Startups Take Note: Feds Propose Limits on Standard-Essential Patent Market Power by Disfavoring Injunctions and Enforcing Non-Discriminatory Commitments
The federal government is taking some welcome steps toward restoring the balance between antitrust policy and intellectual property rights with its proposed statement on the remedies available to standard-essential patent (“SEP”) owners against companies that depend on fair licensing terms for essential technologies.
On December 6, 2021, the Antitrust Division, along with the Patent and Trademark Office and the National Institute of Standards and Technology, issued a draft revision to the federal government’s policy statement concerning the availability of injunctive relief for owners of SEPs that have committed to licensing on fair, reasonable, and non-discriminatory (“FRAND”) terms.
The proposed statement revives the federal government’s long-standing view that FRAND commitments are an important counterbalance to SEP market power. The revised statement is in response to President Biden’s landmark Executive Order on Promoting Competition in the American Economy, which called on the three agencies to consider how to “avoid the potential for anticompetitive extension of market power beyond the scope of granted patents.”
First, some background on how we got here. The current proposal is the third iteration of the policy statement, which was first issued in 2013. The original statement made the common-sense observation that courts should consider an SEP owner’s FRAND commitments when evaluating a request for an injunction against a potential licensee. In 2019, the Trump administration withdrew the 2013 statement and replaced it with a revised statement that rejected any “special rules” for FRAND-encumbered SEPs that limit injunctive relief. In other words, the previous administration suggested that courts should treat FRAND commitments as little more than an exercise in contractual interpretation, regardless of the potential impact on competition, consumers, or the public interest.
As explained in our previous post, reducing FRAND commitments to a contractual dispute is bad competition policy. SEPs can bestow market power on their owners because they are essential intellectual property for the development of competitive high-technology products, such as mobile phone modems that interoperate with 4G and 5G networks. But for effective FRAND commitments, a potential SEP licensee could face a Hobson’s choice: pay excessive licensing fees for essential technologies to compete in a market or face an injunction that can destroy its ability to compete at all. The 2019 statement made FRAND commitments an afterthought during licensing negotiations, thus maximizing SEP owners’ market power and bargaining leverage.
Like its predecessor statements, the current proposal suggests basic guidelines for good-faith negotiations between SEP owners and licensees. However, when negotiations fail and the dispute heads to court, the statement makes clear that existing Federal Circuit precedent “militate[s] against an injunction,” especially where the patentee has agreed to widely license its SEPs and where monetary damages can compensate for any infringement.
Thus, in the federal government’s view, no “special rules” are required. Instead, FRAND commitments should counterbalance SEP market power, i.e., SEP owners should “not exercise any market power obtained through standardization.” That necessarily includes limiting the availability of injunctive relief to specific circumstances where the licensee has demonstrated bad faith.
The policy statement does not have the force or effect of law, but there are indications that the antitrust enforcers are taking a more active role in SEP licensing disputes, especially those involving small and medium-sized licensees like technology startups.
For example, FTC Commissioner Rebecca Slaughter recently indicated that the FTC was prepared to use its enforcement powers under Section 5 to prohibit unfair methods of competition, including an SEP owner’s refusal to license to a willing licensee in violation of a FRAND commitment. According to Commissioner Slaughter, “I think we should focus our energy on cases where the market power abuse harms small and medium enterprise implementers.” In other words, startups facing supra-FRAND rates should actively consider their options before agreeing to pay.
Not only are the antitrust laws applicable to patent license negotiations, but they can be an essential tool in blocking abusive practices by firms that control massive patent portfolios, many of which also dominate standard-setting organizations. The draft policy statement on remedies for the infringement of standards-essential patents is a welcome sign that the federal government is continuing its renewed focus on the reality that smaller companies are often the victims of market power abuses.
Written by David Golden
Edited by Gary J. Malone
Tagged in: Antitrust Litigation,