Competition Issues in Standard Competition Issues in Standard Setting: Setting:

The New Horizontal Guidelines The New Horizontal Guidelines

Simonetta Vezzoso, Simonetta Vezzoso, Trento UniversityTrento University

Trento UniversityMarch 16, 2011

Standards everywhere, but mostly unnoticed

•Standards: de jure, de facto, open, proprietary…

•Anticipatory, Enabling and Responsive Standardization •Standard Setting Organizations - International Telecommunications Union (ITU) 1865 - International Organization for Standardization (ISO) 1947- Institute for Electrical and Electronics Engineers (IEEE) - Worldwide Web Consortium (W3C)- Internet Engineering Task Force (IETF)- etc.

•Safety, Health, Compatibily (etc) Standards

Some Basics

Economic significance of standards

• Economies of scale (reduction of variety)

• Reduction of information asymmetry (less adverse selection)

• Reduction of transaction (e.g. search costs) and communication costs

• Network externalities

• Lock-in avoidance

• Part of the institutional infrastructure relevant to incremental innovation

• Etc.

Hindrances to effective standard adoption

• Users’ reluctance to move to new standard (also because of switching costs)

• Inappropriate timing of standardization (too early or too late relative to the stage of technology maturity)

• Opportunism of market participants

“People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty or justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.”

Adam Smith, The Wealth of Nations (1776)

Classification Societies

•Register Society (1760)

• IACS - International Associationof Classification Societies (1968)

- more than 90% the world's cargo carrying tonnage

COMMISSION DECISION of 14/10/2009relating to a proceeding under Article 101 TFEU (ex art. 81 ECT) Case 39416 - SHIP CLASSIFICATION

Competition Assessment: Relevant Markets

• product or service market or markets to which the standard relates

• relevant technology market (inter-technology competition)

• Market for standard-setting

T1 T5T4T3T2

S

SSO P

SSO P

SSO P

SSO P

PLICENCE

M MMM

Standards: Art. 101 Issues

• promotion of horizontal price fixing

• exclusion of competitors

• allocation of markets and territories

Anticompetitive

SSO policies should prevent collusivebehaviour among SSO members

Standards: Art. 102 Issues

SSO’s context

Patent Ambush

Patent hold-up: breach of FRAND obligations

• Patent infringement cases

e.g. German Supreme Court, Standard-Spundfass, 2004

ART. 101TFEU

ART.102 TFEU

ART.102 TFEU

COMMUNICATIO

N FROM THE COMMISSION

Guidelines on the applicability of

Article 101 of the Treaty on the

Functioning of the European

Union to horizontal co-

operation agreements

(O.J. 14.1.2011)

Key Points

• Prevention of collusive behaviour andof art. 102 abuses

• «safe harbour»

FRAND commitment

ex-ante IPR disclosure («good faith»; «reasonable endevours»

• pro-competitiveness of ex-ante disclosure maximum royalty rates

Conclusion

• Standards and Art.101 issues: guidance really helpful?

• Effective prevention of IPR ambush and/or hold-up?

• Effective guidance on difficult economic and legal issues?

Need for a new, «holistic» approach to standardization

SSO rendered increasingly «necessary» in high-tech industries also by an inadequate IPR policy