Ignorance Over Innovation: Why Misunderstanding Standard Setting Organizations Will Hinder Technological Progress

On January 17, 2017, the Federal Trade Commission (FTC) sued Qualcomm Inc. in federal district court, alleging antitrust violations in the company\u27s licensing of semiconductor chips used in cell phones and more. The suit alleges, in part, that Qualcomm refuses to license its patents that cover innovations incorporated in technology standards (standard-essential patents, or SEPs), in contradiction of the company\u27s promise to license this intellectual property on fair, reasonable, and nondiscriminatory (FRAND) terms. According to the FTC, Qualcomm\u27s behavior reduces competitors\u27 ability to participate in the market, raises prices paid by consumers for products incorporating the standardized technology, and at bottom, impedes innovation. While there is plenty to criticize about the FTC\u27s action, the lawsuit is evidence of a much larger and more fundamental problem. The FTC\u27s allegations are not based on sound economic analysis nor are they supported by evidentiary findings. This is not due to haste or poor practices by the FTC; it is instead indicative of the FTC\u27s ignorance. Put plainly, the FTC does not understand technology standards and the organizations that develop them. And the FTC is not alone in this lack of knowledge. Many courts and commentators have also demonstrated clear misunderstandings of standard setting organizations (SSOs). Unfortunately, this is not harmless error or mere academic diversion. Important legal, business, and policy decisions are being made based on these misunderstandings. These decisions have the potential to negatively impact the future of technology standards and, ultimately, innovation itself