Qualcomm Fights Tough Standards-Body Patent Disclosure, Royalty Rules

The actions had drawn little notice, but in a DoJ-FTC information-gathering session Tues. and Wed., supporters of mandatory patent disclosure held up VITA’s rules as a model for other standards bodies. Opponents Qualcomm and Microsoft attacked the rules as a threat to competition and innovation.

“It’s good if all the cards are up instead of down,” VITA outside counsel Robert Skitol said in his presentation. “It’s good if standards-setting participants have choices.”

Qualcomm’s top licensing lawyer, Senior Vp Michael Hartogs, made his central points repeatedly: No need has been shown in many standards settings for rules as strong as VITA’s; and joint royalty bargaining in standards groups is an invitation to price-fixing, in violation of Sec. 1 of the Sherman Act. In licensing its standards-backed CDMA cellular technology, Qualcomm has brought down the wrath of customers and competitors and drawn the investigative interest of competition authorities in Europe and Asia.

Hartogs warned over and over that stricter rules could chase Qualcomm and other innovators out of standards bodies to protect their returns on investment. That, he said, would slow technological progress. Qualcomm’s aim of maximizing licensing revenue gives it a goal of “price reductions and increased volumes” in the cellphone market, based on strong competition among its licensees, he said. But “Qualcomm as a licensor succeeds only if its licensees succeed.” Regulators should evaluate each situation on its own, he said: “One size doesn’t fit all” standards.

Microsoft’s top antitrust specialist, Deputy Gen. Counsel David Heiner, supported central points in Hartogs’ position. Microsoft hasn’t seen royalty “holdups” by patent holders in standards-setting, and collective royalty bargaining would risk collusion, he said. But disagreements came from Hewlett-Packard Senior Counsel Scott Peterson and David Dull, senior vp and gen. counsel of Broadcom, a Qualcomm nemesis. (In one of many legal and regulatory battles between the companies, a San Diego jury Fri. rejected Qualcomm claims that Broadcom infringed video-encoding technology patents. Qualcomm voiced disappointment. It didn’t mention a possible appeal in the case, which awaits rulings by the U.S. district judge, and it pointed to its victories over Broadcom in other cases.)

Broadcom’s Dull said: (1) Some patent holders assert a right to “pick & choose” licensees, including the right not to license companies that are competitors “downstream” in the market. (2) Broadcom has been denied licensing for refusing to give in exchange a royalty-free license of its intellectual property. (3) Would-be licensees have been coerced into buying a licensor’s products. (4) Standards bodies have been stacked with a licensor’s supporters. Dull told us later that his comments alluded to Qualcomm. Qualcomm denies Broadcom’s allegations. Dull concluded that antitrust action against monopoly conduct is important to high-tech competition and innovation.

Skitol said he thinks Qualcomm is bluffing about pulling out of standards groups if they adopt his recommendations. VITA’s new rules cost it Motorola as a member, but membership has grown, he said. VITA is made up of developers, vendors and buyers of modular embedded computer systems that have industrial applications and are increasingly used in radar and avionics systems for space exploration and weapons.

VITA has learned that monopolistic “holdup situations” exploiting patents are “far from an isolated event,” Skitol said, conceding that other standards-setting groups disagree. The new VITA rules require early and updated disclosure of patents and applications potentially relevant in standards development, as well as maximum royalty rates and other terms. Holders must agree their licensing commitments will be enforceable against anyone that may acquire the patents, and to arbitration of disputes.

DoJ and the FTC should encourage other standards groups to adopt similar rules, Skitol said. That would promote self-regulation, reducing the need for agency action and avoiding lawsuits, he said. The agencies also should support industrywide studies of standards groups’ “holdup experiences,” file amicus briefs in private suits involving abusive patent owners, and let standards groups experiment with rules without fear of antitrust action, he said. VITA and unspecified other groups are “exploring the possibility of legislation along these lines,” Skitol said.

The agency lawyers moderating the panels of business witnesses didn’t indicate views in the debate. But Skitol cited a footnote in DoJ’s Oct. business review letter on VITA’s rules as saying that, because collective royalty negotiations in standards groups could benefit competition, the agency probably would judge them according to whether they're reasonable. FTC Chmn. Deborah Majoras said the same thing publicly in Sept. 2005, he said.

Peterson said he supports “legitimate, aggressive enforcement of patent rights,” but not allowing holders to exploit the “lock-in” effect of standardizing patented technology. That patents increasingly change hands undermines enforcement of the original holder’s commitments on licensing terms, and holders shouldn’t be granted injunctions that shut down adversaries’ businesses, he said. “Perhaps more guidance will be needed” from antitrust enforcers on how far standards-body members can go under the federal Sherman Act’s Sec. 2 to limit monopoly abuse without creating liability for collusion under Sec. 1, Peterson said. Skitol agreed that patent transfers and injunctions represent ways for owners to “hold up” others in the industry for excessive royalties even when they've made required patent disclosures during standards-setting. Vague assurances by holders that they will license on reasonable and nondiscriminatory terms create loopholes for them, he added.

The session was one of several nationwide on federal Sec. 2 policy. They're expected to continue through the spring. A report probably will result, Patricia Schultheiss, an FTC competition bureau lawyer, told us Wed. Its recommendations probably won’t include statutory changes. But such reports, besides alerting companies to agency enforcement policies, have influenced congressional action and been cited in judicial opinions up to the Supreme Court, she said.