DOJ Issues Rare Unfavorable Business Review Letter Regarding Patent Licensing Pools


On March 26, 2013, the U.S. Department of Justice (DOJ) issued a rare negative business review letter declining to approve a plan by Intellectual Property Exchange International Inc. (IPXI) to offer a financial exchange for licensing and trading intellectual property rights.  Although highlighting many potential benefits to the proposed exchange, the letter ultimately advised that DOJ was “withhold[ing] judgment at this time and decline[d] to state its enforcement intentions” due to the “inherent uncertainties and potential competitive concerns associated with IPXI’s novel business model.”

Because case law provides very little guidance on the appropriate contours of patent pools and licensing and because unfavorable business review letters are rare, the letter offers unique insight into DOJ’s evolving position on the potential antitrust implications of patent licenses.  It also highlights the need for applicants to evaluate carefully whether the benefits of the business review program outweigh the potential consequences of a negative opinion.

Background on the Business Review Program and IPXI’s Request

Under the DOJ Antitrust Division’s business review program, DOJ reviews planned business conduct for possible antitrust implications when the businesses involved apply for such a review.  See 28 C.F.R. § 50.6.  The review results in an opinion letter advising the applicant of one of three positions:  (1) DOJ does not currently intend to bring an enforcement action against the proposed conduct; (2) DOJ declines to state its enforcement intentions and may or may not file suit if the conduct occurs; or (3) DOJ will sue if the conduct occurs.  It is rare for the DOJ to issue a letter stating anything other than the first—positive—position, due in part to the fact that applicants may preemptively withdraw the request if they anticipate a negative result.

The process of the program can be burdensome and time consuming, often requiring additional rounds of document requests and taking at least 60 to 90 days and frequently longer.  Nevertheless, the process can provide guidance and enable the applicant to make cost-efficient refinements to its business model before implementation, which can avoid costly inquiries or litigation later.  According to DOJ, the program benefits both DOJ and the business community by permitting analysis and comment on proposed business conduct in advance, thereby potentially avoiding lawsuits or other negative enforcement activities.

IPXI is a financial exchange designed to facilitate patent licensing that was developed by a number of intellectual property owners, including corporations, universities and laboratories.  In November 2012, IPXI requested business review of its plan to begin offering a patent licensing exchange process in which IPXI would:  (i) “receive offers of interest from patent holders from various industries to license their patents through IPXI”; (ii) review the patent rights at issue; (iii) determine market interest for the patents in question; and (iv) “offer ULRs (unit license rights), standardized licenses for defined sets of patents under terms and conditions set jointly with patent holders.”  IPXI envisioned both a primary market and a potential secondary trading market for the ULRs. 

DOJ’s Business Review Letter

Although DOJ pointed to several potential pro-competitive effects of the proposed conduct, it had doubts about the potentially far-reaching and uncertain effects of the plan on numerous industries and thus declined to state an enforcement position.  The following are key points from the letter:

  • DOJ noted a number of potential pro-competitive benefits and efficiencies from the proposed exchange, including (i) increased licensing efficiency from increased transparency and stream-lining regarding the patent licensing process and elimination of “costly bilateral negotiations”; (ii) price transparency; and (iii) “pooled ULRs”, which could “reduc[e] the time and expense of acquiring and disseminating all the pooled patents to potential licensees, reduc[e] the amount of stacked royalties, clear[] blocking positions, and integrat[e] technologies that are necessary to practice” in particular industries or fields.

  • On the other hand, DOJ also noted the potential for competitive harm, including (i) “pooling of patents from multiple patent holders” that include substitute (i.e. competing) patents may raise royalty fees and reduce competition among the technologies; (ii) “[s]etting [t]erms for [c]ompeting ULRs” would permit IPXI to act as a “common agent” and potentially encourage IPXI and the patent holders to profit jointly by reducing competition among the ULRs; and, (iii) “sharing of competitively sensitive information” could facilitate price coordination and reduce the incentives to compete in downstream markets.

  • DOJ further noted that “other potential competitive concerns may later emerge once [the exchange] is operational” and pointed to many uncertainties due to the number of industries to be affected by the exchange, emphasizing that “the scope and importance of any particular restriction on IPXI’s licensed field of use will vary for each ULR and each technology.”


This rare unfavorable business review letter offers unique insight into the DOJ’s evolving position on the potential antitrust implications of patent licenses and patent pools.  It demonstrates that despite the potential efficiencies, the DOJ is hesitant to give unqualified pre-authorization to widespread group activities in the patent licensing arena, given the ever-changing nature of the industries and technologies involved and the far-reaching scope of any potential group licensing activity.   

The letter also highlights the need for applicants to evaluate carefully whether the benefits of the business review program outweigh the consequences of a potentially negative opinion.  Although the program has palpable potential benefits and the likelihood of a negative letter is relatively small, the business review process is both lengthy and burdensome, and businesses should have a contingency plan in mind for how to respond to a negative letter before deciding to press forward with a request. 

A public version of the complete IPXI Business Review Letter may be found here.

Contact counsel if you have any questions regarding the IPXI Business Review Letter or its impact on your company.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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