antitrust risk in patent pool and ssos: avoiding price fixing … · antitrust risk in patent pools...

Jeffrey BlumenfeldJeffrey BlumenfeldCrowell amp MoringCrowell amp Moring

1001 Pennsylvania Ave NW1001 Pennsylvania Ave NWWashington DC 20004Washington DC 20004

20262429192026242919jblumenfeldcrowelljblumenfeldcrowellcomcom

ANTITRUST RISK IN PATENT POOLS AND SSOsANTITRUST RISK IN PATENT POOLS AND SSOsAVOIDING PRICE FIXINGAVOIDING PRICE FIXING

EXCLUSIONARY CONDUCTEXCLUSIONARY CONDUCT

Patent PoolsPatent Pools

Technology increasingly important in worldrsquos economies

IPR increasingly important and international

IPR increasingly matter of joint activitybull standards settingbull patent pools

IPR increasingly subject to competitionantitrust analysis

Difficult situation for business planning

Analysis increasingly done in multiple jurisdictions

IPR and CompetitionIPR and CompetitionIPR and Competition

General Antitrust Context General Antitrust Context

Antitrust and economic analysis hasevolved over past 25 years

Has come to view that collective licensing could be pro-competitive

increasing competition through innovation

Therefore changed analysis to ldquorule of reasonrdquorequiring close analysis of specific facts

Todayrsquos ldquobetter viewrdquo - examine arrangements for promotion of procompetitive effects

and avoidanceminimization of anticompetitive effects

Patent PoolingPatent Pooling

Definition for our purposes

collective licensing by a group of patent holders

whose patents are infringed by practice of a standard

Competition BenefitsCompetition Benefits

Transactional efficiency more patents in fewer transactions

Can increase speed to market of new technology

Reduces risk of litigation therefore uncertainty

Greater efficiency generally means lower price

Reduces ldquoblockingrdquo risk

Integration of complementary technologies

Joint activity by companies that coulddo compete

Jointly price competing technologies

Impede innovation by excluding alternative technology

Licensors may also be licenseescould use pool to optimize terms in their favorcould ldquocross-licenserdquo v ldquosign and payrdquo

Impede innovation by shielding invalidexpired patents

Classic cartel to protect whatrsquos inside exclude whatrsquos outside

Impede innovation by foreclosing alternative technology

Competition RisksCompetition Risks

Less guidance available than business likesneeds

Not much case law in major antitrust jurisdictions

Best authority is ldquoenforcement intentrdquo ofcompetition authorities

found in public guidance

But enforcement agency ldquoguidancerdquonot binding on courts

Antitrust GuidanceAntitrust Guidance


There is very little law on this issue in US

Best authority is ldquoenforcement intentrdquo of DOJ andFTCfound in jointly-published ldquoguidelinesrdquo

and in business review letters

Some ldquostandard practicesrdquo have evolvedaround this guidance

Additional US Risk Factor Multiple Forums

US Government Enforcementbull Department of Justicebull Federal Trade Commission

US Private Enforcementbull Antitrust in Federal Courts

bull Circuit Court appealsbull IP in Federal Courts

bull Federal Circuit appealsbull International Trade Commission

bull Federal Circuit appeals

Risk FactorsRisk Factors


DOJ-FTC (1995)

Antitrust Guidelines for theLicensing of Intellectual Property

httpwwwusdojgovatrpublicguidelines0558pdf

DOJ-FTC Report (2007)

Antitrust Enforcment and IP RightsPromoting Innovation and Competition

httpwwwusdojgovatrpublichearingsip222655pdf

Department of Justice prior-review process

Department may take one of two courses

BRL sets forth DOJ understanding of the proposed course of conductIndicates ldquono present intentionrdquo to proceed with enforcement

bull Publicly-availablebull So is originally-submitted request letter bull And all supporting material

Submit letter with detailed description of intended course of conduct

bull Indicate privately that it continues to have concerns orbull Issue a Business Review Letter (ldquoBRLrdquo)

Business Review LettersBusiness Review Letters

bull Even ldquofavorablerdquo outcome is subject tosevere limitations

bull DOJ reserves right to sue if bull actual conduct does not conform exactly

to proposed conduct bull market conditions changebull ldquocurrentrdquo analysis by DOJ changes

Significant Limitations

bull Process can take anywhere from 6 - 18+ monthsbull DOJ will review only prospective conductbull Therefore cannot start proposed activity

until process ends

Delay

LackOf

Certainty



IEEEhttpwwwusdojgovatrpublicbusreview222978htm

VITAhttpwwwusdojgovatrpublicbusreview219380htm

3G Patent Platform httpwwwusdojgovatrpublicbusreview200455htm

6C DVD Poolhttpwwwusdojgovatrpublicbusreview2485htm


MPEG-2 Poolhttpwwwusdojgovatrpublicbusreview1170htm


Antitrust Modernization CommissionReport and Recommendations (2007)

httpgovinfolibraryunteduamcreport_recommendationtochtm

DOJ-FTC Antitrust Guidelines for Collaborations Among Competitors (2000)

httpwwwftcgovos200004ftcdojguidelinespdf


There is very little law on this issue in Europe

Best guidance is EC analysis of issues in context ofTechnology Transfer Block Exemption Regulations

which were issued in 2004

httpeur-lexeuropaeuLexUriServLexUriServdouri=CELEX32004R0772ENHTML

httpeur-lexeuropaeuLexUriServLexUriServdouri=OJC200410100020042ENPDF

Antitrustcompetition analysis of patent poolingalways comes back to core principles

Must analyze under both frameworksbull IPRlicensing bull Antitrustcompetition law and policy

Either analysis alone mdash particularly IPRlicensing mdashrisks wrong conclusions

bull Licensing ldquomorerdquo generally betterbull Antitrust ldquomorerdquo can be illegal

Patent Pool AnalysisPatent Pool Analysis

Achieving Benefits While Reducing RisksRequires Careful Supervision in FormationOperation

Formal written guidelines

Binding on members

Coveringbull commitment to antitrust compliancebull participation qualificationsrightsbull conduct of meetingscommunicationsbull scope of licensesbull licensing practices

Antitrust counsel present at all meetingsand reviewing all other communications

Managing RisksManaging Risks

ldquoEssentialrdquo Patents

Key concept in analysis of risksbenefits

ldquoTechnically Essential Patentsrdquo

are necessarily and unavoidably infringed

by practice of standard

in absence of a license

Necessarily standard-compliant product infringes

Unavoidably there is no technology alternative


Essential patents are necessarily complements

Essential patents do not compete with each other

Essential patents collectively make up a single ldquoproductrdquo

Essential patents are mutually blocking

Non-essential patents may behave substitutes

Non-essential patents in pool may foreclose competing technology

Non-essential patents may be substitutes rather than complements


Company must have essential patent to join

Determination of essentiality must be technical not commercial

Determination of essentiality must be made by neutral 3rd partynot by patentee or other members

Members should be willing to license their own essential patents individually


Private litigation brought by Philips against infringers

But at International Trade Commission not in courts

Competition issues raised in defense

Unlicensed CD manufacturers found to infringe

Remedy Each patent in pool is unenforceable

But ITC ruled inclusion of ldquonon-essentialrdquo patentswas anticompetitive ldquopatent misuserdquo described as tying of essential and non-essential patentsunder both per se and rule of reason analyses

ITC v PhilipsITC v Philips

Federal Circuit reversed ITC decisionSept 21 2005 04-1361

Philips v ITCPhilips v ITC

Inadequate proof that there were commercially viable alternatives to the patents called non-essential

Error to analyze as per se offense - should be analyzed under rule of reasono because not ldquoalwaysrdquo anticompetitiveo because have pro-competitive effects

Inadequate proof that any such competitive technology was foreclosed from these licensees


ldquokey inquiry is whether by imposing conditions that derive theirforce from the patent the patentee has impermissibly broadened the scope of the patent grant with anticompetitive effectrdquo Windsurfing 1986

ldquoPatent misuserdquo is equitable defense to infringement

ldquo restrain practices that d[o] not in themselves violate anylaw but that drew anticompetitive strength from the patent right and thus were deemed to be contrary to public policyrdquoMallinckrodt 1992

Patent misuse applied to tying can be analyzed as per se or under rule of reason Virginia Panel 1997

Under rule of reason can be held impermissible misuse ifrestrains competition in a relevant marketMonsanto v McFarling 2004 Windsurfing 1986


35 USC 271(d) specifies what is not misuse ldquoeven though those practices might otherwise be subject to scrutiny under the antitrust lawsrdquo

ldquosafe harborrdquo [on tying issue] applies to conditioning patent license on another patent license or on purchase of product unless patent owner ldquohas market power for the patent or patented product on which the license or sale is conditionedrdquo271(d)(5)


Unlike some antitrust tying cases patent license really a covenant not to sue and does not require licensee to actually use technology

Therefore does not foreclose patentee from using alternative (competing) technology

Because no evidence that any part of price attributable to non-essential patents the non-essential patents (analytically) are equivalent of ldquofreerdquo


Consideration of pro-competitive effects of patent pooling plus prior analysis means patent pools should be analyzed under rule of reason not per se

Inadequate proof that there were commercially viable alternatives to some patents called ldquonon-essentialrdquo

Inadequate proof that these licensees sought alternatives to thenon-essential patents for which there was proof of commercially viable alternatives or that licensees were dissuaded by presence of non-essential patents

Risk that patents ldquoessentialrdquo when licensed can become ldquonon-essentialrdquo as technology develops

Technology increasingly important in worldrsquos economies

IPR increasingly important and international

IPR increasingly matter of joint activitybull standards settingbull patent pools

IPR increasingly subject to competitionantitrust analysis

Difficult situation for business planning

Analysis increasingly done in multiple jurisdictions

IPR and CompetitionIPR and CompetitionIPR and Competition














































DOJ-FTC (1995)


















until process ends

Delay

LackOf

Certainty



























Binding on members





































































































DOJ-FTC (1995)


















until process ends

Delay

LackOf

Certainty



























Binding on members




































































until process ends

Delay

LackOf

Certainty



























Binding on members

















































































Binding on members
























































antitrust risk in patent pool and ssos: avoiding price fixing … · antitrust risk in patent pools...

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