A balanced patent system is critical to promoting innovation by rewarding inventors while also ensuring they are not inappropriately compensated for the market power they gain from standardizing their technologies. An imbalance in the system is created when holders of standard-essential patents (SEPs) disregard their affirmative promises to license their SEPs on reasonable terms. That impact is especially acute for emerging small businesses and innovators. Competition law has an important role in deterring and remedying breaches of FRAND commitment. We are thus pleased that competition agencies in key markets have increasingly grappled with FRAND related issues, and we will continue to report on and analyze these developments.
In late March, on the heels of recent FRAND guidance issued by various competition agencies in Asia, the Canadian Competition Bureau (CCB) issued revised Intellectual Property Enforcement Guidelines (IPEGs) that now include specific guidance on FRAND obligations. The CCB’s revised IPEGs are part of an emerging global consensus on what a FRAND obligation on a SEP means to patent holders and patent licensees. Helpfully, CCB presents its analysis of different FRAND obligation-related issues in a series of hypotheticals, each accompanied by a tailored analysis.
In the revised IPEGs, the CCB recognizes patent hold up as a competition concern, noting that high switching costs may create market power for the owners of patents that cover a standard due to the inability of firms using the standard to easily substitute other technologies to avoid high royalties. CCB provides that patent holdups – such as patent holders failing to disclose their patent(s) during the standards process only to later assert those patents without any legitimate business justification or reneging on a licensing commitment made during the standards development process -- may be anti-competitive acts. The revised guidelines also address certain breaches of FRAND commitments as potential anti-competitive acts, such as the bundling of SEPs and non-SEPs in a license and the seeking of injunctive relief except in limited circumstances where the licensee is unable or unwilling to pay a FRAND royalty. Notably, CCB indicates that it is not a price regulator and will leave the determination of royalty rates to negotiations between parties or the courts where there is no clear breach of a licensing commitment (e.g., a demand exceeding an ex ante commitment to cap the royalty). CCB also acknowledges that competition enforcement policy in this area is undergoing rapid development, so it may revisit its guidance later in light of experience, changed circumstances, and court decisions. Finally, we note that breaches of FRAND commitments will be dealt with under the abuse of dominant position provisions in the Competition Act, which provide for prohibition orders, other remedial orders where needed to restore competition, and monetary penalties.
With CCB’s issuance of its updated and common sense guidance, the Canadian Competition Bureau has joined a growing number of competition regulators that have issued guidance identifying certain breaches of FRAND commitments as potential violations of their respective antitrust laws. In addition, India’s Ministry of Commerce and Industry recently issued a robust discussion paper that also is exploring the need for guidance on FRAND. Particularly for smaller firms that cannot afford to slug FRAND disputes out in courts around the globe, all of this guidance provides invaluable certainty and deterrence. In brief, the CCB’s revised IPEGs are another positive step towards a balanced global intellectual property environment that promotes innovation.