Source: http://mondaq.com/unitedstates/x/797832/Patent/DOJ+Changing+Its+Antitrust+Approach+To+FRAND+And+SEPs
Timestamp: 2019-04-19 01:06:00+00:00

Document:
In November 2017, Assistant Attorney General (AAG) Makan Delrahim reignited a debate about antitrust enforcement in the context of standard-setting organizations (SSOs),1 standard essential patents (SEPs), and agreements to price SEPs on fair, reasonable, and non-discriminatory (FRAND)2 terms. Prior to the Trump administration, the Department of Justice (DOJ) and Federal Trade Commission (FTC) had taken similar approaches. Both agencies expressed concerns about the competitive implications of patent holders that had made FRAND commitments obtaining injunctive relief to exclude willing licensees. AAG Delrahim, over the past year or so, has moved DOJ in a direction that allows SEP holders more freedom to use the exclusionary potential of those patents. DOJ also has redirected its focus toward the conduct of licensees and the SSOs themselves.
On December 7, 2018, AAG Delrahim took another step toward implementing this new policy at DOJ by formally withdrawing DOJ's assent to the 2013 Joint DOJ-PTO Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.3 This withdrawal reinforces the expanding difference between the DOJ and FTC positions, and increases the need for both patent holders and licensees to consider carefully potential antitrust risks.
As part of their work to develop technological standards for new products, SSOs typically bring together patent holders, who own intellectual property that will be integral to downstream products, and technology implementers, who manufacture end products based on that intellectual property. SSOs facilitate interoperability and efficiency by selecting an industry standard that all the participants can implement after licensing the required intellectual property. In establishing so-called "patent policies," SSOs usually require that a participant holding a patent essential to a proposed standard commit to certain conditions in order for its technology to be selected as part of the standard, usually including a commitment to license the patent on FRAND terms.
Antitrust enforcers recognize that standard setting offers procompetitive benefits, including increased downstream competition, lower prices, and increased utility to consumers. The antitrust agencies have also acknowledged the potential anticompetitive risks created when industry participants, including competitors, jointly select a common technology standard and thus potentially create market power for selected patent holders. In particular, the antitrust authorities have been concerned that after a patent is chosen as part of a standard, the patent holder gains the ability to engage in "hold up" by charging more for the license than would have been charged prior to the patent being designated as an SEP. SSOs have commonly addressed such concerns by requiring patent holders to make a FRAND commitment before their patents are made part of the standard. Another potential risk associated with standard setting is known as "hold-out," where potential licensees refuse to pay reasonable rates for a patent, essentially forcing patent holders to accept less than market value for patents and denying the patent holder fair compensation for the significant effort and investment made to develop the technology.
The antitrust theory is, in essence, that where the designation of a patent as an SEP creates market power, and the patent holder agreed ex ante to a FRAND commitment in order to obtain that market power, violating the FRAND commitment ex-post means that the market power was obtained through anticompetitive means. The threat of an injunction creates disproportionate risk to a licensee because the dispute over licensing terms could result in an injunction that would exclude the licensee from the relevant market. This risk incentivizes the licensee to agree to supracompetitive licensing terms, which limits output and increases price to end consumers.
The PTO has yet to comment on DOJ's withdrawal, and it is unclear when new joint guidance will be published.
At the same time, DOJ has increased its scrutiny of the conduct of patent implementers and SSOs themselves and emphasized the possibility of enforcement against any coordinated effort to disadvantage patent holders. This increases the risk that any SSO policy that is adopted over the objections of patent holders could generate a DOJ investigation or enforcement action. To limit this risk, it is particularly important that SSOs establish and follow clear procedures that ensure due process and are designed to generate objectively defensible policy decisions.
1. Also known as Standard Developing Organizations (SDOs).
2. Also referred to as F/RAND or RAND.
3. Makan Delrahim, Asst. Att'y Gen., Antitrust Div., U.S. Dep't. of Justice, "Telegraph Road" Incentivizing Innovation at the Intersection of Patent and Antitrust Law (Dec. 7, 2018), (hereinafter "Delrahim, Telegraph Road Speech"), https://www.justice.gov/opa/speech/file/1117686/download .
4. In eBay v. MercExchange, the Supreme Court held that a patent holder cannot get injunctive relief unless it can meet a four-factor test, including a showing that it cannot be made whole by monetary damages. 547 U.S. 388, 391 (2006). The consensus has been that where a patent holder has agreed to license on FRAND terms it has already contractually given up its right to exclude and instead agreed to license. The only remaining issue is the proper licensing terms and thus an injunction is usually not justified for an SEP, unless an infringer is unwilling to negotiate reasonably. See Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1331�32 (Fed. Cir. 2014).
5. In the Matter of Dell Computer Corp., 121 F.T.C. 616 (F.T.C. 1996); see also, Press Release, Fed. Trade Comm'n, FTC Issues Complaint Against Rambus, Inc. (Jun. 19, 2002), https://www.ftc.gov/news-events/press-releases/2002/06/ftc-issues-complaint-against-rambus-inc; Analysis of Proposed Consent Order To Aid Public Comment, In the Matter of Motorola Mobility LLC and Google Inc., No. 121-0120 (Jan. 3, 2013), https://www.ftc.gov/sites/default/files/documents/cases/2013/01/130103googlemotorolaanalysis.pdf .
6. See Analysis of Proposed Consent Order To Aid Public Comment, In the Matter of Motorola Mobility LLC and Google Inc., No. 121-0120 (Jan. 3, 2013), https://www.ftc.gov/sites/default/files/documents/cases/2013/01/130103googlemotorolaanalysis.pdf. The requirement that the licensee be "willing" was an effort to prevent licensees from holding up the patentee; accordingly where the licensee is unwilling to pay a reasonable fee, the patent holder is allowed to seek an injunction. See id. at 7.
7. U.S. Dep't of Justice & U.S. Patent & Trademark Office, Policy Statement on Remedies for Standards- Essential Patents Subject to Voluntary F/RAND Commitments (Jan. 8, 2013), https://www.uspto.gov/sites/default/files/documents/Final_DOJ-PTO_Policy_Statement_on_FRAND_SEPs_1-8-13.pdf .
10. Letter from Michael B. G. Froman, Ambassador, U.S. Trade Rep., to Irving A. Williamson, Chairman, Int'l Trade Comm'n (Aug. 3, 2013), https://ustr.gov/sites/default/files/08032013 Letter_1.PDF.
12. Letter from Renata B. Hesse, Acting Asst. Att'y Gen., Dep't of Justice, to Michael A. Lindsay, Dorsey & Whitney LLP, Counsel for Institute of Electrical and Electronics Engineers, Incorporated (Feb. 2, 2015) (hereinafter "IEEE Business Review Letter"), https://www.justice.gov/sites/default/files/atr/legacy/2015/02/02/311470.pdf; see also Jimmy Hoover, FRAND Regime 'Not Working Very Well,' DOJ Official Says, Law360 (Apr. 14, 2015), https://www.law360.com/articles/643285/frand-regime-not-working-very-well-doj-official-says; Ron Lubosco, US Antitrust Agencies Seek To Balance Enforcement With Competition Advocacy, Including In Areas Such As SEPs, DoJ's Hesse Says, MLex (Mar. 16, 2016).
13. IEEE Business Review Letter, supra note 12.
14. Compl. �� 3, 147, FTC v. Qualcomm Inc., No. 5:17-cv- 00220 (N.D. Cal. Jan. 17, 2017).
15. Makan Delrahim, Asst. Att'y Gen., Antitrust Div., Dep't of Justice, Take it to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law (Nov. 10, 2017), https://www.justice.gov/opa/speech/file/1010746/download.
17. See Makan Delrahim, Asst. Att'y Gen., Antitrust Div., U.S. Dep't of Justice, Antitrust Law and Patent Licensing in the New Wild West (Sep. 18, 2018), https://www.justice.gov/opa/speech/file/1095011/download; Makan Delrahim, Asst. Attorney General, Antitrust Div., U.S. Dep't of Justice, The Long Run: Maximizing Innovation Incentives Through Advocacy and Enforcement (Apr. 10, 2018), https://www.justice.gov/opa/speech/file/1050956/download; Makan Delrahim, Asst. Att'y Gen., Antitrust Div., U.S. Dep't of Justice, The "New Madison" Approach to Antitrust and Intellectual Property Law (Mar. 16, 2018), https://www.justice.gov/opa/speech/file/1044316/download; see also Pallavi Guniganti, US DOJ Official: Antitrust Shouldn't Interfere in SEPs if Other Laws are Available, GCR (Nov. 8, 2017), http:// globalcompetitionreview.com/article/1149857/us-doj-official-antitrust-shouldn%E2%80%99t-interfere-in-seps-if-other-laws-are-available .
18. Letter from Andrew Finch, Principal Dep't. Asst. Att'y Gen., Antitrust Div. U.S. Dep't of Justice, to Patricia Griffin, Vice President and General Counsel of ANSI, and Amy Marasco, Chair of IPRPC (Mar. 7, 2018) (quoting Delrahim, Telegraph Road Speech, supra note 3), https://www.justice.gov/atr/page/file/1043456/download .
20. Makan Delrahim, Asst. Att'y Gen., Antitrust Div., U.S. Dep't of Justice, The Long Run: Maximizing Innovation Incentives Through Advocacy and Enforcement (Apr. 20, 2018), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-keynote-address-leadership-conference.
21. Delrahim, Telegraph Road Speech, supra note 3.
24. AAG Delrahim mentioned specifically the due process requirements mandated by ANSI, https://share.ansi.org/Shared%20Documents/Standards%20Activities/American%20National%20Standards/Procedures,%20Guides,%20and%20Forms/2019_ANSI_Essential_Requirements.pdf; See ANSI, Essential Requirements �� 1.1�1.3, 1.7�1.9, 2.0�2.3, 2.7� 2.8 (2018). These rules require SSOs to establish written procedures that guarantee, among other things, an open and balanced process that is not dominated by any party or interest group, makes decisions by consensus, and provides an "identifiable, realistic, and readily available appeals mechanism for the impartial handling of procedural appeals." Id.
25. Delrahim, Telegraph Road Speech, supra note 3. Similarly, AAG Delrahim emphasized that firms would be scrutinized if they engaged in a group boycott of an SSO because of its patent policy.
27. Prepared Remarks of Chairman Joseph Simons Georgetown Law Global Antitrust Enforcement Symposium (Sep. 25, 2018), https://www.ftc.gov/system/files/documents/public_statements/1413340/simons_georgetown_lunch_address_9-25-18.pdf.
28. The district court denied Qualcomm's motion to dismiss in June 2017. See FTC v. Qualcomm Inc., No. 17-CV- 00220, 2017 WL 2774406 (N.D. Cal. June 26, 2017).
29. State AGs and private parties also have the ability to litigate such claims, and have done so in the past. See e.g., Broadcom Corp. v. Qualcomm Inc., 501 F.3d 297 (3d Cir. 2007); Apple Inc. v. Samsung Elecs. Co., No. 11-CV-01846, 2012 WL 1672493, at *7 (N.D. Cal. May 14, 2012).
Originally published by Intellectual Property & Technology Law Journal.

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