AAI has filed public comments encouraging the Antitrust Division of the Department of Justice, the U.S. Patent & Trademark Office, and the National Institute for Standards & Technology to ratify their Draft Policy Statement on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.
AAI’s comments applaud the agencies for setting aside their joint 2019 policy statement and restoring two-decades of bipartisan consensus supporting a balanced approach to evaluating remedies for the infringement of standards-essential patents (“SEPs”) subject to a “RAND or F/RAND” licensing commitment. The comments place the 2019 policy statement in historical context, which reveals it to be an activist departure from two decades of careful research, analysis, and learning regarding the competitive threat of patent holdup in the standards-setting context.
The 2019 statement replaced a 2013 statement that was the product of numerous hearings and reports initiated by the Bush administration in 2002 and continued during the Obama administration. The 2013 statement was carefully balanced and neutral and met with approval in the federal courts. But from 2017-19 the Trump Antitrust Division led a campaign to unilaterally reverse more than fifteen years of cooperative advocacy and policy development with the FTC about the competitive problem of patent holdup, culminating in the revised 2019 statement. The 2019 statement relegated holdup to a footnote, where it was treated equivalently to patent “holdout,” in which a SEP licensee refuses to pay a FRAND license because it is more profitable to delay and impose litigation costs on the SEP owner.
In addition to recognizing the agencies’ current draft statement as a necessary and proper course correction to restore a longstanding bipartisan consensus, AAI’s comments also suggest the statement could be improved in two ways. First, the draft policy statement should recognize the deceptive nature of holdup in the standard-setting context and the legal consequences that follow accordingly. A SEP owner unmistakably engages in deception when it makes a FRAND commitment during the standard-setting process with a specific intent to withhold a license or charge non-FRAND royalties after the standard incorporating its SEP has become entrenched. But a SEP owner also engages in a form of deception if it fully intends to keep its promise when it makes its FRAND commitment and then subsequently opts to deliberately breach the promise to exploit the monopoly power conveyed by standardization. Both constitute willful behavior that does not support injunctive relief.
Deception undermines the necessary showing for an injunction under the Supreme Court’s holding in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388 (2006), for two reasons that are not identified in the draft statement. First, a party with “unclean hands” ordinarily is not entitled to a remedy in equity. Second, deception has no cognizable efficiency benefits as a matter of law, and rewarding it therefore is never in the public interest.
AAI also argues that the draft policy statement should directly acknowledge the important qualitative differences between holdup and holdout. In its scrupulous commitment to balance, the current draft statement risks false equivalency. It notes that holdup “can deter investment in and delay introduction of standardized products, raise prices, and ultimately harm consumers and small businesses,” and it notes, “[a]t the same time,” that holdout “can lessen patent holders’ incentives to participate in the [standards] development process or contribute technologies to standards voluntarily,” and consequently “patent holders may opt for closed, proprietary standards that do not offer the same benefits of interoperability and enhanced consumer choice.”
However, these two different forms of socially undesirable behavior have vastly different impacts on the competitive process. Hold-up is integrally tied to the standardization process and the commitments made therein that can lead to the exercise of market power. Holdout, on the other hand, is simply willful patent infringement, which is an unexceptional phenomenon under patent law. A manufacturer that elects not to accept an SEP license on FRAND terms but nevertheless sells standardized products runs the same risks as manufacturers who fail to obtain a license for non-SEPs. Accordingly, there is good reason to doubt that holdout is legally relevant to assessing appropriate SEP-infringement remedies or that it poses a meaningful practical competitive threat in the standards-setting context.
AAI Advisory Board members Michael Carrier and Jorge Contreras, who are leading experts on the intersection of antitrust and intellectual property, also filed comments supporting the revised policy statement (available here and here), and numerous other AAI Advisory Board members joined a group of 26 professors of law, economics, business, and policy who likewise provide support (available here).