Competition Law and Standard-Setting Organisations and Competition

1. Introduction

Standard-setting organisations (SSOs) are bodies that develop technical standards intended to ensure interoperability, compatibility, safety, quality, efficiency, and technological coordination. Examples include organisations and industry consortia involved in telecommunications, information technology, electronics, engineering, internet protocols, and other technology-intensive industries.

Standards can generate substantial pro-competitive benefits. A common technical standard can allow products made by different firms to work together, reduce transaction costs, encourage innovation, facilitate market entry, and prevent technological fragmentation.

At the same time, standard-setting can create significant competition-law risks because competitors cooperate in the standardisation process. An SSO may become a forum for:

• exclusion of competing technologies;
• collective refusal to deal;
• manipulation of technical specifications;
• exclusion of particular firms;
• patent hold-up;
• discriminatory access to standards;
• concealment of patents;
• excessive licensing restrictions;
• coordinated conduct among competitors;
• foreclosure of alternative technologies; and
• creation or reinforcement of monopoly power.

Therefore, competition law generally attempts to preserve the legitimate efficiency of standardisation while preventing the standard-setting process from being used as an instrument of anticompetitive exclusion.

2. Meaning of a Standard-Setting Organisation

An SSO is an organisation or industry body through which participants agree upon technical, commercial, safety, interoperability, or performance standards.

Typical participants may include:

1. manufacturers;
2. technology companies;
3. telecommunications operators;
4. patent holders;
5. software companies;
6. industry associations;
7. research institutions;
8. government or regulatory bodies; and
9. consumers or user representatives.

Examples of standards

Standards may concern:

• telecommunications protocols;
• Wi-Fi and networking;
• USB interfaces;
• video and audio compression;
• electrical equipment;
• safety requirements;
• payment systems;
• cybersecurity protocols;
• data formats;
• interoperability requirements; and
• manufacturing specifications.

The competition issue becomes particularly important when compliance with the standard is essential for market participation.

3. Why Standard-Setting Can Be Pro-Competitive

Standardisation can produce substantial efficiencies.

A. Interoperability

A common standard permits products from different manufacturers to work together.

For example, a telecommunications standard can allow equipment manufactured by different firms to communicate through the same network.

B. Reduction of transaction costs

Businesses do not have to negotiate technical specifications separately with every trading partner.

C. Consumer benefits

Consumers can purchase complementary products from different manufacturers rather than being locked into a single supplier.

D. Innovation

A common technical platform can encourage firms to develop competing products and applications around the standard.

E. Network effects

Standards can increase the value of a technology as more users and producers adopt it.

F. Market entry

Open standards can reduce technological barriers faced by new entrants.

4. The Competition-Law Problem

The central problem is that standardisation requires cooperation among competitors.

Competitors that normally operate independently may meet in an SSO and discuss:

• product specifications;
• technical requirements;
• future technologies;
• intellectual-property rights;
• licensing arrangements;
• interoperability;
• implementation costs; and
• technical roadmaps.

Such cooperation can potentially become a mechanism for collective market power.

The basic competition-law question is therefore:

Is the standard-setting process genuinely directed toward creating an efficient technical standard, or is it being used to exclude competitors and restrict competition?

5. Major Competition Concerns

A. Exclusion of Competing Technologies

An SSO may select one technology over another.

Ordinarily, choosing a technically superior technology is not itself anticompetitive.

The concern arises where competitors manipulate the process to ensure that a competing technology is excluded for strategic rather than technical reasons.

For example, dominant manufacturers might agree that the standard should contain technical requirements that only their products can satisfy.

This can produce:

• foreclosure;
• increased entry barriers;
• reduced innovation; and
• artificial monopoly power.

6. Standard-Setting as a Collective-Action Problem

A group of competitors may collectively possess significant market power even though no individual participant has sufficient power to exclude competitors.

The SSO can therefore become a vehicle for:

• collective exclusion;
• coordinated purchasing;
• collective refusal to license;
• price coordination;
• market allocation; or
• agreement concerning commercially sensitive information.

Competition authorities therefore examine the governance and voting mechanisms of the SSO.

Important questions include:

1. Who can participate?
2. Who can vote?
3. Are voting rights proportionate?
4. Can dominant firms veto competing technologies?
5. Are technical proposals evaluated objectively?
6. Are minority participants protected?
7. Are meetings transparent?
8. Are patent-disclosure obligations imposed?
9. Is access to the final standard open?
10. Can a firm use the standard to exclude competitors?

7. Patent Rights and Standard-Setting

One of the most important areas of competition law is the interaction between standard-setting and patents.

A patented technology incorporated into a standard may become a:

Standard-Essential Patent (SEP).

Once a technology becomes part of an industry standard, manufacturers may have little practical choice but to use the patented technology.

This creates substantial bargaining power for the patent holder.

8. Patent Hold-Up

Meaning

Patent hold-up occurs when a patent holder obtains additional bargaining power because its technology has already been incorporated into an industry standard.

Before standardisation:

Technology A competes with Technologies B and C.

After standardisation:

Technology A becomes essential to comply with the standard.

The patent owner can then potentially demand licensing terms that would not have been possible before standardisation.

This is particularly significant where switching away from the standard is technically or commercially impractical.

9. Patent Ambush

A particularly serious concern is patent ambush.

This may occur where:

1. a company participates in an SSO;
2. the company possesses a patent relevant to a proposed standard;
3. the company fails to disclose the patent or its relevant interests;
4. the SSO adopts the technology;
5. the technology becomes essential to implementation; and
6. the company subsequently asserts the patent against users of the standard.

The competitive harm arises because the SSO's technological choice may have been different if it had known about the patent.

10. FRAND Commitments

Many SSOs require owners of SEPs to license them on FRAND terms:

Fair, Reasonable and Non-Discriminatory terms.

FRAND obligations attempt to balance two interests:

Patent holder

The inventor should receive reasonable compensation for its innovation.

Standard implementer

The implementer should have reasonable access to the standard without being subjected to exploitative or discriminatory licensing terms.

FRAND disputes frequently raise questions concerning:

• royalty rates;
• discriminatory licensing;
• injunctions;
• portfolio licensing;
• worldwide licences;
• royalty stacking;
• good-faith negotiations; and
• abuse of dominance.

11. SSO Governance and Competition

The internal rules of an SSO can themselves create competition concerns.

An SSO should ideally provide:

• transparent membership rules;
• objective technical criteria;
• non-discriminatory participation;
• meaningful voting rights;
• appropriate patent disclosure;
• safeguards against conflicts of interest;
• fair procedures for competing technologies; and
• access to standards on reasonable terms.

A dominant company should not be able to use procedural control of the SSO to eliminate rivals.

12. Important Case Laws

1. American Society of Mechanical Engineers v. Hydrolevel Corp.

456 U.S. 556 (1982) — United States

This is a foundational case concerning the competition implications of standards organisations.

The American Society of Mechanical Engineers (ASME) developed technical standards and had substantial influence in the industry. Representatives associated with ASME were involved in communications concerning whether a competing product complied with ASME standards.

The Supreme Court held that an association could be liable under antitrust law for anticompetitive conduct carried out through its agents.

Importance

The case demonstrates that:

• standards organisations are not immune from competition law;
• members can use an association's authority to harm competitors;
• misuse of certification or standards can produce exclusionary effects; and
• an SSO must maintain appropriate governance safeguards.

Principle

A standards organisation cannot become a mechanism through which private parties obtain anticompetitive exclusion.

13. Radiant Burners, Inc. v. Peoples Gas Light & Coke Co.

364 U.S. 656 (1961) — United States

Radiant Burners concerned alleged exclusion associated with a technical standards and certification system.

The plaintiff alleged that competitors used industry-standardisation and approval mechanisms to restrict access to the market.

The Supreme Court permitted the antitrust claim to proceed.

Competition significance

The case illustrates how technical certification can become problematic when industry participants collectively use standards or approval mechanisms to disadvantage a competitor.

Principle

A technical or safety standard does not automatically receive immunity merely because it is expressed in technical language.

The actual competitive effect must be examined.

14. Allied Tube & Conduit Corp. v. Indian Head, Inc.

486 U.S. 492 (1988) — United States

This is one of the most important cases concerning manipulation of a private standard-setting organisation.

The National Fire Protection Association (NFPA) developed the National Electrical Code. Allied Tube allegedly mobilised large numbers of its own supporters to influence the voting process in order to exclude a competing product from the standard.

The Supreme Court held that private manipulation of the standards process could attract antitrust liability.

Key principle

The fact that a standard-setting process is conducted by a private organisation does not make anticompetitive manipulation immune from antitrust scrutiny.

Importance

The case is particularly important for:

• lobbying within SSOs;
• strategic voting;
• exclusionary standard-setting;
• competitor coordination; and
• manipulation of technical standards.

It establishes that private standard-setting can have market consequences comparable to governmental regulation where the industry relies heavily upon the resulting standard.

15. FTC v. Dell Computer Corp.

121 F.T.C. 616 (1996) — United States

This matter concerned Dell's participation in a standards-setting process involving the Video Electronics Standards Association (VESA).

The Federal Trade Commission alleged that Dell failed to disclose relevant patent rights during the standards process and subsequently asserted those rights after the standard had been adopted.

The matter was resolved through an FTC consent order.

Importance

The case illustrates the competition risks associated with:

• inadequate patent disclosure;
• concealed intellectual-property interests;
• manipulation of standards;
• patent ambush; and
• opportunistic assertion of patent rights after standard adoption.

Principle

Effective patent-disclosure rules are important because an SSO may select a technology differently if it knows that implementation will require licensing a particular patent.

16. Rambus Inc. v. FTC

522 F.3d 456 (D.C. Cir. 2008) — United States

Rambus participated in JEDEC, a semiconductor standards organisation.

The FTC alleged that Rambus engaged in deceptive conduct concerning patents while participating in the standard-setting process and subsequently exploited its patent position after technologies connected with its patents were incorporated into standards.

The D.C. Circuit ultimately rejected the FTC's particular showing of competitive harm required for its monopolisation theory.

Importance

The case nevertheless became extremely important in discussions concerning:

• patent disclosure;
• standard-setting;
• deceptive conduct;
• patent ambush;
• monopolisation;
• causation; and
• the distinction between deception and demonstrable anticompetitive effects.

Important lesson

Merely establishing that a participant acted deceptively is not necessarily sufficient to establish every element of an antitrust monopolisation claim. The competitive consequences and causal connection must also be demonstrated.

17. In re Rambus — European Commission

COMP/38.636, Rambus — European Union

The European Commission also examined Rambus's conduct concerning patents and standard-setting.

The Commission was concerned about the possibility that Rambus could exploit patents covering technologies incorporated into relevant standards.

The Commission's proceedings ultimately involved commitments concerning licensing and royalty levels.

Importance

The matter demonstrates the EU competition-law concern with:

• patent ambush;
• exploitation of standardisation;
• excessive licensing conditions;
• SEP-related market power; and
• remedies designed to prevent exploitation of standard-derived power.

18. Huawei Technologies Co. Ltd v ZTE Corp.

C-170/13 — Court of Justice of the European Union (2015)

Although Huawei v ZTE principally concerns SEPs and Article 102 TFEU, it is highly relevant to the competition-law consequences of standardisation.

Huawei held SEPs relating to the LTE standard. The dispute concerned the enforcement of those patents and the circumstances in which seeking an injunction could constitute an abuse of dominant position.

The CJEU established a framework requiring appropriate conduct by both:

• the SEP holder; and
• the alleged infringer.

Importance

The case addresses:

• SEP injunctions;
• FRAND negotiations;
• dominance;
• good-faith licensing negotiations;
• patent enforcement; and
• competition-law limitations on SEP enforcement.

Principle

Standardisation can create a special relationship between intellectual-property rights and market power, requiring careful balancing between patent enforcement and competition.

19. European Commission v Qualcomm — Qualcomm Commitments/SEP Context

European competition-law enforcement involving Qualcomm has also demonstrated the broader significance of standardisation in telecommunications.

Qualcomm's position in cellular technologies illustrates how companies holding important technological patents can acquire substantial bargaining power where their technologies are incorporated into widely adopted standards.

Competition analysis can therefore examine:

• exclusionary rebates;
• interoperability;
• chipset markets;
• SEP licensing;
• foreclosure;
• royalty structures; and
• relationships between upstream and downstream markets.

The Qualcomm matters demonstrate that standardisation-related market power can extend beyond the immediate market for the patented technology.

20. Apple Inc. v Motorola, Inc.

757 F.3d 1286 (Fed. Cir. 2014) — United States

Apple v Motorola involved disputes concerning standards-essential patents and licensing.

The case considered issues surrounding Motorola's SEP rights, FRAND licensing and potential remedies.

Importance

It demonstrates the relationship between:

• standard-essential patents;
• FRAND commitments;
• injunctions;
• licensing negotiations; and
• competition-related concerns.

The case is useful for understanding how courts deal with remedies where a patented technology has become part of an industry standard.

21. Competition Law Principles Emerging from the Cases

The above authorities reveal several recurring principles.

Principle 1 — Standardisation is not inherently anticompetitive

The existence of cooperation among competitors does not automatically violate competition law.

The purpose, procedure and effects of the cooperation matter.

Principle 2 — Private SSOs can be subject to antitrust scrutiny

Allied Tube demonstrates that private standard-setting can produce sufficiently significant market effects to attract antitrust liability.

Principle 3 — Technical standards cannot be used as disguised exclusionary devices

A technically neutral standard may be legitimate.

A standard deliberately designed to exclude a rival may raise serious competition concerns.

Principle 4 — Patent disclosure is critical

The Dell and Rambus matters demonstrate why SSOs frequently impose patent-disclosure requirements.

The purpose is to ensure that standard-setting decisions are made with adequate information concerning intellectual-property constraints.

Principle 5 — Standardisation can create market power

A technology may acquire extraordinary commercial significance after incorporation into an industry-wide standard.

This can transform a previously contestable technology market into one involving substantial market power.

Principle 6 — FRAND commitments can limit exploitation

Where an SSO requires FRAND licensing, a patent holder's post-standardisation conduct may be examined against the commitments and applicable competition law.

Principle 7 — Competition analysis must consider counterfactuals

An important question is:

What would the market or standard have looked like if the alleged exclusionary conduct had not occurred?

For example, if a patent had been disclosed properly, perhaps the SSO would have selected an alternative technology.

That counterfactual may be important in assessing competitive harm.

22. Indian Competition-Law Perspective

In India, standard-setting issues can potentially engage the Competition Act, 2002, particularly:

• Section 3 — anti-competitive agreements;
• Section 4 — abuse of dominant position;
• Section 5 — combinations;
• Section 19 — investigation of alleged contraventions;
• Section 26 — investigation procedure;
• Section 27 — orders following inquiry; and
• Section 32 — conduct taking place outside India having effects in India.

The Competition Commission of India has also dealt extensively with competition issues involving SEPs, FRAND licensing and technology markets, particularly in the telecommunications sector.

Important Indian SEP litigation has involved disputes concerning companies such as Ericsson and Indian handset manufacturers, raising questions about:

• market definition;
• dominance;
• FRAND licensing;
• discriminatory licensing;
• royalty determination;
• excessive pricing;
• abuse of dominance; and
• the interaction between patent law and competition law.

The Indian approach must also account for the relationship between the Competition Act, 2002 and the Patents Act, 1970, particularly where conduct involves licensing or enforcement of patented technology.

23. Standard-Setting and Section 3 of the Competition Act

An SSO may involve horizontal cooperation between competing firms.

Therefore, Section 3 analysis can potentially arise where participants agree to:

• exclude a rival technology;
• boycott a supplier;
• restrict technical development;
• coordinate prices;
• allocate markets;
• restrict production;
• exchange competitively sensitive information; or
• collectively refuse access.

However, legitimate standardisation can generate efficiencies.

Consequently, the legal assessment should distinguish between:

Legitimate standardisation

Technical cooperation → interoperability → efficiency → consumer benefit.

Anticompetitive standardisation

Competitor coordination → exclusion → foreclosure → reduced competition.

24. Standard-Setting and Abuse of Dominance

Where an SSO or one of its participants possesses substantial market power, Section 4-type concerns may arise.

Potential abusive conduct includes:

A. Refusal to provide access

A dominant standard owner may deny access to an essential technical specification.

B. Discriminatory licensing

Different competitors may be charged materially different licensing terms without objective justification.

C. Excessive licensing terms

An SEP holder may potentially exploit standard-derived market power through excessive or unfair licensing conditions.

D. Tying

Access to one standard may be conditioned upon purchasing another product or service.

E. Foreclosure

Technical specifications may be structured to prevent rival technologies from competing effectively.

25. Information Exchange Through SSOs

SSOs create another important competition risk: information exchange.

Competitors may obtain information regarding:

• future prices;
• production volumes;
• sales forecasts;
• customers;
• product launches;
• investment plans;
• commercial strategy.

Technical discussions should therefore remain focused on legitimate standardisation objectives.

An SSO should avoid becoming a platform for exchanging commercially sensitive information unrelated to the standard.

26. Dominant Firm Influence Over an SSO

A particularly important concern arises when one firm has substantial influence over an SSO.

For example:

Dominant manufacturer → controls voting bloc → influences technical committee → standard favours its technology → rivals cannot effectively compete.

The competition authority would potentially examine:

• voting structure;
• market shares;
• participation rights;
• decision-making rules;
• technical justification;
• alternative technologies; and
• actual foreclosure effects.

27. Open Standards Versus Proprietary Standards

Open standards

Characteristics generally include:

• broad participation;
• transparent procedures;
• accessible specifications;
• non-discriminatory participation; and
• reasonable licensing arrangements.

They can promote interoperability and competition.

Proprietary standards

A single company may control the technology or technical specification.

Proprietary standards are not automatically unlawful.

However, competition concerns can arise where a dominant firm uses proprietary control to:

• prevent interoperability;
• exclude competitors;
• impose tying;
• discriminate against rivals; or
• exploit users dependent upon the standard.

28. Competition Risks Across the Standard Life Cycle

29. Compliance Measures for SSOs

SSOs can reduce competition-law risk through effective governance.

1. Transparent membership

Eligibility should be based on objective criteria.

2. Objective technical criteria

Technologies should be assessed on legitimate technical grounds.

3. Patent disclosure

Members should disclose relevant patents and applications where required by the SSO's rules.

4. FRAND policies

Where appropriate, clear licensing principles should be established.

5. Conflict-of-interest safeguards

Participants with strong commercial interests should not be permitted to manipulate the process improperly.

6. Competition-law training

Members should understand that SSO meetings remain subject to competition law.

7. Information controls

Commercially sensitive information should not be unnecessarily exchanged.

8. Procedural fairness

Competing technologies should receive genuine consideration.

9. Record keeping

Meetings and voting decisions should be properly documented.

10. Independent governance

Where feasible, technical decisions should not be controlled solely by the largest market participants.

30. Analytical Framework for Exam Answers

When analysing an SSO under competition law, the following sequence can be used:

Step 1 — Identify the SSO

What organisation is setting the standard?

↓

Step 2 — Identify the participants

Are they competitors, suppliers, customers or dominant firms?

↓

Step 3 — Identify the standard

Is it voluntary, mandatory, industry-wide or commercially essential?

↓

Step 4 — Identify market power

Does adoption of the standard create or reinforce market power?

↓

Step 5 — Examine the process

Was the standard selected through objective and transparent procedures?

↓

Step 6 — Examine exclusion

Were competing technologies or firms deliberately excluded?

↓

Step 7 — Examine IP

Were relevant patents disclosed?

↓

Step 8 — Examine licensing

Are SEP licences FRAND or potentially discriminatory/excessive?

↓

Step 9 — Examine effects

Did the conduct foreclose rivals, raise entry barriers or reduce innovation?

↓

Step 10 — Examine efficiencies

Does the conduct produce legitimate interoperability, safety or efficiency benefits?

↓

Step 11 — Consider remedies

Possible remedies include:

• modification of SSO procedures;
• non-discriminatory access;
• patent disclosure;
• licensing commitments;
• FRAND commitments;
• removal of exclusionary provisions;
• behavioural commitments; or
• structural remedies in exceptional circumstances.

31. Key Case-Law Summary

32. Conclusion

Standard-setting organisations occupy an unusual position in competition law because they require cooperation between competitors to produce a common technological outcome.

Properly designed standardisation can produce major benefits through interoperability, innovation, reduced transaction costs, safety and consumer choice. However, the same process can be exploited to exclude competing technologies, conceal patents, create artificial barriers to entry or exploit market power after a technology becomes standard-essential.

The central competition-law principle emerging from Hydrolevel, Allied Tube, Dell, Rambus and Huawei v ZTE is that the law should distinguish genuine technical cooperation from strategic manipulation of the standard-setting process.

The most important areas for competition-law scrutiny are therefore:

1. SSO governance;
2. participation and voting rights;
3. exclusion of competing technologies;
4. information exchange;
5. patent disclosure;
6. patent ambush;
7. SEP licensing;
8. FRAND commitments;
9. dominance created through standardisation;
10. foreclosure and interoperability; and
11. the use of standards to facilitate collective exclusion.

Thus, competition law does not seek to prevent standardisation. Rather, it seeks to ensure that standardisation remains an instrument of technological coordination and efficiency rather than a mechanism for competitors to manufacture or exploit market power.