On June 22, 2004, President George W. Bush signed into law H.R. 1086, which included the Standards Development Organization Advancement Act of 2004 (“SDOAA” or “the Act”). The new law, which amends certain provisions of the National Cooperative Research and Production Act of 1993 (“NCRPA”), is intended to make it easier for “standards development organizations” (“SDOs”) to operate by extending certain important antitrust protections to these groups when undertaking standard-setting activities. While the Act has been criticized for not going far enough – it does not extend to individual members participating in SDOs – it clarifies the application of the NCRPA to SDOs and provides a number of benefits to those organizations.
In its most unique provision, the SDOAA provides that SDOs that file a notification with the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) within 90 days of either passage of the new law or initiation of any new standard-setting activity may claim the benefits of a provision that eliminates the potential for treble damages antitrust liability for the filer. The initial deadline for filing with the government is fast approaching, however – the first filing deadline (for standards development activities that were already ongoing when the Act was signed) is September 20, 2004.
The Definition of an SDO and Protected Activities Under the Act
As amended, the SDOAA extends the NCRPA to apply to standards organizations that meet the following definition:
The term “standards development organization” means a domestic or international organization that plans, develops, establishes, or coordinates voluntary consensus standards using procedures that incorporate the attributes of openness, balance of interest, due process, an appeals process, and consensus in a manner consistent with the Office of Management and Budget Circular Number A-119, as revised February 10, 1998 [SDOAA, Section 4301(a)(8)].
The SDOAA’s definition of protected activity is comprehensive, encompassing all activities that reasonably relate to the standards process:
‘Standards development activity’ means any action taken by a standards development organization for the purpose of developing, promulgating, revising, amending, reissuing, interpreting, or otherwise maintaining a voluntary consensus standard, or using such standard conformity assessment activities, including actions relating to the intellectual property policies of the standards development organization. [SDOAA, Section 4103(7)].
Thus, SDOs may file for and gain protection under the SDOAA for themselves and their employees with respect to their standard-setting activities, so long as those activities employ a process that meets the criteria of the Act. To the extent that due process is observed, it is arguable that many, if not most, SDOs will fulfill these criteria.
Nonetheless, there is an important exclusion to the definition of “covered parties” under the Act:
The term “standards development organization” shall not, for purposes of this Act, include the parties participating in the standards development organization [SDOAA, Section 4301(a)(8) (emphasis added)].
The fact that the Act fails to protect individual and corporate participants in the standard-setting process has been the source of significant criticism of the law’s efficacy.
New Protections Provided by the Act
The SDOAA’s protections are primarily intended to limit the incentives for plaintiffs aggrieved about the results of standard-setting to challenge SDOs; the drafters also sought to protect associations from being named as co-defendants in plaintiffs' suits challenging the roles of competitor(s) in standards development. The Act accomplishes these goals by amending treble damages provisions under the antitrust laws, declaring a "rule of reason" standard and allowing fee shifting. At the same time, lawmakers responded to concerns that standard-setting entities might act anticompetitively in certain circumstances by providing that SDOs would have to comply with the openness and due process provisions contained in the Office of Management and Budget Circular A-119. The Act’s proponents reasoned that while individual competitors might attempt to improperly influence a particular standard, it is unlikely that an organization that complies with principles of due process would engage in antitrust violations.
The SDOAA contains several specific types of protections for SDOs. First and most important is the limitation of the potential antitrust exposure for standard-setting activities to actual, rather than treble damages. This liability limitation is available, however, only for SDOs that file notifications under the Act. A more generally available protection (i.e., one that is available with or without filing) is the provision that standard-setting activities by SDOs will generally be evaluated under the “rule of reason,” rather than being subjected to a per se analysis. Finally, the law provides for attorneys’ fees and costs, not just to the prevailing plaintiff (as is already the case in private antitrust actions), but also to any SDO that is a substantially prevailing defendant in private antitrust litigation in which the plaintiff’s claim or conduct is found to be frivolous, unreasonable, without foundation, or in bad faith. Note that while the de-trebling provision is available only if the standard-setting entity files pursuant to the notification provisions of the Act, the rule of reason standard and the attorneys’ fees provisions are applicable whether or not any filing is made with the government.
Notification/Filing Requirements
The notification provisions of the SDOAA are set out in Section 4305 of the Act, which provides that an SDO that wishes to claim the benefits of the de-trebling provision must submit notice of its planned activity to the FTC and DOJ within 90 days of either the passage of the new law or the initiation of any new standard-setting activity, and must update that notice as significant facts and/or standards development activities change. The notification must disclose: (a) the name and principal place of business of the standards development organization, and (b) documents showing the nature and scope of such activity. After providing a draft for the organization to review, the DOJ will then publish a notice in the Federal Register that identifies the entity and describes its standards development activity in general terms; the organization is permitted to provide its own draft of a Federal Register notice with the filing.
As with notices under the NCRPA, neither the FTC nor the DOJ will necessarily review the SDO’s submission substantively, nor will either agency “approve” it. The converse is also true -- according to one attorney at the FTC, the FTC and the DOJ plan to leave any challenges under the Act, whether procedural or substantive, to private antitrust litigants suing in Federal court. Nonetheless, either agency is empowered to request additional information or (at least in theory) to initiate an investigation.
The initial 90 day period for filing elapses on September 20, 2004.
Should Your SDO File?
Should an existing SDO file under the new law? While a small SDO that has no meaningful assets might choose not to file a notification based on the low likelihood of attracting an antitrust lawsuit, for most organizations a filing is probably advisable. Larger organizations that have largely public processes and extensive procedures that are well documented are unlikely to either (a) reveal much that is “confidential” in terms of the standard-setting process by making a filing (not much detail is required in the filing itself), or (b) expend very much effort in making the filing. This is certainly true of SDOs with relatively open membership and procedures, particularly those that, as is increasingly common (particularly in the technology industry) post their procedures and ongoing projects on their websites for industry and public comment. And the benefit to be obtained – limitation to actual damages rather than treble in any antitrust suit – is significant, even if it is not as far-reaching as the standards community might have wished.
Another issue is whether an SDO should file separate notifications, to the extent that it is conducting multiple standard-setting projects at any given time. Neither the FTC nor the DOJ has expressed any view on the issue of whether a trade association that is working on multiple standards should make multiple filings, and neither agency plans to issue formal or informal regulations or guidelines under the Act. One possible approach is to make a single filing which lists each standard-setting project that is currently ongoing. The SDO could then amend the filing as appropriate on a regular basis, at least until there is meaningful Federal court precedent on the proper interpretation and implementation of the statute. The government could request additional filings if it believed that such filings were necessary.
Nonetheless, in filing any notification in whatever form, SDOs should be aware of the limitations to the SDOAA’s protections. First, and most important, the law does not apply to all individuals and corporations that participate in standard-setting activities. The volunteers and companies that contribute valuable data and expertise in the standard-setting process are nonetheless unprotected by the SDOAA, and may still be subject to baseless and frivolous antitrust suits. And, of course, both the SDO and its members remain vulnerable to suits for actual antitrust violations – the SDOAA does not relieve SDOs of their duty to be vigilant about complying with the antitrust laws. Moreover, even if the SDO files an initial notification, if it is not diligent in keeping its filings up-to-date, it could lose the treble damages protection provided under the law. An SDO must be careful to comply with the Act’s requirements on an ongoing basis if it wishes to avail itself of SDOAA’s protections.
In its most unique provision, the SDOAA provides that SDOs that file a notification with the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) within 90 days of either passage of the new law or initiation of any new standard-setting activity may claim the benefits of a provision that eliminates the potential for treble damages antitrust liability for the filer. The initial deadline for filing with the government is fast approaching, however – the first filing deadline (for standards development activities that were already ongoing when the Act was signed) is September 20, 2004.
The Definition of an SDO and Protected Activities Under the Act
As amended, the SDOAA extends the NCRPA to apply to standards organizations that meet the following definition:
The term “standards development organization” means a domestic or international organization that plans, develops, establishes, or coordinates voluntary consensus standards using procedures that incorporate the attributes of openness, balance of interest, due process, an appeals process, and consensus in a manner consistent with the Office of Management and Budget Circular Number A-119, as revised February 10, 1998 [SDOAA, Section 4301(a)(8)].
The SDOAA’s definition of protected activity is comprehensive, encompassing all activities that reasonably relate to the standards process:
‘Standards development activity’ means any action taken by a standards development organization for the purpose of developing, promulgating, revising, amending, reissuing, interpreting, or otherwise maintaining a voluntary consensus standard, or using such standard conformity assessment activities, including actions relating to the intellectual property policies of the standards development organization. [SDOAA, Section 4103(7)].
Thus, SDOs may file for and gain protection under the SDOAA for themselves and their employees with respect to their standard-setting activities, so long as those activities employ a process that meets the criteria of the Act. To the extent that due process is observed, it is arguable that many, if not most, SDOs will fulfill these criteria.
Nonetheless, there is an important exclusion to the definition of “covered parties” under the Act:
The term “standards development organization” shall not, for purposes of this Act, include the parties participating in the standards development organization [SDOAA, Section 4301(a)(8) (emphasis added)].
The fact that the Act fails to protect individual and corporate participants in the standard-setting process has been the source of significant criticism of the law’s efficacy.
New Protections Provided by the Act
The SDOAA’s protections are primarily intended to limit the incentives for plaintiffs aggrieved about the results of standard-setting to challenge SDOs; the drafters also sought to protect associations from being named as co-defendants in plaintiffs' suits challenging the roles of competitor(s) in standards development. The Act accomplishes these goals by amending treble damages provisions under the antitrust laws, declaring a "rule of reason" standard and allowing fee shifting. At the same time, lawmakers responded to concerns that standard-setting entities might act anticompetitively in certain circumstances by providing that SDOs would have to comply with the openness and due process provisions contained in the Office of Management and Budget Circular A-119. The Act’s proponents reasoned that while individual competitors might attempt to improperly influence a particular standard, it is unlikely that an organization that complies with principles of due process would engage in antitrust violations.
The SDOAA contains several specific types of protections for SDOs. First and most important is the limitation of the potential antitrust exposure for standard-setting activities to actual, rather than treble damages. This liability limitation is available, however, only for SDOs that file notifications under the Act. A more generally available protection (i.e., one that is available with or without filing) is the provision that standard-setting activities by SDOs will generally be evaluated under the “rule of reason,” rather than being subjected to a per se analysis. Finally, the law provides for attorneys’ fees and costs, not just to the prevailing plaintiff (as is already the case in private antitrust actions), but also to any SDO that is a substantially prevailing defendant in private antitrust litigation in which the plaintiff’s claim or conduct is found to be frivolous, unreasonable, without foundation, or in bad faith. Note that while the de-trebling provision is available only if the standard-setting entity files pursuant to the notification provisions of the Act, the rule of reason standard and the attorneys’ fees provisions are applicable whether or not any filing is made with the government.
Notification/Filing Requirements
The notification provisions of the SDOAA are set out in Section 4305 of the Act, which provides that an SDO that wishes to claim the benefits of the de-trebling provision must submit notice of its planned activity to the FTC and DOJ within 90 days of either the passage of the new law or the initiation of any new standard-setting activity, and must update that notice as significant facts and/or standards development activities change. The notification must disclose: (a) the name and principal place of business of the standards development organization, and (b) documents showing the nature and scope of such activity. After providing a draft for the organization to review, the DOJ will then publish a notice in the Federal Register that identifies the entity and describes its standards development activity in general terms; the organization is permitted to provide its own draft of a Federal Register notice with the filing.
As with notices under the NCRPA, neither the FTC nor the DOJ will necessarily review the SDO’s submission substantively, nor will either agency “approve” it. The converse is also true -- according to one attorney at the FTC, the FTC and the DOJ plan to leave any challenges under the Act, whether procedural or substantive, to private antitrust litigants suing in Federal court. Nonetheless, either agency is empowered to request additional information or (at least in theory) to initiate an investigation.
The initial 90 day period for filing elapses on September 20, 2004.
Should Your SDO File?
Should an existing SDO file under the new law? While a small SDO that has no meaningful assets might choose not to file a notification based on the low likelihood of attracting an antitrust lawsuit, for most organizations a filing is probably advisable. Larger organizations that have largely public processes and extensive procedures that are well documented are unlikely to either (a) reveal much that is “confidential” in terms of the standard-setting process by making a filing (not much detail is required in the filing itself), or (b) expend very much effort in making the filing. This is certainly true of SDOs with relatively open membership and procedures, particularly those that, as is increasingly common (particularly in the technology industry) post their procedures and ongoing projects on their websites for industry and public comment. And the benefit to be obtained – limitation to actual damages rather than treble in any antitrust suit – is significant, even if it is not as far-reaching as the standards community might have wished.
Another issue is whether an SDO should file separate notifications, to the extent that it is conducting multiple standard-setting projects at any given time. Neither the FTC nor the DOJ has expressed any view on the issue of whether a trade association that is working on multiple standards should make multiple filings, and neither agency plans to issue formal or informal regulations or guidelines under the Act. One possible approach is to make a single filing which lists each standard-setting project that is currently ongoing. The SDO could then amend the filing as appropriate on a regular basis, at least until there is meaningful Federal court precedent on the proper interpretation and implementation of the statute. The government could request additional filings if it believed that such filings were necessary.
Nonetheless, in filing any notification in whatever form, SDOs should be aware of the limitations to the SDOAA’s protections. First, and most important, the law does not apply to all individuals and corporations that participate in standard-setting activities. The volunteers and companies that contribute valuable data and expertise in the standard-setting process are nonetheless unprotected by the SDOAA, and may still be subject to baseless and frivolous antitrust suits. And, of course, both the SDO and its members remain vulnerable to suits for actual antitrust violations – the SDOAA does not relieve SDOs of their duty to be vigilant about complying with the antitrust laws. Moreover, even if the SDO files an initial notification, if it is not diligent in keeping its filings up-to-date, it could lose the treble damages protection provided under the law. An SDO must be careful to comply with the Act’s requirements on an ongoing basis if it wishes to avail itself of SDOAA’s protections.