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76–072 PDF 2012

S. HRG. 112–552 

OVERSIGHT OF THE IMPACT ON COMPETITION 

OF EXCLUSION ORDERS TO ENFORCE STANDARD-ESSENTIAL PATENTS 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JULY 11, 2012 

Serial No. J–112–85 

Printed for the use of the Committee on the Judiciary 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

KOLAN DAVIS, Republican Chief Counsel and Staff Director 
(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Durbin, Hon. Dick, a U.S. Senator from the State of Illinois, prepared statement ...................................................................................................................... 55 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 2 

prepared statement .......................................................................................... 71 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1 

prepared statement .......................................................................................... 76 

WITNESSES 

Ramirez, Edith, Commissioner, Federal Trade Commission, Washington, DC .. 5 

Wayland, Joseph F., Acting Assistant Attorney General, U.S. Department 

of Justice, Washington, DC ................................................................................. 3 

QUESTIONS AND ANSWERS 

Responses of Edith Ramirez to questions submitted by Senators Leahy, 

Grassley, Cornyn, Klobuchar, and Lee ............................................................... 19 

Responses of Joseph F. Wayland to questions submitted by Senators Lee, 

Cornyn, Grassley, Klobuchar, and Leahy .......................................................... 30 

SUBMISSIONS FOR THE RECORD 

American Antitrust Institute, Washington, DC, statement ................................. 42 

Google Inc., Kent Walker, Mountain View, California, July 10, 2012 letter ...... 56 

Ramirez, Edith, Commissioner, Federal Trade Commission, Washington, DC, 

statement .............................................................................................................. 77 

Wayland, Joseph F., Acting Assistant Attorney General, U.S. Department 

of Justice, Washington, DC, statement .............................................................. 92 

(1) 

OVERSIGHT OF THE IMPACT ON COMPETITION OF EXCLUSION ORDERS TO ENFORCE 

STANDARD-ESSENTIAL PATENTS 

WEDNESDAY, JULY 11, 2012 

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, D.C. 

The Committee met, pursuant to notice, at 9:40 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Coons, Grassley, and Lee. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. I apologize for being late. We go through a city 

that will spend millions of dollars to enforce parking meters and 

get fines to pay for speed cameras which mainly make out-of-town 

companies rich and so on, but they cannot coordinate their street 

lights when the street lights are broken, and I think they must 

have decided to have a meeting maybe next week to put somebody 

down there to direct traffic when main thoroughfares have a green 

light that will go on for 1 second and 10 minutes red. 

Senator GRASSLEY. The problem probably is that they purposely 

do not coordinate them. 

Chairman LEAHY. Well, I know the street lights are coordinated. 

They seem not to be coordinated to the benefit of either pedestrians 

or drivers, so I am not sure. Maybe there is some other reason. But 

be that as it may, I do apologize. It only took an hour and 40 minutes to go the 11 miles in here. 

In recent months, we have seen a growing number of companies 

engage in what some are calling the next wave in the ‘‘tech patent 

wars.’’ Companies that previously cross-licensed their technologies 

with other companies in the market are increasingly seeking to 

block their competitors instead. This has the obvious potential to 

harm consumers by preventing access to their favorite devices. 

I have long championed the strong enforcement of our intellectual property laws because enabling inventors to profit from their 

work encourages innovation. Patent protection is particularly important even for my small State of Vermont. The Intellectual Property Organization recently announced that in 2011 Vermont again 

received the most patents per capita of any State in this country. 

But when inventors and developers are willing to license their 

technologies to one another at reasonable rates, then you have this 
2 

cross-fertilization of ideas that benefits us all. But I am concerned 

that the recent trend of seeking exclusion orders from the International Trade Commission rather than negotiating and seeking license fees is going to have the opposite effect. 

Today’s hearing focuses on the enforcement of standard-essential 

patents at the ITC. Standard setting is important. It may seem like 

a dry subject, but it allows different companies to have their products interoperate, giving us important developments like the 3G 

technology used in cellular phones. To participate in the standard 

setting, patent owners often agree to license their patents on reasonable terms. 

In March, I wrote to the administration expressing concern that 

ITC exclusion orders can be misused to prevent rival technologies 

when holders of standard-essential patents fail to reach agreement 

on licensing terms. These orders pose a significant threat to competition and innovation, especially where competitors have developed products based on a mutual commitment to license standardessential patents on reasonable terms. You assume you are going 

to be able to do it. You develop your product, and then all of a sudden you see the door slammed in your face. 

Senator Lee and other Senators on this Committee have since 

written to the ITC expressing similar concerns. This is not a partisan issue. Patent reform is a bipartisan issue. We have an interest on both sides of the aisle in ensuring the patent laws promote 

innovation and competition. 

The Department of Justice and the Federal Trade Commission 

play a vital role in protecting consumers and competition by enforcing our Nation’s antitrust laws. But they also have an important 

role in advising on antitrust issues. Congress recognized that role 

when it required the ITC to consult with the FTC and the DOJ on 

competition issues. So I think today’s witnesses will give the Committee a chance to further explore the competitive impact of ITC 

exclusion orders and whether more needs to be done, because it 

really is creating a lot of concern here on Capitol Hill, but it is creating an even greater concern to a lot of industries in this country. 

Senator Grassley, I will yield to you. 

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. Thank you very much. Mr. Chairman, thank 

you for holding this hearing on the competition impact of exclusion 

orders relative to standard-essential patents. Industry standards 

are crucial to allowing the myriad of electronic and mobile devices 

consumers use and rely on every day to interface and connect with 

other consumers and the Internet. Recently there have been questions and increased litigation over the way standard-essential patents are utilized and enforced. 

When companies agree to contribute their patents to become an 

industry standard, they usually commit to making them available 

on fair and reasonable and non-discriminatory licensing terms. By 

having access to these standards, companies can create new technologies, products, and services, and the different electronic devices 

have the ability then to seamlessly interface for lower prices, better 

quality, and more consumer choice. 
3 

Consumers want to use different products and technologies made 

by different companies. They want choice and more options in what 

they buy or use, and they do not want to be limited to using devices or services from just one company. And it is not as expensive 

to exchange different kinds of devices when they can interoperate 

with each other. Competition is good for the consumer and the 

choice the consumer has and satisfaction as well as benefiting from 

innovation and technological advances. 

Consequently, there is a real question as to whether it is anticompetitive or anticonsumer when standard-essential patent holders that have agreed to license their products under RAND terms 

seek injunctive relief against or exclude companies that have implemented their standard. Companies that have relied on standardsetting organization RAND agreements and incorporated standardessential patents into their products expect to be able to negotiate 

reasonable royalties with patent holders. 

At the same time, when there is patent infringement, we do not 

want to restrict the ability of patent holders to protect their products from infringers. We do not want to disincentivize participation 

in standard-setting bodies or hamper the ability of companies to 

generate new products and technology. 

I am interested in learning more about what are the issues surrounding standard-essential patents and RAND commitments, 

what are the obligations of standard-setting-organization participants, as well as what is happening in the courts or even at the 

International Trade Commission. So I want to hear about what our 

extensive hold-up problem is and how it has and/or will impact innovation and competition. 

I am interested in hearing more about how we can best balance 

the interests of standard-essential patent holders, standard-essential patent implementers, and consumers who use the products and 

standard-essential patents. 

I will put the rest of my statement in the record. Thank you, Mr. 

Chairman. 

[The prepared statement of Senator Grassley appears as a submission for the record.] 

Chairman LEAHY. Thank you, Senator Grassley. 

Our first witness is Joseph Wayland. He is the Acting Assistant 

Attorney General for the Antitrust Division. He was appointed to 

that in April. He joined the Department of Justice Antitrust Division in 2010. He was responsible for all the Division’s civil litigation. He was also Chief Trial Counsel. Before joining DOJ, he was 

a partner in Simpson, Thacher & Bartlett and focused on complex 

business litigation. He was elected as a Fellow to the American 

College of Trial Lawyers in 2009. He previously served in the U.S. 

Air Force and has a law degree from Columbia. 

Mr. Wayland, we are delighted to have you here. Please go 

ahead, sir. 

STATEMENT OF JOSEPH F. WAYLAND, ACTING ASSISTANT ATTORNEY GENERAL, U.S. DEPARTMENT OF JUSTICE, WASHINGTON, D.C. 

Mr. WAYLAND. Thank you very much, Chairman Leahy and 

Ranking Member Grassley and members of the Committee. It is a 
4 

pleasure to have this opportunity to discuss the Antitrust Division’s 

experience with standard-essential patents. 

The issues that I will discuss today involve three important inputs to our modern innovation-based economy: patent rights, competition, and jointly set standards. Antitrust and intellectual property function together to provide high-quality products and services 

at competitive prices and preserve strong incentives for the innovation that creates and improves those products. 

Standards provide a range of benefits, from helping to protect 

public health and safety to promoting efficient resource allocation 

and production by allowing for interoperability among complementary products. Indeed, interoperability standards paved the way for 

the telecom networks and mobile computing devices that have become hallmarks of the modern age. 

The Antitrust Division has worked closely with the FTC, the 

PTO, and other Federal agencies to better understand the interface 

between standards and antitrust and to promote intellectual property practices for standard-setting activities that preserve competition and protect consumers. 

In particular, we have found that when a standard incorporates 

patented technology owned by a participant in the standard-setting 

process and that standard becomes established, switching can often 

become difficult, and the particular technology may gain market 

power. This creates the potential for patent holders to take advantage of that market power by engaging in one form of what is 

known as patent hold-up—excluding a competitor from a market or 

obtaining a higher price for its invention than would have been 

possible before the standard was set. 

Patent hold-up can cause a number of problems such as inducing 

others to postpone or avoid incorporating standardized technology 

in their products, and consumers could be harmed if companies implementing a standard pass on the costs in the form of higher royalties. 

Standard-setting organizations often try to limit opportunities for 

their participants to engage in hold-up through patent policies that 

set forth patent disclosure obligations and licensing commitments. 

The Antitrust Division has stressed that SSOs that set forth welldefined patent policy rules can effectively promote competition. 

For example, the Division has issued business review letters in 

which we advised that SSOs may require or permit patent holders 

to disclose the most restrictive terms on which they are willing to 

license their essential technology in advance to provide notice to 

competitors of the terms on which they can compete and thus avoid 

unreasonable licensing terms that might harm the successful adoption and implementation of that standard. 

The Antitrust Division has also pursued enforcement where appropriate. Notably, the Antitrust Division has conducted a number 

of investigations involving standard-essential patents involving mobile devices. In many of these investigations, the Division had concerns about F/RAND-encumbered standard-essential patents. Earlier this year, the Division closed its investigation of the acquisition 

of two significant patent portfolios: Rockstar Bidco’s acquisition of 

patents and patent applications from Nortel, and Google’s acquisition of Motorola Mobility patents and patent applications. 
5 

The Division’s investigations focused on whether the acquiring 

firms would have the incentive and ability to exploit ambiguities in 

the commitments that sellers made to license their patents on F/ 

RAND terms to hold up implementers of the standard and to obtain higher royalties from their competitors, particularly by using 

the threat of an injunction or exclusion order, or exclude them from 

the market entirely. 

Although we concluded that the acquisitions of these patent portfolios were not likely to substantially lessen competition, the Division noted its concerns about the potential inappropriate use of F/ 

RAND-encumbered standard-essential patents to disrupt competition and specifically limited our conclusion to the transfer of ownership rights and not to the exercise of those transferred rights. We 

have continued closely to monitor the use of F/RAND-encumbered 

standard-essential patents in the wireless device industry to ensure 

that they are not used to stifle competition and innovation in this 

important industry. 

The Antitrust Division is also closely monitoring a number of 

pending matters before the ITC involving F/RAND-encumbered 

SEPs. The Division is concerned about the circumstances in which 

an exclusion order may be inappropriate, in particular, where a 

product implementing a standard has been determined to have infringed a valid F/RAND-encumbered patent that is essential to that 

standard. I commend the ITC for seeking the types of information 

necessary to evaluate whether the statutory public interest factors 

counsel against the imposition of an exclusion order in such cases. 

In an era where competition thrives on interconnected, interoperable network platforms, these considerations merit special attention. 

That concludes my prepared remarks, Mr. Chairman. I would be 

happy to answer questions that the Committee may have. 

[The prepared statement of Mr. Wayland appears as a submission for the record.] 

Chairman LEAHY. Thank you. 

Before we go to questions, because some of our questions will actually go to both the witnesses, we will ask Commissioner Ramirez 

to speak. She has served as a Commissioner of the Federal Trade 

Commission since 2010. Prior to that, Commissioner Ramirez was 

a partner in the Los Angeles office of Quinn Emanuel Urquhart & 

Sullivan—I know the law firm; I cannot believe I blanked on that— 

where she represented clients in intellectual property, antitrust, 

and trademark matters. Commissioner Ramirez clerked in the U.S. 

Court of Appeals for the Ninth Circuit, served as the Vice President and member of the Board of Commissioners for the Los Angeles Department of Water and Power, received her undergraduate 

and law degrees from Harvard. 

Commissioner, we are delighted to have you here. Please go 

ahead. 

STATEMENT OF THE HONORABLE EDITH RAMIREZ, COMMISSIONER, FEDERAL TRADE COMMISSION, WASHINGTON, D.C. 

Ms. RAMIREZ. Thank you. Chairman Leahy, Ranking Member 

Grassley, and members of the Committee, thank you for the opportunity to testify on behalf of the Federal Trade Commission about 
6 

the competitive effects of injunctive relief for infringement of standard-essential patents, including the impact of ITC exclusion orders. 

These issues are currently front and center in the markets for 

smartphones and tablets where the risk of competitive harm from 

such orders can be especially acute. Complex, multicomponent 

products are the norm in IT markets. For example, a smartphone 

has hundreds of components and technologies that enable it to communicate over wireless networks, stream video, access the Internet, 

and perform all of the functions that consumers expect. 

The vast majority of these components and technologies are covered by patents. A conservative estimate of the number of patents 

that could be in play in a smartphone is in the tens of thousands. 

Many of these patents are claimed to be essential to a standard. 

Standards dictate the design of many parts of a smartphone. To 

make phone calls, a smartphone must be compatible with a cellular 

network. Standards make that possible. They also enable many 

other functions, such as wi-fi communications and video streaming. 

Standards in the IT sector are typically set by standard-setting 

organizations, or SSOs, whose members include parties with a commercial stake in how the standard is written, such as patent holders, manufacturers, and large buyers. Through standard-setting organizations, these firms engage in a voluntary but formal process 

to reach consensus on technical standards that permit technologies 

to work together. 

While incorporating patented technologies into a standard greatly benefits consumers, it also creates competitive risks. Patents 

that cover technology adapted into a standard can empower their 

owners to demand higher royalty rates and other more favorable licensing terms than they could have demanded before the standard 

was adopted. This conduct is known as ‘‘patent hold-up.’’ 

The risk of patent hold-up is inherent in the complex and timeconsuming standard-setting process. A wireless communication 

standard can take a decade or more to complete and can run many 

thousands of pages. The final standard is often the result of heated 

battles between key industry players and is virtually impossible to 

change piecemeal. Once a technology is embedded in a standard, it 

is there to stay until the standard is revised, which can be many 

years down the road. 

In addition, after a standard is published, firms begin to invest 

in products and technologies that are tied to the standard. As a result, owners of standard-essential patents that once faced competition may gain new found leverage solely as a result of the standard-setting process. After technology is adopted into a standard, 

companies must use that technology to make a standardized product. 

To reduce the risk of patent hold-up, many SSOs require members to disclose patents that will read on the standard and to agree 

to license those patents on reasonable and non-discriminatory, or 

RAND, terms. RAND commitments are designed to mitigate the 

risk of hold-up and encourage competition among standardized 

products. But a royalty negotiation that occurs under threat of an 

injunction or exclusion order is weighted heavily in favor of the 

patentee—the very situation the RAND commitment was intended 

to combat. 
7 

In the face of an order that will block its products from the market, a company may have no choice but to accept the patentee’s demands, reasonable or not. 

Let me emphasize that this is more than a private dispute. Over 

time, hold-up restricts competition and distorts incentives to invest 

in standardized products and complementary technologies. The result for consumers will be higher prices, fewer choices, and inferior 

product quality. Hold-up also risks harming the standard-setting 

process. 

The Supreme Court’s decision in the eBay case reduced the risk 

of hold-up by making it difficult for standard-essential patent owners to obtain injunctions in Federal court. But while Federal courts 

are bound by eBay, the ITC is not. This raises concerns that some 

patent holders that would be unlikely to win injunctive relief in 

district court will file suit at the ITC to obtain import bans. 

But the FTC believes that the International Trade Commission 

also has a way to limit the potential for hold-up. We think the ITC 

can and should take a RAND commitment on a patent into account 

under its public interest analysis before issuing an exclusion order. 

Under its existing authority, the ITC can prevent the owners of 

standard-essential patents from sidestepping their licensing commitments to the detriment of competition, innovation, and consumers. The ITC’s recent Notice of Review in its Apple-Motorola investigation suggests that it may do just that. 

Let me close by emphasizing that the FTC does not take the position that an exclusion order should never issue for standard-essential patents. We are instead advocating that the ITC prevent 

patentees from using a Section 337 investigation as a way to escape their RAND obligations. In our view, this position strikes the 

right balance between protecting the rights of patent holders and 

safeguarding the pro-competitive benefits of the standard-setting 

process. 

Thank you, and I am happy to answer any questions you may 

have. 

[The prepared statement of Ms. Ramirez appears as a submission 

for the record.] 

Chairman LEAHY. Well, thank you. Following on that last thing, 

Commissioner Ramirez, I will ask you this, and then Mr. Wayland 

the same. The ITC has a statutory obligation to consider the effect 

on competitive conditions in the United States economy and United 

States consumers when it issues an exclusion order. What factors 

should the ITC consider in determining the effect that an exclusion 

order would have upon competitive conditions and American consumers in these cases? 

Ms. RAMIREZ. I think that under the public interest analysis, 

which does emphasize the fact that the ITC has the ability to consider the impact of exclusion orders on competitive conditions in 

the U.S. economy as well as consumers, allows the ITC to take into 

consideration the hold-up problem that I addressed in my opening 

statement. So I think there is—under the existing authority of the 

ITC, there is ample room for them to take these issues into account. I believe that the ITC in its recent Notice of Review has indicated that it also agrees with that position because it asks ques-
8 

tions posed to this very issue in its Notice of Review that raises the 

questions that you are asking today. 

Chairman LEAHY. Would you agree with that, Mr. Wayland? 

Mr. WAYLAND. I would, Mr. Chairman, and I also agree that the 

public interest standard gives the ITC the writ to look at harm to 

consumers, to consider whether the effect of an exclusionary order 

would be to inhibit competition, to raise prices, or otherwise limit 

innovations, sir. 

Chairman LEAHY. Then let me ask you this. Back in, I believe, 

2005, I think, when most of us just carried BlackBerrys in Washington, we were concerned that an injunction was going to prevent 

the BlackBerrys from working. Now, after that was resolved, the 

Supreme Court held that courts should weigh the same factors in 

patent cases that they do in other cases, where they issue an injunction rather than awarding damages. 

Now, when I receive briefings about what is happening, I am 

wondering, are parties now going to the ITC to avoid the traditional four-factor judicial test? Mr. Wayland. 

Mr. WAYLAND. Mr. Chairman, I cannot speak to the motivations 

of all the parties for seeking relief from the ITC, but we are concerned that that is happening. We are concerned that they are 

seeking to get a remedy outside of the Federal courts that the Supreme Court has recognized ought to be limited by the traditional 

limits on injunctive relief. 

Chairman LEAHY. And, Commissioner, while I agree that you 

cannot understand each person’s motivation, are you seeing enough 

of a trend that this appears to be a possibility? 

Ms. RAMIREZ. Yes, and maybe it might help if I can just provide 

a little bit of context about the role that the ITC plays. 

Section 337 of the Tariff Act of 1930 is a trade statute, not a patent statute, and so the way the statutory framework is set out, 

there is an expectation that once there is a finding of patent infringement, an exclusion order would almost in all circumstances 

issue. However, now that the ITC has been seeing an increasing 

number of lawsuits where patent holders may have made RAND 

commitments—and I think the ITC is really facing this issue 

squarely in two current pending investigations—the ITC is now 

looking to see whether it may be able to use its public interest 

analysis to take these issues into account. 

We at the FTC believe that that is, in fact, the case, that notwithstanding the different statutory scheme that governs what the 

ITC has been directed to do by Congress, that it still has the discretion to take these issues into account. 

Chairman LEAHY. We see a lot of companies going to the ITC 

rather than courts. Wouldn’t it make more sense to go to courts, 

or the ITC might be a more favorable place? 

Ms. RAMIREZ. Let me note that the ITC provides relief that is a 

bit distinct from what the Federal courts can provide. The Federal 

courts may provide injunctive relief. They also have the ability to 

provide damages. 

The ITC, on the other hand, cannot award damages, but what it 

can do is it can issue an exclusion order that basically places a ban 

on imports. The order would essentially direct U.S. Customs to at 

the border stop infringing products that are coming into the coun-
9 

try. So in certain circumstances, it can provide more effective relief 

than an injunction. 

Chairman LEAHY. I understand that, but also under their statute 

that set them up, they are supposed to consult with both your departments on these. Do they consult with you? 

Ms. RAMIREZ. I think that the ITC does consult with other Federal agencies from time to time. We at the Federal Trade Commission have only rarely weighed in, but we did weigh in recently in 

these recent investigations that are pending before the ITC because 

we did consider this to be an important issue, one that we believe 

is of first impression for the ITC, and we did submit a statement 

conveying our concerns and conveying our view that they do, in 

fact, have authority to address this under the public interest analysis. 

Chairman LEAHY. And, Mr. Wayland, are they consulting with 

you, with DOJ? 

Mr. WAYLAND. Mr. Chairman, they have invited comment 

through their process from agencies and the public generally, and 

there are a number of opportunities for the Department and agencies of the Government to be involved in the process along the way, 

yes. We are particularly concerned, Mr. Chairman, to get back to 

your question to Commissioner Ramirez, about the use of the ITC. 

We are particularly concerned that holders of F/RAND-encumbered 

patents would seek relief at the ITC because the relief there, as 

you have noted, is exclusionary, and the premise of a F/RAND commitment is that you will license your product, and the issue is at 

what price, not whether you will license. 

Chairman LEAHY. And if I might, one more question, and I will 

put the rest of my questions in the record. But in 2011, the FTC 

requested comments. You published a report on the evolving IP 

marketplace aligning patent notice and remedies with competition. 

It referred to those companies that acquire a lot of patent portfolios. Their business model seems to be focused on purchasing and 

then asserting patents in litigation, not doing any inventing themselves but just having the patents available for litigation. 

Now, when we passed the Leahy-Smith America Invents Act, we 

tried to reduce inefficiencies in our patent systems. We did address, 

to the extent we could, the question of patent trolls. But I still hear 

from companies in Vermont—and I think other Senators do from 

companies in their States—that are forced to spend an awful lot of 

money defending themselves in litigation. 

Can we do more to stop the harassing of companies by people 

who just bought up the patents just for the sake of litigation? 

Ms. RAMIREZ. I will refer to those companies as ‘‘patent assertion 

entities.’’ That is how we refer to them in our report. In our report, 

the FTC made various recommendations about ways that the rules 

in the patent system can be applied in a way that would reduce 

the problem of hold-up that does tend to incentivize the assertion 

of patents. And, in particular, let me highlight a couple of those 

issues with regard to remedies, which is the subject that we are 

talking about today. 

One of the recommendations that we make is that it is very important for courts, when settling disputes, in awarding damages, to 

ensure that the compensation ends up properly aligning the reward 
10 

for a patent right with the actual contribution that the IP technology makes rather than allowing for perhaps more compensation 

than the actual contribution—economic value of the IP technology. 

So, in other words, if a patent holder is seeking compensation for 

a very small component in a multicomponent product, you have to 

take that into account when you are establishing damages. And for 

some of the reasons that we see there being so much litigation, it 

seems to be that patent damages are outsized and larger than 

would be necessary to properly compensate for IP technology. So 

the idea would be that if you properly align the reward with the 

contribution that is being made, that is likely to reduce the incentives for parties to end up litigating in court. 

Chairman LEAHY. Well, both my staff and I will followup with 

some other questions on this area. And whether they are called 

‘‘patent trolls’’ or whatever they are, you understand the problem 

I am concerned about. An inventor, somebody who has worked 

hard, should be compensated for what they did. Somebody who 

simply buys up patents hoping to make money by litigation, I do 

not have a huge amount of sympathy for. 

Senator Grassley. 

Senator GRASSLEY. My questions will be directed to both of you, 

and I do not care who answers first. 

The first issue I want to bring up, it is my understanding that 

our approach in this country to standard setting works in the vast 

majority of the cases. So two questions associated with that 

premise, and if that premise is wrong, do not be afraid to tell me. 

Are we talking about a somewhat confined number of cases rather than a widespread problem with the current voluntary and consensus approach to standard setting? And if you believe that the 

patent hold-up problem is pervasive, what evidence do you have to 

support it? 

Mr. WAYLAND. Mr. Grassley, I will begin the answer. I think our 

concern is not so much the volume of matters but the type of matters that are involved. So we are talking about transactions involving products that affect the lives of millions of consumers and involve billions of dollars of potential damages. That is somewhat 

new in the sense that, you know, blocking a particular cell phone 

application could cause consumer harm across millions and millions of people. So it is the type of the practice that we are concerned about as much as the volume. 

Ms. RAMIREZ. Let me just say that I think there is considerable 

debate about how extensive this problem may be, but the fact of 

the matter is that we have seen an increased amount of patent litigation, and a number of companies have come to us at the FTC to 

say that patent hold-up is a concern. We have been very active in 

this area and have conducted research, and to the extent that we 

see it in the marketplace, we have offered recommendations that 

we believe can be used to alleviate the problem of patent hold-up. 

Senator GRASSLEY. And then on a second question, is it the position of your agencies that the exclusionary orders should always be 

prohibited in standard-essential patent disputes where the standard-essential patent holder has committed to license on RAND 

terms? And let me phrase it another way. In other words, is it your 

opinion that there should be a blanket, one-size-fits-all, no-injunc-
11 

tion, no-exclusionary-order rule for standard-essential and RANDobligated patents? 

Mr. WAYLAND. That is not the position of the Department of Justice. The general principles certainly should apply that in most circumstances the holders of F/RAND-encumbered patents should be 

able to negotiate or have a court determine the appropriate royalty. 

But there may be circumstances where a licensee or someone using 

a technology refuses to participate in a reasonable negotiation or 

may not be subject to the jurisdiction of the U.S. courts. 

Ms. RAMIREZ. The majority of us at the FTC take a similar position. We think that there may be circumstances when an exclusion 

order may be appropriate. However, we think that most often when 

there is a RAND-encumbered standard-essential patent, the most 

likely outcome ought to be that an exclusion order does not issue, 

but it would depend on the particular facts of a case. 

Senator GRASSLEY. We had a little bit of discussion between you 

and the Chairman on the International Trade Commission. I want 

to go back to that. A couple questions. 

How much formal consultation goes on between your agencies 

and the International Trade Commission during the public interest 

analysis of a Section 337 case? And is the International Trade 

Commission taking your input serious in its decisionmaking process? 

Ms. RAMIREZ. As Mr. Wayland noted, the ITC on a routine basis 

will invite public comment. As a formal matter, the FTC has not 

weighed in all that often. However, when it is appropriate—and recently we did feel that it was appropriate for us to weigh in on 

these issues—we did submit formal comments to the ITC. 

I believe that these will be taken into account. It remains to be 

seen what the ultimate outcome is in these pending investigations. 

We intend to be following closely what the ITC does. However, as 

I mentioned earlier, the ITC did issue a Notice of Review in the 

Apple-Motorola case where it indicated that it is certainly taking 

these issues into account because it had very specific questions that 

were directed at these issues and these concerns that all of you 

have raised. So I am glad to see that the ITC is taking these issues 

very seriously. 

Senator GRASSLEY. Before you answer, Mr. Wayland, additionally 

can the process be improved in any way? 

Ms. RAMIREZ. I think the process does allow for consultation, and 

we are happy to consult with the ITC. In connection with our IP 

report, we did also consult with them. So we work very collaboratively with other Federal agencies, and I think the existing process does allow for that. 

Senator GRASSLEY. Mr. Wayland. 

Mr. WAYLAND. Similarly to the FTC, Mr. Grassley, the Department of Justice does not typically submit comments directly to the 

ITC in the process, but we do monitor the process, and we consider 

whether it is appropriate at any particular time to submit our 

views. And with respect to the standard-essential patent cases now 

before the ITC, our views are publicly known. We have issued a 

closing statement with respect to the acquisitions of patent portfolios recently that make clear our concerns about SEPs. 
12 

In addition, we recognize and appreciate the ITC’s list of questions that they have raised which mirror the concerns that the FTC 

and we have raised previously. 

Senator GRASSLEY. Thank you. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you. 

Senator Coons. 

Senator COONS. I want to thank Chairman Leahy and Ranking 

Member Grassley for convening this hearing on this important, 

somewhat complex issue around intellectual property rights enforcement and how we can best strike a good balance. 

Mr. Wayland, I appreciated the interplay in your prepared remarks, your prepared statement today, recognizing the historic importance of protecting intellectual property rights but the tension 

with the procompetitive slant of our antitrust laws, but also the 

benefits of standard setting and how those three can interplay in 

a way that in rapidly emerging technologies can have dramatic 

benefits for consumers and for American innovation and competitiveness. 

Commissioner Ramirez, thank you also for your prepared comments. I am sorry I was at a meeting with the new President of 

the World Bank, and so I am joining this hearing a little late. 

If I might, first to Commissioner Ramirez, after experiencing 

issues with nondisclosure, including in the Rambus case, standardsetting organizations have adapted by strengthening disclosure requirements. What work is being done at the SSO level with respect 

to requiring a no-injunctions promise of some kind as part of participation in emerging standards? 

Ms. RAMIREZ. Thank you for your question. I think it is an important one to be asking. Let me just note that there are thousands 

of SSOs, and we do monitor what is happening, and, in fact, both 

the Department of Justice and the FTC do act as observers in one 

particular SSO. However, they are private organizations, and I 

know that a number of them just have a wide range of different 

policies. 

So we are keeping an eye on this. I know that this issue has garnered much recent attention, and I know that they are looking into 

this question. I believe that companies have gone to ETSI, which 

is a European standard-setting organization, to pose the question 

about whether or not making a RAND commitment will still enable 

a patent holder to obtain an injunction. So it is an issue that I 

know is being discussed at great length. 

Senator COONS. Do you have any input on whether it would help 

advance competitiveness, innovation, and open market were there 

to be some increased frequency with which there was not just full 

disclosure but also some requirement of a no-injunction commitment or participating standard? 

Ms. RAMIREZ. I think what we focus on is we urge them to have 

rules that are clear, but we have not taken any formal position 

about what particular policies should be adopted by SSOs. 

Senator COONS. Does the FTC have any reaction to Judge 

Posner’s recent advice to district courts to calculate RAND royalties 

on the basis of the value of the patent prior to being adopted as 
13 

a component or critical piece of a standard? And does that view 

align with the position taken by the FTC in your 2011 report? 

Ms. RAMIREZ. Yes, we were actually very pleased to see Judge 

Posner’s view on this issue because it is very much in line with the 

position that we took in our 2011 report, meaning that the RAND 

value should be the value that would be negotiated prior to the 

adoption of any particular standard so that you could really arrive 

at what the true economic value of the technology is. 

Senator COONS. Thank you. 

Mr. Wayland, we are, of course, discussing things that, as Commissioner Ramirez pointed out, are global in scope, these technology advances, the standard-setting organizations are not just 

U.S.-specific, and in my view, Chairman Leahy and this Committee 

and the Senate made a significant step forward in aligning our patent system with the world by adopting a first-to-file system. 

Could you comment on any steps being taken by other countries 

to address the issue of injunctions for SEPs? And what work is the 

FTC and the DOJ doing to help the world come to some common 

standard that strikes you as appropriate in terms of achieving both 

pro-consumer competitive opportunities but also appropriately respecting intellectual property rights? 

Mr. WAYLAND. One of the priorities of this administration’s antitrust policy, Senator, has been to increase international cooperation 

among antitrust authorities, and particularly with respect to standard-essential patents and intellectual property issues, we have 

worked closely, particularly with the European Commission, on 

specific matters and on general policy principles. 

In the recent review of the acquisition of patent portfolios, which 

we issued a public statement on, at the end of the statement we 

noted that our work came only after close consultation with the European Commission and other antitrust authorities. There is a 

shared concern among antitrust authorities about these issues, a 

shared concern that we provide consistent guidance to companies 

operating in this area. So I think there has been a substantial 

amount of work, and we are actively involved in seeking international cooperation on this issue. 

Senator COONS. That is encouraging. 

Could you clarify, Mr. Wayland, whether the Department takes 

the view that there are unique harms in seeking injunctions 

against rival technologies where a patent holder is seeking advantage not through just licensing fees but through the exclusion of a 

competitor from an emerging market segment? 

Mr. WAYLAND. Yes, Senator, we think there are very important 

harms that arise. These are harms that we are concerned about in 

all of our antitrust investigations, that is, increased prices that consumers have to pay and the exclusion of technology that would encourage or increase innovation in particular products. 

As I said in my response to Senator Grassley earlier, we are particularly concerned in standard-essential patents in telecommunications, mobile devices, that an exclusion order could affect a wide, 

wide range of consumers who are buying a cell phone or a tablet. 

An exclusion of any particular product like an Xbox or an Androidbased phone could seriously impact consumers. 
14 

Senator COONS. As the father of 13-year-old twin boys who are, 

without preferring any particular brand, really interested in Xbox 

imports, I will suggest that the impact of innovation is felt in many 

homes and at many levels. I will simply put it that way. [Laughter.] 

Without asking you to comment on any specific investigation, 

what circumstances is the Department watching to determine 

when seeking an injunction on a RAND-encumbered patent would 

actually violate antitrust laws? Is that something you feel comfortable commenting on? 

Mr. WAYLAND. Obviously, Senator, I cannot comment on specific 

investigations, but we apply our standard analysis in these cases, 

which we look at market power, what sort of power the holder of 

the patent or the standard-essential patent might have. We look at 

the effect on consumers, the potential of harm, and the exclusionary effect of the conduct. 

Senator COONS. And last, if I might, would you just comment on 

how given in your prepared statements you recognize the historic 

importance of intellectual property rights and their protection, 

often seeking an injunction is the most effective way to protect intellectual property rights? How do you strike an appropriate balance between respecting and protecting intellectual property rights, 

sometimes through seeking an injunction, and ensuring pro-consumer competitiveness in the marketplace, a robust and open marketplace where contractual agreements are followed and where we 

get the best possible quality, service, and products for consumers 

at the most reasonable price? 

Mr. WAYLAND. As a general matter, Senator, we spend a lot of 

time thinking about that issue, the intersection of intellectual property rights and antitrust and where the right balance is in any particular circumstances. 

With respect to standard-essential patents, which we are talking 

about today, we think the promise made by the holder of the patent 

to license on F/RAND terms really tips the balance in favor of seriously questioning why an exclusion order would be appropriate in 

any circumstance. What happens is the holder of the F/RAND-encumbered patent has promised to license the product on fair and 

reasonable terms and has recognized that money is a proper compensation for the use of the patent by a licensee or other user. 

Senator COONS. Did you have any comment then on the question 

I previously asked to Commissioner Ramirez about Judge Posner’s 

view on what is the appropriate basis on which to assign a royalty 

given that sometimes these F/RAND standards are silent on exactly what is the appropriate percentage? 

Mr. WAYLAND. I think generally we share Commissioner Ramirez’s view of Judge Posner’s decision, and the appropriate way to 

calculate the value of the patent on the basis of the underlying 

technology. 

Senator COONS. Does the Department take the position in your 

view that the ITC should follow the eBay standard? Or do you believe that the ITC public interest consideration already incorporates some of the core elements of an eBay-like standard? 
15 

Mr. WAYLAND. We think the public interest factors that the ITC 

should consider do incorporate the same sorts of concerns that the 

eBay court recognized. 

Senator COONS. Forgive me, I was too interested in the topic. I 

have gone well over my time, with my apologies to the Senator 

from Utah. 

Thank you very much to the panel. 

Chairman LEAHY. Thank you, and I appreciate the Senator from 

Utah being here, as I noted in my opening statement his strong interest in this. 

Senator Lee, delighted to have you here. Take whatever time you 

need. 

Senator LEE. Thank you very much, Mr. Chairman. And I want 

to thank you, Chairman Leahy and also Ranking Member Grassley, for putting this hearing together. This is, as you know, an 

issue that has long been of concern to me. 

I was wondering whether either of you were of the opinion that 

an agreement to license an SEP on fair, reasonable, and non-discriminatory terms is itself effectively a commitment to non-exclusivity? 

Mr. WAYLAND. As a general matter, yes, that is the whole point. 

You get the benefit of joining the standard-setting organization 

which provides a market that you might not otherwise have in return for a commitment to license. 

Senator LEE. OK. So if that is the case, if so, doesn’t that arguably make an exclusion order inappropriate in this circumstance? 

In other words, once somebody has agreed to non-exclusivity, is an 

exclusion order an appropriate remedy? 

Mr. WAYLAND. In general, Senator, we agree that it would not be 

an appropriate remedy, but we do not think it is appropriate to 

have a blanket rule saying no exclusion ever because there may be 

circumstances in which an exclusion order is appropriate. As I said 

earlier, perhaps an entity that is not subject to the jurisdiction of 

the U.S. courts or that otherwise will not participate in a reasonable F/RAND setting process. 

Senator LEE. Right, right. But you would not see a problem with 

a rule that would say absent such special circumstances, such as 

those that you have identified, that an exclusion order would be inappropriate? 

Mr. WAYLAND. The general concept we would agree with. The 

devil is in writing the details of any rule, but yes, I think the general principle that exclusion orders would not be appropriate where 

the parties are trying to reach an agreement on F/RAND terms. 

Senator LEE. OK. Would your analysis on that point change at 

all if an SSO specifically said as part of its SEP agreement framework this does not amount to an agreement of non-exclusivity? 

Would that change your analysis? 

Mr. WAYLAND. I am not sure I understand the question. 

Senator LEE. Or that it does not amount to a waiver of any right 

to seek an exclusion order, that you are not—that no one is agreeing to waive their right to pursue an exclusion order by agreeing 

to this? Would that change your analysis? 

Mr. WAYLAND. It would not change it in the sense that the commitment is the same, the holder of the patent of the technology has 
16 

agreed to license, and trying to cull back on that agreement with 

some language I am not sure changes the general principle that we 

support. 

Senator LEE. OK. Commissioner Ramirez, do you have anything 

to add to or subtract from what he said in response to my questions 

there? 

Ms. RAMIREZ. The position of the FTC would be very similar. 

Again, we do not think that there ought to be a blanket rule. The 

majority of us on the Commission do not think that. And, furthermore, we also think that the courts using the eBay test are well 

positioned to look at the particular facts of a case to decide what 

is appropriate; and, similarly, that the ITC can do the same under 

its public interest analysis. 

I would say, however, that we do think that in most cases an exclusion order or an injunction would be inappropriate if there is a 

RAND commitment that has been made in a standard-essential 

patent. 

Senator LEE. OK. And, Commissioner, is there also a risk here 

that if the ITC does not issue exclusion orders in this context, that 

could devaluate these kinds of patents? We want to protect the 

rights of patent holders, obviously. Is there a risk of that if the ITC 

were to say we are not going to issue exclusion orders in this area? 

Ms. RAMIREZ. I agree with you that it is important to protect the 

rights of patent holders, but, again, one has to strike the appropriate balance, balancing that against competition. I do not believe 

that, if the ITC were to elect not to issue an exclusion order, that 

would denigrate the value of the patent because the patent holder 

would still have a remedy in the district court to obtain damages. 

Senator LEE. So there would be no downside to doing that? 

Ms. RAMIREZ. Well, unless you have a situation where perhaps 

the district court did not have jurisdiction over a foreign defendant, 

for instance, and then maybe the ITC would be the only one who 

would have jurisdiction over the imported goods. That is a situation 

that Mr. Wayland discussed. So, again, it would depend on the particulars of a case, but generally speaking, there would be a remedy 

available in the Federal courts. 

Senator LEE. OK. So let us assume for purposes of discussion 

here, assume arguendo that we are dealing with a circumstance in 

which the value of the patent could be diminished by virtue of the 

non-availability of an exclusion order. Could that risk of devaluing 

the patent be mitigated by a rule that would say such exclusion orders might be available only where an SEP holder has somehow 

violated its F/RAND commitments? 

Ms. RAMIREZ. I agree that would be a factor to take into account. 

Again, I guess I would take issue with this notion that the patent 

would be devalued. The situation that we are discussing is one 

where the patent holder has voluntarily made—— 

Senator LEE. It is hard to endorse the hypothetical. 

Ms. RAMIREZ [continuing]. The RAND commitment. So just keeping that in mind, once you make a RAND commitment, you are 

saying that there is a commitment to license on RAND terms. And 

I do believe that the position that the FTC is articulating and the 

one that the Department of Justice is articulating attempts to 

strike the right balance by saying do not say never. There may be 
17 

circumstances where it would be appropriate to issue an exclusion 

order, if, you know, there is a potential licensee that is acting in 

bad faith, for instance, or where there may not be a remedy in district court. So I think the general principle that we are taking 

strikes the right balance between the rights of a patent holder and 

competition. 

Senator LEE. But it is certainly going to be difficult or maybe 

even impossible to conclude that those circumstances might exist, 

that is, circumstances where it might be appropriate for an exclusion order to issue where you can determine that the SEP holder 

has violated the SEP holder’s F/RAND commitments. 

Ms. RAMIREZ. I guess I am not sure that I understand why you 

think it would be impossible to make the determination. I think 

courts would be well positioned, I mean, they make decisions about 

disputes every single day. So I believe that they would be well positioned to assess the facts of a particular case and take into account 

any licensing commitment that has been made during the standard-setting process. 

Senator LEE. Right. 

Ms. RAMIREZ. So I understand the concern. However, I do feel 

that courts can take this into account and can make an appropriate 

decision. For instance, Judge Posner did that in his analysis in that 

Apple case in Illinois. 

Senator LEE. And I certainly was not trying to suggest that a 

court could not do that. I was just trying to drill down on the question. If, in other words, there were a rule in place that said an exclusion order is not appropriate where you have got an SEP holder 

that has not honored the SEP holder’s F/RAND commitments, 

whether that would be a manageable standard that you think 

would work. 

Ms. RAMIREZ. I think the standard that would work is the one 

that we are advocating, which is not to have a bright-line rule but, 

rather, to say these are things that you ought to take into account 

and, you know, generally speaking, I think it would be in most 

cases that it would be inappropriate to issue injunctive relief. But, 

again, there might be circumstances where that is not the case. 

Senator LEE. OK. Mr. Chairman, I know my time has expired. 

Have I got time for one more question? 

Chairman LEAHY. Of course. 

Senator LEE. OK. Mr. Wayland, I read a letter that was issued 

in February 2012. It is a letter closing an investigation into 

Google’s acquisition of Motorola’s patent portfolio. And in that 

same letter, this February 2012 letter, the Antitrust Division stated that it ‘‘will not hesitate to take appropriate enforcement action 

to stop any anticompetitive use of SEP rights.’’ 

Can you give us some sense as to what circumstances might warrant such enforcement action and, perhaps more importantly, what 

the Division might consider an appropriate type of an enforcement 

action? 

Mr. WAYLAND. Senator, we look at the facts and circumstances 

of transactions and activities by SEP holders to determine whether 

there is a violation of any antitrust laws. We are particularly concerned about efforts that attempt to exclude competitors from entering markets, and to that extent, we are looking at a number of 
18 

transactions. I cannot comment on the specifics of ongoing investigations, but we are serious about looking at how SEP holders are 

using the power that they have. 

One of the critical factors, Senator, is our examination of the 

market power that might be attributed to any particular holder of 

SEP patents. 

Senator LEE. OK. Thank you very much. Thank you both for 

your testimony. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you, and we will put a statement in the 

record from Senator Durbin. 

[The prepared statement of Senator Durbin appears as a submission for the record.] 

Chairman LEAHY. I will also leave the record open until close of 

business for any other questions to be submitted for the record, and 

I appreciate both of you being here. I do have several questions for 

the record that we will give you, and my staff will followup with 

you on that. 

[The questions of Chairman Leahy appears under Questions and 

Answers. 

Chairman LEAHY. Thank you for taking the time. It is amazing 

the amount of interest I have in this subject from my State, but 

certainly from other States, too. Thank you. 

Mr. WAYLAND. Thank you, Mr. Chairman. 

Ms. RAMIREZ. Thank you. 

[Whereupon, at 10:39 a.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 
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