Thursday, December 1, 2022

Professors, former judges and government officials make the case against the case against the DOJ's Avanci Business Review Letter: 'Critical Function of Patent Pools in Consumer Electronics'

When we talk about cellular standard-essential patents (SEPs) and how to license them to the automotive industry, it bears remembering that car makers generate rapidly increasing levels of revenues from connectivity itself (annual fees, after the first few years, for continued access) and premium features that would be unthinkable without connectivity. Here's a very recent headline that I found on (click on the image to enlarge):

$1,200/yr. for faster acceleration is just the latest example of this trend. In the summer, BMW already had to respond to criticism over charging $18/mth. for heated seats.

In light of the gold mine that connectivity is for the automotive industry, one would think that SEP royalties in the low double-digits per car are a total non-issue. Not so. While Continental finally gave up on a meritless U.S. "antitrust" lawsuit in October, frustrated critics of the Avanci patent pool sent a letter to the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice, Jonathan Kanter. They asked him to revisit and somehow nuance or downgrade his predecessor Makan Delrahim's July 2020 Business Review Letter that identified no competition concerns over Avanci's envisioned 5G patent pool.

AAG Kanter presumably has some more pressing issues on his to-do list. By far the best way to help the U.S. automotive industry through antitrust enforcement would be to prevent an "autocalypse": Apple and Google--who may indirectly have a hand in that anti-Avanci letter--are trying to take control over future automotive revenue streams (which I call "digital carjacking"). Senator Elizabeth Warren (D-Mass.) wrote a letter to AAG Kanter as well as FTC Chair Lina Khan about it.

But those advocating SEP devaluation are begging for attention: on Tuesday, Bloomberg Law published an opinion piece by the two principal authors of the anti-Avanci letter, Professor Michael Carrier and the Public Interest Patent Law Institute's Executive Director Alex Moss: Protect the Supply Chain From Patent Trolls Before It’s Too Late

If non-practicing entities are the paramount concern, the authors should actually welcome patent pools that have a diversity of licensors (not just Avanci, but generally speaking). For instance, Avanci has at least one important member of the--allegedly imperiled--automotive supply chain among its licensors: LG Electronics. If Avanci can bring the likes of LG, Qualcomm, Nokia, and Erisson together with licensing firms (some of which conduct their own research & development while others enable innovators to transfer assets and the related monetization risk to them), the compromise that results from it will be better for implementers than having to deal with individual NPEs.

It's a safe assumption that the few SEP holders who are not among the 50+ contributors to Avanci's 4G pool include NPEs that ask for a lot more money (relative to portfolio size) than Avanci.

Avanci is just an option. An optional one-stop shop. Car makers can take an Avanci license; they can also seek bilateral licenses if they believe the benefits of doing so outweigh the incremental transactional costs. Automotive suppliers, too, can seek licenses, including exhaustive component-level SEP licenses. One of the key reasons why the DOJ issued its Avanci BRL in the first place was that participants are not restricted from anything. Avanci members have, in fact, granted exhaustive component-level licenses to automotive suppliers.

IP Watchdog was first to report on a November 30 letter by "[t]wenty-five former judges, government officials, legal academics, and economists [...] in support of the DOJ’s 2020 business review letter." Here's the actual document:

November 30, 2022 letter to Assistant Attorney General Jonathan Kanter

The letter was authored by Professors Adam Mossoff (a frequent witness on Capitol Hill) and Jonathan Barnett. The signatories include former judges and government officials:

  • Alden Abbott (Former General Counsel, Federal Trade Commission)

  • Ronald A. Cass (Former Vice-Chairman and Commissioner, United States International Trade Commission)

  • Judge Douglas H. Ginsburg (Senior Circuit Judge and Former Chief Judge, United States Court of Appeals for the District of Columbia Circuit)

  • Damon C. Matteo (Former Chairperson, Patent Public Advisory Committee, United States Patent & Trademark Office)

  • Judge Paul Michel (Chief Judge (Retired), United States Court of Appeals for the Federal Circuit)

  • Judge Kathleen M. O’Malley (Circuit Judge (Retired), United States Court of Appeals for the Federal Circuit)

The key message is that the 2020 Avanci BRL got it right, and there is no compelling reason to break with the tradition of BRLs relating to patent pools:

"Any reconsideration of the 2020 business review letter, as proposed in the October 17 letter, would give rise to significant uncertainty concerning the Antitrust Division’s commitment to the aforementioned sequence of business review letters that have been issued concerning other patent pools in the information technology industry, as well as the larger group of patent pools that did not specifically seek guidance through the business review letter process but relied on the legal template that had been set forth in those previously issued letters."

Case in point, a business review letter gave patent holders the necessary confidence, back in 1997, to start MPEG LA. Earlier today I commented on a shameful lawsuit by a small minority of licensors trying to renege on their commitments to MPEG LA's HEVC patent pool. That one poses a threat to the legal certainty and transactional efficiencies that pools can provide, but so does the October 17 letter urging the DOJ to revisit the Avanci BRL. Patent pools are under attack from both sides: a small minority of unreasonable licensors as well as implementers and those beholden to them.

Yesterday's letter is highly instructive, and if you have a professional interest in this topic, I recommend you to read it. The actual letter spans little over 10 pages. The rest is the list of signatories and an appendix that lists academic papers.