Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Deputy AAG Hesse touts benefits of competition advocacy in resolving IP concerns, (Nov 8, 2013)

By Tobias J. Gillett, J.D., LL.M.

In a speech today at the Washington State Bar Association’s 30th Annual Antitrust, Consumer Protection, and Unfair Business Practices Seminar in Seattle, Washington, Deputy Assistant Attorney General Renata Hesse of the Department of Justice Antitrust Division discussed the Antitrust Division’s use of advocacy to promote competition, particularly with respect to standards-essential patents, patent assertion entities, and guidance provided through guidelines and business reviews.

Industry standards. Hesse began her remarks, entitled The Art of Persuasion: Competition Advocacy at the Intersection of Antitrust and Intellectual Property, by addressing the concerns posed by patent holders’ use of market power provided by having their patents included in an industry standard to threaten to enjoin competitors or demand excessive licensing fees. Some patent holders engage in this conduct even after entering into commitments to license their patents on fair, reasonable, and non-discriminatory (F/RAND) terms. She noted that post hoc antitrust suits against patent holders “can be costly and time-consuming,” and that “[a] more efficient solution would rely on collaboration within the standards industry to improve patent policies at standards bodies.” She discussed the Antitrust Division’s advocacy with standard-setting organizations (SSOs) “to promote the ability of parties to reach negotiated licensing agreements on reasonable terms and generally to discourage precluding anyone from practicing the standard.”

In addition to the Antitrust Division’s work with SSOs, Hesse described efforts “to persuade the [U.S. International Trade Commission (ITC)] to find that it is not in the public interest to base exclusion orders on F/RAND-encumbered SEPs in most cases.” She observed that an ITC policy statement had concluded that, except in limited circumstances, such exclusion orders can cause competitive harm by facilitating patent hold-up, and that the U.S. Trade Representative had disapproved an ITC order barring importation of certain Apple products into the United States based on that policy. She noted that the Division has worked with the U.S. Patent and Trademark Office, the FTC, and the European Commission on related matters. She also cited recent court decisions that have “helpfully recognized that a F/RAND commitment to an SSO is a binding contract and implementers of the standard are third-party beneficiaries of that commitment.”

Patent assertion entities. Hesse then proceeded to discuss the Division’s work with respect to Patent Assertion Entities (PAEs), entities which acquire patents for the purpose of asserting them against existing products or services rather than to practice, enable, or develop a technology. She noted that commenters have taken opposing views on PAEs, with some expressing concern about their aggressive “shakedown” tactics and costs they may impose despite their sometimes dubious claims, and others defending them as increasing licensing efficiency and rewards to inventors.

She referred to the joint Justice Department/FTC public workshop on PAE activities held last December. She noted the concerns of many participants that more research was necessary, and praised the FTC’s announced intent to conduct an economic study on PAEs and their impact on innovation and competition. She also cited the White House’s recent fact sheet from the Task Force on High Tech Patents that found much of PAE activity to be a “drain on the American economy,” and identified seven legislative priorities and five executive actions to address the challenges PAEs pose. A report from the Council of Economic Advisors also found that PAE activities “significantly retard innovation in the United States and result in economic ‘dead weight loss’ in the form of reduced innovation, income and jobs from the American economy.” Hesse also noted recent Congressional activity on the subject.

With respect to antitrust’s role, Hesse asserted that “[t]here is no one-size-fits-all antitrust theory that would apply” to each type of PAE activity. However, she noted that “most commenters have found that situations where a PAE has some connection to a practicing entity provide for more compelling antitrust theories than straight transfers to a PAE.” She suggested that such activity “could be challenged under Section 7, Section 1 or Section 2 (if the practicing entity has market power).” Moreover, operating entities could collude through PAEs, and “raising rivals’ costs and excluding competitors is a possible violation of Section 1 of the Sherman Act.”

Guidelines and business review letters. Finally, Hesse discussed the Antitrust Division’s advocacy efforts through its joint Justice Department/FTC Antitrust-Intellectual Property Licensing Guidelines and its IP-related business review letters. She asserted that the Guidelines offer “general guidance about our approach to assessing competitive concerns and how we approach enforcement when investigating business activities.” She noted three principles underlying the Guidelines: (1) the same principles are applied to intellectual property as to other forms of property, taking certain differences into account; (2) intellectual property right will not be presumed to create market power in the antitrust context; and (3) “the licensing of intellectual property generally benefits competition because it permits the integration of complementary factors of production.”

In turn, business review letters allow the Division to apply the general principles to provide prospective guidance concerning specific proposals, sometimes “at the frontiers of antitrust law.” As an example, she cited the recent business review letter concerning Intellectual Property Exchange International, Inc.’s proposal to create a proprietary market for licensing patents.

Finally, Hesse described the agency’s work with foreign counterparts to promote “convergent competition enforcement policies related to intellectual property rights,” including its engagement with authorities in jurisdictions such as the European Union, Japan, China, and Korea.

“Competition advocacy seeks to achieve procompetitive change through the art of persuasion,” Hesse concluded. “We are fortunate to have effective tools at our disposal that we have put to good use—and will continue to put to good use—in our efforts to make standards-setting activities more procompetitive, to understand the competitive implications of patent assertion entity activities and new models for licensing intellectual property rights, and to work towards principled convergence across jurisdictions around our analytical approach to the competition and intellectual property law and policy interface.”

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