Competing while collaborating petri kuoppamäki


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Competing while collaborating petri kuoppamäki

  1. 1. C ompeting while C ollaborating IFC LA C onference, Helsinki June 9 2010 D r. P etri Kuoppamäki Vice P resident Legal & IP, Nokia C orporation P rofessor of C ompetition Law, University of Helsinki C ompany C onfidential 1 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  2. 2. O verview •C ompeting while collaborating (=coopetition) •O pen and proprietary solutions •O pen innovation •C ompetition law and proprietary vs. open innovation •New E U draft horizontal guidelines re. standardization •FR AND and ex ante •C onclusions C ompany C onfidential 2 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  3. 3. P ro prieta ry a nd O pen S o lutio ns • P roprietary solutions • O ne company drives the innovation and product development • C losed ecosystem • E xclusion of others • C ompetition for the market: ”Winner takes it all!” • O pen solutions • C ollaboration between several players • S hared results, e.g. open source, open innovation • Fixing certain common parameters while competing on others • C ompetition in the market • Hybrid models (= most cases ) • C losed ecosystems supported by platforms • C ompanies open certain interfaces to gain valuable external inputs while keep other interfaces closed (platform competition) C ompany C onfidential 3 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  4. 4. C lo s ed I nnova tio n vs . O pen I nno va tio n – T he T heory R esearch Development Corporate boundaries M arkets O pen Innovation combines internal and external ideas and innovations and internal and external commercialization for promoting new technology development. S ource: C hesbrough, 2005 R esearch Development In closed innovation, new business New M arkets development and marketing of new products happens within company borders . R esearch projects Existing markets Corporate boundaries S ource: C hesbrough, 2005 C ompany C onfidential 4 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  5. 5. C lo s ed I nno va tion vs . O pen I nnova tio n – T he Princ iples o f C lo s ed I nno va tio n P rinc iples P rinc iples o f O pen I nno va tio n All the best in class work for us. We work with the best talent both inside and outside of our company. To profit from R &D we have to develop the E xternal R &D can create significant value: innovations ourselves put into our own internal R &D is needed to take our share of products. this value. If we invent it ourselves, we can be first in We don’t need to be the first to research and market. develop to benefit from new innovation. First in market will win. A better business model is more important than being first in market. The one who creates the bes t ideas will win. If we make the best possible use of internal and external innovation, we’ll win. We should control our intellectual property in We s hould create profit from letting others order to stop competitors from gaining from use our intellectual property and we s hould our innovations. buy others’ intellectual property when it S ource: C hesbrough, 2005 C ompany C onfidential advances our own business. 5 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  6. 6. C lo s ed I nnova tio n vs . O pen I nno va tio n – I P c o m pa ris o n I P in C lo s ed I nno va tio n I P in O pen I nno va tio n IP used for market exclusion IP licens ing on FR AND terms including s tandardization, used to prevent patent hold up while allowing income. Value created through comparative benefit and licensing income. IP used for market exclusion IP us ed to generate new businesses outs ide of existing businesses, through, for example, s pin offs or sale. C onflicting claims lead to patent fight. C onflicting claims may indicate an opportunity for collaboration. IP is acquired for protecting own business P articipation in markets for intellectual only property (i.e. patent auctions) C ompany C onfidential 6 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  7. 7. Fro m I dea to P ro duc t Business Strategy Internal, Business External, or Joint model Manufacturing or Internal, Idea Business Process External, or Joint Functional or Invention Technological Innovation Form or Internal, Appearance (Tech/Non-tech) External or Joint Marketing (Branding) Technology (Internal, External or Joint) Financial, legal or organizational Product (Internal, External or Joint) 7 C ompany C onfidential 7 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  8. 8. C o m petitio n L a w a nd P ro prieta ry S o lutions • C ompetition for the markets may lead to (super) dominant position that is abused to exclude more efficient competitors from the market, ripe supra-competitive profits and slow down technological development to the detriment of consumers • Access to an ”essential facility”; offensive and defensive ”leveraging” • Fourt part test of the E U C ourt in M agill/ S / icrosoft cases: IM M 1. Indispensability of the information/ R that is refused for activity on an adjacent IP market 2. E limination of (all) effective competition on that market 3. R efusal prevents appearance of a new product or service or new feature for which there is potential consumer demand 4. Lack of objective justification C ompany C onfidential 8 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  9. 9. C o m petitio n L a w a nd O pen I nno va tio n • G enerally a positive view of regulators if no bottlenecks are created • Fixing of too many parameters between competitors may be problematic • C an forcing of dominant open source licensing terms lead to exclusion of proprietary solutions? • The current E U R &D block exemption (2659/ 2000 be reneved by end of 2010) is rather restrictive by forcing a joint acess/utilization of results (except in case of research institutes). What is the economic reasoning behind that approach and is it still valid? C ompany C onfidential 9 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  10. 10. C o m petitio n L a w a nd S ta nda rdiza tio n • S tandards create complementarity benefits and can accelerate the dispersion of new technologies • E limination of certain parameters of technology competition by a group of competing firms is accepted by antitrust law because of substantial efficiencies relative to harm, provided certain safeguarding conditions are met • S tandards create a a lock in to selected technologies and can lead to market power by holders of (claimed) essential patents that can be abused • To ens ure benefits outweigh risk of harm; S tandardization O rganizations typically impose specific obligations on members: 1.O bligatory ex ante disclosure of es sential patents 2.C ommitment to license on royalty-free or fair, reasonable, and non-dis criminatory (FR AND ) terms 3.There is a more lenient view towards ex ante disclosure/ discussion of royalty terms C ompany C onfidential 10 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  11. 11. D ra ft E U H o rizonta l G uidelines • S cope of Application • General Exemption Requirements • P ossible E fficiencies • How standards may limit competition • E xamples of P rohibited R estrictions by O bject • Assessment of the R estrictive E ffects • Unrestricted P articipation and D ecision-making • Transparency • R equirements on IP R P olicies • FR AND C ommitment • Fair and R easonable Value of E ssential P atents • E x Ante D isclosure of the M ost R estrictive Terms • Inclusion of S ubstitute Technologies • C ompeting standards vs. one standard C ompany C onfidential 11 © 2008 / JL
  12. 12. R equirem ents on I P P o lic ies in S S O ’s • There should be no bias in favour or against royalty free s tandards , depending on the relative benefits of the latter compared to other alternatives (para 278) • S S O rules mus t seek to avoid the misuse of the standardization process through hold-ups and the charging of abus ive royalty rates by IP R holders . • These objectives should be ens ured through rules which are binding on the members (para 280) • This requires a clear and balanced IP R policy (para 281) • The IP policy should require • good faith ex ante disclos ure of those IP R s that might be essential (inc. patents and patent applications) (para 281) • that the IP R holders make reasonable efforts to identify existing and pending essential IP R (para 281) • S S O rules s hould not exclude or discriminate against specific groups of IP R holders (para 278). • that all holders of essential IP R in technology which may be adopted as part of a s tandard provide an irrevocable commitment in writing to license their IP R to all third parties on fair, reasonable and non- discriminatory terms ("FR AND commitment") (para 283) • That all IP R holders who provide such a commitment take all necess ary meas ures to ensure that any undertaking to which the IP R owner transfers its IP R (including the right to license that IP R ) is bound by that commitment (para 287) C ompany C onfidential 12 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  13. 13. FR A N D C om m itm ent • The aim of FR AND commitments in the context of standard-setting is to ensure that patented technology incorporated in a standard is accessible to the users of that standard on fair, reasonable and non-discriminatory terms and conditions (para 283) • FR AND commitments are intended to prevent IP R holders from making the implementation of a standard difficult by refusing to license or by requesting unfair or unreasonable fees (in other words excessive fees) after the industry has been locked-in to the standard and/ charging discriminatory royalty fees (para or 283). • An abuse of the market power gained by virtue of IP R being included in a standard constitutes an infringement of Article 102 (former Article 82). (para 284) C ompany C onfidential 13 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  14. 14. A s s es s m ent o f FR A N D a c c o rding to the D ra ft G uidelines • The assessment of whether fees imposed for patents are unfair or unreasonable, will be based on whether the fees bear a reasonable relationship to the economic value of the patents. • Various methods to assess • C ost-based methods are not well adapted to this context because of the difficulty in assess ing the cos ts attributable to the development of a particular patent or groups of patents. • P os sible to compare the licensing fees charged by the undertaking in question for the relevant patents in a competitive environment before the industry has been locked into the standard (ex ante) with those charged after the industry has been locked in (ex post). This assumes that the comparison can be made in a consistent and reliable manner. • P os sible to obtain an independent expert asses sment of the relevant IP R portfolio's objective quality and centrality to the standard at issue. • It may als o be possible to rely on previous unilateral ex ante dis closures of most restrictive licens ing terms. This also as sumes that the comparison can be made in a consistent and reliable manner. • These guidelines do not seek to provide an exhaustive list of appropriate methods to assess whether the royalty fees are excessive. C ompany C onfidential 14 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  15. 15. E x a nte D is c lo s ure of m o s t res tric tive term s • To allow parties involved in the selection of a standard be fully informed not only as to the available technical options and the associated IP R , but also as to likely cost of that IP R , the S S O s can require, or allow, IP R holders to individually disclose their most restrictive licensing terms , including the maximum royalty rates they would charge, prior to the adoption of the standard. • This will not lead to a restriction of competition as long as the rules do not allow for the joint negotiation or discussion of licensing terms in particular royalty rates. • S uch unilateral ex ante disclosures of most restrictive licensing terms would be one way to enable the S S O s to take an informed decision based on the disadvantages and advantages of different alternative technologies, not only from a technical perspective but also from a pricing perspective. C ompany C onfidential 15 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  16. 16. T rue I ntero pera bility C o m pletenes s C omplete technical disclosure (AP Is , protocols, formats) C o ntro l C os t Fair & trans parent O pennes s Feasible licensing of multilateral governance essential IP R (s ingly and cumulatively) C o m plia nc e Adherence to specifications, extens ions contributed to standards M ultivendor environment is a permanent characteristic of an open environment - I 3 = I ndependent I ntero pera ble I m plem enta tio ns a va ila ble C ompany C onfidential 16 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL
  17. 17. C o nc lus ions • There is no bright line test between proprietary and open business models or closed and open innovation; most business models in practice are hybrids • The tradiditional competition law critisism of closed, proprietary models relates to abuse of dominance that leads to the exclusion of smaller albeit more efficient competitors to the detriment of consumers • The traditional competition law risk of open models relates to ”too much cooperation” between rivals; the practical necessities of network industries have alleviated these concerns at least to some extent • While standardization is based (mostly) on open model, without necessary safeguards it can lead to similar (or worse) bottlenecks than proprietary models • New E U Horizontal guidelines expect that S tandardization O rganizations have/enact IP R guidelines that aim to prevent abused of hold up positions and patent ambust and contain provisions relating to assessment of FR AND • S tandards aim to create true interoperability by coopetition of industry players C ompany C onfidential 17 © 2008 Nokia V1-O penInnovationLegalR ole.ppt / 2008-09-01 /JL