In June 2012, European Commission Vice President Joaquín Almunia said that, in addition to regulatory efforts to counter the abuse of FRAND-pledged standard-essential patents (SEPs), courts and standard-setting organizations (SSOs) also need to contribute to solutions. More than a year later, there is indeed momentum on multiple fronts behind efforts to hold companies to their FRAND promises and to ensure that industry can rely on FRAND pledges. This post is an update on positive developments in politics, antitrust enforcement and standardization.
Chairman Goodlatte's draft patent bill contains SEP-specific pleading requirement
Earlier this week the Chairman of the Judiciary Committee of the United States House of Representatives, Bob Goodlate (R-Va.), released his second patent reform discussion draft. Unsurprsingly, there are lobby groups for whose purposes the bill doesn't go far enough.
Patently-O published the proposal. On page 5 of that document, starting on line 9, there's a proposal for an additional pleading requirement (the Goodlatte draft proposes a number of new requirements) concerning SEPs:
"(10) [Identify] [f]or each patent[-in-suit], whether such patent is subject to any licensing term or pricing commitments through any agency or standard-setting body."
While this requirement per se doesn't prevent abuse and is, at first sight, nonjudgmental, I still consider it helpful. If this was ultimately adopted, it would presumably be the first time that the patent law of any country in the world recognizes the fact that SEPs raise specific issues in enforcement. It doesn't say what those issues are; it doesn't say how to deal with them. But the existence of a pleading requirement would, in and of itself, support the position that SEPs are a special category of patents from an enforcement point of view.
At the recent Federal Circuit hearing in the "Posner appeal", Apple's lead counsel, Orrick's Joshua Rosenkranz, told the appeals court that pple and Motorola "occupy completely opposite ends": on the one hand, there are the "distinctive" patented features with which Apple "revolutionized" wireless devices and Apple's "exclusivity"-centric approach of not licensing those patents "in general" to anyone, much less competitors, and on the other hand, Motorola's patents-in-suit, which relate to standards and which it promised to "license universally to everyone". While this distinction is accurate and appropriate, it's based on contract law, antitrust rules, business logic and principles of innovation policy, but statutory patent law does not make or recognize this distinction at present. If Chairman Goodlatte's proposal was adopted, then there would also be at least a strong indication in statutory patent law that SEPs must be treated differently from non-SEPs.
SEP-specific questions raised by FTC inquiry into patent troll industry
Three months ago I already expressed skepticism concerning the FTC's Section 6(b) investigation of patent assertion entities (PAEs). So far there's no indication, much less evidence, that there are actually antitrust issues in that area. Not all bad stuff that happens in business is a violation of antitrust laws.
This week the FTC formally launched its inquiry and published a request for public comment on proposed information requests to PAEs. For the reason I gave in the previous section, I like the fact that special attention is given to SEP assertions. On page 4 of the document, the term "Standard-Setting Organization" (or "SSO") is defined as "any organization, group, joint venture or consortia that develops standards for the design, performance or other characteristics of products or technologies". On page 5, subsection o specifies SEP-specific information on PAE patents that the FTC plans to request:
o. whether the Patent (or any claims therein) is subject to a licensing commitment made to a Standard-Setting Organization and specify:
(1) all Standard-Setting Organizations to which a licensing commitment has been made;(2) all standards to which such a licensing commitment applies;
(3) the Person(s) who made the licensing commitment;
(4) the date(s) on which the licensing commitment was made;
(5) all encumbrances, including, but not limited to, all commitments to license the Patent or any of its claims on reasonable and non-discriminatory (RAND), fair, reasonable, and non-discriminatory (FRAND), or royalty-free (RF) terms[.]
I don't like at all what certain non-practicing entities are doing with FRAND-pledged SEPs. For example, I'm a long-standing critic of certain aspects of InterDigital's demands and enforcement strategies.
But SEP-wielding NPEs ultimately just want to get paid. Some of them demand way too much money, and they seek unfair leverage to force others to accede to their demands. Still, they are sincere in their desire to conclude a license deal. That's more than operating companies that act as SEP trolls can say. Those make purely prohibitive demands for a SEP license because their real objective is a comprehensive cross-licensing involving non-SEPs. In my view, that should be a higher antitrust enforcement priority than SEP-owning NPEs.
The European Commission is focused on abusive conduct by large players, though I wouldn't be surprised to see EU investigations of certain SEP-holding NPEs at some point as well. An antitrust hearing in the EU investigation of Google's (Motorola Mobility's) SEP assertions against Apple in Germany will, according to what I was told on Twitter, be held on Monday, September 30. I did a fair amount of work in Brussels over many years and have some good contacts there. I'll try to find out more about this.
On Friday Vice President Almunia gave a speech at Fordham's Competition Law Institute Annual Conference in New York and mentioned that "Samsung has sent [the Commission] a set of commitments seeking to address [its] concerns" and announced a market test: "We will formally market test these proposed commitments with other market participants in the coming weeks." (That's what the Commission has to do unless it settles cases without formal remedies.)
Proposed IEEE Standards Board Bylaws would provide far greater clarity than previous SSO FRAND policies and pledges
The IEEE (Institute of Electrical and Electronics Engineers) told the Federal Circuit last year that courts should not rely on standards bodies to "take a direct role in enforcing patent commitments". But SSOs can play a role in preventing abuse relating to future standards, and the IEEE appears to be making a very serious effort in that regard.
This webpage contains to links to an August 2013 IEEE-SA Standards Board Bylaws draft and to comments from key companies involved with the process (two different documents; the difference is just in the sorting order, not in the content). Under the U.S. eBay standard, it would be extremely difficult to obtain injunctions if the following sentence (lines 126-128 of the draft bylaws) was adopted:
"A Submitter of an Accepted [Letter of Assurance] who has committed to license Essential Patent Claims on reasonable terms and conditions that are demonstrably free of any unfair discrimination has implicitly acknowledged that a royalty is sufficient compensation for a license to use those Essential Patent Claims."
This is a rather clear way of putting the debate over "(in)adequacy of monetary relief" to rest with respect to future IEEE standards. I discussed this less than two weeks ago in connection with Commissioner Wright's antitrust-minimalist position on SEP-related matters. In my view, the adequacy of monetary relief can be determined the way Judge Posner did even without FRAND pledges containing an explicit admission to that effect. But the clearer, the better (obviously, it could be stated even more clearly than the IEEE draft proposes).
For a round-up post like this there's far too much in the draft bylaws and in the comments for me to cover comprehensively right here and now. The draft bylaws would limit the pursuit of injunctive relief to only certain circumstances (which could be defined more narrowly, but at least there isn't the vague notion of an "(un)willing licensee").
The document containing comments from industry players (with many of the usual suspects being particularly active) is worth reading. Maybe I'll do a separate post on the IEEE debate at some point.
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