Standard Setting in a Network Economy
David A. Balto
Office of Policy and Evaluation
Bureau of Competition
Federal Trade Commission
Cutting Edge Antitrust
Law Seminars International
February 17, 2000
New York, New York
Thank you for inviting me to speak on the important topic of standard setting and networks today. Standards are important because they are ubiquitous. Ever since the advent of the Industrial Revolution, when many family units ceased to be economically self-sufficient, standards have been necessary for a monetized economy to function. Standards provide the information to producers and consumers to enable them to judge the quality of products produced by others, and also to determine the safety of those products. In addition, standards perform another important function-they ensure the compatibility between complementary products and even between the various parts of a particular product. In short, standards determine how things work. When considered at this most basic level, it is clear that all commercial economic activity depends on the standards embedded in the products and services sold in that economy.
Today I will try to make some sense of one of the most complex antitrust issues involving standard setting: how to analyze standard setting in the network context. I begin with some brief observations about the importance of network industries. I then will explain how the courts and enforcement agencies typically analyze antitrust standard setting claims. Most of the antitrust case law on standard setting involves allegations of firms using quality or safety standards in an anticompetitive manner, and it is often difficult to translate this case law to the context of network industries.(1) As Professor Lemley notes, "there is something about the information industry in general and the Internet in particular that makes the application of normal antitrust rules problematic."(2) Finally, I will consider several issues about analyzing competitive issues in the network standard setting context. Because of the complexity of the subject, I caution that these are preliminary views, intended to spur thoughtful discussion. And as always, my remarks today are my own and do not necessarily reflect the views of the Commission or any of its Commissioners.
I. The Importance of Networks
Industries based on network economics were given a boost by the Industrial Revolution and the rise of a national economy.(3) As economic activity became larger and more impersonal, it became necessary to form networks in order efficiently to supply certain kinds of goods and services. The railroads are an example of an early network industry. A station, track, and rolling stock obviously are of no use unless they connect to other stations. The more stations that are connected, the more valuable the railroad becomes to the owners and consumers located along its path. To a consumer, it thus becomes important that other consumers have access to the railroad from other locations. This not only gives the first consumer more places to go, it also makes the railroad more profitable and able to provide better services to the first consumer.(4) These network economics were later evidenced in electricity, telegraph, telephones, and other industries where consumers valued products partly on the basis of how many other consumers purchased the same product. The more consumers who are connected to the network, the more valuable the network becomes to each consumer.
Network industries are the central nervous system of the Twenty-First Century economy. The most valuable commodity in this economy has become information, and the economics of networks applies to almost all information products and services. Information can be consumed by more than one person. Most importantly, the total social value of information increases as it is shared with more consumers. Consumers of computers and software programs, cellular phones, faxes, and Internet services all have more valuable products as the use of the products by others increases. Whether we call this an "information economy" or a "network economy," the implication is the same-network economics accounts for an increasingly larger share of the economy and is the driving force behind much of the innovation and technological change.
Network externalities,(5) along with lock-in costs caused by capital expenses and training costs for many high technology network industries, may make network market power easier to accumulate and more durable than is the case in other industries. When networks compete, the positive demand side externalities associated with a network make the market susceptible to "tipping," whereby consumers gravitate to the apparent winner.(6) Expectations also play a critical role. The rush of consumers to embrace the winning technology in a standards war is fueled not only as a result of a desire to purchase the best products, but also because of the consumers' expectations about the purchases of other consumers and the desire not to be left behind os stranded. As a consequence, many network markets are dominated by a single firm or, more likely, by a group of firms that have jointly agreed on interface standards. Thus, antitrust must balance the potential procompetitive efficiencies associated with network economics with the potential anticompetitive problems identified with competitor collaboration and market dominance.
Economic complexity reflects and reinforces interdependency and, as a result, compatibility standards are crucial for industries subject to network economics. These industries typically consist of a complex set of complementary products and services such as computers and peripheral equipment, software operating systems and applications, communications networks and sending and receiving products. Compatibility (or interoperability) with the network and all its components is crucial for the manufacturers of all of these products.(7) It is also crucial for consumers if they are to receive the full benefits of the network externalities. For instance, in our earlier railroad example, consumers and shippers could receive the full benefit of a national railroad system only if all railroads used the same gauge track.(8) Without this intersystem compatibility, passengers and cargo would have to change trains in order to use the tracks of another company. Lack of compatibility in a network industry leads to inefficient production and consumption.(9)
Of course, one firm, under the right circumstances, could operate an entire, internally compatible, network, and guarantee production and operational efficiency. There have been examples of this. At one time, AT&T operated the only long distance telephone network in the United States and produced most, if not all, of the equipment that connected to it. A proprietary, monopoly network raises additional issues, including potential market power abuse, lack of variety for consumers, and innovation incentives. However, most networks consist of several manufacturers supplying complementary products that must interconnect in order for the network to function efficiently.
The Importance of Standard Setting in a Network Environment
Standard setting plays a critical role in network industries because of two factors: consumer expectations and interoperability. Consumer expectations are critical to the success of networks, either existing or emerging ones. The strength of a networks's market power depends upon its users' expectations of the likely behavior of other users of the network. Consumers fear making investments in a network and then becoming "stranded" because there is insufficient consumer acceptance. Standards may alleviate those concerns, by assuring consumers that the network technology will be adopted.
Interoperability - the capacity of products of one vendor to communicate or interface with the products of competing suppliers of complementary products -- also plays a critical role in the success of networks. No network is an island, and networks must depend on alliances with producers of complementary products. Interoperability is a core function of most information technology products. Network products such as modems and cellular phones are heavily dependent on interoperability standards. Interoperability standards also play a critical role in overcoming the concerns of stranding and the expectations of those which produce complementary products.
The fact that standard setting is crucial in network industries does not give it immunity. Ownership or control of important standards in a network industry may confer or permit maintenance of market power which could be used to raise prices or retard innovation. Whether this control is unilateral or is shared through the mechanism of a standard setting agreement, competition and consumers may be harmed by the illegal acquisition or abuse of this market power. Thus, for consumers to receive the full advantage of network efficiencies, firms in network industries must find some common ground to facilitate the interoperability of complementary products, while still competing with each other and trying to avoid being the victims of market power abuse.
II. Antitrust Analysis in Standard Setting Cases
Standard setting is typically, but not invariably procompetitive. Standard setting benefits consumers in three fundamental ways. First, it can increase price competition, because standard technologies and products can be more readily compared and contrasted. Second, it can increase compatibility and interoperability, allowing new suppliers to compete in producing products and services related to the underlying standard technology. Finally, standard setting can increase the use of a particular technology, giving the installed base enhanced economic and functional value to the extent that it is compatible with a large network of applications.
Standard setting can also have anticompetitive effects. Standard setting can thwart innovation or entrench an older standard when a newer, better, or more widely accepted technology is available. A new standard renders, to some extent, the exemplars of the old standard obsolete, and sometimes requires a costly reinvestment in new equipment. As a result, standard setting can temporarily limit the availability of products that consumers may desire or require, raising the costs of those products.
Standard setting can also provide a forum for collusion, either tacit or explicit. For example, a competitor or group of competitors may attempt to select a standard designed to preclude the use or acceptance of another's product, may unfairly exclude a competitor from the standard-setting organization, or from the information needed to apply the standard. As Professor Areeda explained: "The core concern of Sherman Act §1 is that competitors cooperate to substitute common action for competition and thereby effect an anticompetitive restraint that could not otherwise be achieved."(10) Where competitors collude to keep a product, particularly an innovative product, from reaching the market competition is harmed. Consumers' choices have been circumscribed by horizontal activity, and the enforcement agencies should step in.
Standard setting may adversely affect competition procedurally or substantively. If the process of setting or enforcing the standard is compromised or manipulated by certain competitors at the expense of others, anticompetitive effects may occur. Even if the process does not appear designed or operated with anticompetitive intent, the rules set by a standard setting organization could themselves have anticompetitive consequences. There is important case law in both areas.
Open or Closed Standard Setting
A standard setting body, or a firm with de facto control over its own proprietary standard faces two choices in establishing the standard. The firm or group could restrict the standard setting process restricted to a subgroup of less than all competitors, and this would usually lead to restricted access to the completed standard. Alternatively, the standard setting process could be open and collective, and all interested parties could be allowed to participate. This choice has important legal and policy ramifications.
The use of an open standard setting process by collective decision making usually lessens antitrust concerns over the exercise of market power. However, open standard setting procedures may lessen efficiency because of the need for consensus among competitors, each of whom may have its own proprietary technology.(11) In high technology industries, standards set by consensus may be obsolete before they are implemented. And, as I explain below, overinclusive standard setting may deter the incentive to innovate. Thus, antitrust policy cannot determine on an a priori basis whether social welfare will be maximized by an open or a closed standard. As with most antitrust issues, it all depends on the particular factual situation.
While the use of open standard setting procedures may impair efficiency, proprietary de facto standards raise other types of competitive concerns. These types of standards may enable an individual firm to use the standard to exercise market power. As Professors Anton and Yao have observed, "[i]n the case of a standard that effectively requires the use of a proprietary technology, the standard, if adopted (whether de facto or by formal process), can imbue the technology with market power that it previously lacked. Thus there is the potential for monopolization, or more minimally a raising of rivals' costs, through the conjunction of an adopted standard and a proprietary technology."(12)
The Role of Process
The antitrust jurisprudence on standard setting focuses almost entirely on collective standard setting and the process used to determine the standards. This focus on process seems unusual from a general antitrust perspective. Most antitrust jurisprudence on collective action focuses on structure: the number of competitors, the market share of the collective entity, and whether the members of the entity can compete independently against the entity. In the seminal Northwest Wholesale Stationers(13) case, for example, the Supreme Court instructed that rule of reason analysis should be applied where a wholesale purchasing cooperative expelled a member without explanation, notice or a hearing, because the cooperative did not possess "market power or exclusive access to an element essential to effective competition."(14) The plaintiffs had argued that expulsion was illegal since the cooperative failed to provide procedural due process. But the Court rejected that argument: "the absence of procedural safeguards can in no sense determine antitrust analysis."(15)
In spite of the Court's instruction Northwest Wholesale Stationers was not the death knell of the focus on procedural due process. Rather the courts, including the Supreme Court, continued to focus on the existence of fair procedures and their adherence in determining liability in standard setting cases.(16) The courts have treated procedural defects as evidence of anticompetitive intent.(17) Procedures can be manipulated to subvert the goals of an organization. For instance, often a subgroup of the whole can effectively "capture" the whole group and set its own agenda. Where that agenda includes disadvantaging rival groups or individuals, competition may be harmed.
In Allied Tube,(18) decided after Northwest Wholesale Stationers, the Supreme Court found gross procedural irregularities to be the method of harming competition by excluding an innovative product. In this case, an association that published a voluntary code of standards for electrical equipment adopted a code for electrical conduit, a hollow tubing that is used to carry electrical wires through walls and floors. Although the code was voluntary, it was highly influential in the market and also had been incorporated into safety codes of many local governments. The code traditionally required the use of steel conduit in high-rise buildings, but a new entrant into the market proposed to use plastic conduit. The new product was allegedly cheaper to install, more pliable, and less susceptible to short circuits. The innovator applied to have the code amended to permit the use of plastic conduit in high-rise buildings, and the amendment was to be voted on at the annual meeting of the association.
The incumbent steel conduit manufacturers used the association's procedures to exclude the plastic product from the code by sending to the annual meeting new members whose sole function was to vote against the new product. Together the steel conduit manufacturers sent 230 persons to the meeting, including a number of persons who did not have "any of the technical documentation to follow the meeting.(19) The incumbent manufacturers prevailed by a vote of 394 to 390 to keep plastic conduit out of the code. As a result, the potential entrant's ability to market the plastic conduit was significantly impaired, and consumers were denied the benefit of a potentially significant product innovation.
Why have the courts continued to focus on procedural due process? In the first place, procedure is more transparent than the complex issues of market power or anticompetitive effect. Indeed, the lack of process or procedural irregularities may present strong evidence of an anticompetitive motive or intent. Second, the courts are not well equipped to decide the relative superiority of different standards, particularly in high technology network industries. The courts are far more comfortable deciding whether a process is fair than whether "standard A" is more likely to be procompetitive than "standard B." Finally, procedural due process, especially where the views of buyers are incorporated gives the standard a greater sense of legitimacy.
Avoiding Antitrust Risks
The case law shows clearly that it is not difficult for an association or standard setting body to enact standards through a process that avoids competitive risks.(20) The goal should be a process that is either open to all or fair to all members and nonmembers. Clearly, an association does itself no favors by enforcing its rules and standards without regard to procedural safeguards, particularly notice, a hearing, and an opportunity to defend.(21)
Beyond that there are several guideposts in creating the substance of the standards. First, the standards should not overreach. They should be reasonably related to meet the perceived need that could affect the demand for particular products or services. Standards should not restrict or define the product more than necessary. Often, this can often be accomplished by setting a technical goal that must be met and allowing more than one method of achieving the goal.(22) In particular, a prudent course is for a standard setting entity to adopt a "performance" standard rather than a specification standard (which specifies a particular design or material). Many economic studies have shown that performance standards are superior in encouraging innovation.(23) Similarly, advisory standards are less problematic than prohibitory standards.
Second, standards should be applied evenly, to nonmembers as well as members of the standard setting organization. If the goal is product safety or quality, it should not matter who supplies it.
Third, the role of buyers can be critically important. As Professor Hovenkamp observes, where the standard setting process is "dominated by users or other vertically related firms rather than rival producers, competitive injury is unlikely."(24) The involvement of buyers in the design of standards may reduce competitive concerns. Similarly, enforcement of standards by buyers, a neutral scientific body, or government agencies is less likely to cause problems than enforcement by the standard setting organization itself.(25) There is no safe harbor here, but it does lessen the ability to abuse market power.
Finally, standard setting organizations should take great care not to do anything that could stifle innovation. Standard setting entities in high technology markets would be well-advised to establish procedures to upgrade product standards to reflect new technologies on a regular basis. There have been several decisions where the courts have been more sympathetic to standard setting conduct where the entities periodically upgraded their standards.(26) In particular, all standard setting organizations should have in place procedures to deal with the next generation or "leapfrog" technology, to assure that these technologies are not hindered by rivals manipulating the standard setting process. This could include a guarantee of a hearing, even for nonmembers, removal from the decision-making process for those members most affected by an innovative technology, and independent assessment of the new technology. Most standard setting organizations have these safeguards in place.
But let me return to my earlier observation: even though the courts focus on process rather than structure, should they? Let me make a modest proposal which may aid in reinjecting consideration of structural issues into the analysis. One could focus on the question of whether the standard setting body has market power, but the issue of market power is often too daunting and complex. In some instances, a simpler approach would focus on what the world would be like without the standard setting. If, absent the standard setting endeavor, no standards would be adopted and the relevant technologies would fail to develop, the standard setting should be characterized as procompetitive. Like a joint venture that creates a product that otherwise would not exist, this type of standard setting venture should raise few competitive concerns, as long as there are no additional restrictions on competition. Of course, there are probably relatively few situations that would meet this threshold and the proponents of the standard setting endeavor would have to demonstrate this was the case. By focusing on this question, however, the courts may begin to give greater clarity to the competitive analysis of standard setting.
Unilateral Standard Setting
This discussion has focused on collective standard setting, but that does not mean that unilateral standard setting is free from concern. Although standard setting case law is almost exclusively devoted to the activities of standard setting associations, competition principles apply equally to situations in which a dominant firm sets a de facto standard and abuses its subsequent market power through exclusionary acts such as monopoly leveraging,(27) denial of access to an essential facility,(28) or raising rivals' costs.(29) These dominant firm actions have the potential to harm competition in ways similar to collaborative association activities. An important example was the monopoly tactics of AT&T, which involved several methods of exclusionary behavior in defense of its long distance monopoly. The breakup of AT&T was actually set in motion by a Section 2 action brought by MCI, which wanted to connect its long distance lines to AT&T's local exchanges. Standards played a large part in this case and the subsequent government case.(30) Among other defenses, AT&T argued that the quality of the whole telephone network would be compromised by allowing outside long distance carriers or equipment makers to connect to its interchanges. The Seventh Circuit rejected those arguments, holding, in effect, that other firms could meet the standards required to keep the system operating efficiently. The court noted that MCI had proven "that it was technically and economically feasible for AT&T to have provided the requested interconnections, and that AT&T's refusal to do constituted an act of monopolization."(31)
III. Antitrust Analysis in Network Standard Setting
As of yet, there is relatively little case law, but a good deal of academic commentary on standard setting in a network environment. So today I wanted to discuss several issues that seem to be at the forefront of current litigation and scholarship: (1) overinclusive standard setting organizations; (2) leveraging claims; (3) analysis of market power; (4) disclosure of intellectual property rights; and (5) closing a formerly open standard.
Overinclusive standard setting organizations
One of the most difficult issues faced by standard setting bodies is deciding who participates in the standard setting endeavor. Obviously denying access means that some firms will be excluded, and that raises questions whether those firms can use the antitrust laws to claim an illegal group boycott. Some might suggest that the "safe" course is to admit all to avoid antitrust disputes. Such an approach may be unnecessary and counterproductive. It is unnecessary because for the most part, the courts have accepted the argument that the ability to restrict membership to a standard setting body may be efficient and procompetitive. It is counterproductive because a relatively small group may function more effectively than a more inclusive one, and the resulting efficiency will increase incentives to establish standards, thus increasing output.(32)
In fact, overinclusiveness may pose more significant competitive problems than exclusion.(33) Some standard setting entities have even more fragile organizational structures than joint ventures-they may require absolute consensus before any standard can be adopted. Some standard setting bodies provide individual firms with a veto power.(34) Standard setting bodies may end up in delay or stalemate. Adoption of a new technology may be delayed as the body tries to achieve consensus. In the high tech area, where the need to respond to technological change can be urgent, collective standard setting may be a weak tool to compete.
Moreover, overinclusive standard setting may actually result in less innovation in some circumstances. If all industry participants invest in identical platforms, the result may be reduced differentiation, dampened incentives to innovate, and potential entrenchment of an inferior standard where a firm outside the process offers a different approach. Thus, the potential harms from requiring standard setting bodies to be overinclusive can be substantial. As the Antitrust Division observed in 1980:
Industry-wide research projects that include many or all firms in a line of commerce . . . pose antitrust concerns. These are more likely to restrain competition in innovation than more limited projects involving a few firms with lesser market shares. There is danger . . . that a single project will produce less innovation than will a variety of single and joint efforts employing alternative approaches.(35)
Competing (and exclusive) standard setting bodies may be preferable to a single standard setting entity. If all firms adhere to a single standard, there will be a certain inertia in the research & development process. With separate organizations, there is a greater incentive to "build a better mousetrap." The body with the less dominant standard has a strong incentive to develop products that are enough better than the products conforming to the dominant standard that consumers will be induced to switch.
Consider the situation where there are two standard setting entities. Would it be legitimate for one entity to exclude a member of the other entity? There could be several reasons to justify such an exclusion. For example, the excluded firm could deter or slow the standard setting efforts of one entity in order to benefit the other. Or the firm could gain access to competitively sensitive information that could be used in a strategic fashion.
An overinclusive standard setting endeavor is particularly likely to stifle innovation if it provides individual members with strong veto rights. The Canadian Competition Bureau grappled with this problem in its challenge to certain rules of the national ATM network, Interac.(36) Interac is the dominant ATM network in Canada and required its members to submit any proposed innovation or new product development to the Interac Board for approval. The rules further required all members to share equally in the costs of the product development and a two-thirds Board vote for approval. Because of these rules, no new product development was approved for almost a decade. The Competition Bureau alleged that the "close cooperation and transparency required among [members] during the process of considering a proposal for the introduction of new Shared Services inhibits competitive rivalry . . . , increases the likelihood of interdependent conduct and limits product development."(37) The rules were changed to permit individual members to provide new services, conditioned upon a finding by the network's senior management of the network that the network will not be adversely affected.
Of course, similar concerns may exist if a dominant firm, which controls a de facto standard, competes with a standard setting body. In this situation, if the dominant firm can compel access to the standard setting body it might deter the ability of the standard setting body to compete. Thus, when it comes to questions of access and exclusion the courts and regulators should be as concerned with the problem of overinclusion as with exclusion.
This discussion assumes that standards competition matters in network industries. I believe it does. The fact that an industry exhibits strong network effects does not mean that antitrust enforcers should not be concerned about a loss of standards competition.(38) There can be competing standards and that competition may bring important benefits to consumers, because standards can provide different attributes sought by consumers. For instance, many consumers still prefer to purchase the MacIntosh operating system, voluntarily forgoing many of the positive network effects of the WINDOWS operating system.
There are other examples of standards competition. There currently is a battle over the standards to supply wireless networking products, with one group including 3Com, Lucent Technologies, Nokia and others supporting the IEEE 802.11B standard, and another group that includes IBM, Motorola, Proxim and others supporting a standard called HomeRF, which is less expensive but slower.(39) In another interesting standards war, cable interests are competing with telephone company groups to control the market for broadband Internet access into the home. An interesting twist is that this contest pits a communications network with direct externalities (telephones) against a virtual hardware/software network (cable) that has traditionally focused only on one-direction data transmission. Of course, within each competing network, there are numbers of smaller competing networks of cable, telephone, or cable/telephone consortia. As these examples suggest, even though one standard may ultimately prevail, competition to become the standard benefits consumers, especially in terms of innovation.
Network effects can take effect across more than one relevant antitrust market. Competition may be affected in complementary goods, or even in next generation goods. One theory of exclusionary practices is monopoly leveraging, which is an attempt by a firm with market power to extend that power to a separate market. Although some commentators have criticized the monopoly leveraging theory,(40) the courts have accepted it in certain instances.(41) A more recent interpretation of the theory, known as defensive leveraging, explains how leveraging can be used by a monopolist to improperly preserve or maintain its monopoly power.(42)
Manipulation of standards may be a particularly effective means of monopoly leveraging in network industries.(43) Where technology is fast-paced, we would normally expect monopoly power to be dissipated by a leapfrog technology or at least eroded by next generation technology. However, "leveraging from a traditional to a standardized market may make economic sense, because obtaining control at the proper time can result in a durable monopoly, something that may not be possible in other markets with lower barriers to entry."(44) A dominant network, either de facto or one established by competitors, also may try to leverage its power across time to the next generation product, or at least use "defensive leveraging" to prevent erosion of the primary monopoly. In these instances, the monopolist is not trying to increase its total monopoly profits, but rather is trying to prevent them from being decreased by new competition.
Two types of strategies might be used. First, the monopolist might bundle or tie its monopoly product to the next generation product. If successful, this strategy not only "prevents the natural erosion of a monopoly . . . it inhibits innovation."(45) As Professor Shapiro observes, "the primary method by which today's network monopolist can maintain its monopoly may well be to extend its control, as least in part, to the next generation of technology. . . . [A]ntitrust concerns quickly arise when a firm controlling the standard in one product area uses its dominance to set and control the standard for the next generation of that product, or for a second, complementary product."(46)
A second strategy would be manipulation of standards, especially over complementary products. If a monopolist redesigns the interfaces for its next generation products solely to hamper the interconnection ability of the innovator into the complementary markets, it may be illegally leveraging its market power into the next generation. The anticompetitive effects may also include the impact on the incentives of potential rivals to innovate. As Professor Rubinfeld notes, "one particularly troubling aspect of leveraging is the possibility that innovation incentives of competitors will be decreased. Such a blunting of incentives can occur if the leveraging practice is undertaken not primarily as part of a vigorous competitive strategy, but in part to decrease the likelihood of competitor entry, so that the dominant firm will continue to be victorious in the competition for the next market."(47)
Analysis of Market Power
Network collaborations, including standard setting entities, can readily appear to have market power because of the size of the members or the potential popularity of the technology. Often those may be useful indicia of market power. But market power requires more than mere size; careful analysis requires the consideration of the ability to control prices or output, or diminish innovation.
This was a contentious issue in Addamax, a case involving a monopsony price fixing claim against the Open Software Foundation ("OSF"), a non-profit joint venture of a number of large computer manufacturers, formed to establish an operating system to compete against an AT&T/Sun Microsystems product in an alleged market for UNIX operating systems.(48) OSF desired to have a security product within its operating system and put out a "request for technology" to Addamax and SecureWare to bid on an exclusive right to sell to OSF.(49) The SecureWare product was selected, and within two years Addamax had begun to phase out its own product to concentrate on products for other markets.
Addamax sued OSF, Hewlett-Packard and Digital, alleging that the defendants engaged in horizontal price fixing by conspiring to force down the price for security software below the competitive price, thus causing antitrust injury to Addamax. The district court granted the defendants' motion for summary judgment on the plaintiff's per se claim, but found triable issues under the rule of reason.
First, the court focused on evidence that OSF wanted to standardize the market around its platform at the expense of the Sun/AT&T standard. By announcing the OSF standard, the court observed that "the Sponsors allegedly sought to paralyze the industry and deter users from committing to other systems."(50) The plaintiff introduced, and the court quoted a Hewlett-Packard "company confidential" memo stating that "a goal of the consortium might be to position the AT&T/Sun OS as the nonstandard Unix operating system and perhaps put them in a defensive position."(51) But those actions seem wholly consistent with competitive rivalry. OSF was designed as a counter to the AT&T/Sun UNIX operating system which the designers were threatening to make a proprietary system or at least bias towards their own products. OSF also sought to design a standard that could overcome the increasing balkanization of the UNIX world in order better to compete for corporate network markets with the expected encroachment of Microsoft from the personal computer markets.
As to market power, Addamax alleged that the defendants controlled significant shares of the markets for both operating system sales and computer security system purchases by aggregating their market shares. Although OSF's own sales and purchases were not large, Addamax alleged that OSF would be able to establish a de facto industry standard, and that any non-endorsed product would be unable to compete. The court stated that, "whether or not it is appropriate to aggregate the market power of the defendants in assessing market share, Addamax has put forth evidence that H-P and Digital were aware of, and in fact counted on, OSF's ability to influence the relevant market."(52)
This market power analysis seems incomplete. Aggregation of the market shares of the members might have been appropriate if the joint venture had been exclusive and restricted their members choice of operating system. Or it might have been appropriate if the joint venture required its members to use an particular security software. But the venture did not impose either of these restrictions.
Moreover, there was no evidence that the venture had or was likely to reach a certain level of prominence. That Hewlett-Packard, Digital, IBM and the other members collectively had a large part of the market for all operating systems seems irrelevant to their ability to cause anticompetitive harm in the UNIX market. The "ability to influence the relevant market" seems like a far weaker standard than that typically applied in defining market power. Any two or three good sized firms in a network market might have the ability to influence the adoption of a technology. Finally, even if these firms might potentially have had a large share of UNIX-based operating systems, that analysis assumes that this operating system was a relevant market.
Many commentators have raised concerns over the Addamax decision and its impact on the ability of firms to engage in collective standard setting, especially where rivals may have an incentive to use antitrust litigation as a weapon to frustrate these standard setting endeavors. Congress enacted the National Cooperative Research Act to reduce these risks and foster the ability of firms to engage in collective standard setting. Some commentators have raised the concern that the Addamax decision raises the possibility that the courts must referee every zero-sum decision by standard setting bodies in which the purchase of one product necessarily means that others are rejected.(53) On what basis is the court to make the determination of which product should be chosen?(54) Other commentators suggest that inferring market power too readily could have a stifling effect on the formation of standard setting entities like the Open Software Foundation. They suggest that if a standard setting entity knows that it will acquire the label of "dominance" simply because of the general size of its members, it may be hard to get firms to cooperate in these types of endeavors.(55)
Fortunately, under the recently issued Competitor Collaboration Guidelines, the OSF joint venture would probably pass antitrust scrutiny.(56) The joint venture was sufficiently integrated, so rule of reason analysis would be applied. Even though the members may have a large market share, numerous factors would diminish any competitive concerns: the joint venture had no collateral restraints, the parties were not required to use the new OSF standard, and there were no restraints on future competition between the participants.
Belated Assertion of Intellectual Property Rights
Intellectual property rights play a critical role in standard setting endeavors. In high technology markets, as others, the protection of intellectual property rights is critical to provide the incentives to innovate. The Commission has taken a balanced approach to exercise and protection of intellectual property rights in the standard setting context, as shown by the ASSE and Dell Computer enforcement actions.
If a standard setting body declined to certify a product simply because it was patented that could raise competitive concerns. That was at issue in American Society of Sanitary Engineering, American Society of Sanitary Engineering.(57) In this case, the ASSE refused to approve a new toilet tank fill valve, the Fillpro valve, developed by J. H. Industries, which had a number of performance advantages over the existing technology. The complaint alleged that the Fillpro valve could lower toilet manufacturing costs, was safer because it was less likely to be installed improperly, was more durable, and would better conserve water. The Commission challenged that action, alleging that ASSE refused to approve the new valve because J. H. Industries held a patent on Fillpro, not because Fillpro did not meet ASSE performance standards. These actions were aimed at protecting existing manufacturers by limiting innovative products to those without intellectual property protection. The Commission reached a settlement with ASSE that required ASSE to refrain from imposing unjustified product restrictions.
The Commission considered the important issue of the capture of a standard setting body through the belated assertion of intellectual property rights in Dell Computer.(58) This case involved a standard designed for the Video Electronics Standards Association ("VESA") for a local bus to transfer instructions between a computer's CPU and peripherals. VESA is a voluntary standard setting organization composed of almost all of the major computer software and hardware manufacturers. As shown in the USB peripheral standardization case, there would be considerable efficiency-enhancing potential in a product that would let computer and peripheral manufacturers know how to make products compatible with one another. However, intellectual property rights often hamper the compromise necessary to agree on a common interface.(59) Therefore, the agreement on the standard was premised on representations by the participants that no firm held intellectual property rights that might block others from developing towards the standard, or that any rights that might impinge on the standard would be licensed at a reasonable rate.(60) With these representations, the VESA participants came up with a new product that was commercially successful. The anticompetitive potential of the standard setting activity surfaced when Dell Computer alleged that the new standard infringed on its patent, despite having twice certified, along with other members of the Association, that it had no intellectual property conflicts. Dell made its claim only after the bus began to achieve success, and its claim for royalties gave it effective control of the standard.(61) If Dell had provided information on its patent claim up front, the participants could have made an informed choice on using the Dell technology. Because Dell instead resorted to its patent ambush, its actions were anticompetitive, and market acceptance and product sales thereafter suffered.(62)
Dell's belated assertion of patent ownership in this case enabled it to exercise market power with anticompetitive effect. The Commission charged that Dell's actions were an unfair method of competition in violation of section 5 of the Federal Trade Commission Act.(63) The Commission's complaint specifically alleged that industry acceptance of the new standard was delayed, and that uncertainty about the acceptance of the design standard raised the cost of implementing the new design. Other firms avoided using the new bus because they were concerned that the patent dispute would reduce its acceptance as an industry standard. In addition, willingness to participate in industry standard setting efforts was chilled.
The consent order requires that Dell refrain from enforcing its patent against any computer manufacturer using the new design in its products. In addition, Dell is prohibited from comparable behavior in its future standard setting involvements.
The Dell case is worth further study. Unlike most Commission orders, the consent in Dell received quite a few public comments. Most of the comments agreed with the Commission's concern where a firm had intentionally failed to disclose its claimed intellectual property rights during a standard setting process. The comments diverged, however, on what duties the antitrust laws imposed on firms involved in the process in the absence of intentional nondisclosure or misrepresentation and what duties should be imposed on the standard setting organization itself.(64)
First, it is important to note that the Dell case does not impose a general duty on participants in a standard setting process to disclose their own intellectual property rights. Certain commentating organizations stated that, unlike VESA, they do not require disclosure.(65) These organizations point out that imposing such a duty could deter many procompetitive standard setting activities.(66) In this case, the Commission imposed liability where a holder of intellectual property rights failed to comply with the requirements of the standard setting organization that had imposed its own search and disclosure obligations. Thus, the Dell order prohibits only future nondisclosure in response to a written request, while also requiring Dell to take steps to reduce the likelihood of inadvertent nondisclosure.
One of the important debates when the proposed consent was being evaluated was whether the FTC was suggesting that firms had an obligation under the law to disclose the existence of intellectual property rights during a standard setting process. The Commission's statement in Dell made clear that there was no general obligation to disclose. The consent order required Dell to refrain from enforcing its patent against any computer manufacturer using the new design in its products. In addition, Dell was prohibited from enforcing any of its patent rights that it intentionally failed to disclose upon request of any standard setting body during the standard setting process.
Since the Dell order many standard setting entities have considered adopting a strong disclosure system, requiring firms to determine whether the proposed standard conflicts with any existing intellectual property rights. Of course, a strong disclosure system involves important trade offs, since firms may be reluctant to participate if they must disclose potentially conflicting intellectual property rights. In addition, a strong disclosure system imposes greater search costs on the members of the standard setting body. On the other hand, a strong disclosure system offers several important advantages to the effectiveness of a standard setting entity. It provides a greater assurance to members of the standard setting body that there will not be delayed assertion of intellectual property rights and that they can make the investments necessary to build equipment compatible with the standard without fear of unanticipated liability. The presence of such a requirement would send a strong procompetitive signal that the organization is concerned about the potential for the standard to be ambushed or hijacked, and that it is taking the steps necessary to guard against those outcomes.
Closing an open standard
A related issue to exclusion from the standard setting body is exclusion from the ultimate standard. This may have particularly anticompetitive effects if the standard was originally open to all. A dominant firm, or a group of firms that sponsors an interface standardization project, might initially sponsor an open standard. They would encourage competitors to make their products interoperable in order to enhance the value of their standard. In particular, they would encourage manufacturers of complementary products to design products for their standard, in hopes that network effects might tip the market in their favor. However, competitive concerns could arise if, once the standard became successful, the sponsor closed the standard.(67) If the dominant firm or firms closed the standard by manipulating the interface to make complementary products incompatible or less efficient, this action could be seen as exclusionary conduct. Note that we would not be concerned if the standard is changed in order to improve it - to oppose that would be to oppose innovation. But when a standard is changed for the sole purpose of making access more difficult for producers of complementary products, neither innovation nor competition is enhanced.(68) This action may have particular anticompetitive effects where the manufacturers of complementary products have relied on the open standard in order to produce goods for the network.
This is not a new concept. The courts have long held that the right of a firm with market power to refuse to deal is not absolute.(69) In Aspen Skiing, the Supreme Court held that a jury could consider it exclusionary conduct where a "monopolist elected to make an important change in a pattern of distribution that had originated in a competitive market."(70) In this case, consumers had purchased for a number of years a ski package at Aspen that was "interoperable" in the sense that they could ski at mountains owned by different competitors. When the owner of three of the four mountains withdrew its support for the "all-Aspen" package, it had the effect of closing the network to the owner of the fourth mountain. With no business justification offered by the defendant,(71) the jury found that the change to a closed standard was predatory.
The Commission showed its concern with closing formerly open standards in its Silicon Graphics vertical merger case. In this case, Silicon Graphics, a manufacturer of workstations, acquired two leading graphic entertainment software firms whose products were compatible only with Silicon Graphic's products. Prior to the merger, Silicon Graphics provided compatibility and substantial aid to independent software producers. The Commission was concerned that acquisition of the two software companies would give Silicon Graphics an incentive to discriminate against independent suppliers of software by closing the interface. This could have reduced consumer choice in the short run and had a negative impact on innovation over the longer term. The order settling the case requires Silicon Graphics to maintain an open standard and to publish the application program interfaces for its operating systems and computers.(72)
Few areas of antitrust are as underdeveloped as the treatment of standard setting in network industries. Fortunately, emerging scholarship has begun to clarify much of the economics of network industries. We are beginning to identify the correct questions to ask in analyzing standard setting in this environment. Our next challenge will be answering those questions through prudent and careful antitrust enforcement and guidance.
1. See James J. Anton & Dennis A. Yao, "Standard-Setting Consortia, Antitrust, and High-Technology Industries," 64 Antitrust L.J. 247, 248 (1995) ("the case law with respect to quality and safety standards is also important to the development and implementation of interface standards because most of the precedent applicable to standard-setting organizations comes from experience with the setting of technical quality and safety standards").
2.Mark A. Lemley, "Antitrust and the Internet Standardization Problem," 28 Conn. L.Rev. 1041, 1042 (1996).
3. For an introduction to network economics, see Michael Katz & Carl Shapiro, "Systems Competition and Network Effects," 8 J. Econ. Persp. 93 (1994); Richard Gilbert, "Symposium on Compatibility: Incentives and Market Structure," 40 J. Ind. Econ. 1 (1992); Paul David and Shane Greenstein, "The Economics of Compatibility Standards: An Introduction to the Recent Research," I Economics of Innovation and New Tech. 3 (1990).
4. A key feature of networks is that they exhibit demand side economies of scale, as well as the more familiar production or supply side economies found in many network industries such as software manufacturing. Thus, a product or service increases in value to a consumer as it is purchased by other consumers.
5. A product or service is subject to network externalities if consumers' demand for the product or service increases when it is also purchased by other consumers. See Katz & Shapiro, supra n.3 at 96.
6. Id. at 106 ("Because of the strong positive-feedback elements, systems markets are especially prone to 'tipping,' which is the tendency of one system to pull away from its rivals in popularity once it has gained an initial edge.").
7. Jack E. Brown, "Technology Joint Ventures to Set Standards or Define Interfaces," 61 Antitrust L.J. 921, 932 (1993) ("there is increasing awareness of a heightened need for joint ventures to develop new products in the most effective manner by drawing on the different skills and areas of competence possessed by different companies. . . . Cooperation-particularly with respect to interface standards and similar issues-may represent the logical way to further research and development objectives in this area").
8. See Carl W. Shapiro & Hal R. Varian, Information Rules: A Strategic Guide to the Network Economy at 208-10 (1999). See also Dennis W. Carlton & J. Mark Klamer, "The Need for Coordination Among Firms, with Special References to Network Industries," 50 U. Chi. L.Rev. 446 (1983).
9. A country could deliberately choose inefficiency if it ranks other social values as more important. For instance, some European countries deliberately used different size railroad gauge to protect the national railroads from foreign competition or the national borders from invading armies. Shapiro & Varian, supra n.8 at 208.
10. See Phillip E. Areeda, VI Antitrust Law ¶ 1402a3 at 11 (1986).
11. See 1 Report by the Federal Trade Commission Staff, Anticipating the 21st Century: Competition Policy in the New High-Tech, Global Marketplace (May 1966), ch. 9 at 27-28 ("voluntary standard setting tends to occur too slowly, too sporadically, and, in settings where proprietary control truly matters, too infrequently to offer anything approximating a complete solution").
12. Anton & Yao, supra n.1 at 261.
13. Northwest Wholesale Stationers Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284 (1985).
14. Id. at 296.
15. Id. The Court also noted that:
If the challenged concerted activity of Northwest's members would amount to per se violation of Section 1 of the Sherman Act, no amount of procedural protection would save it. If the challenged action would not amount to a violation of Section 1, no lack of procedural protection would convert it into a per se violation because the antitrust laws do not themselves impose on joint ventures a requirement of process.
Id. at 293.
16. Harry S. Gerla, "Federal Antitrust Law and Trade and Professional Association Standards and Certification," 19 Dayton L.Rev. 471, 531 (1994) ("The pervasiveness of a lack of reasonable decision-making process, or its subversion in these cases is stunning. This pattern indicates that courts are in fact placing a burden on plaintiffs to demonstrate that reasonable procedures were not used or corrupted in order to prevail in a denial of certification case.").
17. See DM Research, Inc. v. College of American Pathologists, 170 F.3d 53, 57 (1st Cir. 1999)(most standard setting cases where liability found involve situations where "standard was deliberately distorted by competitors of the injured party, sometimes through lies, bribes or other forms of influence"); Consolidated Metal Products v. American Petroleum Institute, 846 F.2d 284 (5th Cir. 1988) (emphasizing the significance of procedures and economic interests of decision makers); Brant v. United States Polo Association, 631 F.Supp. 71 (S.D. Fla. 1986) (lack of procedural due process is relevant to determination of anticompetitive motive). See also Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656, 658-59 (1961) (enforcement procedures were unreasonable where controlled by plaintiff's competitors).
18. Allied Tube & Conduit Co. v. Indian Head, Inc., 486 U.S. 492 (1988).
19. Id. at 497.
20. See generally Robert Pitofsky, "Self Regulation and Antitrust," remarks before the D.C. Bar Ass'n (Feb. 18, 1998); Robert A. Skitol, "Antitrust Issues Confronting Collective Standard Setting in High-Technology Industries," before the ABA Antitrust Section (Feb. 25, 1999).
21. David Ledman, "Northwest Wholesale: Group Boycott Analysis and a Role for Procedural Safeguards in Industrial Self-Regulation," 47 Ohio St. L.J. 729 (1986) ("[P]rocedural safeguards would be relevant in assessing the reasonableness of the trade association's assertions that their self-regulatory activities were consistent with the scope of their mandate for self-regulation.").
22. See Anton & Yao, supra n.1 (describing approach of assessing whether standards are reasonably necessary); Sean P. Gates, "Standards, Innovation, and Antitrust: Integrating Innovation Concerns into the Analysis of Collaborative Standard Setting," 47 Emory L.J. 583, 651 (1998) (standards should be "narrowly tailored to advance a legitimate procompetitive goal").
23. Id. (describing studies).
24. Herbert Hovenkamp, XIII Antitrust Law ¶ 2233 at 368 (1999).
25. Meaningful buyer input may undercut allegations of anticompetitive motive or effect. See Consolidated Metal Products, Inc. v. American Petroleum Inst., 846 F.2d 284, 295 (5th Cir. 1988). Government involvement, particularly adoption of a standard, is also important. Some commentators, however, have criticized decisions in which the courts have treated subsequent government adoption of a standard as immunizing private conduct under the Noerr doctrine, arguing that "this expansion of antitrust immunity for direct petitioning-contrary to the usual rule that antitrust exemptions are read narrowly-effectively wipes out antitrust liability for the actions of most standards organizations. It is inconsistent with the rationale of Noerr-Pennington and unnecessary to protect First Amendment interests." Ernest Gellhorn and W. Todd Miller, "Competitor Collaboration Guidelines-A Recommendation," 42 Antitrust Bull. 851, 859-60 (1997).
26. See Gates, supra n.22 at 654-55.
27. Robin Cooper Feldman, "Defensive Leveraging in Antitrust," 87 Georgetown L.J. 2079 (1999).
28. MCI Communications Corp. v. American Telephone and Telegraph Co., 708 F.2d 1081 (7th Cir.), cert. denied, 464 U.S. 891 (1983).
29. See Steven C. Salop & David T. Scheffman, "Raising Rivals' Costs," 73 Am. Econ. Rev. 267 (1983). If a dominant firm can use the standard setting process to increase its rivals' production costs by more than its own, it could have the effect of raising prices and reducing output.
30. United States v. American Telephone and Telegraph Co., 552 F.Supp. 226 (D. D.C. 1982).
31. MCI, 708 F.2d at 1133.
32. See FTC Staff Report, Ch. 9 at 4-5 ("mandatory access may have the drawback of interfering with the smooth functioning of a network joint venture by introducing coordination problems among unfriendly rivals").
33. For a general discussion of the problem of overinclusiveness in network joint ventures see David A. Balto, "Access Demands to Payment Systems Joint Ventures, 18 Harvard Journal of Law and Public Policy 624, 660-61 (1995).
34. See Gellhorn and Miller, supra n.24 at 864 (consensus procedures "generally impose supermajority requirements when adopting a standard, allow committees to be controlled by competing industry representatives, and permit individual negative votes by any member to block a standard at any stage of the process.... [T]hese provisions are notorious for giving competitors de facto control of the process.").
35. U.S. Department of Justice, Antitrust Division, Antitrust Guide Concerning Research Joint Ventures 11-12 (1980).
36. D.I.R. and Bank of Montreal et. al., (CT-95/2 June 25, 1996).
37. Id. at 82.
38. See David Balto & Robert Pitofsky, "Antitrust and High-Tech Industries: the New Challenges" 43 Antitrust Bull. 583 (Winter 1998).
39. Wylie Wong, "Networking Firms Shout Over Wireless Standards," CNET News.com (Nov. 16, 1999).
40. See Robert H. Bork, The Antitrust Paradox: A Policy at War With Itself at 372-75 (2d ed. 1993) (a monopolist can extract all of its monopoly profits from the primary market and cannot extract more from a secondary market except at the expense of profits realized in the first market); Richard Posner, Antitrust Law: An Economic Perspective 171-74 (1976) But see Roger D. Blair & Amanda K. Esquibel, "Some Remarks on Monopoly Leveraging," 40 Antitrust Bull. 371, 395 (1995) ("monopoly leveraging can lead to a dominant firm market structure that is well short of traditional section 2 thresholds, but causes welfare losses nonetheless").
41. Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451, 480-81 n.29 (1992) ("The Court has held many times that power gained through some natural and legal advantage such as a patent, copyright, or business acumen can give rise to liability if 'a seller exploits his dominant position in one market to expand his empire into the next,'"citing Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 611 (1953).); United States v. Griffith, 334 U.S. 100 (1947) (Defendant that owned monopoly movie theaters in numerous small towns could leverage that power into the market for first-run films.).
42. See Feldman, supra n.27 at 2093-94 ("Defensive leveraging also can be used to prevent next-generation substitution, particularly in industries that exhibit network externalities").
43. See Anton & Yao, supra n.1 (many of the allegations in the DOJ case against IBM in the 1970s involved the manipulation of standards to leverage IBM's monopoly power).
44. Lemley, supra n.2 at 1077.
45. Feldman, supra n.27 at 2094.
46. Carl Shapiro, Deputy Assistant Attorney General, Before the American Law Institute and American Bar Association, "Antitrust in Network Industries," at 11 (March 7, 1996); see Daniel L. Rubinfeld, Deputy Assistant Attorney General, Before the Software Publishers Association, "Competition, Innovation, and Antitrust Enforcement in Dynamic Network Industries," at 23 (March 24, 1998) ("in its effort to be adopted as the next generation standard (or trying to move consumers from one equilibrium to another), the owner of one element of a system may want to enter complementary markets by engaging in alliances as part of a strategy of attracting users to its network. Such an effort could on balance be anticompetitive, and could in fact be motivated by an effort to increase its competitors' costs of developing an effective competing product.").
47. Id. at 24.
48. Addamax Corp. v. Open Software Foundation, 888 F. Supp. 274 (D. Mass. 1995). In a subsequent trial on damages alone, the court found that the plaintiff's injuries were self-inflicted and did not constitute antitrust injuries. Addamax Corp. v. Open Software Foundation, 964 F.Supp. 549 (D. Mass. 1997), aff'd, 152 F.3d 48 (1st Cir. 1998). OSF filed with the FTC and the Justice Department under the National Cooperative Research Act of 1984, 15 U.S.C. § 4301. To date, OSF is the only joint venture filing under that Act to be the defendant in an antitrust suit.
49. OSF members were not obligated to use the winning security software for their own products.
50. 888 F. Supp. at 285.
52. Id. at 284.
53. Samuel R. Miller, "Standard-Setting in the Computer Industry -- The Antitrust Risks," 13 The Computer Lawyer 1, 4 (Dec. 1996) ("perfectly legitimate collaborative activity to set technical or compatibility standards could be deterred if every disappointed supplier could threaten purchasers trying to agree on a common standard with a treble-damages antitrust case").
54. See Herbert Hovenkamp, XIII Antitrust Law ¶ 2233 at 367 (1999)("A rule permitting the development of a standard but requiring the defendants to choose the 'best' technology, even if other than their own, would place the antitrust tribunal in the unacceptable position of having to identify the best technology.").
55. Carole E. Handler and Julian Brew, "The Application of Antitrust Rules to Standards in the Information Industries -- Anomaly or Necessity?" 14 The Computer Lawyer 1, 7 (Nov. 1997)("Addamax suggests that standard-setting by computer or information industry consortia may well be subject to more intense scrutiny than similar acts by a single, dominant firm that establishes a de facto standard -- even if the dangers posed to competition from the unilateral acts of the single firm are far greater than from the acts of the consortium of the mid-sized firms.").
56. See Federal Trade Commission and U.S. Department of Justice, Antitrust Guidelines for Collaborations Among Competitors (April 2000).
57. 106 F.T.C. 324 (1985).
58. Dell Computer Co., C-3658 (May 20, 1996) (consent order) (Commissioner Azcuenaga dissenting).
59. Jeffrey Church & Roger Ware, "Network Industries, Intellectual Property Rights and Competition Policy," in Robert D. Anderson & Nancy T. Gallini (eds.), Competition Policy and Intellectual Property Rights in the Knowledge-Based Economy 1998) at 232 ("the incentives for [standards battles] exist precisely because a firm has intellectual property rights in its technology and is trying to maximize their value").
60. VESA's stated policy was that "no VESA standard shall include patented technology, trademarked terms and/or copyrighted material unless the entire voting membership is made aware of such inclusion." VESA's operating rules required that member companies must make the appropriate certification, disclosing intellectual property rights that may affect the standard.
61. See Shapiro & Varian, supra n.8 at 257 ("Open standards can . . . be "hijacked" by companies seeking to extend them in proprietary directions, and thus in time gain control over the installed base").
62. The Commission's position in this case is entirely consistent with the condemnation found in the patent law for surprise assertions of patents, which can lead to equitable estoppel against the party asserting infringement. See, e.g., Wang Labs. v. Mitsubishi Elecs. America, Inc., 103 F.3d 1571 (Fed. Cir. 1977); Hewlett-Packard Co. v. Pitney Bowes Corp., 1998 U.S. Dist. Lexis 10936 (D. Ore. Mar. 23, 1998).
63. 15 U.S.C. § 45 (1996).
64. Compare Comments of the American National Standards Institute at 8 (Dec. 1, 1995) (ANSI would be concerned "if the Dell consent agreement were interpreted to (1) address also an unintentional failure to disclose a patent interest or (2) impose an affirmative obligation on companies to research exhaustively their patent portfolios or risk losing their right to seek royalties") with Comments of the American Committee for Interoperable Systems at 8 (Jan. 22, 1996) ("there is no reason to believe that such a review will be as burdensome as some suggest").
65. See Comments of the Institute of Electrical and Electronics Engineers, Inc. ("IEEE") (Jan. 22, 1996); Joint Comments of the Electronic Industries Association ("EIA") and the Telecommunications Industry Association ("TIA") (Jan. 22, 1996); Comments of the Alliance for Telecommunications Industry Solutions ("ATIS") (Jan. 22, 1996).
66. EIA and TIA Comments at 3 ("extending Dell to situations involving negligent failure to disclose or imputed knowledge ("should have known") of the existence of a patent interest would have a profound chilling effect on companies that participate in the process of voluntary standards development.").
67. Dominant firms may have an incentive to increase the costs of compatibility through product design changes and exercise of intellectual property rights. See Church and Ware, supra n.60 at 259.
68. See Douglas D. Leeds, "Raising the Standard: Antitrust Scrutiny of Standard-Setting Consortia in High Technology Industries," 7 Fordham Intellectual Property, Media & Entertainment L.J. 641, 658 (1997).
69. Lorain Journal Co. v. United States, 342 U.S. 143 (1951).
70. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 603 (1985). See also Bork, supra n.40 at 156 ("In any business, patterns of distribution develop over time; these may reasonably be thought to be more efficient than alternative patterns of distribution that do not develop. The patterns that do develop and persist we may call the optimal patterns. By disturbing optimal distribution patterns one rival can impose costs upon another, that is, force the other to accept higher costs.").
71. Aspen, 472 U.S. at 608.
72. Silicon Graphics, Inc., C-3626 (April 17, 1996) (consent order).