EC Opens Antitrust Investigation on Samsung

Just yesterday (January 31st) the European Commission announced in a press release to open a formal investigation on Samsung’s filed injunctions on standard essential patents. Samsung made injunctions against a number of competitors, among others Apple Inc. The Commission now turns the antitrust lens on Samsung to analyze whether these injunctions themselves are in breach of competition law. In particular it has to be investigated if Samsung has failed to honor its irrevocable commitment to license any standard essential patent under fair, reasonable and non-discriminatory (FRAND) terms. It has to be examined if Samsung’s behavior is an abuse of a dominant position prohibited by Article 102 of the Treaty on the Functioning of the EU (TFEU).

A large part of the competition on technology has been moving upwards at the standard setting level, where the usual rules of market competition do not fully apply. Although the need for interoperability is not recent, the last two decades have seen standard setting in ICT evolve from mere coordination on common specifications to the joint development of complex technology platforms. As a consequence, the number of patents infringed by standards has been increasing dramatically, raising concerns about the rising number of essential patents for ICT standards. Essential patents are those that would be necessarily infringed when a company adopts or implements a standard. Any patent owner, no matter how small his contribution to the standard may be, can thus block the implementation of the standard by any user. Policy makers, legal experts and academics have raised concerns that companies holding essential IPR are able to abuse the indispensable character of their patents to control the market. Especially worrisome for competition policy is a situation where a company that is active in downstream markets excludes competitors by refusing to license essential IPR.

The case of Samsung and Apple can be seen as such a situation. Samsung asserted 13 patents in 9 countries against Apple. These patents are essential to UMTS standards and the injunctions would prohibit Apple from using the patent implemented in the standard. Whereas patents are actually intended to allow its owner excluding others from using the protected invention, the main objective of standards is to encourage the spread and wide implementation of the standardized technology. Manufacturers that create products are not able to bypass standards or invent around standardized technologies, since standards shape the interface to connect, communicate or work on or with other products and platforms. E.g. a smart phone without GSM or UMTS compliance would not be able to connect to any network. A patent that blocks a standard would thus also block a whole technology or even whole industries. Once a standard is widely accepted and implemented as a dominant technology, the bargaining power of the essential IPR owner increases. Thus royalties might exceed the actual costs of the patented technology up until the costs of the whole standard. The question is: What has been the hypothetical alternative standard that could have been chosen at the time when more than one standard proposal was at choice? Especially for technologically complex standards these questions are hard to answer.

Antitrust law interprets the licensing of essential patents to be a market of its own. A company that owns an essential patent would thus hold a dominant position in this market. The defendant has the right to get a license under FRAND terms, which can be raised as a defense in infringement cases. The European Commission now investigates the case of Samsung to guarantee undistorted competition to ensure positive economic effects from standardization. One fundamental argument is that FRAND commitments have to be fully honored by the undertakings of any licensee of standard essential IPR.

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About timpohlmann

Tim Pohlmann is a post-doctoral researcher in economics at Mines ParisTech and Berlin Institute of Technology. He specializes in the economic analysis of markets for technology. He earned his doctoral degree with the highest distinctions in August 2012 from the Berlin Institute of Technology with a dissertation on patenting and coordination in ICT standardization. Tim’s research covers the empirical analysis of the trade of patents, patent trolls, standardization consortia and patent pools. He has presented his work at a large number of international conferences. Tim has been actively involved in preparing studies for the European Commission and the German Federal Government on the role of patents in technological standardization and business models in Open Source Software. Doctoral Thesis SSRN author page
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