Kensington Antitrust Advisors Group

Fiona M. Scott-Morton, the Antitrust Division’s Deputy Assistant Attorney General for Economic Analysis claimed in a recent speech entitled “The Role of Standards in the Current Patent Wars” that companies controlling patents that are essential to an established technological standard can often charge anticompetitively high licensing rates despite their commitments to follow fair, reasonable and nondiscriminatory (FRAND) licensing practices.

She explained that the FRAND commitments are an important component in the Division’s willingness to allow competitors to agree on industry standards.  “If the [FRAND] commitments are so vague and ill-defined as to have little meaning,” she warned, “then consumers may not realize all the benefits of the standard, which may be efficient and create new products and services due to the patent-holders’ exercise of market power, which may result in higher prices, less product choice and less investment in the overall network.”

The problem lies not in the idea of standards, but in the ability of individual patent holders to extract more than the value of the IP after “the licensee has already invested in a product and faces costs to designing around the patent.”  Scott-Morton explained that the DOJ urges standard-setting organizations to secure comprehensive and binding FRAND commitments for patents before incorporating them into a standard to blunt technology owner efforts to exploit these patents.  “It is in everyone’s interest,” she said, “for the scope of disclosure to be broad before a standard is set in order to maximize opportunities to avoid hold-up after the standard is set.”