Applying Section 2 to Frand Violations: “It’s Elementary, My Dear Watson”

Many well-reasoned cases have concluded that a holder of standard-essential patents (“SEPs”) subject to a commitment to license on fair, reasonable, and nondiscriminatory (“FRAND”) terms may violate section 2 of the Sherman Act by breaching that FRAND commitment. However, a small but vocal minority has increasingly questioned that view, relying on Rambus, where the D.C. Circuit overturned an FTC order finding that Rambus engaged in unlawful monopolization due to its failure to disclose its patents to a standard-setting organization. For this point, Rambus relied almost entirely on the Supreme Court’s 1998 NYNEX decision, which involved a legal monopoly, not standard-setting activities. This article will (1) explain why Rambus was incorrectly decided, including its misinterpretation of NYNEX, and (2) describe the circumstances under which a unilateral breach of FRAND is a cognizable Section 2 violation.

By John “Jay” Jurata, Jr. & Emily N. Luken¹

I. INTRODUCTION

Commitments by holders of standards-essential patents (“SEPs”) to license their patented technology on fair, reasonable, and nondiscriminatory (“FRAND”) terms serve as “important safeguards against monopoly power.”² So when companies that make FRAND commitments do not follow through on them, they bypass these important safeguards. Thus, it is elementary that a SEP-holder’s violation of a prior FRAND commitment can be exclusionary conduct that distorts competition. Accordingly, va