety patents without any consideration of the competition law aspects of standard development or of the FRAND obligation.  Nor did the court even apply established EU law, including proportionality and the public good, which is applicable to all patents but has special importance when it comes to FRAND committed SEPs.[3]

Rather than focusing on what encourages SEP licensing – which at best merely supports one aspect of the goals and requirements of standard development – the focus should be what encourages both the development and adoption of useful standards and also prevents competitive harms.  Issuing injunctions in all cases involving SEPs does not support adoption of useful standards and acts to foster, rather than to prevent, competitive harms.

[1]          Leaflet 8p A5 ETSI Strategy_ebook

[2]          I will note that there is limited evidence that SEP licensing actually encourages healthy standard participation, however. 

[3]          The court did pay lip service to the special nature of SEPs, but they allowed the end goal (an injunction) to override any true consideration of FRAND.