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Valuing interoperability information – a guide for parties navigating the course
Aida Tohala

In 2013, under the umbrella of the Digital Agenda for Europe project, the European Commission published a Staff Working Document entitled ‘Analysis of measures that could lead significant market players in the ICT sector to license interoperability information’ (the ‘Staff Working Document’).  The wish to increase the sharing of interoperability information is driven by the understanding that the increased flow of information will open the door for new products to enter the market, and will thereby benefit competition.

The Staff Working Document identified various non-legislative measures which would facilitate access to interoperability information. These included introducing: (i) uniform ways of communicating the existence and availability of interoperability information to other market players; (ii) model licence agreements; and (iii) guidelines on assessing the value of interoperability information. Accordingly, work was carried out leading to the publication, in early 2015, of guidelines for valuing interoperability information (the ‘Guidelines’). The Guidelines are intended to help companies to assess the value of interoperability information in information and communications technologies with a view to reducing the costs of licensing.  This is said to be particularly relevant in situations where there are no applicable standards. The Guidelines are intended to be of particular assistance to SMEs.

Lighting the pathway

The Guidelines1 set out: (i) the key valuation approaches available, with suggestions on how to choose the most suitable approach; (ii) the different types of royalty that may be used; and (iii) a checklist of factors for licensees that are relevant to valuing interoperability information.

The Guidelines consider the benefits and shortcomings of the following approaches to valuation: Income, Relative (or Comparable) and Cost. The ultimate choice of approach depends on the perspective from which the valuation is being conducted (licensor/licensee), the information available to the relevant party and how speculative the nature of the investment is. The Income approach is said to be best suited to licensees wishing to measure the future economic benefits they stand to gain from using the interoperability information.  The valuation of interoperability information for licensors can be assessed using either the Income or the Cost method. The Guidelines list the different heads of information needed by licensee/licensor in conducting valuations using each method.

In reviewing potential approaches to royalties, the Guidelines consider the utility and suitability of flat fees; royalty rates; royalty-free arrangements; and combinations of all three, as well as the use of caps. It is noted that the royalty chosen will be a product of the parties’ valuations of the interoperability information, as well as the balancing of risk and reward for both parties.

Finally, the Guidelines set out a checklist for licensees of the factors which may affect the valuation of interoperability information and the negotiation of a royalty, including: (i) the type of interoperability information to be licensed (i.e., the nature of the intellectual property concerned); (ii) whether there is an existing licensing programme in place and the scope for flexibility that this affords the parties; (iii) the impact of integrating the interoperability information on revenue, cost and risk; and (iv) the impact on the licensor (and factors likely to increase the value a licensor will place on its interoperability information). In relation to the final factor, one of the key issues highlighted is the need to distinguish whether the licensee’s product is substitutable for, or complementary to, the licensor’s productas the substitutability or complementarity of the products will affect the licensor’s approach. (Of course, this issue may be further impacted by the market position of the licensor: if it likely holds a dominant position, it will need to consider compliance with rules on abuse of dominance when engaging with licensees.)

The Guidelines are accompanied by additional Guidance Notes, which further explore the key issues affecting negotiations and the key questions for licensees to consider where interoperability information is subject to intellectual property protection.

Conclusion

The Guidelines do not engage in detail with the competition law implications of the issues under consideration.  However, there are a number of references to the Commission’s 2004 Microsoft decision3, holding that Microsoft had abused a dominant position by (amongst other things) refusing to license necessary interface information. Some commentators had viewed this decision (which was subsequently upheld by the Court of First Instance) as demonstrating EU competition law’s limits in remedying difficulties in sharing interoperability information. The Guidelines – combined with the Interoperability Information Licence Agreement (INTILA) template and manual prepared for the Commission and published in July 20144 – may go further in assisting parties in interoperability information licensing negotiations.

However, it remains unclear whether such non-legislative measures alone will achieve the goals identified in the Staff Working Document of lowering barriers to trading interoperability information and fostering a licensing culture. Licensing negotiations are inevitably highly specific, and valuation is notoriously difficult.  Generalised guidelines can assist only so far. Nevertheless, given the substantial difficulties involved in implementing legislative measures (as highlighted by the Commission in its Staff Working Document), it appears that there may be little that the Commission can do to take things further – and it is unclear whether there would be industry appetite for greater intervention in any event.
 
1 Available here.
2 In essence, the significance of the distinction arises from the ability, in relation to substitutable products, for similar products to share information prepared using different technologies, as against the ability, in relation to complementary products, to build upon existing platforms.
3 Commission Decision: Case COMP/37.792 Microsoft, 24 March 2004, [2005] 4 CMLR 965; on appeal Case T-201/04 Microsoft Corporation v Commission, judgment of 17 September 2007.
4 Available here.