The Escalating U.S. Debate on the Role of Antitrust in Standard Setting

Chris ComptonOctober 14, 2008

2008 IBA Conference Buenos Aires, Argentina

Antitrust and Trade Law SectionSession on Unilateral Conduct

DOC# 2

DOJ and FTC Agree to Disagree on Section 2

• Sept. 8, 2008 Single Firm Conduct report

• Previous splits:– Pharma reverse payments cases– Leegin resale price maintenance– linkLine price squeeze case

• Standard setting as well– FTC Act Section 5 vs. Section 2 of the Sherman Act– Philosophical differences even re Section 2

“When people agree with me, I always feel I must be wrong.” Oscar Wilde

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FTC’s History of SSO Enforcement

• (1996)– Alleged intentional failure to disclose patents, violating

VESA rules. Consent decree not to enforce patents– Dissent re absence of knowledge/intent, market power.

• (2003)– Alleged affirmative misrepresentations to California Air

Resources Board– ALJ: Noerr-Pennington immunity. Later settled as

condition to FTC approval of Chevron merger.

• (2002-present)– Alleged failure to disclose IP to JEDEC– ALJ dismissed case: no duty shown. FTC found Section 2

and Section 5 violations; imposed licensing remedy.– Rambus successfully appealed to DC Circuit.

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N-Data Consent Decree (Jan 2008)

• Predecessor National gave1994 commitment letter to $1000 license; new letter by Vertical in 2002, uncontested by IEEE: intent to seek FRAND terms.

• N-Data bought IP, sought to enforce at higher rates.

• FTC: Violation of Section 5.– Remedy in consent: $1000 license except for those

who refuse. Extends to later improvements, standards.

• Controversy erupts

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N-Data Dissent

• 3-2 majority found liability as both “unfair method of competition” and “unfair act or practice.”

• Commissioner Kovacic dissents, critical of loose analysis, concern about follow-on treble damage litigation in states.

• Chairman Majoras dissents:– Section 5 should rarely go beyond Section 2– No deception within the SSO– Other participants had changed commitments– No objection in 2002 by IEEE– Dubious market power, different bundle of IP– IEEE and participants can protect themselves

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FTC Defeat in Rambus (April 2008)

• FTC’s alternative theories of deceptive conduct. But for deception, JEDEC would have either:

– (1) Chosen different technology Remand to for further evidentiary proceedings

– (2) Secured FRAND commitment from Rambus Loss of opportunity to secure higher prices not “antitrust harm”

• “Staggering lack of defining details” in SSO’s IP disclosure policies raised doubts about deception

• Will FTC seek Supreme Court review based on conflict with 3d Circuit in Broadcom v. Qualcomm?

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Reactions to N-Data

• AAI seeks expansion of Section 5 enforcement to FRAND disputes with Rembrandt petition to FTC

• Majority of Public Comments raise concerns about:– Getting SSOs involved with FRAND disputes– Reducing SSO flexibility in conduct, IP policies– Expanded antitrust risk for SSO participants

• J. Thomas Rosch makes his position clear: Expand use of Section 5 in SSO enforcement

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Risks of Expanded FTC Enforcement

• Encourage treble damage suits

• Discourage participation in SSOs or make the standards setting process less efficient

• Widen substantive antitrust policy gap with DOJ

– With less clear guidance to business

“The business of government is to keep government out of business—that is, unless business needs government aid.” Will Rogers

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Open Issues? Stay Tuned

• Open Issues:– Did the FTC go too far in N-Data?

– Will the FTC take Section 5 into FRAND disputes?

– Will the courts support expansive view of Section 5?

– Do NPEs bear special scrutiny and risk?

– What will EC do with Rambus, Qualcomm?

• Sources of some answers:– FTC tactical decisions re Rambus, new appellate guidance

– SSO moves to new policies, ex ante negotiation, use of business review letters

– Reduced patent threat with Supreme Court decisions, PTO changes, patent reform legislation

“If you’re not confused, you’re not paying attention.” Anon.

Thank you

2008 IBA ConferenceBuenos Aires, Argentina

Antitrust and Trade Law SectionSession on Unilateral Conduct

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CONTACT:650 Page Mill RoadPalo Alto, CA 94304Phone | 650-493-9300Fax | 650-493-6811ccompton@wsgr.com

Charles T. (Chris) Compton plays a leadership role in the firm's antitrust practice, focusing on merger regulatory and intellectual property issues.

Since joining Wilson Sonsini Goodrich & Rosati in 1980, Chris has overseen the antitrust regulatory work in more than 900 mergers, acquisitions, and joint ventures—many of which involved formal investigations by the Federal Trade Commission, the Department of Justice, the European Commission, and other international competition agencies. The firm's record of success, including Hewlett Packard's $18.7 billion acquisition of Compaq Computer in 2002, has been unparalleled: No Wilson Sonsini Goodrich & Rosati transaction since 1980 has ever been blocked or abandoned due to an antitrust challenge by a U.S. or foreign competition agency. Early in his career, Chris served as a litigator on the watershed IBM antitrust cases in the late 1970s at O'Melveny & Myers.

In addition to a wide range of intellectual property litigation, including Lotus v. Borland, Chris has handled antitrust suits involving alleged price discrimination, refusals to deal, distributor terminations, group boycotts, monopolies, state law Cartwright Act claims, grand jury investigations, and price fixing. Chris wrote the firm's Antitrust & Trade Regulation Primer for attorneys and clients, and regularly counsels many of its private and public clients on antitrust and intellectual property issues arising in the course of marketing, distribution, pricing, and standard-setting activities.

Named a Northern California "Super Lawyer" in 2004-2008 by Law & Politics magazine, Chris also was cited in the 2003-2008 editions of Chambers USA: America's Leading Lawyers for Business , commended as "a great lawyer" and for his ability to "establish an immediate rapport, trust, and confidence, in a nonadversarial way." He also was listed as one of the "Top-Ranking Competition Lawyers in Europe and Northern America" in the Practical Law Company's Global Competition Handbook (2004-2005), and earned a "highly recommended" listing in the PLC Which Lawyer? Yearbook (2007). Additionally, Chris is listed in the 2006 edition of Best Lawyers in America and Legal Media Group's Euromoney Guide to World's Leading Competition and Antitrust Lawyers .

Chris has written extensively over the years for publications such as the Antitrust Law Journal, the Antitrust Report, Corporate Counsel Outlook, and the International Business Lawyer. He teaches an antitrust/intellectual property course for the Santa Clara University School of Law LL.M. program, and has lectured at the University of California, Berkeley, Boalt Hall School of Law. He is a regular speaker at American Bar Association and International Bar Association events, as well as other conferences in the United States and Europe. Chris also served in the Air Force JAG Corps as a military judge.

EDUCATION:

J.D., New York University School of Law, 1968Root-Tilden Scholar; Managing Editor, New York University Law Review

B.S, United States Air Force Academy, 1965 With Honors

ASSOCIATIONS AND MEMBERSHIPS:

Member, Advisory Board, Santa Clara University, High Technology Law Institute Board Member and Past President, Law Foundation of Silicon Valley

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Charles T. Compton

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HONORS:

Selected for inclusion in The International Who's Who of Competition Lawyers & Economists 2008 Named in the 2007 and 2008 editions of Chambers USA: America's Leading Lawyers for Business Selected for inclusion in the 2007 and 2008 editions of Best Lawyers in America and Who's Who Legal: California 2007 AV Peer Review Rating, Martindale-Hubbell

SELECT PUBLICATIONS:

"IP Issues in the Antitrust Treatment of Mergers," The Berkeley Conference on Antitrust in the Technology Economy, June 9, 2005 "Lessons from Trinko for a Consolidating Telecom Industry," 16th Annual Communications and Competition Law Conference,

Madrid, Spain, May 24-25, 2005 "What United States v. Oracle Says about High-Tech Merger Review in the U.S.," corporatefinancemag.com, May 2005 Please see wsgr.com for a complete list of publications.

ADMISSIONS:

Bar of the District of Columbia State Bar of California Several U.S. District Courts U.S. Court of Appeals for the Ninth Circuit U.S. Court of Military Appeals U.S. Supreme Court

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Charles T. Compton