Antitrust Law Daily Wrap Up, TOP STORY: Baer discusses Antitrust Division stance towards holders of standards-essential patents, (Sep 11, 2015)

By Edward L. Puzzo, J.D.

Competition authorities have a legitimate role in assuring that holders of standards-essential patents (SEPs) do not misuse their position at the expense of a competitive market, according to Bill Baer, Assistant Attorney General for the Antitrust Division of the U.S. Department of Justice. Baer spoke on September 11, 2015 at the International Bar Association’s 19th Annual Competition Conference in Florence, Italy.

While antitrust and competition authorities should not become involved in disputes over royalties that patent holders may demand, there are competition concerns when the value of a patent has become enhanced by becoming essential to a standard, and patent holders seek to exploit that added value by failing to keep the commitments they voluntarily make about how they will license these patents, Baer stated.

Widely adopted standards, collaboratively set, can frequently create uniform specifications for entire technological ecosystems in which products and services can flourish, Baer stated. Nevertheless, competitors working together in standards-setting organizations (SSOs) may have incentives to manipulate the standards-setting process to exclude rivals, fix prices, or allocate markets. Adopters of the standard may be locked in, having no choice but to use the chosen technologies. A holder of standards-essential patents (SEPs) may be able to take advantage of this lock-in by demanding extra rents, not for the invention itself, but from the additional value arising from its incorporation into a standard.

It becomes concerning when a patent holder makes and then later seeks to evade the voluntary licensing commitments designed by SSOs to constrain their exercise of market power. The Antitrust Division is focused on the harm from a threat to exclude in order to demand excessive royalties under these circumstances, including situations, such as recent claims by Motorola, Innovatio and LSI, where SEP holders have demanded F/RAND royalties that were as much as 500 times larger than court-determined rates.

Inherent in a F/RAND licensing commitment is a pledge to make licenses available to those who practice the essential patent claims when implementing the standard, not to exclude them from using the standard unless they refuse to take a license on F/RAND terms, Baer stated. The ability of F/RAND-encumbered patent holders to get an injunction in U.S. federal courts has been limited by the U.S. Supreme Court ruling that injunctive relief is unlikely to be granted when monetary damages suffice. However, recognizing that an SEP holder might be able to use the threat of a U.S. International Trade Commission (ITC) exclusion order to achieve the functional equivalent of an injunction, DOJ and the U.S. Patent and Trademark Office in January 2013 issued a joint “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.” The joint statement explained that the use of exclusionary measures at the ITC to remedy infringement of F/RAND-encumbered SEPs is not in the public interest in those cases where the licensor wants monetary compensation for use of its patent needed to implement a standard.

One way to promote competitive outcomes and mitigate risks to competition arising from collaborative standards-setting activities is for SSOs to make standards-setting less susceptible to hold up by clarifying their patent licensing policies. The Antitrust Division stands ready, Baer offered, to help SSOs sort through the antitrust risks associated with reducing the likelihood of ex post facto disputes about the meaning of F/RAND commitments. For example, the IEEE, an SSO that develops standards in the electronics and communications sectors, requested a DOJ antitrust business review of a proposed update to its patent policy. Balancing competitive upsides against the antitrust risks, the DOJ concluded that they were unlikely to challenge the proposed update if IEEE were to adopt it. As the joint statement with the PTO and the business review guidance letter to IEEE demonstrate, the DOJ sees a role for competition enforcement, guidance and advocacy in certain situations, Baer stated.

In other situations, Baer noted, where there is no bad conduct by the patent holder, no improper use of enhanced market power, but rather an assertion of lawful patent rights, competition enforcers need to stand down. Antitrust enforcement should not be used to regulate royalties, Baer opined. This stance is similar to that of the European Commission, which has stated that “addressing excessive prices is an area of antitrust where limited and very cautious intervention is warranted.” The challenge for competition authorities is to calibrate correctly enforcement work and competition advocacy to ensure that patent rights serve to promote innovation and consumer welfare.

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