Beginning in November 2017, Makan Delrahim, head of the U.S. Department of Justice Antitrust Division, signaled that he would reverse many of the DOJ’s prior positions regarding technical standardization and, especially, patents covering technical standards (so-called Standards Essential Patents or SEPs) (the 2017 announcement is discussed in detail here). The latest step in this DOJ reversal of direction came in December 2018, when Mr. Delrahim announced that the DOJ would withdraw from a 2013 joint Policy Statement that the DOJ issued with the U.S. Patent and Trademark Office (PTO). The DOJ’s unexpected withdrawal from the Joint Policy Statement has prompted significant reactions within the industries affected by standardization, including statements of strong support for the DOJ’s new position by an inventors’ alliance and a coalition of large SEP holders, and statements urging the DOJ’s reconsideration by the American Antitrust Institute (AAI) [note: the author serves on the Advisory Board of the AAI] and a coalition of technology companies.
The standards at the center of this debate are complex technical protocols like Wi-Fi, 3G/4G/5G and Bluetooth that enable products sold by different manufacturers to interoperate in a seamless manner. These standards are largely developed within industry trade associations known as standards-development organizations (SDOs) that bring together competitors who collaborate on the technical aspects of these protocols. Given their technological complexity, many standards embody patentable innovations, and the companies that participate in SDOs have obtained tens of thousands of patents covering some of these standards. In order to assure broad adoption of their standards, most SDOs require that their participants license those patents (SEPs) to manufacturers of standardized products on terms that are either royalty-free or which bear royalties that are fair, reasonable and non-discriminatory (FRAND).
Since the early 1990s, both the DOJ and the U.S. Federal Trade Commission (FTC), which shares antitrust enforcement authority with the DOJ, have expressed concern regarding patent holders who threaten to use the market leverage conferred by SEPs to extract excessive royalties from product manufacturers who need to license those SEPs in order to sell products conforming to widely adopted standards (the threat of so-called “hold-up”). As discussed in more detail here, the principle aspects of the DOJ’s new policy direction are the following:
(1) less antitrust scrutiny of unilateral conduct (hold-up) by SEP holders, as patent holders generally have the right to assert their rights as they wish;
(2) greater antitrust scrutiny of potential collusive conduct by SDO participants who seek to revise SDO policies in a manner designed to disadvantage patent holders;
(3) no restriction on a SEP holder’s ability to seek an injunction against an infringing product manufacturer who has not obtained a license.
The last point appears to be the principal reason for the DOJ’s withdrawal from the 2013 Joint Policy Statement, which provided that “In some circumstances, the remedy of an injunction or exclusion order may be inconsistent with the public interest,” as such a remedy “may harm competition and consumers by degrading one of the tools SDOs employ to mitigate the threat of such opportunistic actions by the holders of F/RAND-encumbered patents that are essential to their standards” (p. 6). The DOJ has indicated that it will seek to develop a revised statement of position with the PTO.
These developments could have far-reaching effects. Of particular note is the policy divide that now exists between the DOJ and the FTC, which has brought most of the antitrust enforcement actions to date regarding standards-essential patents (see Table 2 here) and is currently engaged in antitrust litigation against Qualcomm, a large SEP holder.
The DOJ’s potential antitrust scrutiny of SDO’s that seek to clarify their policies in ways that could disadvantage SEP holders is also of concern, particularly given the continuing controversy over IEEE’s 2015 policy amendments, which have been viewed by some (see, e.g., here, here and here) as detrimental both to SEP holders and to IEEE itself. Ironically, the IEEE’s policy amendments were the subject of a favorable 2015 Business Review Letter issued by the DOJ itself, and the agency’s potential reversal of such a recent policy statement could undermine years of policy guidance that the DOJ has issued concerning standardization, patent pools and other business activity (discussed here at pp. 5-7).
Finally, the DOJ’s skepticism of SDO policies that disadvantage SEP holders could have a negative effect on SDOs that opt for open source and royalty-free methods of standards development (discussed here at pp. 9-10). With the tremendous market success of royalty-free standards such as TCP/IP, HTML, HTTP, WWW, Bluetooth, HDMI and USB, policies that dampen the development of royalty-free standards could have a serious adverse impact on technology development and dissemination.
But as indicated by the latest responses to the DOJ’s policy moves, industry remains deeply divided over these critical issues.
