Published: 9/4/07
Broadcom brought an antitrust action in which it alleged that Qualcomm had persuaded the European Telecommunications Standards Institute (“ETSI”) to incorporate Qualcomm’s patented technology by committing to license the technology on FRAND terms, but later reneged on its commitment. A district court dismissed Broadcom’s complaint, and the Third Circuit reversed the dismissal. The court explained that a SEP holder “is in a position to ‘hold up’ industry participants from implementing the standard.” This is because “[i]ndustry participants who have invested significant resources developing products and technologies that conform to the standard will find it prohibitively expensive to abandon their investment and switch to another standard. They will have become ‘locked in’ to the standard. In this unique position of bargaining power, the patent holder may be able to extract supracompetitive royalties from the industry participants.” This lock-in confers monopoly power upon each SEP holder because “[w]hen a patented technology is incorporated in a standard, adoption of the standard eliminates alternatives to the patented technology.” In this setting, the court explained, FRAND commitments are “intended as a bulwark against unlawful monopoly.” The court held that “(1) in a consensus-oriented private standard-setting environment, (2) a patent holder’s intentionally false promise to license essential proprietary technology on FRAND terms, (3) coupled with an SDO’s reliance on that promise when including the technology in a standard, and (4) the patent holder’s subsequent breach of that promise, is actionable anticompetitive conduct.”