“The question of what FRAND requires will vary based on the industry, the practice of the parties and the relevant contract law. It should not be based on the requirement that somehow FRAND requires the smallest salable patentable unit.” – Makan Delrahim
Last week, as a part of the Virtual Patent Masters™ Program hosted by IPWatchdog, I had the opportunity to interview Makan Delrahim, who is Assistant Attorney General in charge of the Antitrust Division at the U.S. Department of Justice (DOJ).
During his tenure at the Antitrust Division, AAG Delrahim has moved the policy of the federal government in a direction that is viewed as being more friendly to patent owners and innovators. For example, in December 2018, Delrahim indicated that the Antitrust Division was withdrawing its assent to the to the 2013 joint DOJ-U.S. Patent and Trademark Office Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (the 2013 Joint Policy Statement) during remarks delivered at the 19th Annual Berkeley-Stanford Advanced Patent Law Institute. It was the Delrahim’s view that patent remedies shouldn’t be unilaterally unavailable for one category of patent simply because the patent owner may be subject to an obligation to engage in fair, reasonable and non-discriminatory negotiations with implementers.
Many misinterpreted what was in the 2013 policy statement as being “some kind of expression by the government of skepticism toward injunctive relief for standard essential patents as opposed to injunctive relief for other types of patents, and I did not think that was grounded in either the law, the constitution, or frankly economics,” Delrahim explained to me during our conversation on March 16. “I was really concerned with where the trajectory of that was, not only in the United States but abroad.”
The purpose of the 2019 statement was to “remove our thumbs from the scale,” Delrahim explained. “Courts are free to take a look at the various factors and see whether injunction is appropriate, but we certainly did not want it being interpreted as skepticism as to injunctive relief for SEPs.”
“The  Statement made a couple of points that were unfortunate, I think,” Delrahim continued. “An SEP holder of a FRAND encumbered patent may ‘harm competition simply by seeking injunctive relief.’ And somehow could undermine public interest, and that is just not what the law is or should be.”
It would take until December 2019— a full year later— for the USPTO to finally get on board with Delrahim. In the 2019 Joint Policy Statement on injunctions for standard essential patents, the DOJ and USPTO were joined by the National Institute of Standards and Technology (NIST).
“We were grateful for NIST to join in 2019,” Delrahim said. “I understand that NIST was involved in the discussions in 2013, but for whatever reason, and I was not privy to that, did not join the 2013 Statement. We were not only grateful to work on all levels with NIST, but particularly with their Director Walt Copan and their Chief Counsel, who were folks that not only understood the standard setting process but understood the importance of the patent system for the innovative process.”
Defining ‘Good Faith’
As our conversation pivoted away from the policy shift on injunctions, I asked Delrahim about whether he had in his mind any idea about factors or considerations that would lead to a conclusion that parties are not negotiating in good faith, which is a growing question of importance for standard essential patent holders who are obligated to offer fair, reasonable and non-discriminatory licensing rates (FRAND), but who increasingly find themselves attempting to negotiate with implementors who acknowledge implementation of the standard but refuse to pay anything, or even communicate.
“I will leave it to various courts and practitioners to allege that. I know there are a host of factors that go into that, whether from contract laws or fraud laws,” Delrahim said. “There was a big emphasis on patent hold up, and hold-up and hold-out are both considerations that we should be worried about. As far as the good faith factors, I want practitioners to be able to raise them because, frankly, I don’t think we can identify specific factors that would be exhaustive.”
Developing the Law
Our conversation pivoted again, this time to specific cases the DOJ Antitrust Division has filed to join. Before specifically addressing the cases, Delrahim explained that the DOJ filing in these cases is a part of a broader effort to join a number of private cases— approximately 30 he said—in an effort to provide the views of the federal government and to help ensure that the law is developed appropriately in key areas.
Continental v. Avanci, in the Northern District of Texas, was interesting to the DOJ because there were claims under Section 2 of the Sherman Act, Delrahim explained. “The concern was raised that somehow there was deception regarding the rate that they would offer; there was deception in what the intention was, whether or not the rate under FRAND was going to be one thing or another.”
Delrahim explained that the Division spoke with both parties in the case and thought that the issues presented “the exact issue we are concerned about: where Section 2 is appropriate. And where it is not you should leave that to contract law.”
Delrahim said that the Division did not side with either party in the case, and spoke on the issue of the appropriateness of Section 2 of the Sherman Act as being a cause of action for a claim based on deception in a royalty rate the patent owner would later seek.
“Where the alleged deception involves the rate that the patent owner intends to charge, and the only price term is FRAND that was committed in the standard setting process, there is no real deception there, because members of an SSO fully expect, or should fully expect, that a patent will try to maximize the returns as it should. So, you want to seek the maximum term you can bilaterally negotiate. And to say that is not fair and you never intended it, therefore it is a deceptive factor, we thought was going too far…”
What is FRAND?
On HTC v. Ericsson, the DOJ Antitrust Division filed a brief along with the United States Patent and Trademark Office, taking interest in the case again because the dispute was over the rates of the patents and whether they comported with FRAND obligations, but specifically what the FRAND rate applied to; namely, either the smallest salable patent practicing unit or the end unit.
“There, the dispute was whether or not the FRAND obligations that Ericsson had committed to required it to license based on the smallest salable patent practicing unit as opposed to the end unit,” Delrahim explained. “And we argued in the Fifth Circuit that to hold that the FRAND requires licensing at the smallest salable practicing unit, at that level, then that holding would unduly restrict commercial negotiations between the parties… and overall limit the competitive process.”
“The question of what FRAND requires will vary based on the industry, the practice of the parties and the relevant contract law. It should not be based on the requirement that somehow FRAND requires the smallest salable patentable unit,” Delrahim said.
On the question of whether the Department will rescind the 2015 IEEE letter, Delrahim explained that there is no update for now and directed everyone to the DOJ’s business review letters. He did say that others seem to be looking at the 2015 IEEE letter as a broad pronouncement of policy. “I’m taking a close look at that,” he said. He added that “people should not read anything more into that letter than any of the policy pronouncements we have made.” In my follow up question, I asked whether it was fair to characterize what I was hearing as “stay tuned”? To which he replied: “Yes, that’s fair.”
Finally, on the question of FTC v. Qualcomm, Delrahim was recused from the matter so it was unfair and inappropriate to ask him specifically about the Department’s positions, arguments or policies. I did, however, ask him whether he wanted to comment on the case as a lay observer, not on behalf of the Division. Delrahim pointed to many of the issues I and others have, namely the peculiarly political nature of what appears to be the persecution (my word not his) of Qualcomm by a Federal Trade Commission (FTC) that filed the case three days before the inauguration of President Trump by a 2 to 1 vote and over the strenuous objections of the incoming Chair of the FTC.
“Should a case, a law enforcement function, continue on?” Delrahim asked rhetorically. “In that sense it raises broader policy implications about the executive branch, and the proper separation of powers and accountability that our Constitution calls for.”