Standards allow consumers to enjoy products that work together. But sometimes, owners of patents needed to use the standards (standard essential patents or SEPs) have the power to “hold up” an industry by demanding excessive royalties or blocking products from the market.
In his time as head of the Department of Justice Antitrust Division, Makan Delrahim has staked out an aggressive position abandoning the previous bipartisan consensus on standards and patent holdup. Delrahim has given speeches and authorized amicus briefs promoting his position. And in December 2018, he unceremoniously withdrew from the 2013 joint statement with the PTO on SEPs.
In withdrawing, Delrahim stated that a commitment to license on fair, reasonable, and nondiscriminatory (FRAND) terms (how standards organizations address patent holdup) “should not create a compulsory licensing scheme” and that patent holders have a “full constitutional right to seek an injunction.”
This maneuver put PTO Director Andrei Iancu in a box. In considering how to respond to Delrahim’s gambit, Iancu called for a “balanced and structured” policy for patent licensing negotiations in standards organizations. Such a policy, Iancu continued, should not “unduly burden fair users of such technology with over-valued royalties” and should “disincentivize threats of either patent hold-up or patent hold-out.”
Despite these goals, the fix was in, as the agencies (now joined by the National Institute of Standards and Technology (NIST)) could not backtrack from Delrahim’s gambit. And so in December 2019, the agencies promulgated a new statement. Given that the 2013 statement already offered a reasonable compromise, how could the 2019 statement be even more reasonable? That would be hard to do. As a result, the 2019 statement relies on omissions, strawmen, and generalities.
First is omissions. The statement neglects the benefits of FRAND rules and references patent holdup just once, in a footnote mentioning not just holdup but also licensee-based holdout. And even though the statement hypothesizes licensees violating antitrust law, it neglects antitrust’s important role in policing anticompetitive behavior by patentees.
This treatment is at odds with the bipartisan scrutiny of holdup over at least the past decade, as shown by the unanimously adopted 2007 DOJ/FTC report, Antitrust Enforcement and IP Rights, and the unanimous 2011 FTC Report, The Evolving IP Marketplace.
It even is inconsistent with the position of Delrahim’s boss, Attorney General William Barr, who testified that injunctions can allow a patentee to obtain a “grossly excessive” amount that “no longer bears any relationship to the economic value of the patent” and “ends up hurting innovation.”
These omissions are made easier by setting up, and knocking down, a series of strawmen. One is directed at antitrust law. It is no secret that Mr. Delrahim does not believe there is a role for antitrust in addressing patent holdup. And of course, a court need not pay attention to a statement by the PTO and NIST on how to apply antitrust law. But even so, the statement’s reliance on the U.S. International Trade Commission (ITC) as the basis for antitrust liability does not stand up to the slightest scrutiny.
Antitrust liability is based on antitrust law, not the ITC’s statute. And it is clear that patentees that obtain or maintain monopoly power as a result of breaching a FRAND commitment present a standard monopolization case.
Another strawman is the mischaracterization of the 2013 statement. The 2019 version ominously raises “concerns” about the earlier statement’s purported direction that “injunctions and other exclusionary remedies should not be available” when SEPs are infringed. But the agencies acknowledged that the 2013 statement recognized that “an exclusionary remedy may be appropriate.” And if clarification were the goal, the agencies could have simply confirmed the 2013 statement, which anticipated exclusion orders when a licensee “refuse[d] to pay what has been determined to be a [FRAND] royalty” or “refuse[d] to engage in a negotiation.”
The 2013 statement even reached expansively to cover a “constructive refusal to negotiate,” such as when an implementer “insist[s] on terms clearly outside the bounds of what could reasonably be considered” to be FRAND terms.
Conveniently enough, the 2013 strawman based on amorphous “concerns” provides cover for the 2019 statement to criticize an approach that would “harm ... innovation.” But again, the 2013 statement reasonably articulated several categories of behavior that would allow patentees to obtain injunctions.
In fact, it was so reasonable that the Federal Circuit (in a decision cited by the statement) relied on it in determining when “an injunction may be justified” and overturning a district court that had “applied a per se rule that injunctions are unavailable for SEPs.” The 2013 statement also emphasized innovation, “strongly support[ing] the protection of [IP] rights”; recognizing the “importan[ce] for innovators to continue to have incentives to participate in standards-setting activities”; and refusing to support “one-size-fits-all mandates for royalty-free or below-market licensing,” which would “undermine the effectiveness of the standardization process and incentives for innovation.”
Yet another strawman is the statement’s use of courts to support the assertion that there is not a “separate rule or analytical framework” for SEPs. But in knocking down the strawman of a separate framework, the statement conveniently sidesteps the issue of whether a FRAND commitment imposes any constraints on patentees. And it ignores the flashing red lights the courts have erected in front of SEP owners seeking injunctions.
For example, the statement cites Apple v. Motorola to support its rejection of a per se rule against injunctions for SEPs. But it neglects to mention the court’s multiple instances of skepticism of injunctions in these settings, as: “[a] patentee subject to FRAND commitments may have difficulty establishing irreparable harm”; an “alleged infringer’s refusal to accept a license” does not “necessarily justif[y] issuing an injunction” since “the license offered may not be on FRAND terms”; “the public has an interest in … ensuring that SEPs are not overvalued”; and (as applied to the facts of the case) the patentholder’s “FRAND commitments … strongly suggest that money damages are adequate.”
Given all these omissions and strawmen, the statement needs to affirmatively say something. And this leads to the final aspect of the statement: generalities.
The statement is full of anodyne assertions that don’t add much to the existing analysis: standards “play a vital role in the economy”; the parties should “engage in good-faith negotiations”; a FRAND commitment “need not act as a bar to any particular remedy”; “[a]ll remedies available under national law … should be available” for infringement of FRAND-encumbered SEPs; and decisionmakers should “consider all relevant facts.” The 2013 statement did not need to be withdrawn to be replaced by these generalities.
In fact, even the generalities themselves may not be achieved given the one-sided approach taken throughout the statement. For example, the direction to “take into account the interest of all stakeholders, including … those seeking to implement the standard” is not likely to be satisfied if patent holdup and FRAND commitments are ignored.
In short, the statement’s generalities do not meaningfully assist courts and other policymakers. And a series of omissions and strawmen make the statement less balanced and reasonable than the document it replaced.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Michael A. Carrier is Distinguished Professor of Law at Rutgers Law School and an Innovation Networks Fellow.