Some price agreements not cartels-EU officials

Some standard-setting groups have ducked discussing prices out of fear they could be accused of fixing them, a serious offence in the European Union that cost offenders billions of euros last year.

But instead, companies have found themselves in a different fix.

Although the two officials mention no cases, the failure to have a clear understanding about price before setting standards has led to accusations of overcharging and so-called “patent ambush” involving, respectively, mobile phone designer QualComm and memory chip designer Rambus.

Cecilio Madero Vallarejo, a senior Commission official, and Nicholas Banasevic, a Commission specialist on cases involving consumer electronics and the Internet, make it clear how such troubles can be avoided in the future.

The European Commission's No. 2 competition official, Director General Philip Lowe, aired similar views recently. His boss, Competition Commissioner Neelie Kroes, will speak on the subject on Tuesday.

The Commission is the EU's competition watchdog, which investigates mergers, suspected cartels and abuse of dominant positions by individual firms. Kroes has targeted price-fixing by groups of companies and levied billions in fines last year.

Lawyers and company officials often say they must take care about discussing prices when setting standards because otherwise they could face cartel accusations.

“Opposition to such schemes has been mooted ... on the grounds of supposed antitrust concerns,” Madero and Banasevic wrote in the online magazine Global Competition Policy.

“We believe that such criticisms should not be used as a smokescreen,” they said.

Madero and Banasevic say when companies offer ideas and technologies for a new standard they should disclose the highest price they would charge for them.

Alternatively, companies offering competing ideas can bid down the price they are willing to accept if their technology is chosen for a new standard.

Consumers are the winners in such a bidding war, they write.

Whatever new approach may be taken in the future, the Commission is faced with tough calls on the two pending cases.

Qualcomm agreed to license some of its patents on fair, reasonable and non-discriminatory terms (FRAND). It says those terms are whatever is agreed by it and others.

Opponents say that for FRAND to have any meaning there must be a way to determine its value, for example by pegging royalties to what the technology would have been worth were it not part of a widely used standard.

They also complain that Qualcomm is discriminating in favor of companies that use its chip sets rather than those made by rivals.

There is disagreement on the facts. Qualcomm says its ideas are basic to next-generation mobile phones, while critics call them highly valuable merely because they are in the standard.

In the end, the Commission will have to clarify the best way to define FRAND.

The issues are even thornier in the Rambus case.

The US Federal Trade Commission found Rambus hid patents when its ideas were incorporated into memory chips.

The FTC said the firm hid its patents until they were cemented into a standard and later extracted high fees, a practice known as “patent ambush.”

A US appeals court reversed the FTC decision last month, but that does not necessarily mean the same will happen in Europe.

“There is a difference between EU competition law and US antitrust law. The EU law covers exploitative abuses - for example, excessive pricing - while the United States' does not,” said Luc Gyselen of the law firm Arnold & Porter, which represents one of the firms challenging Rambus. (Reuters)