Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Wright recommends deleting draft amendment to Japan’s IP guidelines to protect standard setting participation, (Aug 4, 2015)

By Linda O’Brien, J.D., LL.M.

FTC Commissioner Joshua Wright and Judge Douglas Ginsburg of the U.S. Court of Appeals in Washington, D.C. have recommended that the draft partial amendment to the guidelines for the use of intellectual property under Japan’s Antimonopoly Act (AMA) be deleted in its entirety to avoid reducing incentives to innovate and deterring participation in standard setting. The recommendation appeared in a comment submitted on August 3 to the Japan Fair Trade Commission (JFTC).

The draft amendment specifies that seeking injunctive relief to enforce a standard-essential patent (SEP) encumbered by a commitment to license on fair, reasonable, and non-discriminatory (FRAND) terms against a party that is willing to take a license on FRAND terms may constitute an unlawful exclusion of business activities in violation of the AMA. The draft amendment further provides that liability may attach regardless of whether the act is taken by a patent holder that makes the FRAND commitment, by a party that accepts assignment of the FRAND-encumbered SEP, or by a party who is “entrusted to manage” the FRAND-encumbered SEP.

The comment states that the draft amendment is premised on the assumption that seeking injunctive relief “generally makes it difficult to research and develop . . . products adopting the standards,” which in turn deters widespread adoption of standards. However, the assumption lacks empirical support, and ordinary contract law makes an AMA sanction unnecessary to deter any instances of anticompetitive patent holdup that might arise. Instead, an AMA sanction is likely to reduce incentives to innovate and deter participation in standard setting, thereby depriving consumers of the substantial procompetitive benefits of standardized technologies, Wright and Ginsburg contend.

According to the comment, AMA remedies limiting the ability of a FRAND-encumbered SEP holder to seek injunctive relief are not likely in the public interest because: (1) an AMA remedy is unnecessary to protect consumer welfare given the law of contracts is sufficient to provide optimal deterrence; (2) the prospect of AMA liability would enable an infringing user to negotiate in bad faith, knowing that its exposure is capped at the FRAND licensing rate and therefore requires a SEP holder to take a below FRAND rate from an unscrupulous infringing user; and (3) AMA liability is likely to deter patent holders from contributing their technology to a standard-setting organization (SSO) under FRAND terms if doing so would require them to forfeit their right to protect their intellectual property by seeking an injunction against infringing users.

There is no empirical evidence that anticompetitive patent “holdup” is prevalent. The evidence required to support the JFTC’s proposed approach, which is likely to deter procompetitive conduct including participation in standard setting, requires that there is a probability, not a mere possibility, of higher prices, reduced output, and lower rates on innovation. By deleting the draft amendment, the JFTC would protect incentives to participate in standard setting by allowing SEP holders to seek and obtain exclusion orders when permitted by the SSO agreement at issue and in the absence of a showing of any improper use. In contrast, imposing AMA liability threatens to deter participation in standard setting, particularly if an accused infringer can show its willingness to contract by agreeing to be bound by terms determined by neutral adjudication, the comment noted.

The comment concluded that if the JFTC decides to retain the provision, it should be amended to limit liability to situations when there is proof that a FRAND-encumbered SEP holder has used the threat of injunctive relief to demand supracompetitive royalties.

News: Antitrust FederalTradeCommissionNews