Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Hesse discusses impact of DOJ-PTO policy statement on remedies for F/RAND-encumbered standards-essentials patents, (Mar 26, 2014)

By Linda O’Brien, J.D., LL.M.

Renata B. Hesse, Deputy Assistant Attorney General for Criminal and Civil Operations in the Department of Justice’s Antitrust Division, discussed the impact of a joint Department of Justice and U.S. Patent and Trademark Office policy statement on infringement remedies for F/RAND-emcumbered standards-essentials patents in an address before the Global Competition Review GCR Live IP & Antitrust USA Conference in Washington, D.C. on March 25.

Hesse began her remarks, entitled “A Year in the Life of the Joint DOJ-PTO Policy Statement on Remedies for F/RAND Encumbered Standards-Essentials Patents,” by stating that the Antitrust Division has worked extensively in both its competition advocacy and civil enforcement roles to promote competition and sound antitrust policy regarding licensing disputes involving patents that are essential to a standard and that the patent owner, or its predecessor, committed to license on fair, reasonable and non-discriminatory (F/RAND) terms for uses implementing a standard as part of the standard-setting process.

The Department of Justice (DOJ) and U.S. Patent and Trademark Office (PTO) issued a joint policy statement on the remedies at the U.S. International Trade Commission (ITC) for infringement of F/RAND-encumbered standards-essential patent (SEPs) in January 2013, which is an important part of the division’s competition advocacy efforts relating to F/RAND-encumbered SEPs.

The division recognizes the important roles that antitrust and patent laws play in driving innovation, Hesse stated. The patent system drives innovation by providing exclusive rights that create incentives to engage in the research and development of new products. Competition also drives innovation by motivating businesses to be first to market, refine existing products or create new ones, and improve processes. As a policy matter, the patent system should not be manipulated in a manner that is harmful to innovation or competition.

Over the years, the DOJ has devoted significant resources to intellectual property issues, Hesse noted. In 2002, the division and FTC held a series of public hearings that included panels on standard-setting practices and their impact on competition and innovation. In 2007, the DOJ and FTC issued a joint report based on the hearings that concluded: (1) standards have a number of procompetitive benefits; (2) standard setting also poses a risk of anticompetitive harm via patent holdup when patents are incorporated into the standard; and (3) many standard setting organizations (SSOs) have implemented policies aimed at preventing this type of holdup. In 2006 and 2007, the division has also issued business review letters analyzing efforts by two SSOs to address the threat of patent holdup. In 2010, the DOJ, FTC and PTO held a joint workshop on the intersection of patent and competition policy, and its impact on innovation.

Hesse stated that the division, in reviewing several significant transactions involving the purchase of large patent portfolios, focused on whether the transactions would increase the incentive and ability of the acquiring firms to foreclose rivals. Particularly, there were concerns that the acquirers would use F/RAND-encumbered SEPs to hold up rivals. In 2012, the division testified before the Senate Judiciary Committee on the competitive impact of the use of exclusion orders to remedy the infringement of F/RAND-encumbered SEPs. Hesse added that she spoke at an International Telecommunications Union roundtable and detailed six policy proposals that SSOs could implement to promote competition among implementers of standards.

The need for the policy statement arose from the potential for divergence between how the federal courts and the ITC remedy infringement of F/RAND-emcumbered SEPs, according to Hesse. After the U.S. Supreme Court decision in eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006), a number of federal courts determined that, by voluntarily agreeing to license patents on F/RAND terms, patent holders have conceded that damages, rather than injunctive relief, are an appropriate remedy for infringement of these types of patents in most cases. Since the Supreme Court decision did not apply to the ITC, the threat of an ITC exclusion order remained a potent weapon in the hands of firms owning F/RAND-encumbered SEPs.

Hesse observed that the policy statement explained that a decision-maker could find that a F/RAND-encumbered patent holder may be trying to recapture some of the enhanced market power it would have enjoyed had it not entered into the F/RAND commitment by seeking an exclusion order to pressure an implementer to accept more onerous terms than those consistent with the F/RAND commitment. Therefore, the DOJ and PTO urged the ITC to consider their view that “the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.”

Hesse explained that the policy statement makes clear that the DOJ and PTO strongly support the protection of IP rights and believe that patent holders who make F/RAND commitments should receive appropriate compensation for their contributions. She noted that the ITC’s approach to cases involving F/RAND-encumbered SEPs will be important to the continued vitality of the voluntary consensus standards-setting process and thus to competitive conditions and consumers in the United States.

Finally, since the DOJ and PTO issued the joint policy statement, the number of patent infringement matters on the ITC docket has decreased significantly. Moreover, this fiscal year the ITC has instituted only 16 investigations to determine if infringing products are being unlawfully imported. The policy statement may have had an effect on litigation decisions involving F/RAND-encumbered SEPS, Hesse concluded.

News: Antitrust AntitrustDivisionNews