Delrahim's 'New Madison' approach warns against antitrust policing patents

21 March 2018 1:51pm
Patent Key on Keyboard

20 March 2018. By Leah Nylen, Lewis Crofts and Matthew Newman.

When Makan Delrahim took over as assistant US attorney general for antitrust, one of his first acts was to signal a significant shift in how the Department of Justice will look at the intersection of antitrust and intellectual property.

On Friday, Delrahim took a step further, outlining what he called a “New Madison” approach to IP and antitrust — named for the 4th US president, James Madison, one of the primary drafters of the Constitution and supporter of patent rights.

His stance, outlined in a series of speeches, will be welcome news for IP owners such as chipmaker Qualcomm and telecom companies Nokia and Ericsson, but less welcome for Apple and other companies seeking to cut how much they spend on standard-essential technology patents.

Delrahim’s vision tosses out most of the views held by his predecessors in the Obama administration, and represents a break with the apparent consensus that other authorities around the world reached over the last decade on antitrust enforcement in the field of SEPs.

As the European Commission and other regulators have fought hard to establish the “competition context” of standard-setting and patent-enforcement practices, Delrahim is travelling in the other direction, rolling back what he sees as an antitrust incursion in the field of intellectual property.

In his latest speech Friday, Delrahim identified four main tenets to his New Madison approach:

— Antitrust enforcement shouldn’t be used to police disputes over whether royalties for standard-essential patents are fair, reasonable and non-discriminatory, or FRAND.
— Standards organizations shouldn’t seek to favor those who use technology over those who contribute technology to standards.
— Standards bodies should also be wary of adopting rules that prohibit patent holders from obtaining injunctions.
— Unilateral decisions by patent holders not to license their technology should be respected.

Both Delrahim’s first and third points depart sharply from the views expressed by former Democratic officials at the DOJ’s antitrust division under the Obama administration, as well as from the European Commission’s enforcement practice.

His second and fourth points outline where the antitrust division under Trump will focus: concerted action to protect innovators who hold patents, including advocacy before other antitrust enforcers around the world, and particularly emerging authorities such as China’s.

“If a patent holder effectively loses its right to an injunction whenever a licensing dispute arises, or is deterred from seeking an injunction due to the prospect of treble damages, an implementer can freely infringe, knowing that the most he or she will eventually have to pay is a reasonable royalty rate,” Delrahim said.

Under current arrangements, he said, “implementers have a strong incentive to pursue this course while holding out from taking a license due to the high injunction bar for innovators that make FRAND commitments.”

In footnotes to the published transcript of his speech, Delrahim explicitly critiqued a 2013 policy statement issued by the DOJ and US Patent and Trademark Office saying it “overly indulged theories of patent hold-up as a supposed competition problem”.

That statement — written largely by Obama-era antitrust officials Renata Hesse and Terrell McSweeny — suggested that by making a FRAND pledge, the holder of a standard-essential patent conveyed that it would offer its technology to those seeking licenses in exchange for royalties.

Threatening an injunction allowed the holder of an SEP to extract unreasonable royalties from those who need the technology to comply with industry standards, it said. An injunction prohibits a company from using the patented technology.

EU approach

The Obama administration’s approach resembled that of EU enforcers, who have been clear that patent holders can break antitrust law even by threatening users with an injunction. While Delrahim’s view on injunctions doesn’t explicitly contradict that of the EU, it does mark a divergence from his predecessors.

The European Commission has found that if a licensee is willing to agree on FRAND terms, the patent owner generally can’t get an injunction without violating competition law. The EU’s top court upheld the commission’s position in a 2015 ruling involving Huawei and ZTE, who had clashed over an injunction to protect a standard-essential patent.

“The European Court of Justice has confirmed that there is a clear competition context in relation to SEPs where a commitment to license on FRAND terms has been given to a standardization body,” an EU spokesman said in a statement last month.

“In this regard, it has endorsed the European Commission’s approach in its Motorola case that an injunction based on an SEP where such a commitment has been given is an abuse of a dominant position where there is a willing licensee.”

By contrast, if the user of a patent doesn’t express a willingness to license on FRAND terms, the patent owner may seek an injunction, EU judges said.

But it would be wrong to see the EU’s “competition context” as a desire to become the oversight authority for patent litigation. Officials have been clear it is up to parties to settle their disputes; the European Commission just looks out for abuses.

“The parties are best placed to arrive at a common understanding of what are fair licensing conditions and fair rates, through good faith negotiations, on a case by case basis,” the spokesman said.

Future focus

While Delrahim’s approach rejects much of the Democrats’ viewpoint on patents essential to industry standards, it also outlines two areas where antitrust enforcers should play a role.

First, enforcers will watch out for rules imposed by standard-setting organizations “that appear designed specifically to shift bargaining leverage from IP creators to implementers or vice versa,” Delrahim said.

“We do not seek to impose a top-down mandate to skew the playing field clearly in the direction of innovators or implementers,” he said. “But we expect there to be some symmetry between these competing interests.”

Second, standards bodies should ensure that a diversity of views are represented on patent policy committees and in the working groups developing standards, he said. Delrahim objects to the emergence of “voting blocks of competitors” that can dominate policy.

Without specifically referencing any investigations, Delrahim’s comments indicate the Justice Department will be closely following debates such as a recent patent policy dispute at the American National Standards Institute.

His reference to voting blocks would seem to allude to a DOJ investigation into potential abuse of dominance at a working group within the Institute of Electrical and Electronics Engineers developing new WiFi standards.

China

Delrahim’s final comments — on the concept of the essential facilities doctrine and refusals to deal — appear particularly pointed at emerging competition authorities, such as those in China.

The US Supreme Court established the concept of an “essential facility” as a system or technology so vital that rivals can’t effectively compete without access to it. The top US court held that in limited circumstances, a company could be required to do business with a competitor.

The justices clarified in a later decision that the doctrine is limited, and companies generally aren’t required to deal with their rivals. US and EU authorities rarely invoke the principle.

But Chinese and other Asian competition authorities have adopted the idea in some cases involving intellectual property rights. China’s long-awaited competition and intellectual property guidelines, likely to be issued this year, are widely expected to include the concept in connection with SEPs.

“Some, particularly some of the newer enforcement agencies abroad, may think the exception leaves room for a licensee to bring an antitrust suit if a patent holder terminates or refuses to renew the licensing agreement,” Delrahim said.

“Antitrust laws should not be used to transform an inventor’s one-time decision to offer a license to a competitor into a forever commitment that the inventor will continue licensing that competitor in perpetuity.”

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