Article 82 EC and hold-ups - Is Article 82 EC an appropriate tool to remedy hold-ups in standard-setting?

Abstract: Standard-setting is undoubtedly beneficial to society. Its foremost advantage is that it ensures interoperability between products and thereby increases consumer welfare. Standardization covers a wide range of activities, but for the purpose of this thesis it can be defined as activities that set technical specifications that seek to provide a common design for a product or process. Standards thus build on technologies that can in turn be protected by intellectual property rights (IPRs). This may potentially create a hold-up situation where the patent holder's negotiating power is increased once his/her patent is included in the standard. This may put the patent holder in a position to potentially extract ''unreasonable'' royalties. In order to mitigate the effects of hold-ups in relation to standards, SSOs adopt disclosure policies and make participating firms, whose patents will be included in a standard, commit to license on FRAND terms. In the EU, FRAND has been an essential feature of SSOs to immunize these from antitrust liability under Article 81 EC, given that members of an SSO may often be competitors or at least potential competitors. Competition concerns can arise when individual firms try to circumvent the SSO's disclosure and FRAND policies thereby creating a hold-up situation in the SSO. Two cases of this type of unilateral ''abuse'' of SSOs, Rambus and Qualcomm, have been tried under Section 2 of the Sherman Act in the US with different outcomes. In the EU, the European Commission is currently trying the same cases under Article 82 EC. In light of the US experience, the purpose of this thesis is therefore to investigate if Article 82 EC offers an appropriate remedy to hold-ups in standard-setting. Article 82 EC does not appear to have the necessary conceptual tools to challenge the hold-up directly because Article 82 EC only comes into play once a firm already enjoys a dominant position. Therefore, the European Commission will attempt to investigate if the royalties charged by Rambus and Qualcomm are ''unreasonable'' and an abuse of dominance. This thesis therefore outlines the legal framework of Article 82 EC in respect to dominance and pricing abuses. It underlines the difficulties associated with the assessment of price&semic especially in the context of royalties and SSOs. The US legal framework and practical experience are used for comparative purposes in order to highlight the relevant concerns associated with using antitrust law to assess hold-ups. The thesis focuses on factors that are important when defining the relevant market in the context of intellectual property rights. In respect of abuse under Article 82 EC it highlights the potential consequences of applying the principles of excessive pricing, developed by competition law, to define a ''reasonable'' royalty. In addition, the analysis shows which consequences an antitrust assessment may have for the future existence and exercise of SSOs, the concept of FRAND and for innovation at large. In conclusion, the author will explain the difficulties involved when attacking hold-ups by means of excessive pricing. EC law suggests that the EU may not have the right tools to challenge the real issue: deception of SSOs that creates hold-ups. Thus, by assessing the subsequent royalties the Commission risks doing more harm than good. Consequently, the European Commission may need to develop its tools in order to target hold-ups directly instead of challenging the reasonableness of royalties in light of Article 82 EC.