“It is likely more realistic to assume that DOJ actions (as well as Federal Trade Commission [FTC] actions) will be motivated by the patent-skeptical sentiments expressed in recent DOJ and FTC speeches and in President Biden’s 2021 Executive Order on Competition.”
In a recent surprise decision, the U.S. Department of Justice (DOJ), U.S. Patent and Trademark Office, and the National Institute of Standards and Technology officially withdrew their 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments and declined to advance an alternative policy statement as a replacement. While the withdrawal of the 2019 policy statement was seen as a foregone conclusion (given the far more SEP-restrictive nature of a December 2021 draft policy statement (DPS) circulated by the agencies), moving forward without any guidance was not on anyone’s DOJ policy bingo card for 2022. The slim guidance that this withdrawal announcement does provide, however, paints a murky picture for the ability of SEP holders to obtain injunctive relief.
No Guidance is Better Than Bad Guidance – Maybe
As the announcement explains, the “DOJ will review conduct by SEP holders or standards implementers on a case-by-case basis to determine if either party is engaging in practices that result in the anticompetitive use of market power or other abusive processes that harm competition.” This case-by-case determination is likely a good thing, especially when compared to the decidedly anti-SEP holder tone of the 2021 DPS. Outlined in the 2021 DPS, “monetary remedies [will] usually be adequate to fully compensate a SEP holder for infringement,” and “although courts will review the facts in each case independently, the Agencies observe that since eBay, injunctive relief for a SEP subject to a F/RAND commitment has rarely been granted.” Essentially, the 2021 statement says that SEP holders should not be entitled to injunctive relief if they have made a FRAND commitment, affording fewer rights to SEP holders than patent holders in general.
The 2019 PS strikes a decidedly different balance, and more or less places SEP holders and implementers on an even playing field. A key aspect of the New Madison Approach, outlined in the 2019 PS, is the right to seek to exclude infringers via an injunction. The 2019 PS also cautions against making injunctive relief too difficult to obtain. As we have explained, taking injunctive relief off the table, or even worse making refusal to license an antitrust violation, allows implementors to negotiate in bad faith, integrate patented technology into their products, and pay a fraction of the true value of the technology because the SEP holder has no recourse. Under this approach, the SEP holder will only obtain a “fair” valuation for its patented technology, which generally will yield far lower royalty payments than when an injunction can be sought. Such restrictions on royalties disincentivize investments in SEP technologies that enhance the quality of standards and thereby promote the adoption of innovations that yield improved products and services.
Without the prospect of potential injunctive relief, implementers can effectively strongarm patent holders into licensing their patents for less than they are worth, by threatening SEP holders with antitrust complaints if they refuse to license their technologies at artificially low rates. In short, innovation is discouraged, since SEP holders know they cannot obtain a fair market value for their technology.
While the decision to move forward without agency guidance takes off the table some of the most damaging aspects of the 2021 DPS, the path forward remains unclear. In the wake of the Supreme Court’s eBay decision, injunctive relief has been significantly harder to obtain. It appears doubtful that merely abandoning an explicitly anti-injunction stance in an agency guidance document will sway many courts to rework the balancing test in eBay to afford SEP holders the same right to seek injunctions that has been available to other patent holders for decades.
Don’t Celebrate Yet
To be sure, an earnest DOJ commitment to a case-by-case evaluation of conduct on both sides of the SEP negotiating table gives rise to the possibility that the serious threat of federal antitrust enforcement against SEP holders may soon be lifted. In the absence of a policy statement, case-by-case treatment will force the DOJ to look at the facts of each case to determine whether the conduct is anticompetitive. While the correct, pro-innovation approach was annunciated in the 2019 PS, noting that antitrust is never an appropriate tool to use in SEP licensing disputes and insisting that tort and contract law contain all necessary tools to resolve disputes, revoking the pro-antitrust 2021 DPS is a step in the right direction. An even better avenue would be for the DOJ to adopt a cost-benefit framework for assessing conduct. Honest application of such a framework would generally yield findings that specific conduct undertaken by SEP holders is actually pro-competitive, when considering effects on innovation and the quality of standards.
Nevertheless, such a desirable DOJ policy stance cannot be presumed. Indeed, it is likely more realistic to assume that DOJ actions (as well as Federal Trade Commission [FTC] actions) will be motivated by the patent-skeptical sentiments expressed in recent DOJ and FTC speeches and in President Biden’s 2021 Executive Order on Competition. As such, leaving SEP license negotiators without guidance will likely chill the environment for innovation. SEP holders will operate in a state of heightened caution when negotiating with implementers, waiting for the DOJ to weigh in on cases and for leadership to announce enforcement plans in speeches and public statements. One large and overwhelming question remains: will the DOJ attempt to push in the direction of the 2021 DPS without explicitly announcing that intention? There appears to be no reason to believe that the administration’s view of injunctive relief or antitrust enforcement of SEP-based conduct has changed, but its methods of pushing such policies forward may be less overt.
One Thumb Up
To steal a line from a prior appraisal of the 2021 DPS, the withdrawal of the 2019 PS and (official) abandonment of the 2021 DPS gets “one thumb up.” More is needed, however, to encourage SEP-drive innovation. In particular, the DOJ could revisit its stance on injunctive relief for SEP holders, advocate for adequate SEP holder protections such as those afforded to general patent holders, and abandon the antitrust targeting of SEP conduct. All of these enhancements would lead to a more stable and secure environment for innovators and better enable the American innovation economy to flourish. But don’t hold your breath.
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