Chillin'Competition

The most important (antitrust-related) news last week was the European Commission’s announcement that it will market test a commitment proposal submitted by Samsung regarding the enforcement of its SEPs (Standard Essential Patents) related to mobile communications.

As you know, the Commission considered in its December 2012 Statement of Objections that the seeking of court injunctions by Samsung in relation to SEPs which it had committed to license on FRAND terms, or that third parties (i.e. Apple) were apparently willing to agree to license on FRAND terms, could amount to an abuse of dominance, because “access to patents which are standard-essential is a precondition for any company to sell interoperable products in the market” (press release dixit; we’ll come back to this phrase at the very end of the post). The theory goes that the challenged enforcement of SEPs could allow Samsung to obtain licensing terms that the licensee wouldn’t have agreed to absent the threat, and that this “undue distortion of licensing negotiations” would harm consumers in a number of different ways.

[Query 1: is this an exclusionary abuse? an exploitative one? both?; Query 2: Would an alleged abuse of this sort lend itself to the application of the Guidance paper?; Query 3: If the answer to query 2 is “no”, then what are the criteria to undertake a legality assessment of a situation like this? Query 4: How does one assess the likelihood of anticompetitive effects in a situation like this?; Query 5: can you distinguish a willing licensee from a non-willing one without taking a view on what’s FRAND? (I guess the proposed solution arguably gives an answer to this 5th question; if someone’s willing to accept the proposed framework… ); Query 6: Was Apple -the de facto complainant- a willing licensee in this case?].

Samsung (which just before receiving the SO had unilaterally withdrawn all its European SEP-based injunction claims) has now offered to refrain from seeking injunctions for past, present and future mobile (smatphone and tablet) SEPs for a period of five years againts any company adhering to a given licensing framework. As explained by the Commission itself (and here I’m “scraping” its Press release) “the licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of FRAND terms by either a court or an arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration“.

The Commission has also published a Q&A document. The full version of the proposal is available here.

Some well known commentators in the patent blogosphere swiftly commented on the proposal in a critical manner (see “EU Commission market-tests totally insufficient FRAND commitments offered by Samsung“). My preliminary take is that, even if some issues may (inevitably?) be left open, this proposal would shed some welcome light on a much contentious subject.

We’d be happy to host a discussion in Chillin’Competition, and welcome the views that any of you might have with regard to both the case and the commitments proposal.

Let me get the ball rolling:

The issue is certainly complex and I haven’t thought it through [or maybe I have but will rather keep silent not knowing whether I’ll have to work for one side or the other 😉 ] but -aside from the queries outlined above with regard to the substance of the case- there are a couple of simple things in the criticisms against the commitment proposal that have caught my attention:

As explained above, this whole debate relates to concerns that SEP holders will take “undue” action and resort to/instrumentalize Court actions to obtain supra-competitive licensing conditions. Accordingly (and regardless of whether one agrees or not with the underlying theory of harm) it would seem understandable for a proposed solution to address the perceived problem, i.e. to seek to limit SEP holders’ ability to take action and its access to Courts.

This is what this proposal does. However, some (I refer to the interesting FOSS Patents post hyperlinked to above) criticize those aspects of the proposal, pointing out:

(i) that “Samsung’s proposal to the Commission would not prevent an implementer from challenging the validity and infringement of Samsung’s SEPs, but it would reverse the burden of proof in this regard“; and

(ii) that the clause that “if the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration” is “a downright perversion of the concept of arbitration“, because arbitration should always be dependent upon an agreement, and “parties must always have access to a court of law, with or without an agreement. Anything other than that would be irreconcilable with the rule of law“.

In my (instinctive) view, however:

(i) Isn’t the reversal of the initiative to take legal action (reframed in the quoted criticism as a reversal in the burden of proof) precisely what is being sought?  Under the proposed framework it would be for the standard implementer to challenge the validity of the SEP or to request a third party determination of FRAND conditions, not for the SEP holder to take action (which therefore eliminates the risk of actions being brought and subsequently dropped by the SEP holder; it will be for the standard implementer to decide whether to continue/discontinue the third party adjudication).

(ii) I get the point about access to Courts being a better default solution than arbitration -and there may perhaps be some merit to it (including in relation to the need for a developing body of case law)- but, at the same time, it strikes me as a bit contradictory: isn’t the whole point to limit Samsung’s/SEP holders’ access to Courts?  The criticism that a solution precluding access to Courts is “irreconciliable with the rule of law” fits somehow oddly with the complaints at the root of all these cases.

A last point, the tension between competition law enforcement and the right to resort to Courts was addressed by the ECJ in ITT/Promedia (and Protégé), but the Commission seems to take the view that the said precedent does not apply to what we could call constructive refusals to license SEPs. There might be legitimate reasons for this stance, but since they remain unclear I will speculate:

Is this because the Commission is in favour of establishing lower intervention thresholds for practices that might impede or make interop more costly? I wish. Alternatively, the Commission may be implicitly looking at these as constructive refusals to license assets which -being labelled as “standard essential”- may have been (rightly or wrongly?) regarded as automatically fulfilling the “indispensability” criterion. In this sense, recall the above-quoted paragraph from the press release: “access to patents which are standard-essential is a precondition for any company to sell interoperable products in the market“. I guess the Commission hasn’t approached it this way in an explicit manner because then it would have had to prove “elimination of all effective competition” as (reasonably?) required by the case law, which wouldn’t seem easy in this case.

I never read the SO, but I bet the reasoning must have been generic along the lines of the ECJ’s ruling in AstraZeneca (“generic” pun intended). Unlike in AstraZeneca, though, in these cases no one is (at least publicly) alleging that Courts may have been misled. On the contrary, there could even seem to be some doubts on the parts of the Commission as to the “complicitness” of national courts (this apparent mistrust of courts, justified or not, is more evident in the Motorola (MMI) case in relation to the Orange-Book standard).

Sensible? Not? Your views are welcome!