Canadian COMPETITION LAW

February 28, 2014

Guest post by Burt Braverman
(Partner, Davis Wright Tremaine LLP)

Virtually every industry, from telecommunications to agriculture, has benefited from standard-setting organizations (SSOs), whose collaborative work can advance technology, promote health and safety, and enhance quality and efficiency. From an antitrust perspective, by facilitating comparability and interoperability, SSOs can lessen barriers to entry, increase competition, reduce costs, and thus serve consumer welfare. It’s no wonder that courts and antitrust enforcement agencies have recognized SSOs’ pro-competitive qualities and the contributions they make to our nation’s economy. But on occasion, some SSOs have been accused of having a dark side, and of serving as a vehicle by which corporate members can use leadership positions within the SSO to promote their own interests and harm competitors.

Recent court decisions reflect plaintiffs’ proclivity to sue SSOs and their corporate members when they believe themselves to have been injured by real or imagined conspiracies that have infiltrated the standard-setting process. One such case, presently ongoing, stands as a reminder of the need for not only SSOs, but also their corporate members, to vigilantly police against conduct that is, or could be viewed as, intended to thwart the business interests of competing firms, and of the very significant potential antitrust liability that awaits those who fail to take these risks seriously and to implement adequate precautionary measures.

In TruePosition, Inc. v. LM Ericsson et al., Civ. No. 11-4574 (E.D. Pa.), the plaintiff sued Third Generation Partnership Project (3GPP), a standard-setting body that establishes global standards for mobile communications technologies, and three of its corporate members, LM Ericsson Telephone Company, Qualcomm, Inc. and Alcatel-Lucent USA, Inc. (the “Corporate Defendants”). TruePosition alleged that it is a leading innovator in developing and marketing high accuracy location products that operate over cellular telecommunications networks, and that the defendants conspired in violation of Section 1 of the Sherman Antitrust Act to adopt industry standards that excluded TruePosition’s technology from the newest and most advanced 4th generation global standard for mobile telecommunications technologies. In particular, TruePosition asserted that the Corporate Defendants’ representatives, in violation of 3GPP’s rules and procedures, concertedly manipulated their power as chairmen of multiple 3GPP committees in order to exclude TruePosition’s technology from the 4G standard, and that exclusion guarantees TruePosition’s foreclosure from the market.

Both 3GPP and the Corporate Defendants moved to dismiss TruePosition’s lawsuit. The court first denied the Corporate Defendants’ motion (first opinion). Relying on TruePosition’s allegations that the Corporate Defendants, through their roles in the SSO’s standard-development process, entered into an agreement to obstruct the inclusion of TruePosition’s technology in the new 4G standard, the court held that the complaint sufficiently alleged that the agreement constituted an unreasonable restraint of trade that foreclosed competition in the relevant market.

Subsequently, the court also denied 3GPP’s motion to dismiss (second opinion), holding that it was sufficient for TruePosition to base its claim against 3GPP on actions taken by the Corporate Defendants’ representatives within the scope of the apparent authority given by 3GPP to them as chairmen of multiple committees of the SSO. Relying on traditional agency principles, the court held that actions of an SSO’s officers and agents could be deemed to constitute the actions of the standard-setting body for purposes of establishing the SSO’s participation in a conspiracy with corporate members, even where (i) those actions violate the SSO’s rules, (ii) the SSO does not ratify its agents’ conduct, and (iii) the conduct was not intended to benefit the SSO (as opposed to its corporate members). The court rejected 3GPP’s assertion that it merely acquiesced through inaction to the actions of the Corporate Defendants, noting allegations that “3GPP did more than serve as a mere structure for its members to develop standards. … [B]y cloaking the Corporate Defendants with its apparent authority as its agents, i.e., leadership positions of important committees within the standardization process, 3GPP can be held liable for the actions of its agents committed with that apparent authority.”

Although the court’s decisions are not rulings on the merits, and merely dispose of preliminary challenges to the legal sufficiency of the plaintiff’s claim, the opinions serve as a reminder of the risks faced not only by SSOs themselves but by corporate members whose representatives comprise and lead committees that make standard-setting decisions, and of companies’ need to exercise discipline over the activities of both SSOs in which they participate and their representatives to the SSOs.  In a world where a jury deliberating conspiracy claims may be allowed to consider even mere attendance at such sessions as suggesting that the parties had an opportunity to conspire, a company cannot be too careful in approaching its participation in an SSO.

Here are a few of the rules of the road that companies participating in SSOs should follow:

1.  Companies should enforce clearly articulated written policies, which have been reviewed by antitrust counsel, governing employees’ participation in SSOs, and should insist that the SSOs themselves have, and enforce, similar policies. Those policies should establish a culture of compliance regarding matters such as membership selection, development of specifications, product certifications, and collaborative activities.

2.  The composition of SSO committees should be diverse and representative.

3.  Company representatives to SSOs should be instructed on the rules governing their participation on SSO committees, including, e.g., what subjects may, and should not, be discussed both in formal SSO meetings and in other settings as well (e.g., at social gatherings occurring in conjunction with SSO meetings).

4.  Companies should ensure that (i) SSOs adequately document the work of their committees (e.g., through formal agendas and written minutes of SSO committee meetings that are, in appropriate instances, reviewed by counsel) to create a record of what matters were, and by implication were not, considered, and (ii) their representatives understand that they should not stray from approved agendas during meetings and should keep their own records documenting their actions.

5.  A company representative should explicitly dissent from any action by the SSO or one of its committees that he/she believes to be improper, should consider immediately leaving any meeting at which an improper discussion or action is undertaken (noting for the record the reason for departure), and should promptly report such an event to his/her company.

6.  Company representatives should resist any temptation to carry out their company’s competitive agenda through the mechanisms of the SSO, or to be swept up in any such scheme.

7.  Company representatives should be especially careful about any committee or other SSO action that will have an exclusionary or otherwise adverse effect on a particular competitor or group of competitors, and should avoid using the standard-setting process to pick winners and losers. The fact that a selected standard may give some competitors advantages over others, or even embrace a technology that is not widely used, does not mean that the standard or the process by which it was adopted was illegal; but standards with exclusionary intent or effect are likely to be subject to heightened scrutiny.

8.  To avoid “patent hold-ups”, (i) participants in the standard-setting process should be required to disclose all patents or other intellectual property rights they possess that may be incorporated into a standard, (ii) the SSO should consider whether any such rights must be waived on a reciprocal non-assertion basis or made available on reasonable and non-discriminatory (“RAND”) terms, and (iii) the SSO should both be sure that such commitments are enforceable against committee members and their successors and guard against affirmative misrepresentations concerning such matters.

In appropriate circumstances, the SSO should consider whether to register its activity under the National Cooperative Research and Production Act, 15 U.S.C. 4301 et seq., which bestows on registered entities certain advantages in the event of a subsequent antitrust challenge to its activities (e.g., application of the “rule of reason” standard, rather than the “per se” standard, in evaluating the SSO’s activities; allowing an SSO to recover attorney fees should it prevail in litigation concerning its standard-setting activities; and limitation of the SSO’s potential liability for standard-setting activities to actual rather than treble damages).

The implications of TruePosition and similar lawsuits extend beyond SSOs to trade associations and any other setting in which company representatives have the opportunity to meet, exchange information and collaborate with their competitors – veritable minefields for the unwary.

Burt Braverman is a partner in the Washington DC office of Davis Wright Tremaine.

The opinions expressed are those of the author and do not necessarily reflect the views of the author’s firm or clients.  This article is intended to provide general information about recent legal developments, and it is not intended, nor should it be used, as a substitute for specific legal advice.

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