San Diego's economy is driven in large part by technology, with the high-tech and biotech industries being the primary engine. The telecom industry alone is San Diego County's fourth largest industry sector when ranked by number of employees. The telecom industry contributed more than $11 billion to the local economy in 2004, and surely even more today.
One unique aspect of the high-tech industry in general and telecom industry in particular is its focus on interoperability. Technology standards organizations have been formed to consider and select technologies as industry standards to promote interoperability. However, one reoccurring problem with technology standards seems to be licensing intellectual property owned by standards participants when the intellectual property covers a standard.
A company's involvement in a standards-setting organization can create numerous issues for the company. For example, technology standards have been prominent in local newspapers as local technology giant Qualcomm (Nasdaq: QCOM) struggles to maintain its position as a leader in the wireless communication business. Qualcomm's involvement in the industry's Joint Video Team standards activities and its failure to disclose those activities during discovery in litigation between Qualcomm and Broadcom in Federal District Court in San Diego has landed the technology giant and its attorneys in hot water.
The U.S. Federal Trade Commission has occasionally waded into the standards area. Many of the commission's early cases focused on the antitrust issues inherent in a patent holder's subversion of the standards-setting process, namely an alleged misuse of the process by failing to disclose patents relating to the standard. In re Rambus Corp., Docket No. 9302 (2006), appeal pending, Docket Nos. 07-1086, 07-1124 (D.C. Cir. 2007); In re Union Oil Co. of Cal., Docket No. 9305 (2005); In re Dell Computer Corp., 121 F.T.C. 616 (1996). Standard setting has received commission scrutiny because, as the commission majority points out, as a joint activity, standard setting displaces competition, and manipulation of the standard-setting process can adversely affect an entire industry.
Recently, however, the commission stepped into the licensing area by ordering a company to license its standards-based technology for a nominal fee without any concurrent determination that company's conduct had violated the Sherman or Clayton Acts. In the Matter of Negotiated Data Solutions, LLC, File No. 510094. The commission's decision suggests that its enforcement policy now embraces regulating perceived abuses of intellectual property rights, such as increasing licensing rates for patents needed to practice industry standards, that affect consumers -- even sophisticated corporate consumers -- in the absence of an antitrust violation.
Companies should seriously consider the consequences of participating in standards-setting organizations and should establish realistic policies and procedures for documenting their participation. Procedures should also be put into place to track and record a company's intellectual property related to standards-based technology. These companies should also consider periodically reviewing their intellectual property portfolio and updating their records. Participating in standards-setting organizations can be a very worthwhile endeavor for companies in standards-based industries, and with a little forethought and planning, the company can avoid problems of the type described herein.
Submitted by Foley & Lardner LLP