The new horizontal Guidelines: Standardisation agreements

Main competition concerns and restrictive effects on competition

Standardisation agreements may give rise to restrictive effects on competition when the agreement involves competitors. The EC is mainly concerned about a restriction of price competition due to collusion, foreclosure of innovation and a possible prevention of effective access to the standard. 

When it comes to IPRs, the Guidelines identify three main groups of participants with different interests: 

• upstream-only participants that develop and market technologies, with licensing revenue as a primary source of income and therefore an incentive to maximise royalties; 
• downstream-only participants that manufacture products or offer services, for whom royalties represent a cost and therefore an incentive to minimize them; and 
• integrated participants which both develop technology and sell products. The have has mixed incentives as they could claim royalties through the licensing of their IPRs but they may also have to pay royalties to other undertakings holding essential IPRs. 

In addition to these three categories, the Guidelines note that undertakings may draw value from their IPRs through methods other than royalties. In practice, most undertakings use a mix of the three business models mentioned.

The Guidelines qualify certain standardisation agreements as restricting competition by their very nature eliminating the need to further analyse their effects. As an example, they mention agreements that use a standard to exclude actual or potential competitors. The agreements that do not restrict competition by object, must be analysed by looking at their legal and economic context to determine their effects on competition. The new Guidelines specify certain factors that should be considered in this analysis, including the nature of the goods, services or technologies affected and the structure and functioning of the market(s) in question. However, in the absence of market power due to competition between several voluntary standards, a standardisation agreement will not be anti-competitive.

Open vs restricted participation

Open participation in the standard development process will lower the risks of a likely restrictive effect on competition. However, the new Guidelines clarify that restricting participation may not lead to restrictive effects on competition in certain circumstances, for example, if

• there is competition between several standards and standard development organisations;
• in the absence of a restriction on the participants it would be impossible or unlikely to achieve adoption of the standard; or
• the restriction on the participants is temporary and the aim is to speed up the process while all competitors can still get involved at major milestones.

Furthermore, restricted participation might be less problematic if all stakeholders are kept informed and consulted on the work in progress. As a tool to achieve this, the new guidelines propose a collective representation of stakeholders. Generally, the more transparent the procedure and the more stakeholders can influence the process leading to the selection of the standard, the more likely it is that the adopted standard will consider the interests of all stakeholders.

FRAND commitments and evaluation of the FRAND character of licensing fees

To limit the risk of an agreement restricting competition, the Standard Development Organisation (SDO) should ensure effective access to the standard for users on FRAND terms and the IPR holders should provide the FRAND commitment before standard adoption. They can, however, exclude specified technology from the standard development process if this takes place at an early stage. 

In the case of a dispute, the assessment of whether the license fees charged for access to IPR are unfair or unreasonable should depend on whether the fees are reasonable in relation to the underlying IPRs’ economic value. The EC now points out that the value should be irrespective of the market success of the product which is unrelated to the patented technology. As to the available methods, the license fees charged for the relevant patents before standard development (ex-ante) can be compared with the value/royalty charged after the industry has been locked in (ex-post) but also with the value/royalty of the next best available alternative (ex-ante). As in the previous version, the Guidelines state explicitly that FRAND can also cover royalty-free licensing. Other methods to determine the FRAND character would be, for example, an independent expert assessment on whether the relevant IPR is objectively central and essential to the respective standard or a comparison of the licensing terms of the IPR holders with other implementers of the same standard.

Disclosure of essential IPR and of licensing terms

The revised Guidelines establish principles on good faith disclosure that should be fulfilled so that a standardisation agreement will, in general, not restrict competition. Good faith disclosure by participants of essential IPR (for the implementation of a standard) should be a requirement of any IPR policy. Additional information is now required in relation to patents. The disclosure should at least include the patent number or patent application number but, if this information is not yet publicly available, a so-called “blanket disclosure” is sufficient. In this case the participant declares that it is likely to have IPR claims over a particular technology without identifying specific IPR claims or applications. The participant is advised to complete the information as soon as possible since a blanket disclosure is an exception, and a less effective way for the industry to make an informed choice of technology and to ensure effective access to the standard. The Guidelines also encourage participants to update their disclosure when a standard is adopted, notably if there are any changes that may impact the essentiality or the validity of participants’ IPRs.

When the parties assess the restrictive effects of an agreement the new Guidelines explain that providing for ex-ante disclosure of the most restrictive licensing terms including maximum royalty rates or the maximum accumulated royalty rate will generally be unproblematic. Such ex-ante disclosures enable the parties to take an informed decision from a technical and a cost perspective.

The authors wish to thank Aliriza Ozturk, International Trainee, Norton Rose Fulbright LLP Brussels for his contribution.