A Five-Year Anniversary For A Major Standard-Setting Antitrust Law

Five years ago this month, a new federal law aimed at encouraging standard-setting activities took effect – the Standards Development Organization Advancement Act (SDOAA) of 2004.  Why did Congress pass it?  And five years later, how has it fared?

In many industries, non-profit “standards development organizations” (SDOs) collaborate with businesses to develop industry-wide standards – from common light bulb sizes to uniform tests of concrete strength.  This work is generally procompetitive, as it tends to foster innovation and lower prices.  But because the work involves collaboration between competitors, it can raise antitrust issues and invite lawsuits.

Concerned that fear of antitrust liability could chill SDOs’ legitimate work, Congress passed the SDOAA to reduce the groups’ antitrust exposure.  Under this Act, all standard-setting work by SDOs is judged under the more forgiving “rule of reason” liability standard and not the per se standard that applies in some antitrust cases.  Second, SDOs have the option to disclose to federal antitrust regulators their existence and the nature of their standards work.  Damages in any lawsuit against the SDO based on conduct within the scope of such a disclosure will be capped at a plaintiff’s actual damages – not the treble damages that normally apply to antitrust actions (and which often motivate settlement).

And did the SDOAA have the intended effect of encouraging standards groups to disclose their work to the regulators?  Apparently yes.  According to the Federal Register, which publishes SDOs’ disclosure notices, 264 such notices were filed in the year after the SDOAA’s enactment.  After that initial deluge, disclosures have held steady at about 25 per year.

Whether Congress’s policy in enacting the SDOAA was sound is a matter of debate.  (Click here for a commentary on this issue by Constantine Cannon attorneys Matthew Cantor and Adam Nyhan.)  But it does seem clear that the law has encouraged many SDOs – more than 300 and still counting – to bring more transparency to their work.