Standard-Setting Organizations: Patents, Price Fixing, and Per Se Legality

Abstract

Standard-setting organizations (SSOs), private groups that collaboratively select and adopt uniform technical standards for goods and services, are a critical element of the modern economy. Competitors within an industry often seek to make competing products interoperable by establishing industry-wide technical standards. To accomplish this end, competing companies join SSOs and work together to select particular technologies as industry standards. This process of product standardization benefits both producers and consumers: It promotes price competition among firms, creates demand-side economies of scale, and encourages product innovation by reducing the risks of future research and development efforts. Accordingly, antitrust enforcement agencies have recognized "the important role of standard-setting in the technological innovation that will drive much of this nation's competitive vigor in the 21st Century."1 However, attempts by SSOs to avoid antitrust liability for price fixing now endanger the viability of the standard-setting process. When SSOs select patented technologies as industry standards, SSO patent policies typically require patent owners to offer "fair," "reasonable," "nondiscriminatory"2 licenses to SSO members. These licensing obligations are left intentionally vague to avert price-fixing liability. While this equivocal language has successfully insulated SSOs from antitrust liability, patent owners and SSO members repeatedly have been forced into high-risk litigation over the definition of "fair,""reasonable," "nondiscriminatory" license terms. This litigation has exposed both SSO members and patent owners to potential liability for patent infringement and antitrust violations, and has consequently created strong disincentives to take part in the SSO process. In turn, these disincentives now threaten the important social and economic benefits of standardization.