Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Commissioner Ohlhausen urges pragmatic approach to balancing goals of intellectual property and antitrust laws, (Dec 4, 2013)

By Linda O’Brien, J.D., LL.M.

FTC Commissioner Maureen Ohlhausen discussed the need for the agency to take a practical approach to balancing the goals of intellectual property and antitrust laws in consumer protection and promoting completion without imposing undue burdens of businesses in a speech today before the European Commission (EU) at the 2013 Standards and Patents Conference in London today.

Ohlhausen began her remarks, entitled “A Pragmatist’s Approach to Navigating the Intersection of IP and Antitrust,” by addressing three areas of controversy: (1) whether seeking an injunction on a fair, reasonable, and nondiscriminatory (FRAND)-encumbered standard essential patent (SEP) is a competition law violation; (2) whether patent assertion entities (PAEs) are harming competition, innovation, and the economy; and (3) how reverse-payment settlements should be treated after the U.S. Supreme Court ruling in FTC v. Actavis, Inc., 133 S.Ct. 2223, 2013-1 Trade Cases ¶78,419. Each issue presents complex questions about the fundamental rights of property and access to the courts, the relative scope of competition and intellectual property laws, and how to best balance the short and long run consumer welfare trade-offs between favoring one set of laws over the other from a policy perspective, she stated.

Economy needs both antitrust and IP laws. Wealth creation requires a society to focus on both on expanding its capacity to innovate and its ability to commercialize innovation, Ohlhausen observed. The intellectual property and competition laws play a valuable role in balancing innovation and commercialization. The U.S. patent system provides an incentive to inventors to risk the time, research, and development costs and has a positive effect on society through the introduction of new products and processes of manufacture into the economy. Competition laws promote consumer welfare by securing a level playing field for the provision of products, technologies, and services to consumers and eliminating anticompetitive conduct.

The FTC and the Antitrust Division of the U.S. Department of Justice (DOJ) have recognized the promoting consumer welfare in the common ground between intellectual property and antitrust laws, Ohlhausen noted. An issue for enforcement agencies is how to handle specific situations when a competition problem is directly rooted in a facet of the patent regime.

In Ohlhausen’s view, the FTC should take a pragmatic approach to navigating the intersection between intellectual property and antitrust law. First, she believes that good government requires transparency, predictability, efficiency, and well-informed decision-making focused on enhancing consumer welfare and responding to the need of market participants. In its work as a competition advocate and expert agency, the FTC regularly hosts workshops and actively seeks input from consumers, businesses, and other government agencies. Second, dynamic markets need less regulatory intervention to allow them flexibility to develop. Recognizing that lax enforcement can increase barriers to innovators trying to enter new industries, Ohlhausen stated that she tends to err on the side of allowing the market to self-correct. Third, it is important to recognize the natural tension between intellectual property and antitrust laws in pursuing the goals of promoting innovation under the intellectual property laws and emphasizing a level competitive playing field under the competition laws. Fourth, the world’s most innovative economies tend to be those with strong intellectual property protections. Ohlhausen believes that the U.S. patent system offers fair rewards for insight and hard work, and the right incentives to take the necessary risks in pursuing new ideas.

Advocacy and enforcement by the FTC. Ohlhausen next discussed the FTC work on patent hold-up in relation to SEPs. The agency has done extensive research on SEPs and acknowledged the important competitive value of standard-setting organizations (SSOs) in determining industry standards for patented technologies as one of the engines of the modern economy. A possible competition issue the FTC has identified is that SEP holders can use the bargaining power gained after having a patent designated standard essential either to charge higher royalties for the SEPs or refuse to license to competitors, referred to as “patent hold-up.” Unconvinced that the FTC has made a case that merely seeking an injunction, without more, is a competition law violation, Ohlhausen advocated for a detailed examination of the facts surrounding possible patent hold-up and for a balanced treatment of the issue, including an analysis of market-based factors that could mitigate hold-up. She noted that, although the FTC has also recognized that SSOs may mitigate hold-up by requiring agreements from to their members to license their patents on FRAND terms, most SSOs have not formally defined the exact meaning of their FRAND commitments.

The issue is currently being litigated by private parties and Ohlhausen noted her concern that the record in the federal courts, the International Trade Commission and within the FTC was inconsistent. As an example, an institutional conflict could be created between the FTC and DOJ when the FTC relies on Section 5 of the FTC Act, which only it can enforce rather than the antitrust laws, which both agencies enforce, potentially create two different standards for patent holders. Also, inconsistent cases may be perceived as insufficient recognition of intellectual property rights.

Another major topic implicating patent hold-up is the conduct of PAEs. Ohlhausen observed that the number of patent lawsuits and estimated PAE-generated revenue costs to defendants and licensees have increased dramatically since 2005. Aimed at reducing patent abuse, Congress is considering several pieces of patent reform legislation directed at modifying the litigation system. Although seeing value in the proposals, Ohlhausen cautioned against making sweeping changes before gathering evidence on the economic effects of PAE activity and the causes of the recent surge in patent litigation. Part of her job is to exercise prosecutorial discretion in determining when there is a “reason to believe” a harm could likely occur that the FTC needs to address. The FTC has announced a proposed comprehensive study of PAE activity to conduct a comprehensive and in-depth analysis of this issue.

Ohlhausen also discussed reverse payment patent settlements among pharmaceutical companies, also referred to as pay-for-delay agreements. In a typical pay-for-delay agreement, a brand manufacturer pays a potential generic entrant to delay its entry in the market. In the U.S. Supreme Court’s review of FTC v. Actavis, the court rejected the FTC’s argument that reverse payments should be reviewed under a “quick look” approach and found that the courts must apply a standard rule of reason analysis. The FTC is moving forward with the litigation and assessing how to best protect consumer interests in pay-for-delay cases.

The FTC is actively mapping the terrain at the intersection of the intellectual property and antitrust laws, Ohlhausen noted. She concluded by stating that the agency will continue to pursue how to work within its mandate to balance the innovation investments needed for tomorrow with the efficiency demands of the dynamic and cost-conscious economy of today.

News: Antitrust FederalTradeCommissionNews