Complications and Quandaries in the ICT Sector: Standard Essential Patents and Competition Issues

Front matter

Ashish Bharadwaj Vishwas H. Devaiah Indranath Gupta Editors

Complications and Quandaries in the ICT Sector

Standard Essential Patents and Competition Issues

Contents

1 National Disparities and Standards Essential Patents: Jorge L. Contreras

2 FRAND Commitments and Royalties for Standard Essential Patents: coi GEA pute ag haloes a aca dels ey oe Reena ebay D. Scott Bosworth, Russell W. Mangum III and Eric C. Matolo

3 The Policy Implications of Licensing Standard Essential FRAND- Anne Layne-Farrar and Michael Salinger

Introduction

Many countries have formulated policies and re-oriented their economy to foster innovation as it is a major source of economic growth. Intellectual property (IP) rights, patents in particular, are necessary to foster technological innovation in a globalized world. Several transitional and emerging economies have increasingly embraced a stronger IPR regime to facilitate inflow of foreign investment and promotion of trade in goods and services. Open and well-integrated markets not only induce growth in domestic industries, but also enable entrepreneurial ventures to innovate and play a prominent role in nation building. The objective ought to be on promoting innovation in niche technological areas, such as computing, healthcare, mobility and mobile connectivity, thereby directly promoting human well-being and economic growth. In this context, legal challenges, economic constraints and technological complexities play a vital role.

Governments in developing economies play vital role in fostering innovation, which is seen as the engine for economic growth. For instance, the current Indian government, under Prime Minister Modi, has rolled out elaborate plans to boost manufacturing in vital sectors. Further, the government is working towards making India’s IPR regime friendly towards investors and innovators. Since technological advancement is a proven potent driver of economic growth, the government is trying to incentivize innovation to ensure ‘Make in India’, ‘Digital India’, ‘Startup India’ and ‘Invest India’ initiatives are successful in the long run. The emphasis, particularly in R&D-intensive sectors, ought to be on promoting technological innovation and manufacturing, rather than importing finished or semi-finished units, replicating products or creating generics. The National IPR Policy unveiled in May 2016, is one such effort of the government where it proposes the primary use of IP as a financial asset and marketable tool for promotion of innovation to ensure economic growth and socio-cultural development. The policy proposes several strategic actions as well as legislative measures to achieve the given objective.

As a follow-up to the National IPR Policy, it is imperative to understand factors that influence innovation. Further, we ought to discuss the role of IP in driving innovation in order to recognize the diversity of approaches undertaken by xix

XX Introduction organizations. There is a need to understand why different firms adopt different strategies to protect their investments towards innovation. Answering these questions will bring coherence and effectiveness in policy-making. For instance, with patented technology standards (say for example, WiFi or 3G/4G/5G network in mobile devices) becoming increasingly common, the complexities and contradictions at the interface of IP and Competition Law have emerged strongly in the past few years. One needs to understand that interoperability is key to ensure that technologies owned by multiple players, sometimes competitors, connect with each other in a seamless manner across geographical borders and markets. To ensure interoperability we see a crucial yet complicated role played by Standards Setting Organizations (SSO) and Standards Developing Organizations (SDO). Given the rapid developments in the ICT sector, the role of SSOs and SDOs in setting up standards and the various players involved in implementing those standards in their devices tend to influence practices and internal dynamics of this sector.

Patents often protect technologies that eventually become standards. Those patents that are essential to the functioning of the standard (known as ‘Standard Essential Patents’ or SEPs) ought to be made available to everyone on Fair, Reasonable And Non-Discriminatory (FRAND) licensing terms. Complexities arise when both licensors and licensees of SEP differ on what they mean by “fair”, “reasonable” and “non-discriminatory” terms, often resulting in legal battles and/or investigation by competition or antitrust authorities. Regulators, legal practitioners, academicians and the businesses around the world are attempting to resolve such complicated legal issues related to determination and building consensus on FRAND rates as well as what amounts to appropriate royalty base.

This book discusses the role of SSOs/SDOs and various stakeholders involved in implementing the standards. It also addresses topics such as the appropriate royalty base, calculation of FRAND rates and concerns related to FRAND commitments and the role of Federal Trade Commission (FTC) in collaborative standard setting process. This book also unpacks how the regulatory agencies and courts in the United States, European Union and India are dealing with the rising allegations of anti-competitive behaviour by SEP holders.

Jorge Contreras in his chapter on “National Disparities and Standard Essential Patents: Considerations for India” discusses the increase in patenting of technologies that are being declared as standards. The chapter elicits the role of SSOs that are enabling patent holding entities to voluntarily declare their technology as a standard so that it is adopted by product manufacturers. The SSOs formulate disclosure and licensing policies. Disclosure policies require patent holders participating in the development process to disclose patents essential in the development of standards and licensing policies require patent holders to grant licenses on FRAND terms. While SSOs formulate these policies, it is observed that issuing licenses on the above terms may not always be smooth and equitable as product manufacturers based in different countries might perceive FRAND in the context of their own economic settings. A FRAND rate that is acceptable in a country may not be equitable in some other country. This has led to several disputes in various countries. It is also observed that SEP holders are largely based in

Introduction xxi developed countries while product manufacturers situated in developing countries are barely contributing to the development of the standard process. It is therefore necessary to address this anomaly by encouraging product manufacturers based in developing economies to engage in more research and development. Such activities could also be incentivized by their respective governments, which may lead to technological contribution in standards development process and increased participation in such processes.

While SSO activities are recognized as potential sources of economic efficiency, the nature of the SSO process facilitates and requires communication and agreement among parties that may otherwise compete in the marketplace, thus leading to antitrust agencies and private counsel to require caution in the standard setting process. The industry-wide, international scope of technological agreement in SSO activities is a potential source of market power for IP owners. The risk of such market power has led technology adopters to seek assurances from technology contributing SSO participants that technologies adopted in the standard are made available on FRAND terms. In addition, it has become increasingly common for technology contributors to provide FRAND commitments in conjunction with their SSO participation. D. Scott Bosworth, Russell W. Mangum III and Eric C. Matolo in their chapter on “FRAND Commitments and Royalties for Standard Essential Patents” address some of the conceptual and practical effect of FRAND commitments to SSOs on royalties for SEPs. They discuss some recent decisions by US courts and regulatory agencies clarifying that FRAND commitment can be binding on technology contributors, and that determination of FRAND royalty rates on standard essential technology can be meaningfully different from that applicable to technology unencumbered by FRAND commitments. They contend that determination of FRAND royalty rates likely requires inquiry into the apportionment of inherent technology value from value that resulted from the SSO process and standard itself. Their chapter addresses various methods to evaluate the sources of economic value of SEPs, to apportion inherent technology value from that resulting from a standard, and the implications of such apportionment on the royalties for FRAND encumbered SEPs.

It is widely agreed that FRAND commitments impose certain constraints on the terms and conditions that patent holders may seek from licensees in comparison to licensing patents without a FRAND commitment. But exactly what those constraints might entail has been the subject of heated debate for at least a decade. Anne Layne-Farrar and Michael Salinger in their chapter on “The Policy Implications of Licensing Standard Essential FRAND-Committed Patents in Bundles” discuss the policy implications of licensing of essential and FRAND-committed patents in bundles. The particular constraint discussed in their chapter is whether FRAND prohibits patent portfolio licensing, where both FRAND committed and non-essential, non-FRAND-committed patents are bundled together into a single license. They explain that the answer to that question is “No, FRAND does not create a blanket prohibition against portfolio licensing.” Whether such a patent portfolio license honors a FRAND commitment depends on the specific licensing terms and conditions comporting with FRAND.

xxii Introduction

Assessment of FRAND licensing terms for SEPs has not been an easy task in the ICT sector. There are existing debates encompassing FRAND terms and it is important to have a nuanced understanding of the attributes that cumulatively would add up to FRAND. Gustavo Ghidini and Giovanni Trabucco in their chapter titled “Calculating FRAND licensing Fees: A Proposal of Basic Pro-competitive Criteria” while assessing the FRAND licensing terms for SEPs, discuss the idea of a balanced criteria based on certain guidelines. These guidelines, based on four progressive cumulative steps are “... consistent with the overall evolutionary and pro-competitive juris-political inspiration” as witnessed in the European Union. These possible steps include: identifying licensing fees strictly proportionate to the technology adopted by the willing licensee; fixing royalty rates of the patent based on the value prior to the completion of standard setting; resolving royalty stacking issues at the time of determining the licensing fees and finally adopting dynamic approach to determine FRAND royalty rates.

Antitrust regulators, specifically in Europe, have focused on SEPs in recent years. Be it the investigations in Samsung and Motorola or the Huawei v ZTE case, the European Commission and the Court of Justice in the European Union have laid down the scope of the EU competition law. In the past, SEP holder’s right to seek injunctive relief was limited, however, the Huawei v ZTE case laid down the specific conditions under which a SEP holder can seek injunctive relief against an unwilling licensee. Roberto Grasso in his chapter titled “Selected Issues in SEP Licensing in Europe: The Antitrust Perspective”, suggests that regardless of the developments in the above instances, it is unclear as to what circumstances would amount to abuse of dominance by an SEP holder, what kind of licensing strategy adopted by the portfolio license holder would be seen as illegal, and whether transfer of a subset of patents to the Patent Assertion Entity (PAE) would amount to a breach of EU competition law. Grasso explores the concept of FRAND as it is defined in the European Commission’s Horizontal Guidelines. He analyzes the issues stated above in the context of the EU Competition law.

In the mix of the debates concerning SEPs and antitrust issues, the role of antitrust agencies in creating the right balance for future innovators is of paramount importance. John Dubiansky in his chapter on “Competition, Intellectual Property Rights and Collaboratively Set Standards: Federal Trade Commission Advocacy and Enforcement”, illustrates the important role that FTC has played over the years in relation to competition and consumer protection. There are two overarching themes in this chapter. First, FTC’s role in collaborative standard setting and FRAND commitment of SEP holders. Secondly, FTC’s advocacy and enforcement to address contentious issues at the intersection of IP and Antitrust Law. Either through reports and guidelines or by presentations or comments, FTC has carried out its objective of competition advocacy. Further, there have been workshops, filing of amicus curiae briefs and written comments and presentations submitted to legislatures and agencies. Dubiansky has talked about how FTC has addressed the issue of FRAND commitment of the patent holder and the scope of seeking an injunction by a patent holder citing infringement of patent where the patent holder has already committed to FRAND terms at the

Introduction xxiii outset. There have been suggestions made by FTC in relation to contentious issues of patent hold-up and policies and procedures followed by SSOs in connection with licensing practices. The chapter also reflects upon the extensive use of Section 5 of the FTC Act in number of antitrust cases, which prevents “unfair methods of competition”.

It is usually alleged in the instance of SEP that there is a possibility of hold up once a patent is declared as a standard whereas there is no empirical evidence that points towards the same. Donald E. Knebel in his chapter on “Standard Setting Organizations and Competition Laws: Lessons and Suggestions from the United States” discusses the possibility of patent holders involved in standard setting processes to engage in what may be alleged as anticompetitive behavior. He discusses this in the context of the US jurisdiction wherein the courts have held conducts of non-disclosure and royalty demands as anticompetitive behavior. The strategy of refusing to license until demands for higher royalties are met is seen as an instance of hold-up. While RAND terms developed by SSOs aim to prevent SEP holder from demanding excessive royalties, it has been ineffective in preventing hold-ups due to the fact that parties to such licensing tend to interpret the terms to their own convenience. Vagueness has resulted in uncertainty and further resulted in increased costs for the users of such standards as they are unsure as to how much it will cost them to adopt the patented technological standards in their products. Knebel explores the possibility of ex ante disclosure of royalty rates and whether it runs afoul of antitrust laws in the US if SSOs mandate such royalty rate disclosures.

The controversies surrounding SEPs and the role of Competition Commission of India (CCI) have taken the centre stage. Koren Wong-Ervin et al.’s chapter on “FRAND in India” is set in the backdrop of the CCI’s investigation orders against Ericsson and the discussion paper issued by the Department of Industrial Policy and Promotion (DIPP) on concerns relating to hold-up, royalty base, royalty rates, injunctive relief for SEPs under FRAND commitment, and application of Non-disclosure agreements (NDAs). As a point of reference, this chapter relies on the jurisprudence and the existing debates in the US and the EU surrounding the treatment of the above concepts. The developments in US and the EU will provide some degree of guidance and clarity to the Indian courts and the CCI about these inherently complex yet important matters. Contrary to the existing practices in US and EU, Wong-Ervin points at the different treatment of NDAs in the CCI investigation orders. The chapter points to a measured approach in the absence of actual evidence showing FRAND licensing practices as anti competitive and against consumer welfare. The perception is otherwise contrary to the views expressed by the authors. Any radical change undertaken by Indian regulators and policy makers may disrupt the balanced FRAND ecosystem.

The Courts in India have suggested that the process followed by the CCI for initiating an investigation of alleged abuse of dominance is merely a departmental inquiry and not adjudicatory in nature. Indranath Gupta, Vishwas H. Devaiah and Dipesh A. Jain in their chapter on “CCI’s Investigation of Abuse of Dominance: Adjudicatory Traits in Prima Facie Opinion” which is set in the backdrop of an investigation concerning alleged abuse of dominance in the ICT

XXIV Introduction sector, observes the process adopted by CCI to initiate an investigation. This chapter illustrates that the practice adopted by CCI is more of adjudicatory in nature as opposed to what has been suggested by the Courts.

The chapters are a true reflection of the existing range of disagreements that persist between the SEP holders and the implementers who rely on those standards. As a result, we have come across a surge in litigation in various jurisdictions. Further, interventions on the part of antitrust authorities are quite common. Given that most of the cases concerning antitrust issues and SEPs are pending in India, the diverse range of ideas expressed in the above chapters would go a long way in providing guidance about many complex issues.

Ashish Bharadwaj Jindal Global Law School O.P. Jindal Global University

Vishwas H. Devaiah Jindal Global Law School O.P. Jindal Global University

Indranath Gupta Jindal Global Law School O.P. Jindal Global University

Chapter 1 National Disparities and Standards Essential Patents: Considerations for India

Jorge L. Contreras

Today’s technology product markets, particularly in the information and communications technology (henceforth “ICT”) sector, are inherently international. Products designed in California may be assembled in Taiwan from parts sourced from Korea, Germany and Malaysia for sale to end consumers in India. The global character of technology markets underscores the importance of technical interoperability standards such as those enabling wireless networking (Wi-Fi, Bluetooth), wireless telecommunications (4G LTE), digital media storage (DVD, SDRAM) and digital content encoding (MP3/MP4). These standards enable products and components manufactured by different vendors to work together without customization or firm-to-firm interaction. Stakeholders affected by technology interoperability standards span the globe, from product designers to manufacturers to consumers. This chapter considers the impact of patents on international technical standardization activities. In particular, it assesses the impact that patents have on individual firm behavior and intra-firm dynamics in the context of international standard-setting, and evaluates available options to reduce disparities between large patent holders and firms from less-developed economies.

This chapter has benefitted from presentation and discussion at the Workshop on Mega-Regionalism: New Challenges for Trade and Innovation (MCTI), Honolulu, Hawaii, USA—January 20-21, 2016, and from helpful comments and discussion with Ashish Bharadwaj, Dieter Ernst and Brian Kahin.

J.L. Contreras (X<) S.J. Quinney College of Law, University of Utah, Salt Lake City, USA e-mail: jorge.contreras @law.utah.edu

© The Author(s) 2018 1 A. Bharadwaj et al. (eds.), Complications and Quandaries in the ICT Sector, https://doi.org/10.1007/978-981-10-6011-3_1

2 Standards and the International Standard-Setting Landscape

While many health, safety and environmental standards are developed by governmental agencies, the vast majority of interoperability standards originate in the private sector.’ In the U.S., there is an express governmental preference for privately-developed standards over government-developed standards,” and elsewhere this preference has generally been supported by the market. Some widely adopted interoperability standards (e.g., Microsoft’s .doc and Adobe’s PDF electronic document formats) are single-firm proprietary formats (de facto standards). Over the past two decades, however, most successful interoperability standards have been developed by groups of firms that collaborate within voluntary associations known as standards-development organizations or standards-setting organizations (henceforth “SSOs”). The resulting standards are often referred to as “voluntary consensus standards”, which will be the principal focus of this chapter.

SSOs vary greatly in size and composition. The European Commission identifies three broad categories of sso?

(1) those that are formally recognized by governmental bodies. These include:

International groups [e.g., the International Organization for Standardization (ISO) and the International Telecommunications Union (ITU)],

regional groups [e.g., the European Telecommunications Standards Institute (ETSD], and

national groups [e.g., Germany’s Deutsches Institut fiir Normung (DIN), the Japanese Standards Association (JSA), China’s National Institute for Standardization (CNIS) and the Bureau of Indian Standards (BIS)].*

(2) “quasi-formal” groups that are typically large international organizations that share many of the characteristics of formally recognized groups [e.g., the IEEE Standards Association, ASTM International and the Internet Engineering Task Force (IETF)], and

'Dieter Ernst, America’s Voluntary Standards System — A Best Practice Model for Innovation Policy?, East-West Center Working Paper No. 128, (2012); Brad Biddle, et al., The Expanding Role and Importance of Standards in the Information and Communications Technology Industry, 52 JURIMETRICS 177 (2012).

Office of Management and Budget (OMB) Circular A-119 (1998).

3European Comm’n — Directorate-General for Enterprise and Indus. (EC). 2014. Patents and Standards: A Modern Framework for IPR-Based Standardization.

4The American National Standards Institute (ANSI) presents a somewhat unusual case, in as much as it is a private organization which is recognized in certain capacities by the U.S. government. ANSI oversees, accredits and establishes policy for national SSOs that wish to develop American National Standards. Among other things, ANSI-accredited SSOs must adopt due process and intellectual property policies that comply with ANSI’s “Essential Requirements”.

Table 1 Selected ICT standards and where they were developed

Standard EC cas 802.11 Wireless networking IEEE Bluetooth Short-range wireless networking Bluetooth SIG CD Compact disc (digital media) n/a?

CDMAone/IS-95 2G wireless telecommunications Qualcomm/

TIA?

DVB Digital video broadcast (Europe) DVD Digital media Ethernet Device networking GPS Global positioning system GSM 2G wireless telecommunications ETSI 1 H.264 Audio-video encoding ITU 1 HDMI High-definition multimedia interface | HDMI Forum 3 HDTV High-definition broadcast TV (US) ATSC 3 HTTP Hypertext transfer protocol W3C 2 IP Internet protocol IETF 2 LTE 4G wireless telecommunications ETSI 1 MP3/MP4 Audio and video compression MPEG (ISO/IEC) 1/2 PDF Portable document format n/a? n/a SDRAM Semiconductor memory JEDEC 2 UMTS 3G wireless telecommunications ETSI/3GPP USB Device networking USB Forum 3 V.90 56k modem ITU VHS Video cassette media n/a’ n/a WWW Worldwide web W3C 2 XML Extensible markup language W3C 2

“The CD specification was developed by Philips and Sony

°CDMA technology was initially developed by Qualcomm, which then submitted it for adoption to the Telecommunications Industry Association (TIA) “The DVD specification was developed by Philips, Sony, Toshiba and Panasonic “The GPS standard was originally developed by the U.S. Department of Defense “PDF is a proprietary format developed by Adobe

‘The VHS format was developed by Matsushita/JVC

(3) smaller, privately-organized consortia (also known as special interest groups or fora), including groups such as the Bluetooth SIG, HDMI Forum, USB Forum and hundreds of others.”

Table 1 lists a number of widely-adopted ICT standards and the organizations in which they were developed.

>Updegrove catalogs more than 1,000 such groups. Andrew Updegrove, “Standard Setting Organizations and Standards List” CONSORTIUM INFO. (2015), http:/Awww.consortiuminfo. org/links/#. VarhPnjDRDO.

3 Firm-Level Participation in Standard-Setting

Firm-level participation in SSOs varies according to the type and nature of the SSO. ISO, probably the most prominent Category | SSO, allows participation solely on a national basis, so that each member state has a delegation that represents its interests at the SSO. Criteria for participation in a national delegation are determined at the national level. The U.S. representative to ISO, for example, is ANSI. Other Category 1 SSOs may limit participation to firms and institutions engaged in business in a particular geographic area. For example, the members of the European Committee for Electrotechnical Standardization (CENELEC) comprise the national electrical standardization committees of each European state. Other Category 1 SSOs, such as ETSI, open membership to all interested parties, but offer different membership categories and benefits to those within the region of focus (Europe, in the case of ETSI).

In contrast, Category 2 SSOs are generally open to all interested parties on an equal basis. Participation depends on firms’ interest in the relevant area of standardization, as well as its ability to bear personnel, travel and technology costs associated with SSO participation. It is no surprise that large global technology firms participate in upwards of fifty or more different SSOs, with the largest involved in more than one hundred SSOs each.° Participation in large, international SSOs in the ICT sector has traditionally been international in character, with representation from firms and institutions based in North America, Europe, Oceania, Japan, Korea and India. Over the last decade, Chinese firms have dramatically increased their participation in international SSOs, in some sectors surpassing participation from all countries other than the U.S.” Despite recent gains by China, SSO participation by firms in less-developed countries, particularly in Latin America and Africa, has remained at low levels.

Category 3 SSOs or consortia are usually formed by small groups of firms interested in developing a specific technology or standard. Often these “founder” or “sponsor” firms hold patents relevant to the technology in question.® Such founders are often large multinationals with substantial patent portfolios, but may also include smaller, specialized firms focusing on the target technology area.

Justus Baron & Daniel F. Spulber. Technology Standards and Standard Setting Organizations: Introduction to the Searle Center Database (2015), http:/Mwww.law.northwestern.edu/research-faculty/searlecenter/innovationeconomics/documents/Baron_Spulber_Searle%20Center_Database.pdf. 7DIETER Ernst, INDIGENOUS INNOVATION AND GLOBALIZATION: THE CHALLENGE For CHINA’S STANDARDIZATION STRATEGY (2011); Jorge L. Contreras, Divergent Patterns of Engagement in Internet Standardization: Japan, Korea and China, 38 TELECOMUNICATIONS Pov’y. 914-932 (2014). Brad Biddle, et al., The Expanding Role and Importance of Standards in the Information and Communications Technology Industry, 52 Jurmetrics 177 (2012).

4 Patents and Standards

4.1 Patenting Standards

Standards are sets of protocols and technical descriptions of product features enabling interoperability. While standards themselves are not patentable, products that are compliant with the technical requirements of standards (often referred to as standards-compliant products) generally satisfy the statutory requirements for patent protection. The owners of patents covering these standardized technologies (referred to as standard-essential patents or “SEPs”) are often the firms and institutions that employ individuals who make particular inventive contributions to standards. Some of these contributions may be made jointly and owned by multiple firms, but in most cases firms individually submit technical contributions to the standard-setting process and own the resulting SEPs.

Because standards documents are often quite lengthy and complex, sometimes running to hundreds or thousands of pages, multiple inventive concepts are frequently embodied in the same standard, leading to the possibility of multiple patents covering any given standard. For example, Blind et al. report large numbers of patent families’ declared to be essential to various standards including WCDMA (1000 patent families), 4G LTE (1000 patent families), MPEG-2 and MPEG-4 (160 patent families), optical disc drive standards (2200 patent families), and DVB-H (30 patent families).

Ordinarily, if the vendor of a product that infringes a patent is unable, or does not wish, to obtain a license on the terms offered by the patent holder, that vendor has three choices: to stop selling the infringing product, to design around the patent, or do neither and risk liability as an infringer. With standards-compliant products, however, designing around the patent may be impossible or economically infeasible. Moreover, once a standard is approved and released by an SSO, market participants may make significant investments in plant, equipment and labor, based on anticipated implementation of the standard in products (a situation often referred to as lock-in).'° In such cases, the cost of switching from the standardized technology to an alternative technology may be prohibitive, thereby increasing the

°A patent “family” consists of all individual patents deriving from a single, initial patent application. These may include individual patents in multiple countries, as well as multiple patents in the same country derived from the same initial application (e.g., continuations, continuationsin-part and divisionals in the U.S.). See Knut Blind et al., Study on the Interplay between Standards and Intellectual Property Rights (IPRs), Final Report (2011), http://ec.europa. eu/enterprise/policies/european-standards/files/standards_policy/ipr-workshop/ipr_study_final_ report_en.pdf.

Cart SHAaPRO & Hat R. VARIAN, INFORMATION RULES: A STRATEGIC GuipE To THE NETWORK Economy (1999).

patent holder’s leverage in any ensuing negotiation over licensing rates. This phenomenon has been termed patent “hold-up” and is discussed extensively in the literature."

As noted above, complex technological products may implement dozens, if not hundreds, of standards each of which may be covered by hundreds or thousands of patents. As such, the aggregation of royalty demands by multiple patent holders could lead to cost-prohibitive burdens on implementing standards-compliant products. This situation is sometimes referred to as “royalty stacking”.'”

4.2 SSO Patent Policies

Over the past two decades, SSOs have responded to the increasing number of patents covering standardized technologies and the perceived threats of patent hold-up and stacking by adopting a series of policy measures intended to address these concerns. SSO patent policies today fall into two general categories: disclosure policies and licensing policies, and often include elements of both. Disclosure policies typically require participants in the standards development process to disclose SEPs that they hold. Licensing policies typically require that participants grant manufacturers of standardized products licenses under their SEPs on terms that are “fair, reasonable and nondiscriminatory” (henceforth “FRAND”) or royalty-free (henceforth “RF’”).

These commitments purport to assure manufacturers that they will be able to obtain licenses (which may sometimes involve a payment) to sell standards-compliant products covered by SEPs. Perhaps, in part, because FRAND commitments require relatively little administrative overhead to enact, their use has become widespread among SSOs.'* Nevertheless, a consistent, practical, and readily enforceable definition of FRAND has proven difficult to achieve. No SSO defines precisely what FRAND means, and many affirmatively disclaim any role in establishing, reviewing, or assessing the reasonableness of FRAND licensing terms. This lack of certainty has contributed to recent litigation over FRAND

"Jorge L. Contreras, Technical Standards, Standards-Setting Organizations and Intellectual Property: A Survey of the Literature (With an Emphasis on Empirical Approaches), in RESEARCH HANDBOOK ON THE ECONOMICS OF INTELLECTUAL PROPERTY LAW, VOL. II - ANALYTICAL METHODS (Peter S. Menell & David Schwartz, eds., Edward Elgar: 2017, forthcoming).

Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991-2049 (2007); Jorge L. Contreras, Patents, Technical Standards and Standard-Setting Organizations: A Survey of the Empirical, Legal and Economics Literature, in RESEARCH HANDBOOK ON THE Economics OF INTELLECTUAL Property Law, VoL. I — ANALYTICAL METHODS (Peter S. Menell & David Schwartz, eds., 2017, forthcoming).

SERAND commitments (or similar commitments to license patents on a royalty-free basis) are required of all SDOs accredited by ANSI.

commitments, '* and leaves most of the details of licensing arrangements to bilateral negotiations among patent holders and potential licensees.

5 Impact of Patents on International Participation in Standard-Setting

5.1 Patenting by SSO Participants

Over the past two decades there has been a sharp increase in patenting within certain technology standardization sectors, particularly wireless telecommunications. "° In addition, a core group of firms in the telecommunications sector accounts for the large majority of patent filings covering ICT standards. These firms include Qualcomm, InterDigital, LG Electronics, Nokia, Samsung, Ericsson and Motorola.’ In addition, researchers have observed a rapid increase in patenting activity by Huawei in the area of Internet standardization.'’ These statistics suggest that patenting behavior is not concentrated among firms of any one country, but is distributed at least among firms based in the major developed economies [U.S. (Qualcomm, InterDigital and Motorola), Korea (LG and Samsung), Europe (Nokia and Ericsson), and China (Huawei)].!®

When considering levels of patent acquisition, it is important to note that a firm’s home jurisdiction is relatively immaterial to the jurisdictions in which it seeks and obtains patents. That is, a large firm with a global market is likely to seek patents in all major markets, no matter where it is based. Thus, in 2014, the ten firms to which the greatest number of U.S. patents were awarded were: IBM (US), Samsung (Korea), Canon (Japan), Sony (Japan), Microsoft (US), Toshiba (Japan), Qualcomm (US), Google (US), LG (Korea) and Panasonic (Japan). "° It is likely that a comparable distribution exists in most other jurisdictions, with at most a modest “head