To Join Or Not To Join: When Membership In A Standard-Setting Organization Is The Question

Participation in standard-setting organizations (SSOs) can be a productive way for companies in a particular industry to influence technical standards that enable interoperability between products. Recently, however, there has been more focus in patent and other litigation on the commitment that companies involved in standard-setting make to license their intellectual property under fair, reasonable, and non-discriminatory terms (FRAND or RAND). For companies, then, is it worthwhile to have employees participate in a standard-setting activity? This article briefly outlines some of the key factors involved in deciding whether to participate in an SSO, focusing in particular on the Institute of Electrical and Electronics Engineers (IEEE) and the International Telecommunication Union (ITU), and on the potential benefits and pitfalls to a company's patent strategy.

As a starting point, the standard-setting process has the risk of "patent hold-up." When SSOs set a technical standard with a single method of compliance, they are ensuring that most, if not all, industry members will use a particular set of technologies. Patents necessary to practice such a standard are known as "standard-essential patents." Other patents on optional or preferable features to the practice of the standard do not present the same set of issues. Because it is rarely clear whether or not new technologies fall within the scope of a patent, whether a given patent's claims are essential, optional, or only preferable to the standard is often a grey area. Therefore, when industry participants agree to a standard, a holder of a potentially essential patent gains a great deal of power. Absent further contractual requirements, industry members must either pay whatever the patent holder demands or find a way to work around the standard.

On the other side of the spectrum, the standards-setting process generates antitrust concerns because competitors in an industry work together to agree on requirements for an entire technical area. The standard-setting organization must therefore tread carefully to prevent the standard-setting process from becoming anticompetitive.

To walk the line between antitrust issues and the risk of patent hold-ups, SSOs take several tactics. Most commonly, an SSO first attempts to have participants identify patents that are essential to proposed standards. Once these patents are identified, the SSO seeks a F/RAND commitment for the essential patents, requiring the member to commit to negotiate licenses for the essential patents with adopters of the standard on F/RAND terms. The non-specific nature of the F/RAND commitment protects the SSO from antitrust violations like price-fixing, but leaves a number of issues for later determination. During subsequent licensing negotiations or litigation, a patent holder's F/RAND commitment may come into question, for example, because employees of the patent holder did not disclose a relevant patent, or the patent owner failed to comply with its F/RAND commitment, either by seeking a non-F/RAND...