The Federal Trade Commission’s (FTC) complaint and proposed consent order with Robert Bosch GmbH (Bosch), issued on 26 November 2012,1 is the first enforcement action by a federal antitrust agency against a patent holder for seeking an injunction based on infringement of patents that have been declared essential to an industry standard (SEPs) requiring such patents to be licensed on fair, reasonable, and non-discriminatory (FRAND) terms. According to the FTC’s statement in In re Robert Bosch GmbH, the breach of FRAND licensing commitments to willing licensees may violate Section 5 of the FTC Act “when such a breach tends to undermine the standard-setting process and risks harming American consumers.” The consent decree builds on the FTC’s prior statements and case law in the standard setting area, and it signals the agency’s future enforcement intentions at this important intersection of patent rights and antitrust law.
This case involves the proposed acquisition of SPX Service Solutions (SPX) by Bosch. Both firms are engaged in the manufacture of certain motor vehicle repair equipment. Prior to the proposed acquisition, SPX sued various competitors for injunctive relief for the alleged infringement of at least one SEP held by SPX. In a letter of assurance to an industry standard setting organization, SPX had agreed to license its SEPs to applicants on FRAND terms. Nevertheless, SPX continued to prosecute its claims for injunctive relief despite its promises in the letter.
The FTC considered SPX’s suit for injunctive relief to be “a failure to license its standard-essential patents under the FRAND terms it agreed to while participating in the standard setting process.” The FTC claimed that SPX had engaged in “patent hold-up,” which occurs when a patent holder “reneges on a licensing obligation and seeks to exercise the market power that accrues to a patent by virtue of being incorporated in the standard.” Patent hold-up enables the SEP holder to “realize royalty payments that reflect the investments firms make to develop and implement the standard, rather than the economic value of the technology itself.” The FTC explained that “[ s ]eeking injunctions against willing licensees of FRAND-encumbered standard essential patents, as SPX is alleged to have done here, is a form of FRAND evasion and can reinstate the risk of patent hold-up that FRAND commitments are intended to ameliorate.” According to the FTC, seeking injunctions against willing licensees of SEPs is therefore an unfair method of competition actionable under Section 5.
The complaint against Bosch is the logical extension of recent public statements of the FTC and the Antitrust Division of the Department of Justice (DOJ). For example, one senior DOJ official recently expressed his belief that patent holders who commit to licensing SEPs on FRAND terms voluntarily give up the right to seek an injunction against a willing and able licensee.2 For its part, the FTC made two recent public statements advocating the same view. On 6 June 2012, the FTC issued a public interest statement in two matters before the ITC regarding the propriety of exclusion orders in favor of RAND-encumbered SEPs. Similarly, on 11 July 2012, the FTC submitted a prepared statement before the U.S. Senate Judiciary Committee concerning the competitive impact of injunctive relief to enforce SEPs. In each statement, the FTC argued that a RAND commitment is evidence of an intent to monetize a patent through broad licensing rather than exclusive use.
Now, with In re Bosch, the FTC has applied its Section 5 enforcement authority to formally adopt the view that a FRAND obligation, by its nature, is a commitment to license that prohibits injunctive relief. In a footnote that may foreshadow future enforcement actions by both antitrust agencies, the FTC Statement in the Bosch matter reserves the right to take a position on the use of Section 2 of the Sherman Act to stop similar conduct. The DOJ does not have the authority to enforce FTC Act Section 5, so Section 2 would be the statutory framework through which the DOJ may challenge patent holders who renege on licensing commitments.
In dissent, Commissioner Ohlhausen objected to the majority’s use of Section 5 in this case because the FTC did not identify any “meaningful limiting principles.” Ohlhausen stated that the Bosch consent decree “does nothing either to legitimize the creative, yet questionable application of Section 5 to these types of cases or to provide guidance to standard-setting participants or the business community at large as to what does and does not constitute a Section 5 violation.” In contrast, Ohlhausen would require something more than a simple finding that a firm sought injunctive relief on FRAND-encumbered SEPs. For example, she cited with approval the FTC’s decision in the Rambus case, which found that deception undermining the standard-setting process was a Section 5 violation.
The majority of the Commissioners, however, believed that the breach of a FRAND licensing obligation, without more, may undermine the standard-setting process and risk harm to consumers. In such a case, according to the majority, the FTC is not only justified in employing its Section 5 authority, but the public interest demands such action.
While the Bosch consent decree occurred in the context of a merger review, the FTC is likely to extend its application of Section 5 in this context to pure conduct investigations in the future. Companies that participate in standard setting organizations are now on notice that the FTC believes it is a violation of Section 5 to seek injunctive relief against “willing licensees” of FRAND-encumbered essential patents.