DISCLOSURES AND ENFORCEABILITY OF SEPS
Beyond the SDO IPRs policies themselves, disclosures of standard essential patents in the SDO context are also influenced by legal developments, and in particular by antitrust enforcement by competition authorities, as well as by the outcomes of patent infringement litigation worldwide. In this respect, three developments are worth taking a closer look at. First, the antitrust actions in the early 2000s in both the United States and the EU against Rambus for allegedly failing to timely disclose its SEPs to the relevant SDO, on the basis of the theory of “patent ambush,”15 which had a different outcome of antitrust enforcement in the United States than in the EU. It should be noted, however, that in Europe acquiring market power through anticompetitive means is not an offense under EU law. As a result, the European Commission focused not on whether Rambus illegally acquired market power through late disclosure of its SEPs but rather that it subsequently claimed unreasonable royalties for its SEPs.
Second, the “implied waiver” decision by the U.S. Court of Appeals for the Federal Circuit in its 2018 Core Wireless ruling. The Federal Circuit decision, based on a very limited record in the lower court, recognized an implied waiver over enforcing SEPs in certain circumstances of delayed disclosure. Unfortunately, only the defendant’s expert had testified in the lower court on the meaning of the ETSI IPR Policy (and only briefly), providing the Federal Circuit with a limited perspective on an issue with serious implications for industry as a whole. The decision has been criticized for not aligning closely with the ETSI IPR Policy’s explicit language, its policy objectives, or industry practice, including the defendant’s own disclosure practices. .
Third, is the rejection of the non-enforceability claim by the court of appeal of The Hague in the Netherlands, which blocked the way to a similarly strict treatment of disclosures in connection with the enforceability of SEPs. The overall effect of the first two developments is that the surrounding framework regarding disclosures creates strong incentives for technology contributors to disclose as broadly and as soon as possible to avoid the perils of either antitrust liability or implied waiver in the United States.
[A] Antitrust Liability for Failure to Disclose: “Patent Ambush”
The case against Rambus arose from the company’s alleged failure to properly notify the other members of JEDEC, an SDO developing, among others, standards for PC memory units, that it held IPRs on JEDEC’s memory standard DRAM (dynamic random access memory). In particular, Rambus allegedly modified specific patent applications in such a way as to read on JEDEC’s DRAM standard and then failed to disclose these applications.
In the United States, the Federal Trade Commission (FTC) filed an action before an administrative law judge (ALJ) against Rambus alleging a violation on the part of the latter of section 5 FTC Act.16 In the view of the FTC, Rambus’s conduct aimed at capturing the JEDEC DRAM standard and thus at monopolizing the market for DRAM-compliant memory processors. The ALJ refused to find a §5 FTC Act infringement and the FTC subsequently reopened the case to admit further evidence to the record and ultimately issued an infringement decision under §5 finding that Rambus willfully deceived JEDEC and its members with the view to acquire monopoly power. The Commission further found that, had Rambus disclosed the IPRs in question, JEDEC would have either designed around those IPRs or obtained a FRAND commitment by Rambus.
On appeal, the D.C. Circuit struck down the FTC’s decision and held that, even if deceptive, a failure on the part of the IPR owner to disclose its IPRs is not, in itself, anticompetitive.17 The court took issue with both the Commission’s theory of harm and its interpretation of the JEDEC IPR policy. To begin with, the court noted that for a monopolist’s conduct to be illegal under §5 FTC Act it must have an exclusionary anticompetitive effect, thereby harming the competitive process and consumers.18 Harm to competitors alone is insufficient for such a finding. In the case at hand, the court observed that even if Rambus’s conduct allowed it to avoid offering a FRAND commitment and licensing its SEPs on non-FRAND terms, this, in itself, did not amount to anticompetitive exclusionary conduct.19 On the contrary, high prices tend to attract competitors, not exclude them, a formulation that echoes the famous pronouncement to the same effect by Justice Scalia in the U.S. Supreme Court’s Trinko ruling.20 Moreover, the court found the Commission’s interpretation of JEDEC’s IPR policy too expansive. In particular, the court was unconvinced that, under the JEDEC IPR policy, contributors are under a duty to constantly update their declarations of pending patent applications.21
The outcome of the Rambus case was, however, different, across the other side of the Atlantic. In the EU, the Commission focused on the conduct of Rambus after the alleged patent ambush (i.e., intentionally failing to disclose its patents and patent applications until the standard was adopted). The Commission issued a “commitments decision,” a kind of formal settlement of the Commission’s investigation, under Article 9 of EU Regulation 1/2003.22 The Commission, in its Statement of Objections against Rambus, reached the preliminary conclusion that Rambus’s charged excess royalty rates (which they allegedly were able to do because of their delayed disclosures of patents reading on the the JEDEC DRAM standard), thereby, according to the Commission’s preliminary findings, amounting to an exploitative abuse of dominant position and, therefore, an infringement of Article 102 of the Treaty for the Functioning of the EU (TFEU).23 As noted above, under Article 102 it may be illegal for an undertaking in dominant position to impose excessive prices or otherwise oppressive and exploitative terms on its customers (including end consumers). Rambus offered commitments to license its SEPs on specific terms (partly royalty-free, partly FRAND) and those commitments were made binding with the Commission’s Rambus decision. Because the case ended up in a settlement, while providing an indication that failure on the part of a SEP owner to properly disclose its essential IPR to the relevant standards body might lead to a Commission investigation, the Commission was unable to establish a set of principles on the issues raised. .
Although the case against Rambus resulted in different outcomes in the United States and the EU, the fact remains that a member’s failure to disclose SEPs to an SDO in order to avoid a FRAND declaration can imply for the SEP owner antitrust investigation and litigation at the very least, and antitrust liability and sanctions at worst. The potential risk of antitrust liability produces strong incentives for technology contributors to make disclosures of essential IPRs to SDOs, and when in doubt, err on the side of disclosing patents that might later prove to be non-essential.24