Patently Obvious: Why Seeking Injunctions on Standard-Essential Patents Subject to a FRAND Commitment Can Violate Section 2 of the Sherman Act

Greg Sivinski, Oct 15, 2013

Technical standards are a necessary exception to a competitive marketplace based upon feature differentiation, but they pose risks because of the market power they confer on holders of standard-essential patents (“SEPs,” which generally speaking are technically essential and must be licensed in order to implement the standard). This is particularly true when the standard is widely adopted and there are no reasonable alternatives to its use. In such circumstances, a SEP owner can use the threat of an injunction to extract supracompetitive royalties or exclude competition entirely. This “lock-in” and related market power is what distinguishes SEPs from typical “differentiating patents” that are not incorporated into a formal standard-and is what makes Section 2 of the Sherman Act a powerful and appropriate tool to regulate SEP abuse.

The basic aim of the patent system is to create strong incentives to innovate and compete through feature differentiation, leading to consumer choice and competitive markets. As part of the patent grant, owners of differentiating patents may license their patents for a royalty, or enforce their rights to exclude infringers through an injunction or an action for damages. These rights, on their own, do not confer market power on the owner of a differentiating patent. Free riders (would-be infringers) can choose to work around differentiating patents or license the patented technology if it is available. And when disputes a…

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