As the European Commission rolls out its revised Horizontal Guidelines (Guidelines) (following the adoption of the revised Horizontal Block Exemption Regulations on Research and Development and Specialisation agreements on 1 June 2023) , we explore the potential benefits and risks of standardisation agreements and the changes to the regulatory framework that governs these important types of agreements between competitors (whether actual or potential).
In particular, this article provides an overview of the background and benefits of standardisation agreements, their regulation under EU competition law, the noteworthy changes in the new Guidelines, and the intricacies of Standard Essential Patents (SEPs).
Standardisation agreements primarily aim to define technical or quality requirements that current or future production processes, methods, or products must adhere to. For instance, in markets where compatibility with other products or systems is crucial, standardisation agreements may encompass aspects such as standardising various grades or sizes of a particular product or setting technical specifications.
Entering into agreements on standards is a widespread practice that holds immense significance across numerous industries and society as a whole. By ensuring product quality and safety, enabling interoperability and compatibility, and reducing transaction costs, standardisation provides a plethora of benefits, including increased innovation, facilitation of market access and enhanced consumer welfare. Most prominent examples of standardisation agreements include, for example, the 4G (LTE) and 5G (and subsequent generations, with 6G already underway) telecommunication standards as used for example in mobile devices (handsets and tablets) of competing brands but increasingly also in broad array IoT devices – think of smart TVs, smart home applications, smart manufacturing, connected cars, smart car parks and even smart cities.
Standards therefore are a catalyst for innovation and inter-brand competition including, but not limited to, the digital world. The EU competition rules do not prevent companies and, ultimately, consumers from drawing the benefits of standardization – such as establishing a level playing field, promoting interoperability and efficiency, and enhancing user experiences.
However, let’s not forget that in essence standardisation agreements are cartel agreements – competitors sitting together in forums like ETSI (European Telecommunications Standardisation Institute, see here) and agreeing on the technology to be implemented when selling future products or services. By definition, to compete with each other would mean to compete not only on price and quality etc., but also on innovation, and it would be for consumers (not competitors) to favour one technology over the other or to use competing technologies simultaneously. However, standards take away that element of competition, limiting product choice and innovation. Also, once a standard is set, the industry is locked-in, which confers market power to those holding SEPs (Meaning such that cannot be avoided, for technical or commercial reasons, when selling standard-compliant products or services).
To ensure that companies and consumers would nevertheless draw the full benefits of standardisation, therefore, the previous horizontal guidelines provided that where: (1) participation in standard-setting is unrestricted, and (2) the procedure for adopting the standard in question is transparent, standardisation agreements which contain (3) no obligation to comply with the standard to be set and provide (4) access to the standard on fair, reasonable and non-discriminatory (FRAND) terms will normally not restrict competition within the meaning of Article 101 (1) TFEU (EU Commission, Horizontal Guidelines (2011), OJ 2011 C 11/1 at 280).
The most important element is (4) above. In response, standard development organisations (SDOs) have come to adopt obligations in their IP policies which require participants wishing to have their patent rights included in the future standard (making them SEPs) to provide an irrevocable commitment in writing to offer to license their SEPs to all third parties on FRAND terms (FRAND commitment) (EU Commission, loc. cit., at 285). While the legal nature of this FRAND commitment is still unclear , FRAND commitments play an important role when litigating SEPs in court (Huawei v ZTE).
The revised Guidelines do not change the EU’s general approach to standardisation. The main concerns identified by the EU Commission (and thus requiring changes) relate to: (i) the setting of (too) detailed technical specifications that may limit technical development and innovation, and (ii) preventing certain companies from obtaining effective access to the results of the standard development process (i.e., the specification and/or the essential IPR for implementing the standard).
While the general framework for this continues to be similar to the previous guidelines, in the revised Guidelines, the European Commission has decided to address some concerns that were not totally clear before.
To this effect, the main changes identified in the revised Guidelines are that:
As the European Commission continues to generally embrace the use of standardisation agreements, the revised Guidelines pave the way for a dynamic, competitive, and innovation-driven market. The changes to this chapter are, however, relatively limited.
For more information, please contact Dr. Stephan Waldheim, Tamy Tietze, Candela Sotes or Alexander Brøchner.