Recent testimony from the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission (FTC) before the Senate Judiciary Committee focused on issues relating to standard-setting activities and competition policy. Antitrust Division Acting Assistant Attorney General Joseph Wayland and FTC Commissioner Edith Ramirez discussed the issue of injunctive relief to enforce standard-essential patents and emphasized the importance of pending actions before the International Trade Commission.
On July 11, 2012, representatives of the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission (FTC) testified before the Senate Judiciary Committee regarding issues relating to standard-setting activities and competition policy. Acting Assistant Attorney General Joseph Wayland spoke for the Antitrust Division; Commissioner Edith Ramirez represented the FTC. Although Wayland and Ramirez each traced the historical and current efforts of their respective agencies in this area, both also focused attention on the issue of injunctive relief to enforce standard-essential patents and emphasized the importance of pending actions before the International Trade Commission (ITC). Both expressed concern that ITC exclusion orders may not be appropriate in cases involving standard-essential patents whose owners agreed to certain licensing commitments within the context of the standard-setting process. Each agency is engaging the ITC on the issue and seeking ways to ensure that owners of standard-essential patents are not able to evade their licensing commitments. Both agencies believe the ITC has the tools available to resolve these concerns, but the FTC at least believes that the issue is significant enough to warrant congressional action if the ITC finds itself unable to address the concerns.
Wayland’s testimony covered three main topics: standard-setting organizations’ (SSOs’) intellectual property policies, recent enforcement activities by the Antitrust Division relating to standard-essential patents, and the impact on competition of exclusion orders to enforce standard-essential patents. Wayland began with a brief description of the intersection of patents, standards and antitrust law. He explained the dangers to competition that may emerge when holders of patents that are essential to a given standard seek to exclude competitors or seek unjustifiably higher royalties. He noted that SSOs seek to reduce such opportunistic conduct by including in their patent policies commitments from members to license their essential patents on “reasonable and non-discriminatory” (RAND) or “fair, reasonable and non-discriminatory” (FRAND) terms (collectively, F/RAND). In this regard, Wayland recalled the Antitrust Division’s long-standing efforts to ensure that SSOs adopt well-defined intellectual property policy rules. He noted that the Antitrust Division previously provided guidance to SSOs in this area and encouraged SSOs to seek ex ante review of any revisions to their intellectual property policies that could affect competition.
Wayland stated that the Antitrust Division itself has pursued several enforcement actions relating to standard-essential patents. He cited the recent investigations of the acquisitions of two significant patent portfolios (Nortel and Motorola Mobility). While acknowledging that the Antitrust Division had concluded neither acquisition was likely to substantially lessen competition for wireless devices, he noted that the Antitrust Division would continue to closely monitor the use of F/RAND-encumbered standard-essential patents in the wireless device industry to ensure that they do not stifle competition and innovation in this industry.
Wayland concluded by stating that the Antitrust Division is closely monitoring a number of pending actions involving F/RAND-encumbered standard-essential patents before the ITC. Wayland reported that the Department of Justice is concerned about cases where an exclusion order may be inappropriate, and he singled out cases involving F/RAND-encumbered standard-essential patents. Without explaining the source of this concern, Wayland’s remarks hinted that it may derive from the differing standards applied by district courts and the ITC for the grant of injunctive relief. He reported that federal courts have begun to consider whether injunctive relief is appropriate based on the factors laid out in the Supreme Court of the United States’ decision in eBay. There, the Supreme Court held that to obtain an injunction a patent holder must demonstrate: “1) that it has suffered an irreparable injury; 2) that remedies available at law, such as monetary damages, are inadequate; 3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and 4) that the public interest would not be disserved by a permanent injunction.” Wayland emphasized the importance of public interest factors in the ITC’s determination of whether an exclusion order should issue. Those factors, which include the effect of the exclusion on public health and welfare, and the assurance of competitive conditions in the U.S. economy, are meant to be the “overriding considerations” in determining whether to issue an exclusion order. Ultimately, Wayland’s remarks hinted that the Antitrust Division believes the public interest factors provide an avenue whereby the ITC can align itself more closely with the evolving practice of the federal district courts for injunctive relief.
While Wayland’s remarks hinted at concerns regarding ITC practice, FTC Commissioner Ramirez more directly addressed the impact on competition caused by injunctions that enforce standard-essential patents. The FTC is concerned that patent holders may use the threat of an ITC exclusion order or district court injunction to demand higher royalties or other more costly licensing terms. Like Wayland, Ramirez highlighted the importance of the eBay decision and the divergent approaches to injunctions it had introduced. She noted that many observers have concluded that following eBay it may be difficult for F/RAND-encumbered standard-essential patent holders to show that money damages are inadequate (as eBay now requires), because they have already committed to license their intellectual property on F/RAND terms. Ramirez observed that, because the ITC is not subject to Supreme Court precedent, plaintiffs may increasingly seek to pursue exclusion orders in this venue, leading to patent hold-up and related consumer harm. Like Wayland, Ramirez noted that the public interest factors provide an avenue for the ITC to consider the anti-competitive impact that exclusion orders on F/RAND-encumbered standard-essential patents may have. Ramirez also suggested that short of denying an exclusion order outright, one option for the ITC might be to delay the effective date of its Section 337 remedies until the parties mediate in good faith for past damages and future royalties.
Both Wayland and Ramirez reported that their agencies were actively engaging the ITC on the impact to competition caused by injunctions that enforce standard-essential patents. The FTC, for example, has expressed its concern that patent holders may make F/RAND commitments in an SSO as part of the standard-setting process but then seek exclusion orders for the F/RAND-encumbered standard-essential patent as a means of securing royalties that are inconsistent with that commitment. According to Ramirez, the ITC has expressed interest in this issue and is currently seeking briefings on F/RAND-related topics in one of its open investigations. Ramirez explained that the FTC believes the ITC can resolve these issues under the public interest factors, but she signaled that if the ITC finds otherwise, Congress should possibly consider amending Section 337 to allow the ITC to prevent patent hold-up.
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McDermott’s Antitrust & Competition Practice Group has extensive experience working with both U.S. and international regulators and handling adversarial proceedings in antitrust matters involving intellectual property, such as those involving SSOs. Please feel free to reach out to us with any questions.