Patents and standardisation: are SSO IPR policies an effective remedy to the hold-up problem?
(1 april 2010)
In today’s technology-driven world, the importance of standardisation, product interoperability and compatibility have become crucial to promoting innovation and competition.[1] A standard can be described as a set of technical specifications that either provides or is intended to provide a common design for a product or process. There are several types of standards: standards that have arisen from the market itself, standards that have been set by the government and standards that have been set by private standard setting organisations. This article focuses only on the latter.
In the process of setting standards, companies can join a standard setting organisation (SSO)[2] in their field. During the process, all the members discuss what the new standard should be. At first sight, this seems a brilliant form of cooperation between companies pooling their knowledge. However, problems may arise when it comes to patents. The importance of patents in the field of complex innovation is growing and so is the probability that standard designers cannot work around existing protected knowledge.[3] When all the members have finally agreed on the standard and production is already in full swing, it can be very harmful if patent infringement comes to light. The costs of switching to another technology are much higher, as participants have already made substantial investments in the standard. Participants may find themselves locked into the chosen technology. Had they known about the existing patent, an alternative technology could have been chosen or they could have tried to invent around the patent at an earlier stage.[4] When the standard has been set, the patentee has a very strong negotiating position and is able to extract unreasonably high royalties or even to block the use of the standard. This is known as the hold-up problem.
Patent owners may even intentionally create this situation by keeping their patents secret until a standard has been set. In addition it is conceivable that a member who has a relevant patent pending will use his right to write amendments or divisional claims covering the technology that the SSO is developing.[5] This is not an illusionary problem as it actually happened in the RAMBUS case.[6]
To avoid the problem of patent hold-up, most SSOs have their own IPR policy. In that respect two of the most common obligations laid down in the IPR policy rules of SSOs are (i) the obligation to timely disclose relevant patents during the standard setting procedure and (ii) the obligation to license relevant patents on fair, reasonable and non-discriminatory (FRAND) terms.[7] However, IPR policies differ from one SSO to the next. Moreover, it is often unclear what their judicial status is and how they can be enforced. Is it possible for a patent holder to sue for patent infringement a company manufacturing products that function in accordance with the standard, if the patent holder breached his obligation to disclose essential patents during the standard setting process? And under what circumstances can the owner of an essential patent be forced to license under FRAND conditions? In this article we hope to provide some guidelines under Dutch law on how to use and/or amend the IPR policy rules of SSOs to effectively deal with the hold-up problem.
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