Private Proprietary Standards and Public Law: Invoking WTO's Competition Dimension to Avoid Global Market Distortion

Abstract

In today’s global economy driven by trade in knowledge intensive products, technical standards are set across borders and are meant for global consumption. However, private proprietary interests that currently dominate the national, regional and international standard-setting environment can cause considerable global market distortion. Private exclusivity preserved by patents is essential for the development of new technologies, while standardization ensures homogeneity and introduces product compatibility. However, the interaction between them viz., patents - ‘private’ and ‘exclusive’ v. standards - ‘public’ and ‘non-exclusive,’ is far from achieving coherence. This paper has examined problems arising from proprietary technical standards (termed as “standards-essential patents” –SEPs) at two different levels of normative inquiry, viz., a) national/regional or comparative law and policy that regulates issues concerning SEPs; b) international trade law and policy landscape governing technical standardization. The problem as broadly perceived arising from SEPs suggests that patent holders engage in ‘hold-ups’ or are able to extract ‘unfair,’ ‘unreasonable’ licensing terms from different market players practicing standards across the globe. The essential conflict lies in the fact that the remedy system structured around patent-property rights (injunctive relief and damages) in different jurisdictions largely incentivizes hold-up behavior. This leads to global market distortion and causes significant consumer harm. The regulations that deal with these situations and the remedies that follow anticompetitive conduct involving SEPs are weak or even absent in some jurisdiction. The most important remedy involving SEPs may be based on liability rules, where the patent holder is denied any injunctive relief and the value of patent holder’s entitlement is determined by some form of third party intervention- usually by the courts or through regulation. Standard-setting Organizations (SSOs) require FRAND (Fair, Reasonable and Non-Discriminatory) licensing commitments from the patent holders in cases involving SEPs. However, interpretation of ‘FRAND’ has caused considerable concerns and there is significant inter-jurisdictional legal and policy conflict. Currently, litigation involving SEPs is pending in different jurisdictions, which may lead to potentially different outcomes. Antitrust authorities in the US and EU have opened investigations for violation of FRAND commitments leading to another possibility of significant divergence of antitrust remedies involving SEPs. Antitrust remedies may also take some form of liability rules. This underscores the need for global mandatory liability rules to resolve problems arising from SEPs. The paper articulates a premise for the application of liability rule and not property rule for SEPs from a global regulatory perspective to overcome the differential treatment in various jurisdictions. The paper examines the TRIPS Agreement framework of liability norms in their application to SEPs. While patent rights and remedies that follow them are largely harmonized in TRIPS, liability rules that can help resolve problems arising out of SEPs are not harmonized, or at best, permissive. To these ends, the paper investigates the missing ‘mandatory’ nature of liability norms in the TRIPS Agreement and suggests the need for articulating one. Similarly, the TBT Agreement framework in their application to SEPs is examined. The conspicuous absence of liability norms in the TBT Agreement for SEPs is investigated from a WTO competition policy perspective. As an outcome, a need for a ‘principle-based approach’ that promotes competition in SEPs is suggested. Since liability norms represent significant ‘regulation,’ the paper investigates how a regulatory model similar to GATS telecommunication interconnection regime may be used to establish a global mandatory liability rule for SEPs. It is suggested that a solution based on global mandatory liability rule perspective can significantly reduce global market distortion arising from inter-jurisdictional normative conflict.