Given the importance of this subject, I'll now republish an open letter that 77 former government officials and professors (of law, economics, and business) have sent Assistant Attorney General Makan Delrahim in order to remind him of long-standing and consistent U.S. policies on standard-essential patents (SEP) under both Republican and Democratic administrations. Mr. Delrahim's outlier positions are disconcerting indeed. Access to standard-essential patents on fair, reasonable and non-discriminatory (FRAND) terms is not a "left or right" question.
I'm not aware of any other patent blogger who would have declared himself a support of Donald Trump as early or as unequivocally as I did (January 2016), and there are several policy areas in which I really like it when the Trump Administration does away with Obama policies that I consider misguided and some of which clearly failed (especially in the foreign-policy context). However, if it ain't broke, don't fix it! When it comes to SEPs, consistency and continuity with prior administrations (including, but not limited to, the Obama Administration) are the best way forward. The alternative would have the opposite effect of making America great again: SEP abuse poses a serious threat to many of America's (and the rest of the world's) most innovative companies. That's why I wish to express my support (as someone who wouldn't have been eligible to sign it) for the open letter by providing a link to its PDF version and, for your convenience, its full text below.
The order of the impressive list of signatories: first, the author of the letter (Professor Carrier); then, former high-ranking government officials; then, former mid-level government officials; finally, academics without former government positions.
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May 17, 2018
BY OVERNIGHT MAIL AND E-MAIL
Assistant Attorney General Makan Delrahim
U.S. Department of Justice
Antitrust Division
950 Pennsylvania Ave., NW
Washington, DC 20530
Re: Speeches on Patents and Holdup
Dear Assistant Attorney General Delrahim:
We, 77 former government enforcement officials and professors of law, economics, and business, write to express concern with recent speeches[1] you have made that we do not believe are consistent with the broad bipartisan legal and economic consensus that has existed for over a decade regarding standard setting. We would like to raise eight issues in particular.
First, the anticompetitive harms from patent holdup have been consistently acknowledged by officials in Republican and Democratic administrations. The unanimously adopted 2007 joint agency Report, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, explained the difference between a patentee's power ex ante (when "multiple technologies may compete to be incorporated into the standard") and ex post (when "the chosen technology may lack effective substitutes precisely because the SSO chose it as the standard"). This disparity can allow the patentee to "extract higher royalties or other licensing terms that reflect the absence of competitive alternatives." Id. at 35-36. The FTC also unanimously endorsed the 2011 Report, The Evolving IP Marketplace, which highlighted how "an entire industry" could be "susceptible" to the "particularly acute" concern of holdup, which can result in "higher prices" and "discourage standard setting activities and collaboration, which can delay innovation." Id. at 234.[2] And the National Research Council of the National Academies concluded in its Report on Patent Challenges for Standard-Setting in the Global Economy that "a FRAND commitment limits a licensor's ability to seek injunctive relief." Id. at 9.
Second, the holdup problem has been recognized by courts and standard setting organizations hemselves.[3] As one court stated, patent holdup is not a theoretical concern, but instead "is a substantial problem that [F]RAND [fair, reasonable, and nondiscriminatory licensing] is designed to prevent." In re Innovatio IP Ventures, 2013 WL 5593609, at *9 (N.D. Ill. Oct. 3, 2013).[4] As former FTC Commissioner Terrell McSweeney recently pointed out, courts in two cases awarded patentees only 1/150 and 1/500 of the royalties the patentholder sought. Commissioner Terrell McSweeny, Holding the Line on Patent Holdup: Why Antitrust Enforcement Matters, Mar. 21, 2018. The fact that SSOs— those with the most knowledge of the issues—adopt FRAND policies is itself telling proof that holdup is a problem; otherwise, why would they adopt contractual practices to prevent holdup?[5] In addition to higher royalties, expenditures can escalate as holdup increases the costs to SSOs and to those who oppose FRAND clarification. Timothy J. Muris, Bipartisan Patent Reform and Competition Policy, American Enterprise Institute Report 9 (2017).[6]
Third, we agree that “"he hold-up and hold-out problems are not symmetric." Nov. 10, 2017 speech. But we believe that it is holdup that presents the more serious antitrust concern. As an initial matter, the risks faced by innovators are consistent with the "speculative investments" always made by technology and product developers; in contrast, implementers are vulnerable to paying supra-competitive royalties based on the entire value of the product, not on the value of the patented technology. A. Douglas Melamed & Carl Shapiro, How Antitrust Law Can Make FRAND Commitments More Effective, at 7-8, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3075970, 127 YALE L.J. __ (forthcoming 2018). While we agree that coordinated action can implicate antitrust, these concerns are not presented in licensing disputes at the core of holdout. The potential for holdout exists on both sides of contracts, occurring "when one side refuses to perform in good faith or negotiate reasonably." Muris, at 9. In contrast, the holdup problem and accompanying lock-in value exist only on one side of the exchange.
Fourth, patentees that obtain or maintain monopoly power as a result of breaching a FRAND commitment present a standard monopolization case. E.g., Broadcom v. Qualcomm, 501 F.3d 297, 314 (3d Cir. 2007); Microsoft Mobile v. Interdigital, 2016 WL 1464545, at *2 (D. Del. Apr. 13, 2016).[7] FRAND breaches could satisfy the section 2 elements of exclusionary conduct by demonstrating an exclusion of competitors (the exclusion of rival competitive technologies not chosen by the SSO) that results in competitive injury (price increases and innovation harms from the breach) and acquisition or maintenance of monopoly power (obtained through the breach). Moreover, the conduct here is not protected under the "absolutist position" that Noerr-Pennington "immunizes every concerted effort that is genuinely intended to influence governmental action," as this would allow parties to violate the antitrust laws, for example by being "free to enter into horizontal price agreements." Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492, 503 (1988). Instead, a breach of a FRAND promise is "distinguish[able] from Noerr and its progeny" because it is "the type of commercial activity that has traditionally had its validity determined by the antitrust laws themselves." Id. at 505; see also FTC v. Superior Court Trial Lawyers Ass’n, 493 U.S. 411, 424-25 (1990).
Fifth, while we agree that patents are important for innovation and that injunctive relief often is appropriate, we do not agree that patents provide an unqualified "property right to exclude" that is accompanied by an injunction and a conclusion that "unilateral patent hold-up" is "per se legal." Mar. 16 speech. Hornbook law does not give property owners absolute rights to exclude. There are at least 50 doctrines (such as adverse possession, easements, eminent domain, nuisance, and zoning) that limit property owners' rights. Michael A. Carrier, Cabining Intellectual Property Through a Property Paradigm, 54 DUKE L.J. 1 (2004). Landowners, for example, cannot exclude others from entering their land to save lives or property or to avoid some other serious harm.[8] Relatedly, in upholding the inter partes review process for administratively reconsidering patents, the Supreme Court recently held that "[p]atents convey only a specific form of property right—a public franchise." Oil States Energy Servs. v. Greene's Energy Group, 2018 WL 1914662, at *8 (U.S. Apr. 24, 2018).
Sixth, the position that patent infringement necessarily results in an injunction is, for good reason, no longer the law. More than a decade ago, the Supreme Court ruled unequivocally that courts must decide whether to grant injunctions "consistent with traditional principles of equity, in patent disputes no less than in other cases." eBay v. MercExchange, 547 U.S. 388, 394 (2006); see also 35 U.S.C. § 283 (patent statute provides that courts "may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable"). In fact, the Federal Circuit, not historically associated with insufficient protection of patent rights, has made clear that the eBay framework "provides ample strength and flexibility for addressing the unique aspect of FRAND committed patents and industry standards in general." Apple v. Motorola, 757 F.3d 1286, 1332 (Fed. Cir. 2015). Because there could be thousands of patents in a product today, it is not appropriate uniformly to apply standards from the 18th century.
Seventh, pointing to exclusive rights granted to patentees as a type of natural property right ignores the uncontroversial utilitarian framework for the patent grant. The Supreme Court has long made clear the primacy of the utilitarian justification. E.g., Graham v. John Deere, 383 U.S. 1, 9 (1966). Exclusive rights exist not to bestow upon patentees a moral right to a reward but to promote the best interests of society. That is why patents, like other forms of intellectual property, are subject to doctrines (like novelty, nonobviousness, the written-description and enablement disclosure requirements, and a limited 20-year term) that ensure that protections for market competition balance patents' incentive effects. Relatedly, it tells only half the story to focus on the incentives relevant to the initial invention while ignoring follow-on innovation, which is just as important and may be undermined significantly when patent owners abuse their FRAND obligations.[9] Suggesting (without offering evidence) that any diminished return to patent holders reduces innovation and welfare "is inconsistent with both sound economic analysis and patent law," as "FRAND commitments that reduce excessive royalties further the policies of both the antitrust laws and the patent laws." Melamed & Shapiro, at 9. And it is also inconsistent with the Supreme Court's recent clear reminder (in a 7-2 ruling written by Justice Thomas) that patents "involv[e] public rights." Oil States, 2018 WL 1914662, at *6.
Eighth, we do not believe that holding patentees to their promise to license on FRAND terms "amount[s] to a troubling de facto compulsory licensing scheme." Mar. 16 speech. Compulsory licensing occurs when the government forces a patentee to license against its wishes. In contrast, here the holder of a standard essential patent voluntarily chooses to license on a FRAND basis, receiving in exchange the SSO's "seal of approval" and the potential for significantly increased volume that comes with that seal, which is well worth the FRAND promise. Unlike other patents, holders of standard essential patents are protected from competition and guaranteed to collect royalties.
We applaud the energy of your leadership of the Division and support the regular reexamination of key antitrust issues. But we do not believe that the case has been made for departing from the bipartisan consensus set out in this letter. Thank you for your consideration of these views.
Sincerely,
Professor Michael A. Carrier[*]
Rutgers Law School
Professor Timothy J. Muris
Antonin Scalia Law School
Former Chairman, Federal Trade Commission
Professor of the Practice of Law A. Douglas Melamed
Stanford Law School
Former Acting Assistant Attorney General, Antitrust Division, U.S. Department of Justice
Emeritus Professor of Economics Richard J. Gilbert
University of California, Berkeley
Former Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice
Professor Fiona Scott Morton
Yale University School of Management
Former Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice
Emeritus Professor of Economics Janusz A. Ordover
New York University
Former Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice
Professor Daniel Rubinfeld
New York University School of Law
Professor of Law and Professor of Economics Emeritus, University of California, Berkeley
Former Deputy Assistant Attorney General, Antitrust Division, U.S. Department of Justice
Professor Jonathan B. Baker
American University Washington College of Law
Former Director, Bureau of Economics, Federal Trade Commission
David Balto
Former Policy Director, Bureau of Competition, Federal Trade Commission
Professor Stephen Calkins
Wayne State University Law School
Former General Counsel, Federal Trade Commission
Professor Colleen Chien
Santa Clara University School of Law
Former Senior Advisor to Chief Technology Officer (CTO) of United States, IP and Innovation, White House Office of Science and Technology Policy
Professor Andrew I. Gavil
Howard University School of Law
Former Director, Office of Policy Planning, Federal Trade Commission
Professor Marina Lao
Seton Hall University School of Law
Former Director, Office of Policy Planning, Federal Trade Commission
Professor Harry First
New York University School of Law
Former Antitrust Bureau Chief, New York Attorney General's Office
Jay Himes
Former Antitrust Bureau Chief, New York Attorney General's Office
Kevin J. O’Connor
Former Antitrust Chief, Wisconsin Attorney General’s Office
Former Chair, Multistate Antitrust Task Force, NAAG
Professor John Allison
McCombs Graduate School of Business
University of Texas at Austin
Professor Margo A. Bagley
Emory University School of Law
Professor Ann Bartow
University of New Hampshire School of Law
Professor Joseph Bauer
Notre Dame Law School
Professor Jeremy W. Bock
The University of Memphis, Cecil C. Humphreys School of Law
Professor Dan L. Burk
School of Law, University of California – Irvine
Professor Darren Bush
University of Houston Law Center
Professor Michael Carroll
American University Washington College of Law
Emeritus Professor Peter Carstensen
University of Wisconsin Law School
Professor Bernard Chao
University of Denver Sturm College of Law
Professor Andrew Chin
UNC School of Law
Professor Ralph D. Clifford
University of Massachusetts School of Law
Professor Jorge L. Contreras
S.J. Quinney College of Law, University of Utah
Professor Christopher A. Cotropia
University of Richmond School of Law
Professor Joshua Davis
University of San Francisco School of Law
Professor Stacey L. Dogan
Boston University School of Law
Professor Roger Allan Ford
University of New Hampshire School of Law
Professor of Economics and Technology Management H. E. Frech III
University of California, Santa Barbara
Professor Jim Gibson
University of Richmond School of Law
Professor Emeritus Thomas L. Greaney
Saint Louis University School of Law
Visiting Professor, University of California Hastings College of Law
Professor of Economics Emerita Bronwyn H. Hall
University of California, Berkeley
Professor Jeffrey L. Harrison
College of Law, University of Florida
Professor Yaniv Heled
Georgia State University College of Law
Professor Cynthia Ho
Loyola University Chicago School of Law
Professor Tim Holbrook
Emory University School of Law
Professor Michael J. Hutter
Albany Law School
Professor Marie-Christine Janssens
KU Leuven Centre for IT & IP Law
Professor Eileen M. Kane
Penn State Law
Professor Ariel Katz
Faculty of Law, University of Toronto
Professor John B. Kirkwood
Seattle University School of Law
Professor Amy Landers
Drexel University, Thomas R. Kline School of Law
Professor Mark A. Lemley
Stanford Law School
Professor Christopher Leslie
School of Law, University of California – Irvine
Professor Doug Lichtman
UCLA School of Law
Professor Yvette Joy Liebesman
Saint Louis University School of Law
Professor Daryl Lim
The John Marshall Law School
Professor Lee Ann W. Lockridge
Louisiana State University Law Center
Professor Brian J. Love
Santa Clara University School of Law
Professor Phil Malone
Stanford Law School
Professor Jonathan Masur
University of Chicago Law School
Adjunct Emeritus Professor Stephen E. Maurer
Goldman School of Public Policy, University of California, Berkeley
Professor Mark P. McKenna
Notre Dame Law School
Professor Michael J. Meurer
Boston University School of Law
Professor Joseph Scott Miller
University of Georgia School of Law
Professor Ira Steven Nathenson
St. Thomas University School of Law
Professor Emeritus of Economics Roger G. Noll
Stanford University
Professor Srividhya Ragavan
Texas A&M University School of Law
Professor Matthew Sag
Loyola University Chicago School of Law
Professor Christopher Sagers
Cleveland State University School of Law
Professor Sharon K. Sandeen
Mitchell Hamline School of Law
Professor Catherine Sandoval
Santa Clara University School of Law
Professor Joshua D. Sarnoff
DePaul University College of Law
Professor Kurt M. Saunders
California State University, Northridge
Professor Steven Semeraro
Thomas Jefferson Law School
Professor Lea Bishop Shaver
Indiana University School of Law
Professor Aram Sinnreich
American University, School of Communication
Professor Avishalom Tor
Notre Dame Law School
University of Haifa Faculty of Law
Professor Liza Vertinsky
Emory Law School
Professor Spencer Weber Waller
Loyola University Chicago School of Law
Daniel J. Weitzner
Principal Research Scientist, MIT Computer Science and Artificial Intelligence Laboratory
Founding Director, MIT Internet Policy Research Initiative
Professor Abraham L. Wickelgren
University of Texas School of Law
---FOOTNOTES ---
1 The Long Run: Maximizing Innovation Incentives Through Advocacy and Enforcement, Apr. 10, 2018; The "New Madison" Approach to Antitrust and Intellectual Property Law, Mar. 16, 2018; Good Times, Bad Times, Trust Will Take Us Far: Competition Enforcement and the Relationship Between Washington and Brussels, Feb. 21, 2018; Assistant Attorney General Makan Delrahim Delivers Remarks at the USC Gould School of Law's Center for Transnational Law and Business Conference, Nov. 10, 2017.
2 As you recognized in your March 16, 2018 speech, the decision to include a patent in a standard "gives the patent holder some bargaining power" and "would require the patent holder to live up to commitments as they would have bargained for it."
3 The studies cited to show the absence of holdup do not consider the counterfactual scenario: that prices could have fallen faster and output/diversity risen faster absent holdup. After all, few would argue that the Sherman Act was not necessary because, during the decade prior to enactment, "U.S. output of salt, petroleum, steel, and coal all increased significantly, and prices of steel, sugar, and lead all dropped significantly." Jorge L. Contreras, Much Ado About Hold-Up, at 22, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3123245.
4 See also Microsoft v. Motorola, 2013 WL 5373179, at *7 (W.D. Wash. Sept. 24, 2013) (rejecting argument that "hold up does not exist in the real world" and finding that such an argument "does not trump the evidence presented by Microsoft that hold up took place in this case").
5 As Richard Epstein has recognized, "[t]he intellectual history of rate regulation beg[an] with the writings of Sir Matthew Hale in the late seventeenth century," and the "[F]RAND formula" is "the best, indeed the only, approach" for "mimic[king] the performance of competitive markets" while not "undercutting their operation," which is needed since a "monopolist knows that he can extract at least some concessions from higher demanders precisely because they have nowhere else to go." Richard A. Epstein, The History of Public Utility Rate Regulation in the United States Supreme Court: Of Reasonable and Nondiscriminatory Rates, 38 J. SUP. CT. HIST. 345, 346, 348, 366 (2013).
6 It also bears mention that one cannot conclude that the "winning technology" is inherently "better than its rivals" without considering the FRAND commitment that can be critical to the standard-selection decision and can avoid an industry being locked into a non-FRAND-restricted technology. MICHAEL A. CARRIER, INNOVATION FOR THE 21ST CENTURY: HARNESSING THE POWER OF INTELLECTUAL PROPERTY AND ANTITRUST LAW 328-29 (2009); Byeongwoo Kang & Rudi Bekkers, Just-in-Time Inventions and the Development of Standards: How Firms Use Opportunistic Strategies to Obtain Standard-Essential Patents (SEPs), Aug. 28, 2013, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2284024.
7 Relatedly, seeking an injunction against a licensee willing to pay a FRAND rate—such as where LSI sought an exclusion order in the U.S. International Trade Commission before proposing a FRAND license to Realtek, Realtek Semiconductor v. LSI, 946 F. Supp. 2d 998, 1007-08 (N.D. Cal. 2013)—can constitute monopolization. Challenging behavior like this is not "hubris" (Mar. 16 speech); it is an appropriate application of antitrust.
8 Analogously, specific performance, which has the same effect in contract law as injunctions do in patent law, is only available in limited, extraordinary, circumstances. See 12 Corbin on Contracts §§ 63.1, 63.20 (rev. ed. 2012).
9 A standards organization's rule restricting the owner of a standard essential patent that makes a FRAND commitment from seeking injunctions against willing licensees is an appropriate attempt to enforce the FRAND commitment, not a return to the "DOJ's enforcement policies in the 1970s" (Mar. 16 speech) that have rightly been criticized for punishing numerous forms of procompetitive or competitively neutral licensing conduct.
* The letter presents the views of the individual signers. Institutions are listed for identification purposes only.
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