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Changing U.S. Patent Policy on Tech Standards Stirs Concerns

Dec. 26, 2018, 10:31 AM

A shifting Justice Department view on standard-setting patents is triggering concern that technology innovation could be stunted.

Companies that hold such patents—used to make sure products meet industry standards and can operate with each other—often license them to others in fair, reasonable and non-discriminatory (FRAND) terms that are set by third-party standard-setting organizations. The government typically has frowned on standard-setting patent holders suing licensees for patent violations.

Makan Delrahim, chief of the DOJ’s antitrust division, deviated from the policy Dec. 7 when he said, quoting a case, that “public interest would not be disserved by a permanent injunction” sought by patent holders to block licensees that abuse their patents.

The government’s shift could increase the risk of litigation for product manufacturers that use standard-setting technology patents and decrease their incentives to innovate, attorneys say. If companies start steering away from using standard-setting patents, their products may no longer work with with each other, which could reduce U.S. dominance in technology, attorneys told Bloomberg Law.

The DOJ’s view “represents a threat to U.S. competitiveness in standardized technologies,” said Joshua Landau, patent counsel at the Computer & Communications Industry Association (CCIA), whose members include Amazon.com Inc., Facebook Inc., and Uber Technologies Inc. “This kind of uncertainty creates a real disincentive to invest in standardized technologies within the U.S.”

Emerging technology hubs such as China are placing stricter limits on when patent holders can block licensees, Landau noted. “That, in turn, creates a threat to U.S. leadership in actually making products,” he said.

Opposite Effect

With his statement, Delrahim reneged on a 2013 agreement with the Patent and Trademark Office that discouraged standard-essential patent owners from blocking the use of their patents by others. “A FRAND commitment does not and should not create a compulsory licensing scheme,” Delrahim said in announcing the new policy approach.

Delrahim said he sees FRAND commitments as a contract issue. He’s critical of using antitrust law to enforce FRAND terms when product manufacturers allege patent holders monopolize standard-essential patents.

But Delrahim’s move is “a step backwards” in trying to let courts rule on patent violations, Mark Lemley, director of Stanford University’s law, science, and technology program, told Bloomberg Law.

Courts step in to determine fair pricing and see where FRAND agreements failed when companies can’t agree on terms to license standard-essential patents. Such disputes are common in the technology industry. For example, Apple continues to litigate in federal court over $7 billion in unpaid royalties for Qualcomm Inc. patents in its iPhones.

Courts should continue playing a role in enforcing binding FRAND commitments and resolving royalty disputes, Lemley said. “The best way to resolve this issue is not to change policy approaches.”

Backing down from the 2013 agreement also threatens pro-competitive collaboration among companies in standard-setting organizations (SSO), Jorge Contreras, intellectual property professor at the University of Utah college of law, told Bloomberg Law.

SSOs work with companies to establish technical standards, encouraging companies within industries to cooperate to create common patent measures. Such collaboration will likely become more “unpredictable” under the DOJ’s new approach, Contreras said.

Quick To Court

The DOJ will work with the PTO to replace the 2013 policy, Delrahim said. He didn’t specify the timing for a replacement.

Until then, patent holders will likely point to Delrahim’s statements in court to explain why a patent dispute isn’t an antitrust violation, Robert Masters, head of Fried, Frank, Harris, Shriver & Jacobson LLP’s intellectual property litigation group, said.

“I don’t see patent holders holding back and waiting for the DOJ and PTO to jointly adopt another position,” Masters said. “Patent cases can be worth a lot of money, and patents holders are not going to sit back and wait.”

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editors responsible for this story: Roger Yu at ryu@bloomberglaw.com; Seth Stern at sstern@bloomberglaw.com