Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Senate antitrust subcommittee holds hearing on antitrust issues of standard essential patents, (Jul 30, 2013)

By Jeffrey May, J.D.

Competition issues raised by standard essential patents (SEPs) were discussed at a hearing held today by the Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy and Consumer Rights. Suzanne Munck, Chief Counsel for Intellectual Property at the FTC and Deputy Director of the Commission’s Office of Policy Planning, was among the witnesses who offered views on potential abuses by holders of SEPs in the standard setting context.

The hearing, entitled “Standard Essential Patent Disputes and Antitrust Law,” addressed the impact of “patent hold-ups” by holders of SEPs that have committed to license on fair, reasonable, and non-discriminatory (RAND/FRAND) terms. Patent hold-ups occur when a SEP holder seeks higher royalty rates or other more favorable terms after its technology has been adopted by a standard setting organization (SSO).

Noting that “antitrust and competition issues are increasingly at the center of the so-called patent wars,” Senator Amy Klobuchar (D-Minnesota)—the antitrust subcommittee chair—said that the hearing was focusing on “whether standard essential patent holders and implementers, instead of being at war, can be FRANDs.”

Klobuchar expressed her belief that safeguards are needed “to ensure that standard setting continues to provide consumers with the most innovative products and that antitrust principles make sure that consumers can get them at the best prices.”

Senator Mike Lee (R-Utah), the subcommittee's ranking member, weighed in on the issue, saying that the antitrust subcommittee should discourage behavior that results in increases in unjustified costs for consumers as a result of a patent hold-up.

FTC Testimony

“The threat of patent hold-up arises as a result of the standard setting process,” according to the FTC's prepared testimony, delivered by Munck. Once a standard is adopted, “an entire industry may become locked into practicing a standardized technology.”

“Hold-up and the threat of hold-up involving RAND-encumbered SEPs can deter innovation by increasing costs and uncertainty for other industry participants.” The testimony noted that, while some SSOs have attempted to mitigate the problem by seeking commitments from participants to license SEPs on RAND terms, the potential for hold-up remains because the RAND commitment may be later disregarded or the royalty rate may be negotiated after the standard is adopted.

Munck said that the FTC will “continue to advocate before the federal courts and the [Intenational Trade Commission] for policies that mitigate the potential for patent hold-up, and will bring enforcement actions where appropriate.”

Industry Testimony

The senators also heard testimony from industry participants. A lively debate ensued.

Douglas Melamed, a former acting antitrust chief at the Department of Justice who is currently Senior Vice President and General Counsel for Intel Corporation, testified about a recent “alarming trend” where some companies are reneging on their FRAND commitments.

In written testimony, Melamed identified six different types of abuses by owners of FRAND-encumbered SEPs that harm competition and consumers: (1) selective, strategic refusals to license; (2) charging unreasonable royalties; (3) imposing royalties for SEPs that are used only by components, such as Wi-Fi chips, on complete systems, such as PCs, that incorporate such components; (4) seeking or threatening injunctions against willing licensees; (5) requiring licensees to take licenses to patents that are not SEPs; and (6) transferring SEPs to entities that renounce the FRAND commitment made by the transferring SEP holder.

At the hearing, Melamed addressed two of the issues that he believes to be of particular importance. First, he identified a practice whereby SEP holders refuse to license to chip makers, such as Intel, in an effort to seek excessive royalties from computer makers. Second, he expressed concerns over holders of SEPs threatening injunctions against willing licensees to gain leverage.

Donald J. Rosenberg, Executive Vice President, General Counsel and Corporate Secretary at Qualcomm, said “there is no reason for legislative action to disturb the careful balance already extant in the industry.” In his testimony, Rosenberg suggested that “it's not broken, so don't fix it.”

Noting the dynamism in the mobile industry, Rosenberg contended that “disputes among competitors are to be expected in a vibrant marketplace.” According to Rosenberg, patent litigation “does not signify a breakdown in competition.”

Patent Assertion Entities

Senator Charles Schumer (D-New York) raised the issue of patent trolls, also known as patent assertion entities (PAEs). He encouraged the FTC to be vigilant in protecting small businesses threatened by patent trolls, particularly those who seek payments on the basis of patents in which they have no ownership interest or standing, or on the basis of an expired patent.

FTC Chairwoman Edith Ramirez announced last month plans for the agency to conduct a study of the PAE business. Munck had no update on the status of the planned PAE study.

Possibility of Legislation

In her closing remarks at the hearing, Klobuchar noted that there are antitrust concerns and intimated that “the time may have come” for legislation “to address some of the competition issues in the patent world.” She said that one reform that she is considering is to clarify the right standard for obtaining injunctions and exclusion orders at the International Trade Commission. In addition, there is a possibility of legislation regarding the FTC's role in the patent troll debate, according to Klobuchar.

News: Antitrust FederalTradeCommissionNews