Huawei v. ZTE in Context – EU Competition Policy and Collaborative Standardization in Wireless Telecommunications

IIC - International Review of Intellectual Property and Competition Law, Feb 2017

Collaborative standardization, an efficient and inclusive form of organized innovation under the auspices of standard-setting organisations (SSOs), has demonstrated significant technological achievements in the field of wireless telecommunications. At the core of collaborative standardization is a working balance of interests and incentives of all stakeholders involved, i.e. contributors of technology and users of standards, epitomized by licensing on FRAND terms. Standardization contributes to significant gains in consumer welfare, in the form of lower prices, more innovation and more consumer choice and convenience. At the same time, standardization fosters competitive markets, upstream and downstream. Public policy has not always been successful in accommodating collaborative standardization. The enforcement of Art. 102 TFEU by the EU Commission, for instance, reveals an underlying mistrust of the operation of markets in the context of collaborative standardization and a strong preference for court-determined FRAND terms. However, the recent CJEU ruling in Huawei v. ZTE provides strong incentives for private stakeholders to determine FRAND through bilateral commercial negotiations and as such it is a welcome shift in EU competition policy in collaborative standardization.

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Huawei v. ZTE in Context – EU Competition Policy and Collaborative Standardization in Wireless Telecommunications

Huawei v. ZTE in Context - EU Competition Policy and Collaborative Standardization in Wireless Telecommunications Haris Tsilikas 0 0 H. Tsilikas (&) (LLM); PhD Candidate and Junior Research Associate Max Planck Institute for Innovation and Competition , Munich , Germany Collaborative standardization, an efficient and inclusive form of organized innovation under the auspices of standard-setting organisations (SSOs), has demonstrated significant technological achievements in the field of wireless telecommunications. At the core of collaborative standardization is a working balance of interests and incentives of all stakeholders involved, i.e. contributors of technology and users of standards, epitomized by licensing on FRAND terms. Standardization contributes to significant gains in consumer welfare, in the form of lower prices, more innovation and more consumer choice and convenience. At the same time, standardization fosters competitive markets, upstream and downstream. Public policy has not always been successful in accommodating collaborative standardization. The enforcement of Art. 102 TFEU by the EU Commission, for instance, reveals an underlying mistrust of the operation of markets in the context of collaborative standardization and a strong preference for court-determined FRAND terms. However, the recent CJEU ruling in Huawei v. ZTE provides strong incentives for private stakeholders to determine FRAND through bilateral commercial negotiations and as such it is a welcome shift in EU competition policy in collaborative standardization. FRAND Huawei v; ZTE 1 Introduction In the past few decades information and communication technologies have transformed every aspect of human endeavour; mobile technologies, being the most rapidly adopted technologies in human history, have fundamentally changed the way we work, learn, travel, consume and communicate with each other.1 Connected devices bundle multiple functionalities, which were hitherto performed by various independent gadgets, in integrated, multi-component devices. However, for such devices to operate and communicate seamlessly with each other, common interfaces and technical specifications are required. These common interfaces and specifications, allowing interoperability between individual components, devices and networks, are known as industry standards.2 There are, in general, three paths to standardization: the first one is the emergence, through fierce competition ‘‘for the market’’, of a technical solution as dominant in the market, that is as a de facto standard3; the second one is standardization by government intervention and the regulation of technical aspects of products, also known as legal standards4; the third one, which is the subject of the present paper, is standardization through industry collaboration under the aegis of standard-setting organizations (SSOs).5 SSOs engaged in the standardization of wireless communications have produced some of the most innovative and commercially successful standards, adopted by millions of consumer electronic devices around the world.6 Such standards provide long- and short-range connectivity (cellular standards, Wi-Fi, Bluetooth and USB), and audio, picture and video functionalities (MP3, ACC, GSM voice codecs, JPEG, PNG and MPEG).7 Collaborative standardization under the auspices of SSOs has, thus far, a remarkable record of breakthrough technological achievements, high-quality, cutting-edge standards, vibrant follow-on innovation in the implementation of standards and open, competitive upstream and downstream markets. Interoperability standards produce massive efficiency gains and result in tangible benefits for consumer welfare. Interoperability implies economies of scale, cost savings, and gains in productivity and efficiency. However, standardization efforts in recent years aim not only at seamless interoperability, but also at the highest possible level 1 The Boston Consulting Group (2015), pp. 3 and 7. 2 Geradin and Rato (2007), pp. 103, 104. 3 A typical example of a de facto standard would be the QWERTY typewriting layout which emerged at 4 Legal standards are mandatory for all parties engaged in the relevant commercial activity, such as, for 5 See Geradin and Rato, supra note 2, at p. 104; see also Rysman and Simcoe (2008), p. 1920. 6 The most relevant SSOs in the field of wireless communications standards are the European 7 Ibid., at p. 64. of performance, i.e. in capacity, data rates, latency, reliability and security.8 Providing for high performance, cutting-edge standards form the infrastructure upon which a whole ecosystem of innovating products and services has flourished. Navigating through the complexities of collaborative standard-setting has proved a challenge for EU competition policy. The European Commission, in particular, has demonstrated an ambivalent stance towards collaborative standardization, recognizing its pro-competitive potential in theory, but revea (...truncated)


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Haris Tsilikas. Huawei v. ZTE in Context – EU Competition Policy and Collaborative Standardization in Wireless Telecommunications, IIC - International Review of Intellectual Property and Competition Law, 2017, pp. 151-178, Volume 48, Issue 2, DOI: 10.1007/s40319-017-0560-7