Standard Essential Patents Come Under Scrutiny of the DOJ, FTC, and PTO

by Quinn Emanuel Urquhart & Sullivan, LLP

Increased public and regulatory attention has been recently given to litigation remedies available to standard essential patent (“SEP”) holders who have committed to offer patent licenses on fair, reasonable and non-discriminatory (“FRAND”) terms. In cases where SEP holders and technical standard implementers have been unable to agree on patent licensing terms, SEP holders have on occasion filed infringement suits, seeking remedies for infringement including injunctive relief.

Over the last several months, the Federal Trade Commission (“FTC”), and separately, in a joint policy statement, the U.S. Department of Justice, Antitrust Division (“DOJ”), and the U.S. Patent & Trademark Office (“USPTO”), provided their respective views on the remedies available to SEP holders. At present, it appears that these agencies are taking a nuanced market approach on this issue, avoiding per se rules on whether SEP holders are allowed to obtain injunctive relief on their patents. Both the FTC and DOJ/USPTO have focused on the circumstances surrounding the negotiations between the SEP holder and the accused infringer.

Standard Setting Organizations and Voluntary Consensus Standards
Technical standards are often developed by voluntary organizations commonly known as standard setting organizations (“SSOs”). SSOs publish technical standards which, if adopted widely, ensure interoperability between products and services offered by different businesses. For example, the popular 802.11 wireless standard, developed and published by the Institute of Electrical and Electronics Engineers (“IEEE”) and its member organizations, allows individuals to connect to WiFi hotspots, whether at home, work, a coffee shop, or even on an airplane. The individuals and organizations that are involved in collaborative standard setting environments frequently own patents that cover the standard at issue, known as SEPs. By definition, practice of SEPs is technically necessary in order to comply with the requirements of a standard. Defendants in SEP infringement suits have contended via counterclaims that SEP holders, by way of their involvement in the standards, are subject to a commitment to license any essential patents on FRAND terms.

Increased media and regulatory attention has been given to cases where companies have been unable to successfully negotiate the terms of a SEP portfolio license prior to litigation initiated either before the International Trade Commission (ITC), federal district court or both. SEP portfolio holders have filed actions both in the district court and before the ITC, seeking damages and/or injunctive relief. Implementers, in turn, have sought declaratory judgments from courts that the terms of the licenses sought by the SEP holders have not been FRAND. The FTC, DOJ, and USPTO have recently provided some insight on their respective policy positions related to the propriety of obtaining injunctive relief on SEPs in such cases.

FTC Addresses SEPs and Injunctive Relief
In November 2012, as part of its investigation of the proposed acquisition of SPX Services Solutions by Robert Bosch GmbH, the FTC issued for public comment a Complaint and Order against Bosch. As part of its Statement related to the Decision and Order, the FTC stated that it would be inconsistent with FRAND licensing commitments for an SEP holder to “seek[] injunctions against willing licensees of . . . SEPs.” Statement of the Federal Trade Commission, In the Matter of Robert Bosch GmbH, at 1, FTC File Number 121-0081 (Nov. 26, 2012). The FTC added that the pursuit of injunctive relief on SEPs “can also lead to excessive royalties that can be passed along to consumers in the form of higher prices.” Id. at 2. Even still, the FTC appears to have adopted a circumstance-specific approach to its policy on injunctive relief, clarifying its position that the SEP holder should still be entitled to obtain injunctive relief against unwilling licensees. See id.

In the context of In the Matter of Google Inc., FTC File No. 121-0120, the FTC again offered insight into its current position on the availability of injunctive relief to SEP holders who have made FRAND commitments. The FTC took the position that the threat of injunctive relief on SEP patents can potentially impair competition and increase consumer prices. However, the FTC limited its position as applying only to “willing licensees” and “any company that wants to license” SEPs. Statement of the Federal Trade Commission, In the Matter of Google Inc., at 1, FTC file No. 121-0120 (Jan. 3, 2013). As part of the proposed consent order with Google, the FTC provided a procedural framework and conditions under which Google-subsidiary Motorola Mobility would be permitted to obtain injunctive relief on SEPs subject to a FRAND commitment.

DOJ and PTO Issue Rare Joint Policy Statement
Separately, on January 8, 2013, the DOJ and USPTO issued a joint policy statement regarding the availability of remedies, particularly injunctive relief, for patents subject to a FRAND commitment (“DOJ/PTO Policy Statement”).

The DOJ and USPTO “recognize[d] that the right of a patent holder to exclude others from practicing patented inventions is fundamental.” DOJ/PTO Policy Statement, at 2. The DOJ and USPTO also acknowledged that voluntary consensus standard setting “promot[es] efficient resource allocation and production by facilitating interoperability among complementary products.” Id. at 3. However, the DOJ and USPTO noted that there may be instances where an injunction or exclusion order on SEPs may harm competition, be inconsistent with a FRAND commitment, and/or not satisfy the equitable factors set forth in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006). The DOJ/PTO Policy Statement identified certain circumstances under which injunctive relief may be appropriate:

[I]f a putative licensee refuses to pay what has been determined to be a F/RAND royalty, or refuses to engage in a negotiation to determine F/RAND terms, an exclusion order could be appropriate. Such a refusal could take the form of a constructive refusal to negotiate, such as by insisting on terms clearly outside the bounds of what could reasonably be considered to be F/RAND terms in an attempt to evade the putative licensee’s obligation to fairly compensate the patent holder.

Id. at 7.

The DOJ/PTO Policy Statement addresses the policy considerations that can impact injunctive

relief in actions against unwilling licensees as well as circumstances that may constitute an unwillingness to take a license on FRAND terms. It does not make reference to any particular SEP holder or FRAND commitment.

Standard essential patents and FRAND commitments continue to be the subject of intense public debate and regulatory interest. While it remains to be seen how the recent investigations and policy statements by the DOJ, FTC, and USPTO will impact future patent litigation, it appears that these agencies are focused on determining whether and to what extent the potential licensee is willing to take a license on FRAND terms and avoiding categorical (or “per se”) rules on the availability of injunctive relief. While the grant of injunctive relief (as in any other patent case) is not an automatic remedy in federal district court under current precedent, the DOJ, FTC, and USPTO have expressed policies regarding injunctive relief in SEP cases subject to FRAND commitments that require inquiry into the circumstances of negotiations between the litigants to determine whether the parties are willing licensors and licensees respectively.

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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