Antitrust agencies should be wary of ‘excessive pricing’ cases in patent disputes, Hesse says

17 June 2015. By Matthew Newman.

Antitrust authorities should be wary of pursuing patent holders for charging “excessive” royalty rates, in the wake of a US Department of Justice review of a standards organization’s patent policy, a senior US official said today.

In February, the Institute of Electrical and Electronics Engineers, or IEEE, a global standards organization, approved controversial changes to its intellectual property rights policy that drew criticism from some patent owners.

In a “business review letter,” the Department of Justice analyzed the updates and determined they didn’t raise competition concerns.

The updates placed limits on the ability of patent holders to obtain injunctions on essential patents, required patent holders to make their intellectual property available to component makers — as opposed to only licensing to end users — and said patent royalties or damages should be calculated based on the “smallest saleable unit.”

Renata Hesse, the deputy assistant attorney general for antitrust for criminal and civil operations, told a conference* in Brussels that the way the IEEE calculates royalty rates isn’t mandatory and doesn’t set a specific rate. Nevertheless, some people believe the DOJ’s review letter is designed to reduce the royalty rate that patent holders will charge, she said.

Competition authorities shouldn’t use antitrust law in “excessive pricing” cases to force lower royalty rates on patent holders and imposing “price controls,” Hesse said.

“We really believe the business review letter itself should not set an example for other parts of the world to take action and to suggest that excessive pricing somehow violates the antitrust law,” she said. “Antitrust regimes really need to be careful not use those kind of remedies, where the remedy isn’t related to a competition law problem, but it’s related ultimately to industrial policy.”

— Chinese court ruling —

A dispute between US wireless technology company InterDigital and phone maker Huawei resulted in a Chinese court decision that InterDigital be paid a royalty rate on its standard-essential Chinese patents of no more than 0.19 percent of the actual sales price of each Huawei product. The Chinese Supreme People’s Court is reviewing an appeal by InterDigital.

US antitrust law doesn’t bar excessive pricing, Hesse said. US antitrust agencies are “respectful” about a patent holder’s ability to charge a “reasonable” royalty for patents that are part of an industry standard, she said.

“There’s nothing that prohibits people from reaping the benefits and reward of their inventions,” she said. “That’s what drives research and development.”

Nicholas Banasevic, a head of unit in the European Commission’s competition department, said at the same conference that the EU executive’s philosophy on excessive pricing “is close to” the US approach.

The commission ruled in April 2014 that Motorola Mobility had abused its dominant position by seeking and enforcing an injunction against Apple on GSM-related standard-essential patents, or SEPs, to extract higher royalty rates. SEPs are patents that have been adopted as industry standards.

Banasevic said in cases where SEPs give a company monopoly power, the patent holder is able to “exploit” the dominant position “because you want to monetize it.”

“What we’ve seen in the Motorola case is that [an injunction] is a tool to extract terms that you otherwise wouldn’t be able to — which is a higher price, or someone giving up the right to challenge the validity, essentiality or infringement of the patent,” he said.

* “What is next in the field of SEPs and standardization,” MLex Market Insight, Brussels, June 17, 2015.

	Eliot Gao