DOJ Antitrust Chief Raises Standard Setting Concerns

Assistant Attorney General Makan Delrahim, speaking at LeadershIP 2018, discussing standard setting organizations (SSOs) and antitrust enforcement policy.

In 2015 the IEEE changed the way the organization, when acting as a standard setting organization (SSO), would regulate the use of patents. In essence, patent owners that want to participate in IEEE standard setting would be required to, among other things, pledge that they would under no circumstances seek an injunction. They are also required to agree that the fair and reasonable royalty rate charged could only be based on other license agreements where the patent owner similarly waived the right to an injunction even in the event of infringement. See IEEE Patent Policy Change Would Undermine Property Rights and Innovation.

The Obama Administration announced that it would not challenge the amendment to the IEEE patent policy, despite the change in the policy being a blatant attempt to seize patent property rights. According to the Obama Administration, standards are pro-competitive, and this unprecedented property grab merely “to add clarity to the commitment patent holders voluntarily make regarding the licensing of patent claims essential to IEEE standards…”

To anyone who read the actual IEEE policy, the IEEE went far beyond the typical commitment of patent owners participating in a standard setting organization. Indeed, mandating that what would be considered a fair and reasonable royalty rate had to be at an artificially suppressed rate negotiated where the licensee had no fear of the exclusionary power of a patent is but one example of the egregious overreach of the IEEE policy.

But to the surprise of nearly everyone, Donald Trump prevailed in the 2016 election, and President Trump selected patent attorney Makan Delrahim to lead the Antitrust Division of the Department of Justice. Delrahim has already given several speeches that have given great hope to patent owners (see here and here), and yesterday he delivered another.

“As I have said previously, in the context of antitrust and IP, we will be inclined to investigate and enforce when we see evidence of collusive conduct undertaken for the purpose of fixing prices, or excluding particular competitors or products,” Assistant Attorney General Makan Delrahim said to an industry audience at the LeadershIP 2018 conference at the Newseum in Washington, DC, on April 10, 2018. Delrahim would go on to explain scenarios that might, however, attract antitrust enforcement scrutiny in a Trump DOJ. Delrahim said, in relevant part:

In the context of standard setting, cases like Radiant Burners, Hydrolevel, and Allied Tube provide helpful guidance regarding the kinds of collusive conduct that, naturally, would garner our attention. They are particularly helpful in illuminating our concern about situations in which competitors either corrupt the standard setting process so that decisions are not made by a balanced group of IP holders and implementers, or where competitors reach anticompetitive agreements outside of the scope of a legitimate standard setting exercise, with a detrimental effect on competition.

Let me describe two related situations that would raise concerns in the context of voluntary consensus standards development. First, if a group of patent implementers were to engage in concerted efforts to exclude a patent holder from meaningful participation in standard setting unless the patent holder agreed to offer particular licensing terms dictated by the group of implementers, those facts would raise red flags. Similarly, if patent holders A, B and C were to agree to exclude from consideration for inclusion substitute technology owned by their competitor patent holder D—for the purpose of harming patent holder D, rather than as a result of good-faith efforts to incorporate the most effective technology—that would also raise concerns.

While I believe in a very restrained approach to antitrust enforcement when it comes to the legitimate exploitation of valid IP rights, the Division will not hesitate to enforce against anticompetitive collusive conduct, particularly in an area as high-stakes for the American consumer as this one.

Speaking at the College of Europe in Brussels, Belgium, on February 21, 2018, Delrahim similarly explained: “The dueling interests of innovators and implementers always are in tension, but the tension is best resolved through free market competition and bargaining. And that bargaining process works best when standard setting bodies respect the intellectual property rights of technology innovators, including the very important right to exclude.”

Obviously, there has been a significant shift in DOJ antitrust policy in the several years since the IEEE changed its patent policy and September 2017, when Delrahim was sworn in as the head of the Antitrust Division.

There is absolutely no doubt that certain standard setting organizations (SSOs), like the IEEE, have actively sought to regulate patent owners in an actively and objectively anticompetitive way. It seems the time for that may be nearing an end.

Increasingly, Delrahim’s speeches are moving past where he began in his USC speech in November 2017, discussing this being the appropriate time to now have a discussion about the proper role antitrust enforcement plays with respect to standard setting, to his LeadershIP April 2018 speech where he explained the Antitrust Division will not hesitate to enforce against collusive anticompetitive conduct detrimental to patent owners. Furthermore, Delrahim has now several times discussed his view that in a free market, competition based economy the remedy for patent owners violating obligations to SSOs is a contractual remedy, not an antitrust remedy.

It seems there is an emerging three-part Delrahim Doctrine: (1) Agreements outside the scope of a legitimate standard setting exercise can have a detrimental anticompetitive effect on competition; (2) When anticompetitive SSO agreements are the result of collusive conduct, any harm resulting to those holding valid IP rights will provoke antitrust enforcement review; and (3) The proper remedy for a patent owner reneging on promises to a SSO is not a preemptive anticompetitive agreement, or antitrust enforcement review, but rather a private contract action.

Time will tell, but it sounds like collusive behavior of standard setting organizations, which received a pass under the Obama Administration, will be the type of behavior that will start to provoke antitrust scrutiny during the remainder of the Trump Administration.