DOJ Eyes Less Patent ‘Ambiguity’ From Standard-Setters, Antitrust Division Lawyer Says

"Every level” of DOJ’s Antitrust Division hopes standard-setting organizations “consider additional policies to reduce the opportunity to exploit ambiguities in the FRAND and RAND licensing agreement,” said Terrell McSweeny, senior counsel in the division. “We are starting to articulate what those policies should be.” Patents’ value dramatically increase when they're part of SEPs, Microsoft Assistant General Counsel Greg Sivinski said at the event Wednesday at the University of Colorado at Boulder. The FTC has discovered more than a few “roadblocks at the intersection of intellectual property law and antitrust” law, Commissioner Julie Brill said earlier at the event.

"There is a huge amount of discussion” on antitrust and patent law, as Brill’s remarks pointed to, McSweeny said on a later panel. “It’s very unclear where we are” with case law, and it’s an issue the Antitrust Division is giving attention to, McSweeny said. The FTC, Justice and some federal judges including Richard Posner of the 7th U.S. Circuit Court of Appeals are starting to “have a sense that there is some obligation to try to license a patent that is so encumbered” by RAND or FRAND, she said. Court injunctions or International Trade Commission exclusionary relief are rare, and viewed as only for when a deal to license a patent can’t be reached, McSweeny said. “It certainly is an area that we are watching very closely.” There’s “definitely” an antitrust role, with Justice “playing a relatively active role” in issuing business review letters to standard-setting organizations seeking one on patent deals, McSweeny said.

"We do think there is a role” for such bodies to reduce ambiguity related to SEPs, McSweeny said. “We believe that some experimentation and competition in this space is actually very, very valuable.” Much of what’s in dispute when issues arise is what’s a reasonable royalty for SEPs, and that’s why DOJ and FTC are “spending some time thinking about how the standard-setting organizations can clarify that,” McSweeny said: Such issues are “at the heart of a lot of what is happening now in the mobile device space.” The department’s closing statement in which it didn’t block Google’s purchase of Motorola Mobility is a “very clear articulation of how the Department of Justice is approaching this at the moment,” McSweeny said. “We are particularly concerned” about the “potential anticompetitive use of SEPs,” she said during the event, which was webcast (http://xrl.us/bnsnni). Past business review letters have said standard-setting organizations’ royalties and licensing of patents didn’t violate antitrust law, she noted. The Moving Picture Experts Group was one of the first such bodies to seek a letter (http://xrl.us/bnsnpp), said moderator and center Executive Director Phil Weiser. He worked for the National Economic Council and Antitrust Division earlier in the Obama administration.

Brill said with effective application of intellectual property law and robust enforcement of competition law, the FTC can “ensure that high tech innovation does not become collateral damage” in today’s patent wars. The agency believes that trivial and overbroad patents undermine competition, she said. It’s concluded that poor patent notice and inequitable patent remedies have a “huge impact on incentives to innovate, competition and consumer welfare,” she said. Brill said poor notice of the scope of patents undermines competition and distorts competition, while overcompensation of patent remedies can lead to higher prices and deter innovation.

The FTC has urged courts to cap reasonable royalty damages at the amount that a willing licensee would pay, determined by the value of the invention over alternative technologies, Brill noted. In the debate over what appropriate remedies are applicable in disputes involving standard-essential patents, the commission is particularly interested in cases where the patent holder has agreed to license a technology on FRAND terms, said Brill. The commission is particularly concerned that granting an injunction or an exclusion order for a SEP is consistent with the patent holder’s FRAND commitment. Brill said the ITC needs to ensure that remedies related to FRAND-encumbered standard-essential patents do not conflict with the public interest. Use of the ITC as a venue for patent challenges has tripled in the last 10 years, said Brill, because the ITC is not required to follow the precedent set by the Supreme Court’s decision in eBay vs. MercExchange. The 2006 case barred automatic injunctions for patent infringement. Brill said companies’ use of the ITC as a venue for patent challenges “threatens to undermine the pro-competitive aspects of eBay vs. MercExchange, and has the potential to turn the ITC into a forum for patent holdup.”

Recent efforts on patents have focused how to fit antitrust law with licensing practices, speakers said on a later panel. “There’s an ongoing harmonization between patent law and antitrust law,” said Level 3 Chief Legal Officer John Ryan. That judges increasingly weigh the “social cost” of whether to issue patent injunctions -- much as those costs are considered in other types of injunctions -- “forces parties to be more reasonable,” Ryan said: It forces them “to negotiate for patent rights in a way that won’t foreclose competition.” There’s been, in the past year, “more light and writing and commentary on the notion of how patents and antitrust intersect, especially in the area of standards,” than in the past 10, Sivinski said.

"There are a few kinds of things pending where those questions are squarely teed up,” including in the U.S. District Court in Seattle, where Microsoft and Motorola have a case over SEPs, Sivinski said. He expects a 2013 ruling in the bench trial. Monsanto Chief Deputy General Counsel Scott Partridge sees as necessary the “tension that exists between the shared goals of facilitating investment and innovation, and ensuring and promotion of investment and competition,” in patent issues, he said. “It’s a question of social welfare.” Tech companies look at patent issues “in terms of nanoseconds, and at Monsanto we deal with crop years,” Partridge said. “We really need predictability without politics, and that’s a tough tradeoff” and one that he said is as applicable to smartphones as it is to agriculture.