Introduction

On October 30, the Antitrust Division of the Department of Justice ("DOJ") announced that it does not have antitrust concerns regarding a proposal by the VMEbus International Trade Association ("VITA") to implement a significant new patent policy requiring upfront disclosure of patents and patent licensing terms in connection with VMEbus standard-setting activities.  The DOJ announcement provides important new antitrust support for an emerging method for standard-setting organizations ("SSOs") and their participants to deal with the growing problems of submarine patents, patent lock-in, and prohibitively expensive royalty terms that threaten the success of industry standards.

Background

VITA and the VITA Standards Organization ("VSO"), a non-profit organization that develops and promotes standards for VMEbus computer architecture, created the patent policy in an effort to provide greater information and transparency during the standard-setting process.
VSO submitted its proposed patent policy pursuant to the DOJ’s business review program.  A business review essentially is a request from a private party or organization for a statement from the DOJ regarding the Department’s current view of the legality of certain proposed conduct.

The proposed VITA patent policy would impose two basic requirements on participants in VITA working groups involved in developing technical standards:

• First, the proposed patent policy would require each VITA participant to make a "good faith and reasonable inquiry" into the patents owned, controlled, or licensed by the company, and to disclose all patents or patent applications that the company owns, controls, or has a license to, that the company believes may become essential to the VITA specification under consideration.
• Second, the proposed patent policy would require VITA participants who hold declared patents to declare the maximum royalty rates and most restrictive non-royalty terms that the VITA member company will request for any such patent claims that are essential to implement the eventual standard.  These licensing commitments apply to the implementation of the particular draft specification being developed, and any reaffirmations or revisions of that VITA standard, but they do not apply to other uses of the technology.

Implications

SSOs, such as VITA, historically have been hesitant to allow participants to unilaterally announce royalty rates or engage in any joint royalty discussions due to fears that such activity might be viewed as per se unlawful price-fixing.  DOJ approval of VITA’s policy will allay these fears and allow SSOs to establish more effective mechanisms to prevent the patent "hold-up" problems that often arise in the standard-setting context.

Patent holders and SSOs have struggled for years to strike a balance between up-front disclosure of essential patents and negotiation of patent licensing terms (including royalty rates) once industry standards have been developed that rely on patented inventions.  Due to concerns of antitrust liability, many SSOs have shied away from requiring patent holders to declare specific economic terms under which the patentee would license essential patents, and instead have relied upon mere commitments to license on "fair, reasonable and non-discriminatory" ("FRaND") terms.  In some instances, potential licensees subsequently were unable to agree on the specific meaning of a FRaND licensing commitment, and deployment of certain industry standards has lagged as a result.

In supporting the proposed VSO patent policy, Thomas O. Barnett, Assistant Attorney General for the Department’s Antitrust Division, stated that the proposed policy "should preserve, not restrict, competition among patent holders."  The DOJ predicts that the proposed VSO policy will foster increased competition among patent holders because VSO participants now will be able to select technology standards based on an integrated view of the performance, cost, and other licensing terms associated with each competing technology.  The availability of this information will permit VSO standard-setting participants to avoid selecting a technology that could become too costly for licensees and potentially consumers, and thus could foster greater adoption of the standard.  Finally, the proposed patent policy resolves patent lock-in or "hold-up" issues caused by including a patented invention in an industry standard.  VSO participants will now be able to consider patent specifications, cost, and other licensing terms up-front to determine the most suitable standard.