Withdrawal of Antitrust Guidance on SEP Enforcement Is Nothing to Cheer About
There are few examples that demonstrate the tension between antitrust law and intellectual property law as well as the enforcement of standard-essential patents (SEPs). Earlier this month, after having announced a new draft policy statement back in December, the Department of Justice (DOJ), the U.S. Patent and Trademark Office (USPTO), and the National Institute of Standards and Technology (NIST) withdrew their joint 2019 “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.” The void created by the removal of this antitrust guidance creates uncertainty about the antitrust liability faced by holders of SEPs and encourages opportunistic conduct by implementers of standards.
Voluntary, consensus-based standards development organizations (SDOs) provide a forum in which industry participants can collaborate on the development of interoperability standards. These standards, such as 5G and WiFi, bring tremendous benefits to consumers and businesses by ensuring that mobile phones and other connected devices interoperate seamlessly. When the technology is covered by a patent and the technology is essential to implementing the standard, SDO participants who contribute their technology to the standard agree to make licenses to their standard-essential patents available on terms that are fair, reasonable, and non-discriminatory (FRAND). This ensures that implementation of the standard is not blocked by patents and that SEP-holders do not abuse the market power they acquire when their patented technology is incorporated into a standard. Due to the tremendous value generated by interoperability standards, particularly communications standards, there are often disputes about what constitutes a FRAND royalty.
One way in which disputes over appropriate FRAND royalty rates are resolved is through patent infringement litigation. When an implementer disagrees with the royalty offer, the SEP-holder may sue the implementer to obtain damages for past infringement and to obtain a court-determined royalty for future use of the patented technology. However, when an implementer refuses to take a license or engages in conduct that effectively constitutes a refusal to license, the SEP-holder may seek an injunction (or an exclusion order from the International Trade Commission) in order to bring a recalcitrant implementer to the negotiating table.
The Federal Trade Commission has made clear through its enforcement actions in Google/MMIand Boschthat it considers seeking an injunction against a willing licensee of a SEP to be a violation of the antitrust laws. In the FTC’s view, by making a FRAND commitment, SEP-holders agree that they are willing to accept a FRAND royalty for the use of their patented technology. That is, SEP-holders agree that money will make them whole. Therefore, seeking an injunction goes against this commitment and allows a SEP-holder to exercise market power attained through the standards development process to demand supra-FRAND royalties. Standards implementers may be willing to pay these supra-FRAND royalties to ensure their standards-compliant products remain on the market. While, in theory, the FTC’s position may seem reasonable, in practice it is problematic as the FTC’s consent orders in these enforcement actions do not adequately define what it means to be a willing licensee, therefore paving the way for potential opportunistic behaviors by implementers acting in bad faith.
Opportunistic conduct by implementers is a serious concern. Given that the royalties due to SEP-holders are limited by their FRAND commitments, some implementers see little benefit to reaching a negotiated license agreement with SEP-holders. Furthermore, if a SEP-holder is forced to litigate to obtain a FRAND royalty, there is some probability the patents asserted in litigation may be found invalid – in which case the implementer pays nothing. Consequently, some implementers engage in so-called “efficient infringement” and hold out paying royalties for as long as possible knowing that they will never be required to pay more than a FRAND rate. Some implementers engage in licensing tactics to give their conduct a veneer of willingness to avoid the treble damages associated with willful infringement, but such tactics are really intended to delay negotiations and avoid taking a license.
Insufficient guidance on what constitutes a willing licensee effectively limits the remedies SEP-holders have available to address efficient infringement. The threat of antitrust liability prevents SEP-holders from seeking the injunctions that are necessary to bring efficient infringers to the bargaining table. Consequently, SEP-holders are under-compensated for their patented technologies. Royalties from patent licensing compensate patentees for their prior R&D investments and fund future innovation. Limiting appropriate compensation to SEP-holders threatens the viability of future innovation.
In his executive order on competition, President Biden called on the DOJ, USPTO, and NIST to consider revising the 2019 statement addressing remedies in SEP licensing disputes. Given that the 2019 statement conflicted with the FTC’s prior enforcement actions with respect to the applicability of antitrust liability, some clarification of the agencies’ position was warranted. While the draft policy statement issued by the agencies in December made a step towards defining what it means to be a willing licensee, the statement did not go far enough to circumscribe the antitrust liability that attaches to seeking an injunction.
By withdrawing the 2019 statement in its entirety, SEP-holders have only the guidance provided by the FTC’s prior enforcement actions—which is to say they have no guidance at all. Given the 2019 statement’s focus on the problem of hold-out by implementers, some implementers may be cheering the withdrawal of the statement. However, the uncertainty created around antitrust liability for SEP-holders and the resulting negative impact on innovation is nothing to cheer about.
