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February 1999
TRADE ASSOCIATIONS
U.S. ANTITRUST GUIDELINES
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Availability of the Association's Results to Nonmembers
The results of the Association's activities must be made available to
nonmembers. Otherwise, the Association and its members may be seen as conspiring
to monopolize by creating what amounts to an exclusive cross-licensing
arrangement with respect to the information or technology developed by its
funded research. One commentator has stated that the more valuable the
competitive benefits, the more need there is to make the benefit available
promptly and on reasonable terms to nonmembers who compete with members. The
Guide states that analysis of access to results is particularly relevant when
the venture has produced a facility or technology with such market impact that
those outside the venture cannot effectively compete without that information.
The antitrust authorities, however, will be less concerned when access to
results is denied if the participants in the venture were not dominant prior to
development of the new technology.
The antitrust laws do not mandate that access to the research be made
available free of charge. The Association may insist that any outsiders pay
reasonable royalties or otherwise bear their fair share of the burdens and
expenses of the project in order to receive the Association's research results.
A reasonable fee might well be the cost of the project divided by the number of
members plus the cost of reproducing copies of the results for the nonmembers.
While this formula is useful in most cases, reasonable cost and prompt
availability will depend on the circumstances in each case.
The Association must therefore review each project's publication policy
individually to ensure that outsiders pay their fair share and not more. As with
the Association's membership requirements, availability of Association-sponsored
research results should be publicized in special journals, at professional
meetings, and through other appropriate means. To be consistent with the
Association's tax-exempt status and to give wider dissemination of the results
of its activities, the Association should also provide copies of reports to
engineering, scientific and educational organizations, libraries and any other
relevant institutions at no cost, or for only the cost of reproduction of the
results.
Research Activities
The Guide clearly favors pure research over developmental research, which may
involve ancillary restraints. Joint activity should be as limited as practicable
under the circum- stances. The Association must have a legitimate business
purpose for its joint research, and the specific project should be one that
probably would not be undertaken with the same degree of skill and efficiency by
individual researchers. In this instance, the Association's assumption of a
project is to further innovation and invention, while not displacing individual
efforts of members, and, in fact, should aim to encourage individual efforts.
The project should be narrow in scope and as short in duration as
circumstances permit. Preferably an independent research laboratory will conduct
the research, rather than having the Association's members conduct the research
themselves.
The benefit to society from joint R&D activities will not serve as a
defense to a claimed antitrust violation if the Association's activity has
anticompetitive effects. Anticompetitive effects can result if the benefits are
not made available to nonmembers, or members of the Association or others are
prevented from conducting independent research, or otherwise if the members of
the Association agree (expressly or implicitly) not to implement new
technological developments that are the subject of the joint research before a
given date.
The DOJ has also stated that joint "basic" research, which merely
identifies problems but does not seek specific solutions, is generally less
objectionable than applied research. The DOJ reasons that solutions to problems
can confer a competitive advantage upon those with access to research results.
If the Association sponsors applied research, the results from this research,
including licenses, should be available to nonmembers promptly and on reasonable
terms.
Restrictions on Research by Members and Independent
Contractors
As discussed above, and emphasized repeatedly in the Guide, the Association's
activities should not reduce competition in the conduct of research. Neither the
Association's members nor the persons and organizations that conduct studies,
investigations, or research for the Association should be prohibited from
performing or contracting for the performance of research in areas not sponsored
by the Association. The Association can, however, prohibit independent
contractors from using the results of research conducted for the Association
prior to the time the Association makes the results public.
Restrictions on Standards and Certification Activities
Establishing standards and certifying products or practices serves legitimate
social ends, such as improving safety, health, economic efficiency, and product
quality. Establishing standards or certification programs, however, raises
difficult antitrust considerations,(4) not
addressed by the Guide.
In one case, the FTC noticed a settlement agreement with Dell Computer
Corporation with respect to its alleged violations of the Federal Trade
Commission Act. Consent Order, 62 Fed. Reg. 4,767 (1997). As part of the consent
order, the FTC prohibited Dell from enforcing patent rights against computer
manufacturers using an industry standard product. Dell had abused a
standard-setting process in the computer industry by certifying that it had no
patent rights or other intellectual property claims to a technology that Video
Electronics Standards Association ("VESA") had accepted as the
industry standard. As a member of VESA, Dell was required to disclose that it
held patent rights to the technology before the technology was adopted as an
industry standard. Dell violated federal antitrust laws by attempting to invoke
patent rights "in an effort to unilaterally impose costs on its
rivals." Consent Agreement, 60 Fed. Reg. 57,870 (1995).
Technical Justification
Exclusionary standards require an adequate technical basis to be
procompetitive. Such a technical basis must exist at the time the product
restriction is imposed. Post hoc rationalizations will be
evaluated with great suspicion. Organizations should be aware that the use of
balanced committees and other consensus procedures in setting standards will not
guarantee that standards imposed will be viewed as having an adequate technical
basis. There is no bright-line definition of what constitutes an adequate
technical basis. The following principles used by the FTC in reviewing technical
justifications offered by standards organizations, however, provide some
guidance:
- It is not absolutely required that standards developers use
statistical surveys, laboratory testing results or other "hard
data" before imposing safety restraints. Standards developers should be
free to act on any type of information that experts in the field reasonably
would accept as persuasive and credible.
- The amount and quality of information justifying a product restriction
must be balanced against the amount and quality of information opposing such
a restriction. Thus, the mere fact that some experts disagree with the
standards developers is not sufficient to automatically condemn a
restrictive standard. Credible anecdotal information, without more, will not
suffice to negate hard data showing that a product is reasonably safe and
fit for its intended purpose. Mere speculation regarding product hazards or
biases against new products are also insufficient justification.
- By setting a standard, an organization in effect represents to the public
that the standard is technically sound and commercially reasonable.
Therefore, since a standards organization is responsible for the standard's
effect in the marketplace, it must be able to produce some evidence in
support of its decisions, although formal records need not be kept.
In one case the Central District Court of California held that certain
manufacturers did not violate the Sherman Act when their trade association
elected not to form a task force on rebuilt circuit breakers. In re Circuit
Breaker Litigation, 984 F. Supp. 1267 (C.D. Ca. 1997). Defendants in the
litigation alleged that Underwriters Laboratories ("UL") illegally
restrained trade by refusing to create a certification program for rebuilt
modeled case circuit breakers in concert with other plaintiffs in the lawsuit. See
id. at 1278. According to the district court, "a standards-setting
organization does not per se violate antitrust laws by refusing to
certify a product." Id. Under a rule of reason test, the court
held that UL's decision not to create the program endorsed by the defendants was
neither discriminatory nor unreasonable. In addition, the court found that the
defendants could not prove any injury resulting from UL's purportedly
anticompetitive decision.
Standards Coverage of Proprietary Products
Assuming that it can satisfy the other legal requirements, the Association
should not be overly reluctant to extend standards coverage to patented,
trademarked, or other products to which a small number of manufacturers have
exclusive production or distribution rights. Extension of standards coverage in
such cases does not necessarily create or enhance monopoly power. For example: A
standards organization that writes the specs for indoor-plumbing pipe currently
qualifies the use of metal and plastic pipe. A patent-holder for rubberized pipe
needs the organization's approval of the material in order to enter the market.
The standards organization should not refuse certification of rubberized
pipe merely because the patent-holder is the sole producer of this product.
Rubberized pipe would be merely one more product competing with metal and
plastic pipes, and its entry into the market would increase competition.
Reluctance to include rubberized pipe within the approved standards would in
this case be an unreasonable restraint of trade.
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