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Unclassified DAF/COMP/WD(2014)
Organisation de Coopération et de Développement Économiques Organisation for Economic Co-operation and Development (^) 08-Dec-
_____________ English - Or. English DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE
INTELLECTUAL PROPERTY AND STANDARD SETTING
-- Note by the United States --
17-18 December 2014
This document reproduces a written contribution from the United States submitted for Item VII of the 122nd meeting of the OECD Competition Committee on 17-18 December 2014.
More documents related to this discussion can be found at http://www.oecd.org/daf/competition.
JT
Complete document available on OLIS in its original format This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area.
Unclassified DAF/COMP/WD(2014)
English
(^) Or. English
1. Introduction
1. In June 2010, the United States submitted a paper to the Competition Committee setting forth its
views on U.S. competition policy concerning standard-setting activities.^1 This paper updates parts of that
submission, focusing on U.S. antitrust enforcement actions and advisory policy guidance and leading U.S.
court decisions in the area of standard setting and intellectual property rights. Through enforcement actions
and policy statements, the U.S. Department of Justice, Antitrust Division (DOJ) and the U.S. Federal Trade
Commission (FTC) (collectively “the Agencies”) have provided significant guidance concerning
competition issues related to standard setting and intellectual property rights. The Agencies’ policy
guidance and enforcement decisions in this area take into account the complementary roles that
competition and intellectual property laws play in promoting innovation and enhancing consumer welfare.^2
2. The Agencies recognize that the core principles of antitrust and intellectual property law can help
ensure that any competition enforcement involving standard setting protects competition and consumers,
and encourages investment, innovation, and participation in standard-setting activity. The Agencies
acknowledge that, generally, “pricing freedom in bilateral licensing negotiations is critical for intellectual
3
property owners.” Market power is not presumed from a patent because often there are substitutes for the
patented technology.^4 When patents confer market power, ordinarily “exercise of monopoly power, including
the charging of monopoly prices, through the exercise of a lawfully gained monopoly position will not run
5
afoul of the antitrust laws.” Competition enforcement involving intellectual property rights should protect
competition and should not be used to advance unrelated domestic or industrial policy goals. In the Agencies’
view, “[e]nforcers need to be particularly careful about imposing price controls or prohibiting so-called
6
‘excessive pricing.’” “Enforcement activity that deprives patent owners of a reasonable reward in one
country can depress incentives to create technology for next-generation standards that will benefit
consumers around the world.”^7 Thus, using competition enforcement solely to reduce the royalty firms pay
(^1) Submission of the United States to Working Party No. 2 on Competition and Regulation,
DAF/COMP/WP2/WD(2010)28 [hereinafter 2010 U.S. Submission], available at http://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-and-other-international- competition-fora/usstandardsetting.pdf.
(^2) U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY
RIGHTS: PROMOTING INNOVATION AND COMPETITION 1 (2007) [hereinafter 2007 IP Report], available at http://www.ftc.gov/sites/default/files/documents/reports/antitrust-enforcement-and-intellectual-property- rights-promoting-innovation-and-competition-report.s.department-justice-and-federal-trade- commission/p040101promotinginnovationandcompetitionrpt0704.pdf.
(^3) Bill Baer, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, International Antitrust Enforcement:
Progress Made; Work to Be Done, Remarks as Prepared for Delivery at the 41st Annual Conference on International Antitrust Law and Policy 7 (Sept. 12, 2014) [hereinafter Baer, Progress Made; Work to Be Done], available at http://www.justice.gov/atr/public/speeches/308592.pdf; see also Edith Ramirez, Chairwoman, Federal Trade Comm’n, Standard-Essential Patents and Licensing: An Antitrust Enforcement Perspective, Remarks Presented at the 8th^ Annual Global Antitrust Enforcement Symposium 11 (Sept. 10,
- [hereinafter Ramirez, Standard-Essential Patents and Licensing], available at http://www.ftc.gov/system/files/documents/public_statements/582451/140915georgetownlaw.pdf.
(^4) See Illinois Tool Works v. Independent Ink., 547 U.S. 28, 31 (2006); U.S. Dep't of Justice & Federal Trade
Comm'n, Antitrust Guidelines for the Licensing of Intellectual Property § 2.2 (1995), reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,132, available at http://www.usdoj.gov/atr/public/guidelines/0558.pdf. (^5) 2007 IP Report, supra note 2, at 1.
(^6) Baer, Progress Made; Work to Be Done, supra note 3, at 7.
(^7) Ramirez, Standard-Essential Patents and Licensing, supra note 3, at 2.
products.^14 “[S]tandards may also be set in the marketplace where firms vigorously compete, [sometimes]
in a winner-take-all standards war to establish their own technology as the de facto standard.”^15
6. Most standards developed and used in the United States are voluntary consensus standards
created through private sector leadership.^16 In some instances, United States Government (USG) agencies
need standards to achieve their own regulatory and procurement objectives. In these situations, the USG
prefers that the federal agencies rely on voluntary consensus standards instead of government standards.^17
7. In some countries, governments themselves are involved in selecting technologies to be
incorporated into voluntary, collaborative standards, and in determining acceptable royalty and other
licensing terms. Such government involvement has the potential to undermine incentives to innovate and to
participate in the standard-setting process. Consequently, even for mandatory technical regulations that the
government needs to set, the USG may determine the performance requirements that a standard needs to
meet, but it allows SSOs to determine which technologies to incorporate according to intellectual property
rules set by each SSO, and not mandated by the government.
8. In the United States, as elsewhere, licensing on F/RAND terms for SEPs arises through voluntary
commitments by the patent holder.^18 Intellectual property disclosures to SSOs and licensing commitments
are designed to promote access to the technology needed to implement the standard on F/RAND terms and
to encourage patent holder participants to include the best technology in a standard by allowing for
appropriate compensation.^19 Firms that participate in collaborative standard setting can reap significant
benefits. For example, a firm that contributes patented technology to a standard might “enjoy a first-mover
advantage if [the firm’s] technology is adopted as the standard” and it can benefit from an expanded
market for the licensing of its technology.^20 Even firms whose technology is not accepted may benefit by
gaining technical knowledge as well as insights regarding what technology will ultimately be adopted.^21
(^14) 2007 IP Report, supra note 2, at 33 (internal citations omitted).
(^15) Id. at 34 (internal citations omitted).
(^16) Development of voluntary consensus standards includes several attributes, outlined in Office of Mgmt. &
Budget, Exec. Office of the President, OMB Circular A-119, Fed. Participation in the Dev. and Use of Voluntary Consensus Standards and in Conformity Assessment Activities (1998) [hereinafter OMB Circular A-119], available at http://www.whitehouse.gov/omb/circulars_a119; see also OMB A- Revision Process, available at http://www.whitehouse.gov/sites/default/files/omb/inforeg/revisions-to-a- 119-for-public-comments.pdf.
(^17) OMB Circular A-119, supra note 16. An exception arises when reliance on voluntary-consensus standards
would be inconsistent with law or otherwise impractical. Id.
(^18) See, e.g., Ramirez, Standard-Essential Patents and Licensing, supra note 3, at 11.
(^19) See, e.g. , Christine Varney, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Promoting
Innovation Through Patent and Antitrust Law and Policy 9 (May 26, 2010), available at http://www.justice.gov/atr/public/speeches/260101.pdf. These disclosures and F/RAND commitments sometimes identify specific patents that are or may become essential to the standard being developed, or they may be more general “blanket disclosures” or “blanket F/RAND commitments” applicable to a participant’s portfolio. Blanket F/RAND commitments do not typically enumerate specific patents that might be infringed by the standard in question, but rather offer F/RAND terms with respect to all patents within the participant’s portfolio that are or may become standard essential.
(^20) See 2007 IP Report, supra note 2, at 41.
(^21) See, e.g. , INTERNATIONAL ELECTROTECHNICAL COMM’N, STANDARDS FOR BUSINESS - HOW COMPANIES
BENEFIT FROM PARTICIPATION IN INTERNATIONAL STANDARDS SETTING (2006) (presenting case studies of how companies had benefitted from participation in SSOs), available at http://www.iec.ch/about/globalreach/academia/pdf/vries-1.pdf.
9. When a patent holder, in its discretion, declines to make a licensing commitment, the policies of
many SSOs allow the SSO then to decide whether to use a different technology, to include the technology
without a licensing commitment from its owner, or to abandon the proposed standard. It is foundational
that a patent holder’s determination of whether to contribute technology to a standard must be voluntary
and free of government coercion or pressure. The patent holder, for example, may choose to exercise its right
to exclude others from using the patented product or process by supporting an alternative standard or
retaining the patented technology for its exclusive use. The SSO likewise may decide not to include the
patented technology in the standard, or it may choose to incorporate the patented technology into the standard
with the recognition that the patent holder may later choose to seek whatever royalties the market will bear.
2.2 Potential procompetitive benefits of collaborative standard setting
10. In many contexts, the collaborative standard-setting process can produce substantial benefits. The
U.S. Supreme Court has stated that when “private associations promulgate safety standards based on the
merits of objective expert judgments and through procedures that prevent the standard-setting process from
being biased by members with economic interests in stifling product competition... those private standards
can have significant procompetitive advantages.”^22 As the FTC has explained, “[t]ypically, the
procompetitive benefits of standard setting outweigh the loss of market competition. For this reason, antitrust
enforcement has shown a high degree of acceptance of, and tolerance for, standard-setting activities.”^23
11. As described above, these benefits take a variety of forms. “[T]he collaborative standard-setting
process can enable industry participants to share knowledge and develop a ‘best-of-breed’ product or
process.”^24 Interoperability standards, by ensuring that products from different manufacturers can work
together, offer a range of benefits.^25 Such standards “pave[] the way for moving many important
innovations into the marketplace, including the complex communications networks and sophisticated
mobile computing devices that are hallmarks of the modern age.”^26
12. Standard setting may help to prevent coordination failures that can arise in markets that have
network effects.^27 In such markets, consumers’ individual decisions may lead them to choose incompatible
networks, even though they would all be better off if they coordinated.^28 An SSO can provide leadership
(^22) Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 501 (1988).
(^23) In the Matter of Rambus, Inc., 2006-2 Trade Cas. (CCH) ¶ 75364 4 (F.T.C. Aug. 2, 2006), rev’d on other
grounds , Rambus, Inc. v. Fed’l Trade Comm’n, 522 F.3d 456 (D.C. Cir. 2008).
(^24) Ltr. from Thomas O. Barnett, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Robert A.
Skitol, Partner, Drinker, Biddle & Reath, LLP at 7 (Oct. 30, 2006) [hereinafter VITA Business Review Letter], available at http://www.justice.gov/atr/public/busreview/219380.pdf.
(^25) See, e.g. , TELECOMMUNICATION STANDARDIZATION BUREAU, INT’L TELECOMMUNICATION UNION:
UNDERSTANDING PATENTS, COMPETITION AND STANDARDIZATION IN AN INTERCONNECTED WORLD 25- (July 2014) (explaining that standards can “[e]ncourage innovation and competition,” “facilitate interoperability,” “[i]ncrease cost efficiency,” and “[p]romote national development”), available at http://www.itu.int/en/ITU-T/Documents/Manual_Patents_Final_E.pdf.
(^26) U.S. DEP’T OF JUSTICE & U.S. PATENT & TRADEMARK OFFICE, POLICY STATEMENT ON REMEDIES FOR
STANDARDS-ESSENTIAL PATENTS SUBJECT TO VOLUNTARY F/RAND COMMITMENTS 3 (2013) [hereinafter DOJ-PTO Joint Policy Statement], available at http://www.justice.gov/atr/public/guidelines/290994.pdf.
(^27) “[T]here are network effects if one agent’s adoption of a good (a) benefits other adopters of the good
(a‘total effect’) and (b) increases others’ incentive to adopt it (a ‘marginal effect’).” Joseph Farrell & Paul Klemperer, Coordination and Lock-in: Competition with Switching Costs and Network Effects , 3 HANDBOOK OF INDUSTRIAL ORGANIZATION 1967, 2007 (2007).
(^28) See id. at 2022-24.
15. To mitigate this type of hold-up, as discussed above in Section 2.1, some SSOs require patent
disclosures from participants for essential patents that may be infringed by the potential users of a standard
in development.^38 They may ask SSO members to commit to license patents essential to that standard on
F/RAND terms.^39 As stated above, patent disclosures and voluntary licensing commitments are designed to
promote access on F/RAND terms to the technology needed to implement the standard and to encourage
patent holder participants to include the best technology in a standard by promising adequate
compensation. However, a decision by an intellectual property owner not to make any licensing
commitment to an SSO does not itself create antitrust liability. As explained in Section 2.1, in this
circumstance, the SSO may decide whether or not to include the technology without a licensing
commitment in the standard.
16. In certain circumstances, competition concerns can arise if potential licensees of a standard
jointly insist upon particular licensing terms. The Agencies have explained that joint ex ante licensing
negotiations may be unreasonable “if there [are] no viable alternatives to a particular patented technology
that is incorporated into a standard, the IP holder’s market power [is] not enhanced by the standard, and all
potential licensees refuse to license that particular patented technology except on agreed upon licensing
terms.”^40 In these cases, the royalty obtained by the patent owner may be driven below the value of the
invention.
2.4 Other concerns relating to intellectual property and standards
17. Other concerns can arise when patent holders cannot obtain reasonable compensation for the use
of valid and enforceable patents that they have contributed to a standard and that the potential licensee’s
products infringe. These concerns have been categorized by some as “hold out.” In the United States,
concerns of this nature may arise when there is a dispute between the holder of alleged F/RAND-
encumbered SEPs and the potential licensee regarding either the value of the patented technology or its
validity, enforceability or infringement. Regardless of the reason for the inability to come to mutually
agreed-upon license terms, a potential licensee who may need a license may in some circumstances refuse
to take a license or unreasonably delay negotiations to the same effect. Without the availability of
relatively prompt and effective civil remedies, including injunctive relief in appropriate circumstances (as
described further below with regards to F/RAND-encumbered SEPs^41 ), patent holders that seek
compensation for the patented technology they contribute to a standard may not be compensated for their
innovations in a way that reflects the appropriate value of the technology.^42 In the absence of the ability to
(^38) 2007 IP Report, supra note 2, at 36. Disclosure rules have limitations, however. “Disclosure, even of an
issued patent, let alone of an application, does not clearly reveal what will eventually be held to be covered by a valid patent. This patent fog stems from various aspects of [U.S.] patent policy[.]” Joseph Farrell et al., Standard Setting, Patents, and Hold-Up , 74 ANTITRUST L. J. 603, 629 (2007). (^39) 2007 IP Report, supra note 2, at 36.
(^40) See 2007 IP Report, supra note 2, at 53.
(^41) See generally DOJ-PTO Joint Policy Statement, supra note 26 at 6; Apple Inc. v. Motorola, Inc., 757 F.3d
1286, 1331-32 (Fed. Cir. 2014). (^42) See Microsoft Corp. v. Motorola, Inc., 2013 WL 2111217, at *18 (W.D. Wash. April 25, 2013). See also
U.S. DOJ-PTO Joint Policy Statement, supra note 26, at 8;. FED. TRADE COMM’N, THE EVOLVING IP MARKETPLACE: ALIGNING PATENT NOTICE AND REMEDIES WITH COMPETITION, Ch. 4 (2011) (describing the importance of providing appropriate incentives for innovation through remedies for patent infringement) [hereinafter FTC 2011 Evolving IP Marketplace Report], available at http://www.ftc.gov/os/2011/03/110307patentreport.pdf; Prepared Statement of The Federal Trade Commission, Concerning “Standard Essential Patent Disputes and Antitrust Law,” Before the United States Senate Comm. on the Judiciary Subcomm. on Antitrust, Competition Policy and Consumer Rights, July 30, 2013, at 6n.16, available at http://www.ftc.gov/sites/default/files/documents/public_statements/prepared-statement-federal-trade-
obtain such compensation, patent holders may become reluctant to contribute technology to a standard or
to invest in future research and development that leads to further innovation.
3. Enforcement Actions
3.1 Harming competition through deception during the standard-setting process
18. The FTC has brought three cases under Section 5 of the FTC Act alleging anticompetitive
manipulation of standard-setting processes. In Dell , “the FTC alleged that during an SSO’s deliberations
about a certain standard, Dell, a member of the SSO, had twice certified that it had no intellectual property
relevant to the standard, and that the SSO adopted the standard based, in part, on Dell’s certifications.^43
After the SSO adopted the standard, Dell demanded royalties from those using its technology in connection
with that standard. The [FTC] accepted a consent agreement under which Dell agreed not to enforce the
patent in question against firms using it as part of the standard.”^44
19. Similarly, in Rambus , the FTC found that Rambus was able to distort a critical standard-setting
process and engage in an anticompetitive “hold-up” of the computer memory industry by knowingly
failing to disclose to the SSO patents that it believed were or could be essential to the relevant standard.^45
20. Rambus appealed, and the U.S. Court of Appeals for the District of Columbia overturned the
FTC’s decision.^46 The court opined that if the SSO, in the world that would have existed “but for”
Rambus’s deception, would have standardized the very same technologies, Rambus’s alleged deception
could not be said to have had an effect on competition in violation of the antitrust laws. The court did not
view the SSO’s loss of an opportunity to seek favorable F/RAND licensing terms as an “antitrust” harm.
Because the FTC did not negate the possibility that the SSO would have developed the same standard even
absent Rambus’s deceptive conduct, the court held that “the Commission failed to demonstrate that
Rambus’s conduct was exclusionary, and thus to establish its claim that Rambus unlawfully monopolized
the relevant markets.”^47
21. In In re Union Oil Company of California , the FTC alleged that Union Oil Company of
California (Unocal) misrepresented its proprietary interest in the relevant standard until members of the
refining industry had spent billions of dollars modifying their refineries to become compliant with the new
standards, thereby enabling Unocal to charge substantial royalties, costing consumers hundreds of millions
of dollars per year.^48 Under the terms of the settlement, Unocal agreed not to enforce its patents related to
the relevant standard.^49
commission-concerning-standard-essential-patent-disputes-and/130730standardessentialpatents.pdf; Reply Submission of the Office of Unfair Import Investigations on Remedy and the Public Interest, In re Certain Wireless Communications Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745, at 12 n.3 (Int’l Trade Comm’n July 18, 2012). (^43) In re Dell, 121 F.T.C. 616 (1996).
(^44) 2007 IP Report, supra note 2, at 44; see also Decision and Order, In re Dell, 121 F.T.C. at 618-23 (1996).
(^45) Rambus, Inc., 9302 F.T.C. (2006), available at
http://www.ftc.gov/os/adjpro/d9302/060802commissionopinion.pdf. (^46) Rambus Inc. v. Fed. Trade Comm’n, 522 F.3d 456 (D.C. Cir. 2008), reh’g en banc denied (Sept. 9, 2008).
(^47) Id. at 467.
(^48) Complaint, Union Oil Company of California, 9305 F.T.C. (Mar. 4, 2003), available at
http://www.ftc.gov/os/adjpro/d9305/030304unocaladmincmplt.pdf.
(^49) See Statement of the Federal Trade Commission, In re Union
3.3 Patent portfolio acquisition
24. Under Section 7 of the Clayton Act,^56 DOJ has investigated the acquisition of several large patent
portfolios that included patents that the patent seller (or a previous owner) had agreed to license or make
available to users on specific terms, such as F/RAND or royalty-free. DOJ’s investigations focused on
whether the acquiring firms would have the incentive and ability to exploit ambiguities in the licensing
commitments the sellers made so as to hold-up implementers of a standard or foreclose competitors.
25. The first investigation concerned the acquisition of Novell Inc.’s patent portfolio by CPTN, a
holding company owned by Microsoft Inc., Oracle Corp., Apple Inc., and EMC Corp. Prior to the
acquisition, Novell had committed to cross-license its patents on a royalty-free basis for use in the open-
source Linux system.^57 DOJ determined that “[a]s originally proposed, the deal would jeopardize the
ability of open source software, such as Linux, to continue to innovate and compete in the development
and distribution of server, desktop, and mobile operating systems, middleware, and virtualization
products.”^58 In light of competition concerns about the acquisition, CPTN and its owners agreed to make
revisions to CPTN’s formation agreements in order to preserve competition and innovation in open source
software. Among other revisions, the parties agreed that all of Novell’s patents would be acquired subject
to the GNU General Public License Version 2, a widely adopted open-source license, and the Open
Invention Network License related to the Linux system. 59
26. In February 2012, DOJ closed Clayton Act investigations examining whether firms acquiring two
significant patent portfolios could use the patents in the portfolios to raise rivals’ costs or foreclose
competition.^60 Many of the patents in both these portfolios were relevant to wireless communications
technologies and many were encumbered with commitments made to SSOs to license them on F/RAND
terms for uses implementing certain standards.^61 DOJ examined whether the acquiring firms might seek to
hold-up implementers of the standards by demanding higher royalty rates, compelling cross licenses,
charging licensees the entire portfolio rate for a subset of patents, or seeking to exclude infringing products
from the market altogether. DOJ also considered whether the patent acquisitions would permit the
acquirers of the SEPs to obtain higher royalties by using the threat of an injunction.^62
27. DOJ concluded that the acquisitions were unlikely to substantially lessen competition. DOJ’s
analysis took into account public statements made during the pendency of these investigations by the
56 15 U.S.C. § 18.
(^57) Press Release, Antitrust Div., U.S. Dep’t of Justice, CPTN Holding LLC and Novell Inc. Change Deal In
Order to Address Department of Justice’s Open Source Concerns (Apr. 20, 2011), available at http://www.justice.gov/atr/public/press_releases/2011/270086.pdf.
(^58) Id.
(^59) Id.
(^60) The first involved Rockstar Bidco, a partnership formed by Apple, Microsoft, RIM Ltd., Sony Corp., and
Ericsson, which sought to acquire Nortel’s portfolio of approximately 6,000 patents and patent applications. The second concerned Google’s acquisition of Motorola’s portfolio of approximately 17, patents and 6,800 applications.
(^61) See Press Release, U.S. Dep’t of Justice, Statement of the Department of Justice’s Antitrust Division on its
Decision to close its Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisitions of Certain Patents By Apple Inc., Microsoft Corp. and Research In Motion Ltd. (Feb. 13,
- [hereinafter DOJ Closing Statement], available at http://www.justice.gov/atr/public/press_releases/2012/280190.pdf.
(^62) Id. at 1, 4.
acquiring firms, Apple, Google and Microsoft, explaining their respective SEP licensing practices.^63 DOJ’s
competition concerns “were lessened by the clear commitments by Apple and Microsoft to license SEPs on
[F/RAND] terms, as well as their commitments not to seek injunctions in disputes involving SEPs.”^64 DOJ
also found that Google’s acquisition of Motorola’s patents would not lessen competition.^65 Motorola was
already in a number of disputes with Microsoft, Apple, and others over the licensing of its SEPs and
Google’s acquisition of Motorola’s patents was unlikely to materially alter current market dynamics.^66
28. These transactions “highlight the complex intersection of intellectual property rights and antitrust
law and the need to determine the correct balance between the rightful exercise of patent rights and a patent
holder’s incentive and ability to harm competition through the anticompetitive use of those rights.”^67 The
Agencies continue to monitor how competitors are transferring ownership of their patent rights, particularly
when the patents at issue are F/RAND-encumbered and could affect the implementation of a standard.^68
4. Competition policy guidance concerning F/RAND-encumbered SEPs
4.1 Introduction
29. The Agencies have provided advisory competition policy guidance, including through written
guidance and outreach to SSOs regarding intellectual property policies, advocating for clarity in the law
and procompetitive rules with respect to administrative and court decisions involving F/RAND-
encumbered patents, and testifying before Congress about potential competitive harm that can result from
patent hold-up. The Agencies have also engaged in competition advocacy in foreign jurisdictions to ensure
that patent holder determinations of whether to contribute technology to a standard are voluntary and free
of government coercion or pressure and that patent holders contributing technology to standards are not
required to license those patents on royalty-free or below market terms.
4.2 Agency guidance to SSOs regarding F/RAND licensing
30. In providing advisory competition policy guidance, the Agencies do not require SSOs to adopt
specific intellectual property policies and DOJ has stated that “experimentation and competition among
[SSOs] regarding the breadth and depth of member licensing commitment obligations or options should
help [SSOs] and their members determine which methods ultimately provide the best platforms for
collaborative standard setting.”^69 As explained in the 2010 U.S. Submission, the Agencies review standard-
(^63) Id. at 1, 5.
(^64) Id. at 1.
(^65) Id.
(^66) DOJ’s investigation of this acquisition was limited to Motorola’s transfer of patent ownership rights and
did not involve Google’s exercise of those transferred rights, which was the subject of a different FTC investigation discussed above. Id. at 5. In the Google/Motorola investigation, DOJ coordinated with state competition authorities, as well as antitrust enforcers in other jurisdictions including the European Commission, the Australian Competition and Consumer Commission, the Canadian Competition Bureau, the Israeli Antitrust Authority, and the Korean Fair Trade Commission. Id.
(^67) Id. at 5-6.
(^68) See Oversight of the Impact on Competition of Exclusion Orders to Enforce Standards Essential Patents:
Hearing Before the S. Comm. on the Judiciary , 112th Cong. 9-10 (2012) (testimony of Joseph F. Wayland, Acting Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice), available at http://www.justice.gov/atr/public/testimony/284982.pdf; see also DOJ Closing Statement at 1-2.
(^69) Ltr. from Thomas O. Barnett, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Michael A.
Lindsey, Partner, Dorsey & Whitney, LLP at 12 (Apr. 30, 2007) [hereinafter IEEE Business Review
patent hold-up and, therefore, such relief may be inconsistent with the statutory public interest standard.^74
The DOJ-PTO Joint Policy Statement also explained that ITC exclusion orders can be an appropriate
remedy in some circumstances, such as where an implementer of a standard “refuses to pay what has been
determined to be a F/RAND royalty or refuses to engage in a negotiation to determine F/RAND terms” or
if a potential licensee “is not subject to the jurisdiction of a court that could award damages.”^75 This
guidance was consistent with the view the FTC previously expressed to the ITC in June 2012.^76
34. On August 3, 2013, the U.S. Trade Representative (USTR) cited the DOJ-PTO Joint Policy
Statement in a letter to the ITC Chairman disapproving an ITC determination for policy reasons. The USTR
shared the “substantial concerns” expressed in the DOJ-PTO Joint Policy Statement regarding “the potential
harms that can result from owners of [F/RAND-committed SEPs] gaining undue leverage and engaging in
‘patent hold-up’.... At the same time, technology implementers also can cause potential harm by, for
example, engaging in ‘reverse hold up’ (‘hold out’), e.g. , by constructive refusal to negotiate a [F/RAND]
license with the SEP owner or refusal to pay what has been determined to be a [F/RAND] royalty.” 77
4.3.2 The U.S. courts
35. Over the past few years, several litigated breach of contract cases and patent infringement cases
have helped clarify how courts can calculate a “reasonable royalty” for a F/RAND-encumbered SEP^78 and
when injunctive relief may be granted.^79 The Agencies have engaged in advocacy with respect to both
issues.^80
(^74) DOJ-PTO Joint Policy Statement, supra note 26, at 6-7.
(^75) Id.
(^76) Third Party U.S. Fed. Trade Comm’n Statement on the Public Interest, Certain Wireless Communication
Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337- TA-745 (June 6, 2012) (explaining that issuance of an exclusion order in matters involving F/RAND- encumbered SEPs, when infringement is based on implementation of standardized technology “has the potential to cause substantial harm to U.S. competition, consumers and innovation,” and noting that the ITC may refrain from imposing remedies that conflict with the public interest), available at http://www.ftc.gov/sites/default/files/documents/advocacy_documents/ftc-comment-united-states- international-trade-commission-concerning-certain-wireless-communication/1206ftcwirelesscom.pdf.
(^77) Certain Electronic Devices, Including Wireless Communications Devices, Portable Music and Data
Processing Devices, and Tablet Computers, Inv. No. 337-TA-794 (Aug. 2013), disapproved by Ltr. from Michael B.G. Froman, Amb., U.S. Trade Rep., to Irving A. Williamson, Chairman, U.S. Int’l Trade Comm’n (Aug. 3, 2013), available at http://www.ustr.gov/sites/default/files/08032013%20Letter_1.PDF.
(^78) See, e.g. , Realtek Semiconductor Corp. v. LSI Corp., 946 F.Supp. 2d 998, 1006 (N.D. Cal. 2013); Apple,
Inc. v. Motorola Mobility, Inc., 886 F. Supp. 2d 1061 , 1083-84 (W.D. Wis. Aug. 10, 2012), 2011 WL 7324582, at *7-11 (W.D. Wis. June 10, 2011); Microsoft Corp. v. Motorola, Inc ., 864 F. Supp. 2d 1023, 1030-33 , 854 F. Supp. 2d 993, 999-1001 (W.D. Wash. 2012), 696 F.3d 872, 884 (9th Cir. 2012); Research In Motion Ltd. v. Motorola, Inc_._ , 644 F.Supp.2d 788, 797 (N.D. Tex. 2008). See also In re Innovatio IP Ventures, LLC Patent Litig_._ , No. 11 c 9308, 2013 WL 5593609 at *4 (N.D. Ill. Oct. 3, 2013), 2013 WL 427167, at *17 (N.D. Ill. Feb. 4, 2013).
(^79) See, e.g. , Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1331-32 (Fed. Cir. 2014) (rejecting a per se rule
prohibiting injunctions for SEPs).
(^80) Equitable patent law defenses and tort law actions might also be relied upon to resolve licensing disputes
involving SEPs. See 2010 U.S. Submission, supra note 1, at 16.
4.3.2.1 F/RAND royalty rate determinations
36. In recent cases involving F/RAND licensing disputes, courts have considered a hypothetical ex
ante negotiation between the parties using a modified version of the Georgia-Pacific factors.^81 Two
decisions by district court judges determining a RAND rate or range, which have been informed by the
goals of RAND, are instructive.^82 [Note: The U.S. Court of Appeals for the Federal Circuit remanded one
district court decision just as this submission was finalized. It is not reflected in this discussion.^83 ] These
[earlier] decisions acknowledged that RAND licensing requirements seek to avoid patent hold-up and
encourage “widespread adoption” of a standard,^84 and that a RAND rate must maintain incentives to
participate in and contribute technology to a standard.^85 The decisions are also cognizant of the problem of
royalty stacking “and the need to ensure that the aggregate royalties associated with a given standard are
reasonable,” given that today’s standards incorporate intellectual property from multiple owners.^86 In
applying the modified Georgia-Pacific factors, these courts discussed, inter alia , comparable RAND
licenses,^87 whether the SSO could have adopted alternatives to the patented technology,^88 and the
incremental value contributed by the patented technology to the standard, apart from the value associated
with its adoption into the standard.^89
37. These recent decisions are consistent with the FTC’s 2011 report, The Evolving IP Marketplace:
Aligning Patent Notice and Remedies with Competition , in which the FTC described the potential for
(^81) See Georgia-Pacific Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970),
modified and aff’d , 446 F.2d 295 (2d Cir. 1971).
(^82) In re Innovatio IP Ventures, LLC Patent Litig_._ , 2013 WL 5593609 (N.D. Ill. October 3, 2013); Microsoft
Corp. v. Motorola, Inc., 2013 WL 2111217 (W.D. Wash. April 25, 2013); cf. CSIRO v. Cisco Sys. Inc., 2014 WL 3805817 (E.D. Tex. July 23, 2014) (no modification of the Georgia-Pacific analysis when the F/RAND commitment extended only to an early version of the standard and “a modified analysis... would have a de minimus impact on the overall royalty,” but the court would consider the F/RAND obligation when appropriate). There have also been two jury verdicts. See Ericsson Inc. v. D-Link Sys., Inc., 2013 WL 4046225 (E.D. Tex. 2013), aff’d in part, rev’d in part, vacated-in-part and remanded , No., 2013-1625 (Fed. Cir. Dec. 4, 2014); Realtek Semiconductor Corp. v. LSI Corp., 2014 WL 2738216 (N.D. Cal. June 16, 2014).
(^83) Ericsson Inc. v. D-Link Sys., Inc., No., 2013-1625 (Fed. Cir. Dec. 4, 2014).
(^84) Innovatio, 2013 WL 5593609, at *8-9, 12; Microsoft, 2013 WL 2111217, at *10-12.
(^85) Innovatio, 2013 WL 5593609, at *12, 20; Microsoft, 2013 WL 2111217, at *12, 20, 80.
(^86) Microsoft, 2013 WL 2111217, at *11-12, 20, 73-74, 86; Innovatio, 2013 WL 5593609, at *9-10, 38.
(^87) Innovatio, 2013 WL 5593609, at *5, 30-37; Microsoft, 2013 WL 2111217, at *18, 20, 64-101.
(^88) Innovatio, 2013 WL 5593609, at *19-20; Microsoft, 2013 WL 2111217, at *13, 19, 53-54 (discussing one
modified Georgia-Pacific factor and explaining “the parties to a hypothetical negotiation under a RAND commitment would consider alternatives that could have been written into the standard instead of the patented technology. The focus is on the period before the standard was adopted and implemented (i.e., ex ante ).”).
(^89) Microsoft, 2013 WL 2111217, at *12-13 (“[A] reasonable royalty rate for an SEP committed to a RAND
obligation must value the patented technology itself, which necessarily requires considering the importance and contribution of the patent to the standard. If alternatives available to the patented technology would have provided the same or similar technical contribution to the standard, the actual value provided by the patented technology is its incremental contribution.... Thus, comparison of the patented technology to the alternatives that the SSO could have written into the standard is a consideration in determining a RAND royalty”). See also id. at *18, *85-86. But cf. id. at *13 (raising practical concerns about determining incremental value); Innovatio, 2013 WL 5593609, at *37.
40. The Federal Circuit’s decision is consistent with the FTC’s amicus curiae brief in the case, in
which the FTC advocated that “a practice of widespread licensing … strongly militates against a finding of
irreparable harm.”^101 The FTC also argued that “a commitment to license... on F/RAND terms should be
sufficient to establish that a reasonable royalty is adequate to compensate the patentee for infringement by
any particular implementer willing and able to abide by those terms.”^102 The FTC also noted the potential
hardship that an injunction would pose to infringers, as well as the “public interest in promoting innovation
and protecting consumers.”^103 The FTC’s brief was based on its longstanding research in the area, notably
its 2011 IP Report.
4.4 Congressional testimony
41. The Agencies have also testified before Congress, identifying potential harm to competition and
the standard-setting process that could result from patent hold-up^104 and urging Congress to act if
necessary.^105
5. Concluding Comments
42. The Agencies have provided competition guidance to SSOs, the business community, the courts,
and the ITC concerning competition issues related to standard setting and intellectual property rights. The
USG believes that intellectual property holders should be free to decide whether to contribute technology
to a standard, and that intellectual property holders who seek compensation for the technology they
contribute to a standard should be compensated for their invention in a way that appropriately reflects the
value of the technology while avoiding harm to competition. In view of that, the Agencies have
encouraged standard-setting bodies to adopt clear intellectual property policies that may facilitate such
compensation for contributions to a standard, help to mitigate hold-up, and promote swift implementation
of industry standards, and the Agencies have undertaken enforcement actions when conduct involving
F/RAND-encumbered SEPs harms competition and violates the antitrust laws.
(^101) Brief of Amicus Curiae Fed. Trade Comm’n Supporting Neither Party, Apple Inc. v. Motorola, Inc., Nos.
2012-1548, 2012-1549 2012 WL 6655899 at 10 (Fed. Cir. Dec. 4, 2012), available at http://www.ftc.gov/sites/default/files/documents/amicus_briefs/apple-inc.and-next-software- inc.v.motorola-inc.and-motorola-mobility-inc./121205apple-motorolaamicusbrief.pdf.
(^102) Id. at 11.
(^103) Id. at 12.
(^104) Prepared Statement of the Federal Trade Commission Concerning Oversight of the Impact on Competition
of Exclusion Orders To Enforce Standard-Essential Patents before the S. Comm. on the Jud , 113th^ Cong. (2012) (statement of Edith Ramirez, Chairwoman, Fed. Trade Comm’n) [hereinafter Ramirez Testimony], available at http://www.ftc.gov/sites/default/files/documents/public_statements/prepared-statement- federal-trade-commission-concerning-oversight-impact-competition-exclusion- orders/120711standardpatents.pdf; Oversight of the Impact on Competition of Exclusion Orders to Enforce Standards Essential Patents: Hearing Before the S. Comm. on the Judiciary , 112th Cong. 9-10 (2012) (statement of Joseph F. Wayland, Acting Assistant Att’y Gen., Antitrust Div.), available at http://www.justice.gov/atr/public/testimony/284982.pdf; Prepared Statement of the Federal Trade Commission Concerning Standard Essential Patent Disputes and Antitrust Law before the S. Comm. on the Jud. Subcomm. on Antitrust, Competition Policy and Consumer Rights , 113th^ Cong. (2013) (statement by Suzanne Munck, Chief Counsel for Intellectual Property, Fed. Trade Comm’n), available at http://www.ftc.gov/sites/default/files/documents/public_statements/prepared-statement-federal-trade- commission-concerning-standard-essential-patent-disputes-and/130730standardessentialpatents.pdf.
(^105) See Ramirez Testimony, supra note 104 at 1-2.
