PATENT CHALLENGES
FOR STANDARD-SETTING
in the Global Economy

LESSONS FROM INFORMATION AND
COMMUNICATIONS TECHNOLOGY

Committee on Intellectual Property
Management in Standard-Setting Processes

Board on Science, Technology, and Economic Policy

Policy and Global Affairs

Keith Maskus, Editor
Stephen A. Merrill, Editor

NATIONAL RESEARCH COUNCIL
OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.

www.nap.edu



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Committee on Intellectua Property n al agement in Standard-Sett Mana ting Processes Board on Science, Technology, an Economic Policy S nd c Policy an Global Af nd ffairs Keith Maskus, Edi M itor Stephen A. Merrill, E A Editor

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THE NATIONAL ACADEMIES PRESS 500 Fifth Street, NW Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Insti- tute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study was supported by Contract/Grant No. 2010-140-113 between the National Academy of Sciences and the United States Patent and Trademark Office. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. International Standard Book Number-13: 978-0-309-29312-9 International Standard Book Number-10: 0-309-29312-X Additional copies of this report are available for sale from the National Academies Press, 500 Fifth Street, NW, Keck 360, Washington, DC 20001; (800) 624-6242 or (202) 334- 3313; Internet, http://www.nap.edu/. Cover: The cover image of the Rubik’s Cube® is used by permission of Seven Towns Ltd. www.rubiks.com. The organizational logos are used by permission of the American National Standards Institute, European Patent Office, European Telecommunication Standards Institute, Institute of Electrical and Electronics Engineers, Organization for the Advancement of Structured Information Standards, United States Patent and Trademark Office and the World Wide Web Consortium which were among the institutions partici- pating in the information-gathering phase of the study. None of these organizations has reviewed or endorsed this report. Copyright 2013 by the National Academy of Sciences. All rights reserved. Printed in the United States of America

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The Na ational Academy of Sciences is a private, nonp s profit, self-perpe etuating society of y distingu uished scholars engaged in scie entific and engin neering research dedicated to the h, furthera ance of science and technology and to their use for the general welfare. Upon the a authorit of the charter granted to it by the Congress in 1863, the Acade ty emy has a mand date that req quires it to advis the federal go se overnment on sc cientific and tech hnical matters. D Dr. Ralph J. Cicerone is preesident of the Na ational Academy of Sciences. y The Nattional Academy of Engineering was establishe in 1964, unde the charter of the y ed er Nationa Academy of Sciences, as a pa al S arallel organizattion of outstandi engineers. It is ing t autonom mous in its adm ministration and in the selection of its members sharing with t i s, the Nationa Academy of Sciences the res al S sponsibility for advising the feederal governmeent. The Naational Academy of Engineerin also sponsors engineering p y ng s programs aimed at d meeting national needs, encourages edu g ucation and reseearch, and recoggnizes the super rior achievements of engine eers. Dr. C. D. Mote, Jr., is pres M sident of the Nattional Academy of y ering. Enginee The Insstitute of Mediccine was established in 1970 by t National Ac the cademy of Scienc ces to secur the services of eminent memb of appropri ate professions in the examinati re o bers ion of polic matters pertai cy ining to the hea of the publi The Institute acts under the re- alth ic. sponsibility given to the National Acad e demy of Sciences by its congress s sional charter to be an adviser to the federal government and, upon its ow initiative, to identify issues of a wn o medical care, research, and education. Dr. Harvey V. Fi l D ineberg is presid dent of the Institu ute of Mediicine. The National Research Council was organized by the National Acade h o e emy of Sciences in s 1916 to associate the broad community of science and technology w the Academy o b y d with y’s purpose of furthering knowledge and advising the fe es ederal governme Functioning in ent. g accordaance with genera policies deter al rmined by the AAcademy, the Co ouncil has become the prin ncipal operating agency of both the National Aca a t ademy of Scienc and the Natio ces on- al Acaddemy of Enginee ering in providin services to th government, t public, and t ng he the the scientifi and engineer ic ring communitie The Council is administere jointly by bo es. l ed oth Academ and the Inst mies titute of Medicin Dr. Ralph J. Cicerone and D C. D. Mote, Jr., ne. Dr. are chai and vice chair, respectively, of the National Re ir , f esearch Council l. www.nati ional-academies.o org

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COMMITTEE ON INTELLECTUAL PROPERTY MANAGEMENT IN STANDARD-SETTING PROCESSES Keith Maskus, Chair, Professor of Economics, University of Colorado at Boulder Rudi Bekkers, Assistant Professor of Economics of Innovation and Technical Change, Eindhoven University of Technology, Netherlands Marc Sandy Block, IP Law Counsel, IBM Corporation Jorge Contreras, Associate Professor, Washington College of Law, American University Richard J. Gilbert, Emeritus Professor of Economics, Professor of the Graduate School, University of California, Berkeley David J. Goodman, Presidential Fellow and Professor Emeritus, Electrical and Computer Engineering, Polytechnic Institute of NYU Amy Marasco, General Manager for Standards, Strategy and Policy, Microsoft Corporation Timothy Simcoe, Assistant Professor of Strategy and Innovation, School of Management, Boston University Oliver Smoot, Past President, International Standards Organization Richard Suttmeier, Emeritus Professor of Political Science, University of Oregon Andrew Updegrove, Founding Partner, Gesmer Updegrove, LLP Project Staff Stephen A. Merrill, Study Director Aqila Coulthurst, Program Coordinator Cynthia Getner, Financial Officer v

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BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY (STEP) For the National Research Council (NRC), this project was overseen by the Board on Science, Technology and Economic Policy (STEP), a standing board of the NRC established by the National Academies of Sciences and Engi- neering and the Institute of Medicine in 1991. The mandate of the STEP Board is to advise federal, state, and local governments and inform the public about economic and related public policies to promote the creation, diffusion, and ap- plication of new scientific and technical knowledge to enhance the productivity and competitiveness of the U.S. economy and foster economic prosperity for all Americans. The STEP board and its committees marshal research and the exper- tise of scholars, industrial managers, investors, and former public officials in a wide range of policy areas that affect the speed and direction of scientific and technological change and their contributions to the growth of the U.S. and global economies. Results are communicated through reports, conferences, workshops, briefings and electronic media subject to the procedures of the National Acade- mies to ensure their authoritativeness, independence, and objectivity. Paul Joskow (Chair), President, Alfred P. Sloan Foundation Ernst Berndt, Louis E. Seley Professor in Applied Economics, Massachusetts Institute of Technology Jeff Bingaman, Former Senator, New Mexico, U.S. Senate Ralph J. Cicerone (ex-officio), President, National Academy of Sciences Ellen Dulberger, Managing Partner, Ellen Dulberger Enterprises, LLC Harvey V. Fineberg (ex-officio), President, Institute of Medicine Alan Garber, Provost, Harvard University Ralph Gomory, Research Professor, Stern School of Business, New York University John Hennessy, President, Stanford University William H. Janeway, Partner, Warburg Pincus Richard Lester, Japan Steel Industry Professor, Department of Nuclear Science and Engineering, Massachusetts Institute of Technology David Morgenthaler, Founding Partner, Morgenthaler Ventures Luis M. Proenza, President and Chief Executive Officer, University of Akron William J. Raduchel, Independent Director and Investor Kathryn L. Shaw, Ernest C. Arbuckle Professor of Economics, Graduate School of Business, Stanford University Laura D’Andrea Tyson, S.K. and Angela Chan Professor of Global Management, Haas School of Business, University of California at Berkeley Hal Varian, Chief Economist, Google, Inc. Dan Mote (ex-officio), President, National Academy of Engineering Alan Wm. Wolff, Senior Counsel, McKenna, Long & Aldridge LLP vii

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Staff Stephen A. Merrill, Executive Director Charles W. Wessner, Program Director Sujai Shivakumar, Senior Program Officer Paul Beaton, Program Officer McAlister Clabaugh, Program Officer David Dierksheide, Program Officer Aqila Coulthurst, Program Coordinator Cynthia Getner, Financial Associate viii

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Preface The U.S. Patent and Trademark Office (USPTO) in 2011 asked the Na- tional Academies’ Board on Science, Technology, and Economic Policy (STEP) to examine and report on the role of patents in standard-setting processes in an international context. For the STEP program, this charge represented the conflu- ence of its long-standing interests in the standards system on the one hand and intellectual property policy on the other hand. The Board’s very first consensus study, in response to a congressional mandate, resulted in the report, Standards, Conformity Assessment, and Trade (National Research Council, 1995). And in 2001, STEP initiated a series of studies of the patent system whose products included Patents in the Knowledge-Based Economy (National Research Council, 2003), A Patent System for the 21st Century (National Research Council, 2004), Reaping the Benefits of Genomic and Proteomic Research: Intellectual Property Rights, Innovation, and Public Health (National Research Council, 2006), and Managing University Intellectual Property in the Public Interest (National Re- search Council, 2010). STEP Board recommendations strongly influenced the America Invents Act, enacted in 2011 the first major revision of U.S. patent law in more than half a century. The present project was approved by the Academies’ Governing Board Executive Committee with the following charge: An ad hoc committee under the auspices of The National Academies' Board on Science, Technology, and Economic Policy (STEP) will exam- ine and assess how leading national, regional, and multinational standards bodies address issues of intellectual property (IP) arising in connection with the development of technical standards. Through commissioned analysis, a public workshop in Washington and a report of the findings of an expert committee, the project will first document the policies and prac- tices of different types of standard-setting organizations in different geo- graphical contexts. The committee will consider policies with respect to such matters as requirements for the disclosure of IP essential or relevant to the development and implementation of standards, the terms of IP li- censing to implementers of a standard, and whether conditions attached to ix

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x Preface IP incorporated in standards carry over to a new holder in the event of a transfer of IP rights. The study will assess how these policies work in practice and in a legal context and how variations in these policies relate to different types of standards activities, organizations, and fields of tech- nology. Second, the project will evaluate the effectiveness of these poli- cies in reducing conflict between IP holders and other implementers, bal- ancing the interests of firms of different sizes and with different business models, and balancing the interests of producers and consumers. A committee comprised of academic economists and social scientists, le- gal scholars, standards professionals, and technologists was appointed by the Academies to address the charge. The committee met four times in the course of preparing this report. At the first meeting, we received written submissions from or heard oral presentations by individuals from government, industry, and the standards community. We commissioned a study of the IPR policies of a care- fully selected sample of national and international SSOs, which was carried out by two members of the study committee, Rudi Bekkers, Eindhoven University of Technology and Andrew Updegrove, Gesmer Updegrove, L.L.P.1 Next the committee planned and held a two-day symposium, Management of Intellectual Property in Standard-Setting Processes, in Washington, D.C., on October 3-4, 2012, with invited presentations on a variety of topics addressed in this report (Appendix B; presentations available at http://sites.nationalacademies.org/PGA/ step/PGA_072825). The symposium also provided an opportunity for interested members of the public to express their views. The committee is grateful to all of these contributors to its deliberations. Our study has been carried out in a dynamic environment. Just in the last few months there have been discussions in numerous SSOs about changes to their IPR policies, new pronouncements from government competition authori- ties on both sides of the Atlantic, hearings in both houses of Congress, court decisions in high-profile legal suits, and a new articulation of China’s policy with respect to “national standards.” For the most part, we have taken account of the most important developments through preparation of our report for external review in May 2013. The high profile decision of the United States International Trade Commission in Apple v. Samsung that was subsequently overturned by the United States Trade Representative occurred as the committee deliberated its responses to reviewer comments, and the committee could not ignore the rele- vance of the case’s outcomes to its recommendation regarding the availability of injunctive relief to holders of standard-essential patents who have undertaken to license them on reasonable and non-discriminatory terms. Apart from this ex- ception, the committee recognizes that both the intellectual property and stand- ards landscapes are changing and will continue to change in ways that the report does not address. 1 See http://www.nap.edu/catalog.php?record_id=18510.

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Preface xi The committee’s recommendations represent a consensus of views, but not every member agrees with every formulation. In one instance, majority and mi- nority views are presented. As with any Academy report, the views expressed are personal and do not necessarily represent the views of members’ employers. Despite the heterogeneity of SSOs, the committee’s recommendations addressed to standards developers are stated in general terms. The committee recognizes that each organization should and will consider the appropriateness of our ad- vice for its own circumstances and seek its own counsel. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures ap- proved by the National Academies’ Report Review Committee. The purpose of this independent review is to provide candid and critical comments that will assist the institution in making its published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the process. We wish to thank the following individuals for their review of this report: Alden Abbott, Research In Motion; Andrew Brown, Delphi Corporation; Gary Calabrese, Corning Global Research; Dieter Ernst, East West Center; Patricia Griffin, American National Standards Institute; Irwin Jacobs, Qualcomm; Kon- stantinos Karachalios, Institute of Electrical and Electronics Engineers Standards Association; Earl Nied, Intel; Joshua Sarnoff, DePaul University; Carl Shapiro, University of California, Berkeley; Andrew Torrance, University of Kansas; and Dirk Weiler, European Telecommunications Standards Institute. Although the reviewers listed above have provided many constructive comments and suggestions, they were not asked to endorse the conclusions or recommendations, nor did they see the final draft of the report before its release. The review of this report was overseen by Samuel H. Fuller, Analog Devices, Inc. Appointed by the National Academies, he was responsible for making cer- tain that an independent examination of this report was carried out in accordance with institutional procedures and that all review comments were carefully con- sidered. Responsibility for the final content of this report rests entirely with the authoring committee and the institution. Keith E. Maskus, Chair Committee on Intellectual Property Management in Standard-Setting Processes Stephen A. Merrill, Study Director

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Contents SUMMARY ...............................................................................................................1 1. INTRODUCTION ...........................................................................................15 1.1 Role of Standards and Patented Technology in Standards, 15 1.2 Standards and Patents in ICT and Emerging Technologies, 18 1.3 Background of the Study, 19 1.4 Statement of Task and Organization of the Report, 20 1.5 Economic Context, 23 1.6 Standardization in the ICT Setting, 25 1.7 Stakeholders in Standard-Setting, 28 1.8 International and Multilateral Issues, 28 2. A COMPARISON OF SSO POLICIES AND PRACTICES .......................31 2.1 SSOs Surveyed for the Study, 31 2.2 A Note on Terminology, 34 2.3 A Caveat on Coverage, 35 2.4 SSO Approaches to Basic IPR Issues, 36 2.5 Transfers of Licensing Commitments, 47 2.6 Summary Observations, 48 3. KEY ISSUES FOR SSOS IN SEP LICENSING ...........................................51 3.1 Introduction, 51 3.2 Objectives of FRAND Licensing Obligations, 52 3.3 Interpretation of FRAND Obligations to Address Competition and Efficiency Concerns, 61 3.4 Recommendations to SSOs, 69 4. SEP DISCLOSURE AND INFORMATION TRANSPARENCY ...............71 4.1 Disclosure as an Element of SSO IPR Policies, 71 4.2 The Possible Roles of Information Disclosure, 72 4.3 Levels of Disclosure, 74 4.4 The Timing of Disclosures in Relation to Licensing Commitment Procedures, 79 4.5 Recommendations to SSOs, 80 xiii

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xiv Contents 5. TRANSFERS OF PATENTS WITH LICENSING COMMITMENTS ......81 5.1 Introduction, 81 5.2 Cases Regarding Continuing License Commitments, 83 5.3 SSO Approaches to Sustaining Licensing Commitments, 88 5.4 Recommendations for SSOs and Policymakers, 93 6. INJUNCTIVE RELIEF FOR SEPS SUBJECT TO FRAND.......................95 6.1 Introduction, 95 6.2 Views of Competition Regulators, 95 6.3 U.S. and European Case Law, 100 6.4 Industry Views, 109 6.5 Recommendations to SSOs, Courts, and Government Agencies, 111 7. PATENT OFFICE-SSO COOPERATION .................................................113 7.1 Origins and Scope of Information Sharing, 113 7.2 Benefits and Costs of Information Sharing, 115 7.3 Legal Status of Standards Information, 116 7.4 Relevance of the European Experience to the USPTO, 117 7.5 Recommendations to the USPTO and SSOs, 119 8. IPR STANDARDS AND EMERGING ECONOMIES ..............................121 8.1 Introduction, 121 8.2 China, 122 8.3 India, 133 8.4 Brazil, 137 8.5 Conclusions and Recommendations, 138 REFERENCES ......................................................................................................141 APPENDIXES A ACRONYMS ..................................................................................................149 B SYMPOSIUM AGENDA ..............................................................................153 C BIOGRAPHIES OF COMMITTEE MEMBERS AND STAFF................157