Wednesday, December 26, 2012

IEEE to court: don't rely on standards bodies to 'take a direct role in enforcing patent commitments'

In early November I already said that the Federal Circuit was going to "receive input from many key stakeholders" concerning Google's (Motorola Mobility's) appeal of the FRAND part of Judge Posner's Apple v. Motorola ruling. Those who openly side with Apple (and, by extension, Judge Posner) on the FRAND part of the case were granted more time to file their amicus curiae briefs, but various stakeholders who formally don't support either party have already made their filings.

Today I finally got access to a submission by the Institute of Electrical and Electronics Engineers (IEEE), whose standard-setting unit, IEEE-SA, "is one of the standards development organizations ('SDOs') to whom licensing assurances were given on patents at issue in this litigation". That's because some of the standard-essential patents (SEPs) Motorola is asserting against Apple have been declared essential to IEEE 802.11 (WiFi, or WLAN). Google's Motorola Mobility is also suing Microsoft over such patents in the Western District of Washington (two months ago it withdrew a couple of related patents from the ITC investigation of its complaint against Microsoft's Xbox gaming console).

While the IEEE's brief is formally filed "in support of no party", it will be rather difficult for Google (Motorola) to get any mileage out of it, while Apple (and Microsoft in the Western District of Washington) will undoubtedly find some useful statements.

A large part of the brief is a purely factual description of the IEEE standard-setting process in general and its approach to SEP licensing commitments in particular. For example, the IEEE clarifies that "the absence of [a Letter of Assurance] (or the submission of an LOA that indicates an unwillingness to provide any kind of assurance) is a factor that the IEEE-SA may consider when deciding whether to approve the draft standard". In other words, by making a FRAND licensing commitment to its SEPs, a company provides an assurance to the IEEE that clears one potential hurdle on the way to adoption of a new standard. The IEEE's amicus brief stresses that it's key to "protect the value and integrity of the patent commitment made to IEEE-SA in LOAs". The commitment is meant to protect against potential hold-up (potential, not just actual), it's irrevocable, and binding on successors and assignees.

The IEEE is perfectly honest about the fact that the R in FRAND is interpretable:

"The term 'reasonable,' however, is inherently vague, and the ability of patent commitments to protect against holdup is thus imperfect.22 Sometimes this vagueness (and the consequent inability of parties to agree on a negotiated, 'reasonable' license) will lead to expensive litigation whose cost and risk can impede the adoption of a socially valuable standard. Even without litigation, the ex post negotiation of license terms (that is, negotiations occurring after a technology's inclusion in a standard) can lead to higher royalty payments and ultimately higher prices to consumers."

The last sentence is also relevant to the FRAND rate-setting dispute between Microsoft and Motorola Mobility in the Western District of Washington, where Judge James L. Robart recently held a bench trial and is now working on a rate-setting decision. Microsoft and Google (Motorola) disagree on methodology. While it's difficult in most cases to point to ex-ante (pre-standard-setting) agreements between parties, Microsoft's proposal is to at least do whatever can be done to come as close as possible to the result of an ex-ante negotiation, and Motorola's contrary suggestion is to simulate a bilateral negotiation in accordance with the Georgia-Pacific factors, a framework that Google (Motorola) hopes will allow it to capture hold-up value. The IEEE's submission to the Federal Circuit clearly warns against the negative effects, which ultimately harm consumers, of such an approach.

With the IEEE admitting that "reasonable" can give rise to litigation, the question is what the IEEE and other standard-setting organizations can and will do to address the issues identified. The amicus brief suggests that the IEEE would generally encourage greater clarity but doesn't require it at this stage:

"IEEE-SA's current patent policy expressly permits (but does not require) the submitter of a patent commitment to provide with its commitment (i) a not-to-exceed license fee or rate commitment, (ii) a sample license agreement, or (iii) one or more material licensing terms. Other approaches (such as VITA Standards Organization's policy for mandatory disclosure of maximum rates) are also possible."

Without some consensus among contributing patent holders the IEEE obviously can't tell a court that it wants to go down that avenue. It can merely describe potential paths.

Six months ago, European Commission Vice President JoaquĆ­n Almunia called on courts, regulators and industry to make their specific contributions to the fight against FRAND abuse. In the Samsung case the European Commission is demonstrating world-class regulatory leadership: last week it issued a Statement of Objections. I'm reasonably hopeful that other competition enforcers will also take serious action. But it's also important that the courts do what they can under the applicable laws. That's what the IEEE is telling the Federal Circuit:

"This Court should not assume that SDOs will necessarily take a direct role in enforcing patent commitments. First, for SDOs to enforce patent commitments directly would impose costs on SDOs (and on the standards development process) that are better borne by implementers and patent holders. Second, the technical knowledge embodied in the standard (and thus the ability to understand the role that a patent might play in that standard) will typically reside not in the SDO itself, but with the volunteers who developed the standard. Third, an SDO's direct enforcement of patent commitments would diminish the ability of an SDO to remain a neutral forum."

But the IEEE wants to keep its options open:

"SDOs should not be prohibited, of course, from seeking to enforce such commitments directly where the SDO believes it appropriate to do so. Cf. Understanding Patent Issues During IEEE Standards Development Patented Technology in IEEE Standards at ¶ 30, supra ('In certain circumstances and at its sole discretion, the IEEE may also seek to enforce the terms of an Accepted Letter of Assurance.')."

All in all, I believe the IEEE would like the Federal Circuit to affirm Judge Posner's ruling, at least in some respects, but the amicus curiae brief does not say so directly, and it navigates around the key issue of injunctive relief. The words "injunction", "injunctive" and "[to] enjoin" don't appear even once in the 24-page submission. But I'm sure there won't be a shortage of amicus curiae briefs touching on that issue next year.

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