FTC conditionally approves One-Blue, LLC patent alliance

On 30th March 2011 the Fair Trade Commission (FTC) of the Executive Yuan convened to review a merger application under which Hitachi, Panasonic, Philips, Samsung, Sony and CyberLink each proposed to acquire one-sixth of One-Blue, LLC’s stock rights and to form jointly a patent alliance, with the purpose of having One-Blue act as the patent holder, providing and administering a one-stop shop product licence for patents essential to Blu-ray Disc™ products. The application was passed by the FTC with conditions imposed under Article 12(2) of the Fair Trade Law, ensuring that the overall economic benefit of the merger outweighs any disadvantages resultant therefrom.

The FTC pointed out that the six companies participating in the merger each own patented technology essential to the manufacturing of Blu-ray Disc products and further noted that each company actually engages in the manufacture of such products. The market affected by this case is the Taiwan domestic market for Blu-ray Disc-related products, technology and innovation.

Under the relevant terms of the agreement forming the patent alliance, the alliance would include in its patent pool only essential, complementary and valid patents as regularly assessed by independent patent experts. Further, the alliance would remain open to all interested patent owners desiring to participate and each participant would commit to grant fair, reasonable and non-discriminatory access to all parties seeking to negotiate separate licences individually. In addition, the alliance has enacted provisions preventing licensors from disclosing confidential information or colluding with other alliance members, and has established a mechanism for dealing with the tedious information submission process required of licensees before each shipment of licensed products.

In particular, the alliance bears the obligation to oversee and ensure that grant-back clauses in each licence agreement apply only to those essential patents developed by the licensees, and the alliance will in no way hinder licensees from licensing patents that they develop independently on their own terms. Finally, the FTC concluded that the patent alliance-related agreement includes no provisions that prohibit licensees from engaging in technology competition or in the development of competing standards or products.

The FTC stated that as Taiwanese industries are currently importers of blue-ray technology, prohibiting the merger would make it necessary for domestic manufacturers to negotiate with and obtain licences from each individual patent holder separately, which would drive up the transaction costs and licence fees to greater than the costs borne by domestic manufacturers if a licence could be obtained collectively from One-Blue. Domestic manufacturers could therefore obtain through the patent alliance all essential patent licences in one place while reducing transaction costs and avoiding the risks of infringement and litigation.

In addition, the FTC considered that companies joining the patent alliance also engage in the manufacture and sale of Blu-ray Disc products, and thus there may be increased opportunities for the alliance to obtain grant-back licences of essential patents from the licensees. This situation would ultimately enhance and stimulate downstream market competition. Moreover, this scheme would have no adverse effects on upstream and downstream vertical competition, as the licensor of a grant-back licence is not required to exchange sensitive information with the alliance.

After thorough and comprehensive deliberation of the application, the FTC considered that the proposed merger would contribute to the reduction of transaction costs for domestic industries, and that its overall economic benefits outweighed any disadvantages resulting from relatively small restrictions on competition. However, in order to prevent the applicants from making use of the patent alliance to engage in any behaviour aimed at restricting competition, the resolution passed by the FTC imposed additional conditions pursuant to Article 12(2) of the Fair Trade Law, so as to ensure the overall economic benefit. The imposed conditions are as follows: 

• The applicants may not engage in price-fixing or production-restricting agreements for Blu-ray Disc products; nor may they engage in any concerted action with respect to Blu-ray Disc products (eg, the exchange of important transactional information) as a trading cartel.
• The applicants and One-Blue cannot limit or restrict the scope of the licence, the transaction targets or the product prices of licensees.
• The applicants and One-Blue cannot restrict licensees from raising disputes with respect to the essence and validity of the licensed patents.
• The applicants and One-Blue cannot restrict licensees during the term of the licence and/or upon expiration thereof from engaging in research and development, manufacturing, making use of or selling competing products or exploiting competing technology.
• The applicants and One-Blue cannot refuse to provide licensees with the contents, scope and term of validity, or other such information of the licensed patents.
• The patent alliance agreement, upon execution, must be submitted to the FTC for further review.