Published: 8/20/15
These guidelines provide an analytical framework for the most common types of horizontal agreements, including standard-setting. The guidelines state that standardization “normally increase[s] competition and lower[s] output and sales costs, benefiting economies as a whole.” (Par. 263). However, standards also have the potential to restrict competition. “While a standard is being developed, alternative technologies can compete for inclusion in the standard. Once one technology has been chosen and the standard has been set, competing technologies and companies may face a barrier to entry and may potentially be excluded from the market.” (Par. 266). This characteristic of standard-setting presents the potential of enabling “companies to behave in anti-competitive ways, for example by ‘holding-up’ users after the adoption of the standard either by refusing to license the necessary IPR or by extracting excess rents by way of excessive royalty fees thereby preventing effective access to the standard.” (Par. 269).
To avoid this anticompetitive outcome, the guidelines state that standard-setting organizations should adopt IPR policies that “require participants wishing to have their IPR included in the standard to provide an irrevocable commitment in writing to offer to license their essential IPR to all third parties on fair, reasonable and non-discriminatory terms (‘FRAND commitment’).” (Par. 285). The Commission points out that “FRAND commitments can prevent IPR holders from making the implementation of a standard difficult by refusing to license or by requesting unfair or unreasonable fees (in other words excessive fees) after the industry has been locked-in to the standard or by charging discriminatory royalty fees.” (Par. 287). In case of a dispute involving a FRAND commitment, “the assessment of whether fees charged for access to IPR in the standard-setting context are unfair or unreasonable should be based on whether the fees bear a reasonable relationship to the economic value of the IPR.” (Par. 289). Because FRAND commitments are voluntary, however, IPR holders should be permitted “to exclude specified technology from the standard-setting process and thereby from the commitment to offer to license, providing that exclusion takes place at an early stage in the development of the standard.” (Par. 285).