The Department of Justice Takes on the IEEE

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On September 10, the antitrust division of US Department of Justice (DOJ) took the unusual step of revising a 2015 business review letter it had sent to the Institute of Electrical and Electronics Engineers (IEEE).

The primary purpose of the new letter is to put the IEEE – and the world – on notice that, in its view, holders of standards-essential patents (SEPs) are not precluded from seeking injunctive relief against infringers. The new letter makes it clear that the DOJ seeks to enhance the value of SEP-based patents and thereby to strengthen the incentives to innovate.

The IEEE and courts in a number of jurisdictions have taken the view that injunctive relief ought not be available to holders of such patents who had pledged, in the course of participating in the relevant standards setting organization (SSO), to make their patents available on fair, reasonable and non-discriminatory (FRAND) terms.

One criterion for the availability of injunctive relief is that monetary damages would not be a sufficient remedy. If the patentee has agreed to license its patent on FRAND terms, it would seem difficult to contend that something more than money is at stake.

Nonetheless, the DOJ insists that such a position is legally tenable, and that injunctive relief should be available to SEP patentees according to the same criteria that apply to all who seek injunctive relief.

The DOJ has broken from an international consensus that FRAND commitments result in a forfeiture of potential injunctive relief. The DOJ justifies this shift in part by noting that companies have been shying away from committing their patents to SSOs because of the resulting loss of rights. The DOJ also cited a growing tendency of companies to ignore SEP patents, running the risk of an infringement litigation because the infringement incurs no risk of an injunction.

The DOJ concluded that, by preserving the possibility of injunctive relief, it is strengthing the hand of SEP patentees, thereby creating incentives to invest in new technologies that promote dynamic competition.

The DOJ does not stop there. Its letter to the IEEE also challenges the theory that a reasonable royalty should be determined by reference to the smallest saleable patent practicing unit (SSPPU), such as a single chip that is a component in a complex device such as a cell phone or even an automobile. Measuring damages by reference to the SSPPU makes it impossible for the patentee to claim a share of the profit derived from the end product, a result that the DOJ believes to be overly rigid and potentially discouraging of innovation.

The DOJ notes the recent decision in FTC v. Qualcomm, which we wrote about here, in which the FTC challenged licensing practices that seem designed to avoid the SSPPU snare. The DOJ quoted the Ninth Circuit Court of Appeals ruling in that case, explaining that the SSPPU theory is a means to avoid jury confusion, not a per se rule against measuring damages by reference to the value of the end product.

The letter to the IEEE is not the DOJ’s only recent pro-patentee action. The DOJ recently conducted a two-year investigation into the practices of one SSO and its practice of providing influential positions within the SSO only to representatives of companies that had operating businesses within its field. By excluding others from such positions, the SSO had, in the DOJ’s view, misused its influence so as to limit competition and to thwart potentially disruptive technologies. As a result of the investigation, the SSO has agreed to give non-operators more clout within the SSO.

By putting injunctive relief back on the table, questioning the SSPPU theory and promoting the role of outsider patentees in SSO, the DOJ has placed its finger on the scale of justice to favor patent holders.

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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