Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Ohlhausen discusses IP rights and competition policy at China conference , (Sep 14, 2015)

By Linda O’Brien, J.D., LL.M.

To unlock the vast potential of human ingenuity, governments must encourage the private sector to invest in research and development, FTC Commissioner Maureen Ohlhausen stated in a September 12 speech before the China Intellectual Property Law Association’s 2015 IP and Antitrust Forum in Beijing, China. Achieving the optimal blend of intellectual property rights and antitrust rules is the key to success, she observed.

Ohlhausen began her address, entitled “Antitrust Oversight of Standard-Essential Patents: The Role of Injunctions,” by noting that innovation policy is profoundly important in an environment characterized by fluctuating macroeconomic conditions, rapid technological change, and disruption. Under such circumstances, technological advance may be the single largest determinant of long-term growth.

Property rights are the key to spurring R&D, Ohlhausen noted. Firms will devote capital to the costly process of invention only if they can reap the rewards of success. If rivals can simply take technologies without payment, no rational company would invest in new products and methods that were vulnerable to copying. Far from suppressing competition, property rights spur competition where it matters the most: technology. Standard-essential patents (SEPs) play a critical role in the economy, according the Commissioner. They foster inoperability, avoid costly wars between rival systems, and facilitate competition in product markets. It is incumbent on competition authorities to ensure that the standard setting process benefits from and promotes competition, she said.

The Commissioner next discussed patent holdup as attracting the most attention in the debate on antitrust limits on the use of SEPs. The conventional view is that when firms commit to a standard, they can no longer look to alternative technologies that were previously available. A patentee’s bargaining power may increase after an industry adopts an infringing standard, which potentially allows SEP holders to demand outsize royalties. As a result, some policymakers look unfavorably at SEP holders’ efforts to enjoin firms from practicing mandatory industry standards. In fact, competition authorities have considered whether to prohibit a SEP owner, which promised a standard-setting organization (SSO) that it would license its essential technologies on reasonable and nondiscriminatory (FRAND) terms, from seeking to enjoin a willing licensee, Ohlhausen noted.

According to Ohlhausen, European Union law does not condemn agreements as restrictions of competition under the Treaties of the European Union (TFEU) unless they are “harmful to the proper functioning of normal competition” and lead to falls in production and price increases. In the Commissioner’s view, injunctive relief by FRAND-limited SEP owners, even when directed against willing licensees, do not justify summary condemnation. Although there is a potential for patent holdup, procompetitive justifications can exist.

In stating her support for antitrust oversight of the standard-setting process, Ohlhausen noted that patentees involved in standard setting could harm competition. There is a role for competition but she expressed concern that policymakers may use competition policy in a manner that exceeds its mandate. In her view, it would be better to scrutinize each case of alleged holdup on it own facts.

A SEP owner merely requesting an injunction rarely in itself harms competition, according to Ohlhausen. First, a court may find that the asserted patent is invalid or not infringed, which is a frequent occurrence in the U.S. Even if the patentee shows that its patent is standard essential, a court may still deny injunctive relief and award a reasonable royalty. Second, if the SEP owner does not compete in the product market, it cannot monopolize that market under the Sherman Act. Finally, U.S. law requires more than a request for an injunction for liability to attach, such as government petitioning that enjoys Noerr-Pennington immunity. For an antitrust claim to lie, there must be conduct beyond simply suing that is anticompetitive.

Ohlhausen concluded by noting that holdup is a concern for which competition enforcement should be on guard. But holdup is not the only danger. Recent enforcement actions have obscured an equally serious concern—holdout. SEP holders that acquire market power before an SSO and use injunctions to hold up technology users should face antitrust scrutiny. But the law should not undercompensate owners of critical technologies by allowing any infringer that adopts “the mantle of a willing licensee” to delay compensation using a holdout, she cautioned.

News: Antitrust