Antitrust Law Daily Wrap Up, CONSUMER PROTECTION NEWS—FTC Argues Against Injunctions in Standard-Essential Patent Cases, (Dec 6, 2012)

The FTC filed an amicus curiae brief in patent infringement litigation between Apple and Motorola on December 4, 2012, addressing the competitive effects for the infringement of patented technologies essential to implementing consensus industry standards. The brief, submitted to the Federal Circuit Court of Appeals, explained that injunctions related to standard-essential patents (SEP) could harm competition, innovation, and consumers. It concluded that a federal district court in Wisconsin had correctly applied the governing legal principles in dismissing Motorola’s request for an injunction that could have blocked Apple from selling iPhones and iPads in the United States.

The Commission addressed the issue in the context of the Apple-Motorola dispute, in which Motorola filed patent infringement claims against Apple regarding technologies used in iPhones and iPads that allegedly are covered by Motorola’s SEPs, and Apple then responded with infringement claims of its own.

The brief explained how SEP owners can use the threat of injunctions to distort competition by insisting on high royalties and other favorable licensing terms that they could not have credibly demanded before the standard was set. The government dubbed the distortion “patent hold-up.” Patent hold-up risks harming competition, innovation, and consumers, the FTC stated, because it allowed a patentee to be rewarded not based on the competitive value of its technology, but based on the infringer’s costs to switch to a non-infringing alternative when an injunction is issued.

To avoid hold-up, the brief noted, standard-setting organizations often require participants to promise to license their SEPs on fair, reasonable, and non-discriminatory (FRAND or RAND) terms as a condition for the inclusion of their patented technology in the standard. In some cases, however, despite the RAND commitment, the patent holder and a prospective implementer may not be able to agree on the terms of a license. In those situations, the Commission’s brief contended that the proper approach is usually to limit the relief available to the patent holder – specifically, to allow only monetary damages, and not an injunction that prohibits the sale of products incorporating the patented technology.

The brief discussed in detail the factors the Commission believes that courts should consider when considering a request by a patent holder for an injunction on a SEP. Those factors, set out by the U.S. Supreme Court in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), supported the conclusion that injunctions are usually inappropriate in the context of an SEP, according to the Commission.

Specifically, two of the eBay factors are a showing that the patent holder would be irreparably harmed without an injunction and that monetary relief (an ongoing royalty) would be inadequate. However, both of these are generally inconsistent with the underlying basis of the RAND commitment, where the patent holder already has agreed to license its technology, acknowledging that it can be adequately compensated by a royalty.

The other eBay factors (the balance of hardships between the patent holder and the alleged infringer and the public interest) also would usually militate against injunctive relief in the case of SEPs, according to the FTC, because an injunction usually harms the alleged infringer more than not getting an injunction harms the patent holder. Further, the public would face the immediate impact of an injunction by losing access to the affected products—in this case, extremely popular iPhones and iPads. Moreover, if courts routinely granted injunctions in cases involving SEPs, the brief contended, it would undercut the pro-competitive benefits of standard setting and discourage future investment in standard-compliant products and innovation by firms that contribute to and depend on the standard.

Based on these considerations, the brief concluded that the district court properly applied eBay in determining that Motorola was not entitled to an injunction.

The cases at issue are Nos. 2012-1548 and 2012-1549.

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