Distribution, Competition, and Antitrust / Intellectual Property (IP) Law

Under Agency Law, Standard Setting Organizations May Be Liable for Antitrust Violations of Their Members

As noted in this recent blog post, in TruePosition, Inc. v. LM Ericsson Telephone Co., No. 11-4574 (E.D. Pa. Oct. 4, 2012), the court held that a Standard Setting Organization (SSO) known as 3GPP may be liable for alleged Sherman Act Section 1 antitrust claims involving the wrongful actions of persons who acted on behalf of the SSO, even when those persons are representatives of the SSO’s corporate members.  (Hat tip to this LinkedIn posting which informed me about the blog post.)

The case involves allegations that defendants conspired to exclude plaintiff’s technology from industry standards (for Long Term Evolution, or LTE, telephone technology).  The SSO argued that the plaintiff’s claims were insufficient because the plaintiff’s theory of liability was one of “acquiescence.”  The SSO characterized the plaintiff’s claims as alleging that the SSO was on notice of the corporate defendants’ alleged misconduct but that the SSO failed to remedy it.  This “inaction,” according to the SSO, did not show the requisite agreement necessary to support a Sherman Act Section 1 claim.

Applying American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556 (1982), the district court rejected the SSO’s acquiescence argument. 

“As Chairmen of the pertinent 3GPP subcommittees, the Corporate Defendants were agents of 3GPP acting on behalf of 3GPP, even when their actions violated 3GPP’s rules and regulations . . . .  As the facts are set forth in the Amended Complaint, and granting all reasonable inferences to TruePosition, 3GPP is charged with acting through agents whom it has imbued with apparent authority.  Such alleged action involved concerted action.  This is not a case involving mere membership in a standard-setting organiztion . . . .  It is the Corporate Defendants’ alleged unlawful conspiratorial conduct taken with 3GPP’s apparent authority as Chairmen of the relevant committees that makes 3GPP potentially liable for their actions. Under the facts presented in the Amended Complaint, 3GPP cannot consider itself as separate and distinct from the actions of the Corporate Defendants when they were acting with 3GPP’s apparent authority.”

The court also determined that the complaint adequately alleged minimally sufficient facts to plausibly suggest that 3GPP assented to the alleged conspiracy through the corporate defendants’ actions taken with the apparent authority of 3GPP holding leadership positions within its committees.  “This is not a case where most of the alleged unlawful activities were conducted by the Corporate Defendants outside the confines of 3GPP but, rather, the majority of the allegations specifically involve the actions of the Corporate Defendants as Chairmen of 3GPP’s committees thwarting and using its standardization process to disadvantage a competitor.”

The case is a useful reminder that an SSO has potential antitrust exposure for the activities of its members when the members act under color of authority of the SSO.

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