U.S. Department Of Justice And U.S. Patent & Trademark Office Issue Joint Policy Statement On Remedies Involving Standards-Essential Patents
On January 8, 2013, the Antitrust Division of the U.S. Department of Justice (“DOJ”) and the U.S. Patent & Trademark Office (“USPTO”) issued a joint policy statement on providing injunctive relief in judicial proceedings or Section 337 investigations when the patentee has agreed to license the patent-in-suit on reasonable and nondiscriminatory (“RAND”) or fair, reasonable and nondiscriminatory (“FRAND”) (collectively, “F/RAND”) terms while participating in standards-setting activities at a standards-developing organization (“SDO”).
By way of background, Section 337(d)(1) provides that the International Trade Commission (“Commission”) may deny entry of an exclusion order if it finds that issuing the exclusion order would have a greater adverse impact on the (1) public health and welfare; (2) competitive conditions in the U.S. economy; (3) production of like or directly competitive articles in the U.S.; or (4) U.S. consumer, than would be gained by protecting the patent holder.
SEPs can pose special problems when considering the proper remedy for infringement. For example, as explained in the joint policy statement, when an industry standard incorporates patented technology owned by a participant in the standards-setting process, and the standard becomes established in the industry, it may be prohibitively difficult and expensive to switch to a different technology within the established standard or to a different standard entirely. As a result, the patentee could potentially take advantage of increased market power by asserting the SEPs to exclude competitors from the market or obtain a higher price for its use than would have otherwise been possible before the standard was set, when alternative technologies could have been chosen. These actions may induce prospective implementers to postpone or avoid making commitments to a standardized technology or to make inefficient investments in developing and implementing a standard in an effort to protect themselves. Moreover, the unwarranted higher royalties could be passed on to consumers in the form of higher prices.
As further explained in the joint policy statement, to reduce opportunistic conduct in the adoption of voluntary consensus standards, some SDOs have relied on voluntary licensing commitments by their participants, including the commitment to license SEPs on F/RAND terms. Such commitments facilitate the bilateral licensing negotiations necessary for successful widespread adoption of an industry standard and provide assurances to implementers of that standard that the patented technologies will be available to parties seeking to license them, while also benefitting owners of SEPs in the form of expanded marketing opportunities and sources of revenue. In light of these and other potential benefits, the U.S. supports voluntary F/RAND licensing domestically and abroad.
A patentee’s F/RAND commitments can impact the remedy for infringement of a valid and enforceable SEP. For instance, an injunction or exclusion order based on a F/RAND-encumbered patent may be inconsistent with the public interest, especially in cases where the exclusion order appears to be incompatible with the terms of the patentee’s F/RAND licensing commitment to an SDO. It is possible in such cases that the patentee is attempting to use the exclusion order to pressure an implementer to accept more onerous licensing terms than those provided for by the patentee’s F/RAND commitment and the SDO’s policy. Such an order may harm competition and consumers by degrading one of the SDO’s tools for mitigating the threat of opportunistic actions by owners of SEPs. On the other hand, if a putative licensee is unable or refuses to take a F/RAND license and is acting outside the scope of the patentee’s F/RAND commitment (e.g., by refusing to negotiate on F/RAND terms or to pay the F/RAND royalty), then an exclusion order could be appropriate.
Thus, the DOJ and USPTO are concerned about the potential impact of exclusion orders on competitive conditions in the U.S. and domestic consumers in cases involving F/RAND-encumbered patents that are essential to a standard. More specifically, the DOJ and USPTO “believe that, depending on the facts of individual cases, the public interest may preclude the issuance of an exclusion order in cases where the infringer is acting within the scope of the patent holder’s F/RAND commitment and is able, and has not refused, to license on F/RAND terms.” The DOJ and USPTO “urge the [Commission] to consider whether a patent holder has acknowledged voluntarily through a commitment to license its patents on F/RAND terms that money damages, rather than injunctive or exclusionary relief, is the appropriate remedy for infringement.” The joint policy statement also reminded the Commission that the public interest factors in Section 337(d)(1) “‘are not meant to be given mere lip service,’ but rather ‘public health and welfare and the assurance of competitive conditions in the United States economy must be the overriding considerations in the administration of this statute’” (quoting Certain Inclined Field Accelartion Tubes & Components Thereof, Inv. No. 337-TA-67, Comm’n Op. at 22 (emphasis in original)).
As suggested in the joint policy statement, one approach the Commission may take in crafting a remedy with respect to an SEP is to delay entry of an exclusion order until a F/RAND royalty rate has been determined (e.g., by a court or arbitrator). Once the F/RAND rate is determined, the respondent could be given the option of either paying the F/RAND rate or having the exclusion order go into affect.