Samsung's Antitrust Settlement Proposal Stinks

Photograph by David Paul Morris/Bloomberg

Europe’s antitrust chief said a few weeks ago that Samsung Electronics had submitted proposals for settling its patent-related antitrust case, and now the European Commission has published them for a one-month public consultation.

In a nutshell, Samsung has proposed not abusing its so-called standards-essential patents (SEPs) in the mobile arena for the next five years. I think this is inadequate, and I’ll explain why in a moment, but first, a bit of background.

Samsung and Apple have been fighting each other in court over patents for years, and both sides have played nasty. Samsung, however, overstepped the mark when it used SEPs against Apple in Germany.

In this case, without using Samsung’s patented technologies, you cannot make a 3G phone. That’s what makes this an antitrust case, and an important one at that.

Standards such as 3G comprise thousands of patents that are all essential to making the whole function, so when they are formalized, the companies that developed them agree to put them into a patent pool. The patents can still command a fee, but their holders must agree to license them to a willing licensee on fair, reasonable, and nondiscriminatory (or Frand) terms.

Which is precisely what didn’t happen in this particular Samsung-Apple dispute. Although Apple was willing to pay Frand rates, Samsung wouldn’t play ball and instead decided to use the SEPs as legal weapons. And that’s where the EC stepped in, launching an investigation into Samsung’s patent abuse at the start of 2012. (Apple itself apparently did not make a formal complaint.)

Now back to Samsung’s settlement proposals, as described by Competition Commissioner Joaquin Almunia’s office:

“To address these concerns, Samsung has proposed to commit for a period of five years not to seek any injunctions on the basis of any of its SEPs, present and future, that relate to technologies implemented in smartphones and tablets (‘Mobile SEPs’) against any company that agrees to a particular licensing framework.

“The licensing framework consists of: (i) a negotiation period of up to 12 months and (ii) if no agreement is reached, a third party determination of Frand terms by either a court or an arbitrator, as agreed by the parties. If the parties cannot agree on either submitting to court or arbitration, the parties will have to submit to arbitration.

“The proposed commitments would cover the [European Economic Area]. An independent trustee would advise the Commission in overseeing the proper implementation of the commitments.”

The big problem with Samsung’s settlement proposal is its five-year term.

Five years is hardly unprecedented when it comes to antitrust settlements—look at the term Microsoft agreed to in 2009 when it settled with the EC over the browser-choice antitrust case. (Not that Microsoft stuck to the agreement, of course, a sin for which it had to pay $730 million earlier this year.)

The browser-bundling case, however, was peculiar to Microsoft’s extraordinary market power in the PC space at the time. Even though few could have predicted quite how much the company’s fortunes would change in the subsequent five years, it was a settlement whose duration was sufficient to stop Microsoft from using its dominant position in the PC market to seize control of the growing Internet wave.

Once those five years are up, the average consumer will have had a good chance to see that Internet Explorer isn’t the only option. And it’s worked—just ask Mozilla and Google, whose respective Firefox and Chrome browsers have been allowed to thrive through the magic of informed consumer choice.

The SEPs affair is quite different. It’s not a matter of giving competitors their chance to shine; it’s about letting those competitors play in the mobile space in the first place. And it’s not a situation that will fundamentally change in five years’ time.

Apple, of course, came into the mobile game late—light on patents but swimming in cash, so it could afford to fight. One could argue that Samsung only resorted to abusing its SEPs after Apple played dirty. (Apple is, after all, a company that claimed to have the sole right (PDF) to produce mobile devices with black, uncluttered, rectangular surfaces.) But that’s not the point—rules are rules. A new entrant without Apple’s reserves could be severely disadvantaged if, after five years, Samsung decided to be a bully. Sure, the EC could launch a fresh investigation then, but it would be like going back to square one.

When Google settled with the U.S. Federal Trade Commission earlier this year over its own SEPs antitrust case, the FTC didn’t say it would be OK for Google to go back to breaking its commitments after a set period of time. The European Commission should take a similarly longsighted view and at least add a proviso that would allow it to swiftly reinstate a harness on Samsung should the company go back to its bad old ways.

Meanwhile, the tech industry as a whole should pull the SEPs issue out of its gray area. The question there is which forum will suffice—the International Telecommunications Union has been moaning about SEPs abuse for ages, though it doesn’t really have the teeth to do anything about it. Regardless, someone needs to define once and for all what fair and reasonable really means. Nobody benefits from this mess—except for patent lawyers.

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