FTC Invokes Novel Theories in Standard-Setting Case

Morrison & Foerster LLP

On January 23, 2008, the Federal Trade Commission announced it had entered into a consent decree with Negotiated Data Solutions LLC (“N-Data”) to settle a complaint against the company for repudiating a prior commitment to license users of its computer communications technology. The

commitment had been made to induce a standard-setting organization to adopt the technology in its standard. Issues involving intellectual property in the standard-setting process are an area the agency has monitored very carefully; this action is another example of that scrutiny.

The FTC’s complaint alleges two separate violations of Section 5 of the FTC Act: (1) that N-Data engaged in unfair methods of competition and (2) that N-Data engaged in unfair acts and practices The complaint, which the FTC approved by a 3-2 vote with Chairman Deborah Platt Majoras and Commissioner William Kovacic dissenting, is a rare use of the FTC’s Section 5 authority to challenge conduct that does not rise to the level of an antitrust violation. Further, the complaint is a novel use of the FTC’s consumer protection authority in what is otherwise a competition case, and where the “consumers” protected are technology firms. Simultaneously with the complaint, the FTC entered

into a consent decree with N-Data under which N-Data must offer prospective future licensees of the patents terms substantially identical to those of the original commitment. If the consent decree is ultimately approved following a 30-day public comment period, it may represent a substantial expansion of the FTC’s use of its statutory power.

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