Taking Technological Infrastructure Seriously: Standards, Intellectual Property and Open Access

• Author: Carl Mair
• Position: PhD Candidate, Centre of Law and Digital Technologies, Leiden University (the Netherlands)
• Pages: 59-88

Carl Mair, ‘Taking Technological Infrastructure Seriously: Standards, Intellectual

Property and Open Access’ (2016) 32(82) Utrecht Journal of International and

European Law 59, DOI: http://dx.doi.org/10.5334/ujiel.266

UTRECHT JOURNAL OF

INTERN

ATIONAL AND EUROPEAN LA

W

RESEARCH ARTICLE

Taking Technological Infrastructure Seriously:

Standards, Intellectual Property and Open Access

Carl Mair*

This paper introduces an ‘infrastructural approach’ to the problems of

de facto

and cooperative

standard-setting in high technology. It reviews recent case law in the area, and attempts to provide

robust economic arguments for the maintenance of ‘open access’ rules over such standards. First,

it begins by qualifying such resources as technological ‘infrastructure’ according to the work of

Brett Frischmann and Peter Lee. Subsequently, game theoretical tools are applied to the problem

of cooperative standard-setting to demonstrate how the ‘quasi-open access’ FRAND commit-

ment can constrain strategic behaviour. A legal analysis—including an examination of recent case

law about the availability of injunctions—then follows to demonstrate the optimal ‘negotiation

framework’ for the latter commitment to become credible. Finally, the infrastructural approach

is expanded to demonstrate how it can elucidate a number of current controversies in high

technology markets, where the tension between private ownership and public use of technological

infrastructure is at its sharpest.

Keywords: Patents; Standards; Injunctions; Game Theory; Infrastructure; High Te chnology;

Antitrust; EU Competition Law; FRAND

I. Introduction

At the core of today’s high technology markets are networks, both real and virtual.1 Real networks—links

between devices and systems—scaffold the lower levels of information exchanges by ensuring a common

hardware platform. Examples of real networks include the mobile communication networks (e.g. 3G UMTS,

4G LTE), local area networks (LANs), and the ‘network of networks’, the Internet. On top of real networks,

there may also be networks built around software platforms, which enable users to share and exchange

information important to them. These ‘virtual networks’ are formed by users as they select and utilise soft-

ware applications, such as word processors, image editing programs, and social media.2

To many consumers, the complex pattern of networks that underwrites the success of high technology

markets is more or less invisible.3 Consumers tend to cluster their activity around only a limited number

of platforms (network hubs), and markets tend to ‘tip’ towards dominant solutions.4 The user experience is

therefore often one of seamless interoperability. But the seamlessness of the user experience is sometimes

bought at a steep price. Dominant software and hardware companies may utilise their intellectual property

* PhD Candidate, Centre of Law and Digital Technologies, Leiden University (the Netherlands).

1 Richard N Langlois, ‘Technological Standards, Innovation, and Essential Facilities: Toward a Schumpeterian Post-Chicago Approach’

(1999) Economics Working Paper 199907, 37 accessed 4 January

2016 (states that ‘[. . .] “virtual networks” [are those] in which the connections are not physical but rather in the nature of economic

complementarity’).

2 For an interesting analysis of the importance of software platforms in industry, see eg David S Evans, Andrei Hagiu and Richard

Schmalensee, Invisible Engines: How Software Platforms Drive Innovation and Transform Industries (MIT Press 2008).

3 ibid.

4 As will be discussed further in Part II, Section B; the ‘tipping’ characteristics of a platform or standard is an empirical question,

and should not be inferred a priori. Whether or not ‘tipping’ confers ‘infrastructural’ status on an asset also depends heavily on

the demand-side ‘switching costs’. See generally Joseph Farrell and Paul Klemperer, ‘Coordination and Lock-in: Competition with

Switching Costs and Network Effects’ in Mark Armstrong and Robert Porter (eds), Handbook of Industrial Organization (Elsevier

2007).

Taking Technological Infrastructure Seriously60

rights (IPR) to foreclose competition, and limit consumer choice by isolating competitors from the network

or by raising their costs.5

In particular, IPR over technological standards (the technical details which define device and software inter-

operability within a network) may be used anti-competitively. In the case of ‘de facto’ standards,6 which arise

from the market due to demand side efficiencies (network effects), the European Union (EU) Commission

and European Courts have elaborated ‘exceptional circumstances’ whereby dominant companies and stand-

ard owners may be compelled to license their IPR to downstream competitors under so-called ‘open access’

rules.7 The competition law basis for these ‘refusal to deal’ or ‘essential facilities’ cases (e.g. Microsoft,8 IMS)9

has generally been motivated by a ‘monopoly leveraging’ theory under Article 102 of the Treaty of the

Functioning of the European Union (TFEU): the refusal to license IPR is seen to work as a ‘complementary

strategy’ to extend a dominant position from an upstream market to one downstream, constituting an

exclusionary abuse.10 More recently, the EU Commission and European Courts have also demonstrated their

willingness to intervene in cases of ‘de jure’ or ‘cooperatively-set standards’.11 Unlike de facto standards, de

jure standards arise by a process of cooperative standard-setting in formal standard-setting organisations

(SSOs).12 When companies contribute technology for inclusion in a standard, they undertake a commitment

to license any standards-essential patents (SEPs)13 under Fair, Reasonable and Non-Discriminatory’ (FRAND)

terms. The precise content given to these terms is left to be hashed out by private negotiations between

the parties, with the caveat that the framework for the negotiation may require a softening of some of

the hard edges of IP law. In particular, recourse to injunctions may be limited. According to the recent EU

Commission statements in Samsung14 and Motorola,15 and the Court of Justice of the European Union (CJEU)

judgment in Huawei v ZTE,16 the threat or use of injunctions by the SEP-holder during these negotiations

may thwart the process of FRAND bargaining,17 leading to the anticompetitive exclusion18 of competitors’

products from the market.19 As in the case of de facto standards, the Commission and CJEU also elaborate

‘exceptional circumstances’ under which a finding of abuse can be sustained, and simultaneously define a

5 Mark A Lemley, ‘Intellectual Property Rights and Standard Setting Organizations’ (2002) 90 CLR 1889.

6 Jae Hun Park, Patents and Industry Standards (Edward Elgar 2010) 10 (arguing that ‘[s]ince the standards formed by network effects

in markets are not formal standards but represent proprietary technologies that reach a dominant position in the market, they are

called informal standards or de facto standards’).

7 Marina Lao, ‘Networks, Access, and “Essential Facilities”: From Terminal Railroad to Microsoft’ (2009) 62 SMULR 557, 563 (reads

‘the essential facilities doctrine can be a useful tool in ensuring open access and interoperability’).

8 Case T-201/04 Microsoft Corp v Commission [2007] ECR II-3601.

9 Case C-418/01 IMS Health GmbH & Co. OHG v NDC Health GmbH & Co. KG [2004] ECR I-5039.

10 Commission, ‘Commission Concludes on Microsoft Investigation, Imposes Conduct Remedies and a Fine’ (24 March 2004) Press

Release IP/04/382, para 1 (noting that ‘[t]he European Commission has concluded, after a five-year investigation, that Microsoft

Corporation broke European Union competition law by leveraging its near monopoly in the market for PC operating systems [. . .]’)

accessed 4 January 2016. Censuring ‘exclusionary abuses’ rather than

merely ‘exploitative abuses’ is an enforcement priority of the EU Commission, see ‘Guidance on the Commission’s Enforcement

Priorities in Applying Article 82 of the EC Treaty’ [2009] OJ C-45/02, para 6 (‘The emphasis of the Commission’s enforcement activ-

ity in relation to exclusionary conduct is on safeguarding the competitive process [. . .]’) (Commission Guidance on Enforcement of

Art. 82 EC).

11 The terms ‘de jure’ standard and ‘cooperatively-set standards’ shall be used interchangeably in this paper. Strictly, ‘cooperatively-

set standards’ is a broader category as it also includes non-official SSOs such as private consortia and fora, eg the Bluetooth SIG

accessed 4 January 2016.

12 Tim Pohlmann, ‘Six Essays on Patenting and Coordination in ICT Standardization’ (PhD Thesis, Technical University Berlin 2012) vi

(states ‘standards are described as de jure standards when they are specified by a formal standard-setting body’).

13 See the definition of ‘essentiality’ according to the European Telecommunications Standard Institute Rules of Procedure (19

November 2014) art 15(6) (ETSI Policy).

14 Samsung (Case AT/39.939) Commission Decision [2014] OJ C-350/8.

15 Commission, ‘Antitrust: Commission Finds that Motorola Mobility Infringed EU Competition Rules by Misusing Standard Essential

Patents’ (29 April 2014) Press Release IP/14/489 accessed 4 January

2016.

16 Case C-170/13 Huawei Technologies Co. Ltd v ZTE Corp & ZTE Deutschland GmbH EU:C:2015:477.

17 Motorola (Case AT/39.985) Commission Decision [2014] OJ C-344/6. In Motorola, these ‘un-FRAND’ terms also including conditional

threats of injunctions if the licensee challenged the essentiality or validity of the SEPs. See also Press Release IP/14/489 (n 15).

18 The precise competition law theory of harm is difficult to deduce from the decisions so far. For an overview of possible theories

of harm see eg Nicolas Petit, ‘Injunctions for FRAND-Pledged SEPs: The Quest for an Appropriate Test of Abuse under Article 102

TFEU’ (2013) 9 ECJ 677. See also Alison Jones, ‘Standard-Essential Patents: FRAND Commitments, Injunctions and the Smartphone

Wars’ (2014) 10 ECJ 1.

19 Huawei (n 16) para 52 (‘the fact that that patent has obtained SEP status means that its proprietor can prevent products manufactured

by competitors from appearing or remaining on the market and, thereby, reserve to itself the manufacture of the products in question’).