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Draft Standard-Patent Guidance Is U.S. Bid in Global Debate

Dec. 8, 2021, 10:00 AM

The Biden administration’s proposed policy changes on patents essential to industry standards are part of a broader international rethinking.

In a draft and request for comments, the administration is taking another look at how to value patents on industry standards for technology needed for things to work together. The issues have become increasingly important with the rise of 5G and the Internet of Things.

The U.K. said Tuesday it was seeking comments on a standard-essential patent framework. The European Union is also preparing a regulation with a new licensing framework.

“The bottom line is that the system that currently exists doesn’t work efficiently,” said Maurits Dolmans, an attorney at Cleary Gottlieb Steen & Hamilton LLP in London.

“Manufacturers complain of being held up,” Dolmans continued, “while SEP owners complain they are not being paid enough. Litigation is often complex and can span three continents. That is why the U.S., the U.K., and the EU are looking at this again, to see whether they can find a more efficient solution.”

U.S. Approach

The draft policy would amend 2019 Trump administration guidance, which made clear that SEP holders are entitled to seek court injunctions blocking use of inventions if licensing negotiations fail. Previous Obama-era guidance suggested injunctions in SEP cases could harm competition.

According to the new draft, developed by the Justice Department, the Patent and Trademark Office and the National Institute of Standards and Technology, money will usually be adequate to compensate a SEP holder for infringement. It allows that an injunction may be justified when an implementer is unwilling to enter a license that is fair, reasonable and non-discriminatory, or FRAND.

The agencies also suggested increased damages for willful infringement may be appropriate if a licensee acted in bad faith, something that wasn’t part of the 2013 Obama administration guidance.

While the guidance isn’t changing the law, there have been different points of emphasis, alternating between a focus on the concerns of patent holders and potential licensees. Kevin Post, a Ropes & Gray LLP attorney, said the new draft attempts to bring both sides together.

“My takeaway is that there is an attempt to balance out both sides and bring things back more towards the ‘13 environment but with both sides of the story being told,” Post said.

Factor to Consider

Biden administration officials have spoken of concerns about abuse of standard-essential patents. Rebecca Slaughter, a commissioner at the Federal Trade Commission, in October said the agency should bring antitrust cases against companies that try to undermine competitive safeguards.

The FTC shares antitrust enforcement work with the Justice Department. The draft guidance, which discusses what it means to negotiate in good faith, also suggests that conditions on licensing can raise antitrust concerns.

The impact in negotiations or litigation between private parties is expected to be limited. Post said the guidance gives both sides something to circle in support of their respective positions.

“It’s a data point, it’s a factor to be considered. It’s one of many things that will be argued on both sides,” Ropes & Gray attorney Steve Pepe said.

It could, however, foreshadow the kinds of cases with which the Justice Department may get involved.

The FTC in April abandoned a case accusing Qualcomm of abusing its dominant position in chips that power smartphones. The FTC’s action came after the U.S. Court of Appeals for the Ninth Circuit found the FTC overstepped its antitrust authority.

The Justice Department had supported Qualcomm in the case during the Trump administration, arguing in court filings that complaints over the company’s royalty charges should be addressed through contract or patent law, not antitrust law.

“I gather that the current DOJ would not adopt the same position that the last DOJ did in FTC v. Qualcomm,” said Nicholas Matich, an attorney at McKool Smith and former acting general counsel at the U.S. patent office.

UK and EU Debate

The European Commission is also preparing a regulation with a new SEP licensing framework. It said in July the current system isn’t “transparent, predictable and efficient.” The commission, Europe’s administrative arm, expects to have a proposal by the end of 2022.

The U.K. Intellectual Property Office struck a similar chord when soliciting comments, saying it wanted feedback on whether the SEP ecosystem was “functioning efficiently and effectively and striking the right balance for all.”

Its request for comments was more wide-ranging than the one in the U.S., touching on issues from competition in the system and licensing of SEPs to SEP litigation. Among its questions, the agency asked about the “benefits or drawbacks” of national courts setting licensing rates.

The U.K. Supreme Court in 2020 said British judges can set global licensing rates, a decision which has made U.K. courts more popular among patent owners.

“No doubt there will be a lot of lobbying from both SEP holders and implementers on” that question, said Sophie Lawrance, an attorney at Bristows LLP in London and Brussels.

The U.K. patent office also asked for views on alternative ways to settle FRAND licensing disputes, including government-provided dispute resolution. It also asked whether there was enough transparency around how patents are being declared essential to a standard.

Sarah Taylor, a lawyer at Pinsent Masons LLP in London, said SEP suits can be expensive and convoluted. A fight between Apple Inc. and Optis Cellular Technology LLC, for example, has been split into a series of trials to determine different issues, like validity, infringement, and a fair rate.

“If there were greater transparency, if there were some sort of standardization of the dispute process, perhaps that could reduce costs and to one of the U.K. government’s concerns, enable smaller, newer entrants to come into the market with a better guarantee that their business won’t be disrupted,” Pinsent attorney Mark Marfe said.

To contact the reporter on this story: Matthew Bultman in New York at mbultman@correspondent.bloomberglaw.com

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Keith Perine at kperine@bloomberglaw.com

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