On August 12 2016 the Department of Justice (DOJ) Antitrust Division and the Federal Trade Commission (FTC) proposed updates to their Antitrust Guidelines for the Licensing of Intellectual Property. The agencies have not amended the guidelines since they were originally released in 1995. The revisions do not substantively modify the general principles of the 1995 guidelines; nor do they address some of the hottest topics at the intersection of antitrust and IP law – in particular, conduct involving standard-essential patents and patent assertion entities.
The proposed revisions include no broad changes to the antitrust agencies' enforcement approach: the DOJ and the 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 Chair 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) However, the proposed revisions take into account recent developments in 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, in 2007 the Supreme Court ruled in Leegin that resale price maintenance (ie, 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-of-reason treatment of vertical price agreements(4) because, as a statement issued with the FTC and DOJ noted, 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 this principle, but the revisions now expressly cite Independent Ink for that proposition.(5)
The proposed revisions are perhaps most notable for what they excluded. In particular, the new guidelines fail to address issues related to standard-essential patents, a topic that has received considerable attention from both the FTC and the DOJ in the last few years. Standard-essential patents are patents that are necessary (or have been declared essential) to a particular technology that is standardised to promote interoperability between devices or networks. Some standard-setting efforts, such as the standards that enable wireless communications and WiFi 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 standard-essential patents that the original patent holder agreed to license on reasonable and non-discriminatory (RAND) terms and then failing to abide by that RAND commitment,(7) or by making misrepresentations to a government agency that was establishing a standard.(8) More recently, the FTC entered consent orders against Robert Bosch GmbH(9) and Google, Inc(10) pursuant to its authority under Section 5. The challenged behaviour 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 is usually 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.
The DOJ has also been active in relation to standard-essential patent issues. It has engaged in advocacy to encourage standard-setting organisations (SSOs) to address potential delays and other problems ex ante by modifying and clarifying their IP rights policies. For example, the DOJ has asked SSOs to limit the right of standard-essential patent holders to seek injunctions, including by constraining the right to seek an injunction to situations where the potential licensee is "unwilling" to take a fair, reasonable and non-discriminatory (FRAND) licence. The DOJ has also 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. The 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 incorporate none of these concerns.
The revisions also fail to address issues related to patent assertion entities, 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 patent assertion entitie activity, the Obama administration has pursued several executive orders and legislative proposals aimed at curbing frivolous patent litigation and reducing patent assertion entities' ability to engage in anti-competitive behaviour. In addition, the president's Council of Economic Advisers, the National Economic Council and the Office of Science and Technology Policy issued a report titled Patent Assertion and US Innovation, which further described the problems associated with patent assertion entities.(11) The FTC has been conducting an industry study of the competitive effects of patent assertion entities 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 the DOJ are accepting public comments to the proposed revisions until September 26 2016. Submitted comments will be made publicly available on the agencies' websites.
For further information on this topic please contact Logan Breed at Hogan Lovells US LLP by telephone (+1 202 637 5600) or email ([email protected]). The Hogan Lovells website can be accessed at www.hoganlovells.com.
(1) US Department of Justice and Federal Trade Commission, Proposed Update, Antitrust Guidelines for the Licensing of Intellectual Property (August 12 2016) at Section 2.1, available at www.justice.gov/atr/file/883941/download.
(2) See www.justice.gov/opa/pr/doj-and-ftc-seek-views-proposed-update-antitrust-guidelines-licensing-intellectual-property.
(4) Section 5.2 of the guidelines.
(6) In the Matter of Rambus Inc, FTC Docket 9302, Opinion of the Commission (August 2 2006), available at www.ftc.gov/os/adjpro/d9302/060802commissionopinion.pdf.
(7) See, for example, In the Matter of Negotiated Data Solutions LLC, FTC File 051 0094, complaint available at www.ftc.gov/os/caselist/0510094/080923ndscomplaint.pdf.
(8) See, for example, In the Matter of Union Oil Co of California, FTC Docket 9305 (March 4 2003), administrative complaint available at www.ftc.gov/os/adjpro/d9305/030304unocaladmincmplt.pdf.
(9) In the Matter of Robert Bosch GMBH, Docket C-4377, File 121 0081, Statement of the Commission, available at www.ftc.gov/os/caselist/1210081/121126boschcommissionstatement.pdf.
(10) In the Matter of Motorola Mobility LLC and Google Inc, Commission Statement (January 3 2013), available at www.ftc.gov/os/caselist/1210120/130103googlemotorolastmtofcomm.pdf.
(11) See www.whitehouse.gov/sites/default/files/docs/patent_report.pdf.
(12) See www.ftc.gov/policy/studies/patent-assertion-entities-pae-study.