On August 12, the U.S. Department of Justice Antitrust Division (DOJ) and Federal Trade Commission (FTC) proposed updates to their Antitrust Guidelines for the Licensing of Intellectual Property (Guidelines). The agencies have not been amended the Guidelines since they were originally released in 1995. The revisions do not substantively modify the general principles of the 1995 Guidelines, and they do not address some of the hottest topics at the intersection of antitrust and IP law, notably conduct involving standard essential patents (SEPs) and patent assertion entities (PAEs).
The proposed revisions do not include any broad changes to the antitrust agencies’ enforcement approach; DOJ and FTC will still “apply the same general antitrust principles to conduct involving intellectual property that they apply to conduct involving any other form of tangible or intangible property.”1 FTC Chairwoman Edith Ramirez stated that the updated guidelines “reaffirm our view that U.S. antitrust law leaves licensing decisions to IP owners, licensees, private negotiations and market forces unless there is evidence that the arrangement likely harms competition.”2 The proposed revisions do, however, take into account recent developments in the case law. Acting Assistant Attorney General Renata Hesse said that the purpose of the revisions was to “modernize [the Guidelines] to reflect changes in the law since they were issued.”3 For example, the Supreme Court ruled in the Leegin case in 2007 that resale price maintenance (i.e., agreements between suppliers and retailers regarding the retail price of the supplier’s good) is no longer per se illegal. The revisions amend the Guidelines to reflect rule-ofreason treatment of vertical price agreements,4 as a statement issued with the FTC and DOJ noted, because the agencies determined that the Leegin “analysis applies equally to pricing restrictions in intellectual property licensing agreements.” Another example is the Supreme Court’s 2006 decision in Illinois Tool Works v. Independent Ink, which ruled that patents do not necessarily confer market power. The 1995 Guidelines had already adopted that principle, but the revisions now expressly cite the Independent Ink case for that proposition.5
The proposed revisions are perhaps most notable for what they excluded. In particular, the new Guidelines would not address any issues related to SEPs, a topic that has received considerable attention from both the FTC and DOJ over the past several years. SEPs are patents that are necessary (or have been declared essential) to a particular technology that is standardized to promote interoperability between devices or networks. Some standard setting efforts, such as the standards that enable wireless communications and Wi-Fi networking, involve hundreds or even thousands of such patents. The FTC has been active in applying antitrust principles to SEPs over the last 20 years since the original Guidelines were issued. In 2006, it found that Rambus had violated Section 5 of the FTC Act, which prohibits “unfair or deceptive acts or practices in or affecting commerce,” by failing to disclose the existence of its patents, and then seeking unreasonable royalties from licensees once those patents were incorporated into a standard.6 The FTC also found that an entity may violate Section 5 by acquiring SEPs that the original patent holder agreed to license on reasonable and non-discriminatory (FRAND) terms and then failing to abide by that RAND commitment,7 or by making misrepresentations to a government agency that is establishing a standard.8 More recently, the FTC entered consent orders against Robert Bosch GmbH9 and Google, Inc.10 pursuant to its authority under Section 5. The challenged behavior in both investigations related to the patent holder seeking injunctive relief based on alleged infringement of patents that had been declared essential to an industry standard requiring such patents to be licensed on RAND terms. The FTC challenged the mere act of seeking injunctive relief—conduct that usually is entirely within the scope of the patent—after committing the patents to an industry standard. The proposed revisions do not address the legal issues or policy concerns raised by any of these cases.
DOJ has also been active on SEP issues. It has engaged in advocacy to encourage standard setting organizations (SSOs) to address potential hold-up and other problems ex ante by modifying and clarifying their intellectual property rights (IPR) policies. For example, DOJ has asked SSOs to limit the right of SEP holders to seek injunctions, including by constraining the right to seek an injunction to situations where the potential licensee is “unwilling” to take a FRAND license. DOJ encouraged SSOs to give licensees the option to license FRAND-encumbered patents essential to a standard on a cash-only basis and prohibit the mandatory cross-licensing of patents that are not essential to the standard or a related family of standards, while permitting voluntary cross-licensing of all patents. DOJ also has asked SSOs to establish procedures that seek to identify, in advance, proposed technology that involves patents which the patent holder has not agreed to license on FRAND terms and consciously determine whether that technology should be included in the standard. The proposed revisions to the Guidelines do not incorporate any of these concerns.
The Guidelines revisions also do not address any issues related to PAEs, whose business model focuses on buying and asserting patents against operating companies already using the technology rather than contributing to the development or transfer of technologies. Citing increasing evidence of the massive economic and social costs of PAE activity, the Obama Administration has pursued several executive orders and legislative proposals aimed at curbing frivolous patent litigation and reducing PAEs’ ability to engage in anticompetitive behavior. In addition, the President’s Council of Economic Advisers, the National Economic Council, and the Office of Science & Technology Policy issued a report titled “Patent Assertion and U.S. Innovation,” which further described the problems associated with PAEs.11 The FTC has been conducting an industry study of the competitive effects of PAEs since 2013,12 but its findings have not yet been released. If the FTC study had been released before the proposed revisions to the Guidelines, perhaps the revisions would have addressed the topic.
The FTC and DOJ are accepting public comments to the proposed revisions until September 26. Submitted comments will be made publicly available on the agencies’ websites.