Patent Misuse through the Capture of Industry Standards

Abstract

The existence of a patent on a particular technology conveys the statutory right to exclude, but in no way guarantees economic power in the marketplace. When a patented technology is adopted as an industry standard, however, that equation can change radically. Because of competitive necessity to practice the patented standard, particularly in industries characterized by network effects, the power potentially conveyed by the patent is greatly amplified. Industry standards are subject to capture when firms that participate in formulating a standard have also obtained (or are seeking) patent or other proprietary rights in some aspect of the technical subject matter of the standard, without disclosing the existence of those rights to the standard-setting organization. Conflicts arise when a license under these patents is essential to practicing a standard and the patent owner refuses to license certain competitors, or grants licenses only at terms perceived by users as commercially unreasonable. Absent a mechanism to compel licensing, a hold-up problem ensues. This Article contends that patents are not fundamentally incompatible with industry standards, but that the existence of patents on standards must be transparent and the licensing of such patents subject to appropriate controls so as to ensure widespread industry access. In order-to make fully informed choices about technology under consideration for adoption as an industry standard, standards-setting organizations must be made aware of any relevant patent rights or pending patent applications owned by standards-setting participants. In cases of abusive standards capture, defined as the intentional or willful nondisclosure of patent rights by a standards setting participant who thereafter refuses to license all users at reasonable and nondiscriminatory terms, courts should refuse to enforce such patents altogether under a theory of patent misuse.