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Government Amicus Efforts Show Antitrust Policy Via Advocacy

Under the administration of President Donald Trump, the US Department of Justice’s Antitrust Division has significantly ramped up its private litigation amicus program.

The Antitrust Division has filed an increasing number of amicus briefs and statements of interest at the appellate and district court levels in an effort to influence the development of antitrust law. In this articles, featured in Law 360, our authors explore how analysis of this advocacy may give us the shape of antitrust policy.

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Annual European Competition Review 2019

McDermott’s Annual European Competition Review summarizes key developments in European competition rules. During the previous year, several new regulations, notices and guidelines were issued by the European Commission. There were also many interesting cases decided by the General Court and the Court of Justice of the European Union. All these new rules and judicial decisions may be relevant for your company and your day-to-day practice.

In our super-connected age, we can be inundated by information from numerous sources and it is difficult to select what is really relevant to one’s business. The purpose of this review is to help general counsel and their teams to be aware of the essential updates.

This review was prepared by the Firm’s European Competition Team in Brussels and Paris. Throughout 2019 they have monitored legal developments and drafted the summary reports.

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EU Competition Commissioner Vestager Nominated for a Second Term – a Tale of Two Hats

What Happened:

On 10 September 2019, European Commission President-elect Ursula von der Leyen nominated Margrethe Vestager as Competition Commissioner for a second consecutive term. As part of a structural shake-up of the Commission, involving the institution of eight Vice-Presidents, three of whom will be “Executive Vice Presidents”, she will additionally serve as “Executive Vice President for a Europe fit for the Digital Age”. As head of the competition portfolio Ms. Vestager will be supported by DG-Comp. As chief coordinator of the digital portfolio she will be supported by the Commission’s Secretariat-General. With respect to the latter role in particular, Ms. Vestager will be charged with ensuring that “Europe fully grasps the potential of the digital age and strengthens its industry and innovation capacity” and will be responsible for specific initiatives including new laws governing digital platforms and a potential tax on digital companies. Subject to European Parliament consent, which is expected to be given, she will carry out this dual rule until 2024.

What This Means:

Ms. Vestager’s mission as Competition Commissioner will be based on the following priority actions:

  1. Strengthening competition enforcement in all sectors: this tenet focuses on improving case detection, expediting investigations and facilitating cooperation with and between EU national competition authorities, including global cooperation among competition authorities.
  2. Evaluate and review Europe’s competition rules: this will cover antitrust regulations that are due to expire during her mandate (e.g. the Verticals Block Exemption Regulation (Reg. 330/2010), the ongoing review of the merger control rules and the review of State aid rules and guidance.
  3. Use of the sector inquiry instrument in new and emerging markets: in the context of new and emerging markets, sector inquiries will be carried out in markets that the Commission believes are not working as well as they should, and that breaches of the antitrust rules might be a contributory factor. Ms. Vestager already presided over the Commission’s sector inquiry into the e-commerce sector in 2015.
  4. Develop tools and policies to address the distortive effects linked to state-owned companies or subsidized companies from outside the EU but operating in the EU.

While it is somewhat unusual for a Competition Commissioner to be re-elected for a second term, her re-nomination serves as a testament to widespread appreciation for her unwavering commitment to ensuring consumer welfare. That being said, and against the Commissioner’s mandate to secure enhanced global cooperation amongst competition authorities, the move will likely raise eyebrows on Capitol Hill. This is principally because of Ms. Vestager’s alleged crusade against many of the biggest U.S. tech companies, a path likely to be pursued during the Commissioner’s second term in office. Indeed, her mandate over rule-making related to the digital economy could also give her increased influence over global tech regulation. Furthermore, her mission appears to be heavily influenced by the fall-out of the failed Alstom/Siemens railway merger. It will be interesting to see, for example, what role, if any, industrial policy will play under the EU Merger Regulation going forward. With Ms. Vestager’s focus [...]

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Texas Court Declares Licensing Offer Based on End Device Is FRAND, Diverges from California Court in Qualcomm

Standard-essential patent holders and implementers may face uncertainty regarding licensing practices following a May 23 Texas court ruling. In the ruling, a Texas federal judge reached a conclusion different from a recent California court decision—FTC v. Qualcomm—on the question of whether an SEP holder must base its royalty rates on the “smallest salable patent-practicing unit” in order to comply with a fair, reasonable and non-discriminatory royalty commitment.

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Federal Judge Finds Qualcomm Violated the FTC Act Through Monopolistic and Exclusionary Conduct

On May 21, a California federal judge ruled in favor of the Federal Trade Commission (FTC) in its suit against Qualcomm in a much-anticipated decision, concluding that Qualcomm violated the FTC Act by maintaining its monopoly position as a modem chip supplier through a number of exclusionary practices, including refusing to license standard essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms. Qualcomm likely will appeal the decision to the US Court of Appeals for the Ninth Circuit, but in the meantime, the court’s sweeping decision is likely to affect the course of dealing between SEP-holders and licensees. The decision is likely to substantially affect the ways in which SEP-holders take their technology and associated components that they manufacture to market.

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Federal Jury Finds that Ericsson’s Licensing Offer to HTC is FRAND

On February 15, a Texas federal jury found that Ericsson did not breach its obligation to offer HTC licenses to its standard-essential patents (SEPs) on fair, reasonable and non-discriminatory (FRAND) terms. The verdict ended a nearly two-year dispute as to whether FRAND obligations preclude a licensing offer based on end products rather than components. Ericsson succeeded in convincing the jury that its FRAND commitment does not require it to base royalty rates for its SEPs on the value of smartphone chips rather than the phones themselves. The jury verdict suggests that other SEP holders may be able to successfully argue that basing royalty rates on end products rather than components does not violate their FRAND obligations.

Ericsson holds patents that the parties agreed are essential to the 2G, 3G, 4G and WLAN wireless communication standards, and made a commitment to several standard setting organizations to license those SEPs on FRAND terms. HTC makes smartphones that implement Ericsson’s SEPs and brought suit against Ericsson in April 2017, alleging that Ericsson overcharges for its SEPs.

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District Court: IPR Policy Does Not Automatically Require License Fees Based on Components

The US District Court for the Eastern District of Texas ruled that for the purposes of honoring a fair, reasonable and non-discriminatory (FRAND) commitment, a pool member is not required to base royalties for its standard essential patents (SEPs) on the value of components. HTC America Inc. et al. v. Ericsson Inc., Case No. 6:18-cv-00243-JRG (E.D. Tex. Jan. 7, 2019) (Gilstrap, J). According to the court, Ericsson’s commitment to the European Telecommunications Standards Institute (ETSI) does not specify whether it must use the value of components or end-user devices to calculate royalty rates. Thus, there is no ETSI prescribed methodology for calculating the license fee under the FRAND commitment.

Ericsson holds patents that are essential to the 2G, 3G, 4G and WLAN wireless communication standards and made a commitment to ETSI to license those SEPs on FRAND terms. HTC makes smartphones that implement Ericsson’s SEPs and alleged that Ericsson is overcharging for SEP licenses. According to HTC, Ericsson’s FRAND commitment to ETSI requires it to base its royalties on the value of the “smallest salable patent-practicing unit (SSPPU) in the phones.” In October 2018, Ericsson moved for a ruling that its FRAND commitment does not require this method of calculation and allows Ericsson to base its royalties on the value of end-user devices, i.e., smartphones.

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THE LATEST: AAG Delrahim Withdraws Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments, Elaborates Views on SSOs

In a December 7 speech before the Berkeley-Stanford Advanced Patent Law Institute, the US Department of Justice Antitrust Division (DOJ) Assistant Attorney General Makan Delrahim (AAG Delrahim) announced that the DOJ will withdraw its assent to the 2013 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments (the Policy Statement) and elaborated upon the DOJ’s enforcement approach to standard setting organizations (SSOs).

WHAT HAPPENED:
  • AAG Delrahim voiced support for the right of patent holders to seek injunctions against misuses of their technologies. According to AAG Delrahim, the appropriate test for injunctive relief in patent cases is the one articulated by the US Supreme Court in eBay v. MercExchange. Under the eBay standard, to obtain an injunction, a patent holder must demonstrate that:
    • It has suffered an irreparable injury;
    • Remedies available at law, such as monetary damages, are inadequate to compensate for that injury;
    • Considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and
    • The public interest would not be disserved by a permanent injunction.
  • AAG Delrahim expressed concern that the Policy Statement, which in his view suggests that injunctions may not serve the public interest, may bias courts applying the eBay test against issuing injunctions. Because AAG Delrahim’s stance is that injunctions frequently do serve the public interest, he is worried that the Policy Statement will cause confusion. Based on this worry and AAG Delrahim’s disagreement with the Policy Statement’s position, the DOJ will withdraw its assent to the Policy Statement.
  • AAG Delrahim also elaborated upon his concerns with SSOs. He explained that an SSO can act anti-competitively in carrying out two tasks. First, an SSO can act anti-competitively while carrying out the standard setting process (g., by refusing to license a new and innovative technology by a maverick firm that the members of the SSO view as threatening). Second, an SSO can act anti-competitively in adopting and implementing patent policies (e.g., by adopting licensing terms that favor implementers over patent holders).
WHAT THIS MEANS:
  • Though the DOJ is withdrawing its assent to the Policy Statement, it will attempt to replace it with a new one. AAG Delrahim said that the DOJ will engage the Patent Office to initiate this process. The DOJ is likely to push for language more favorable to standard essential patent holders seeking injunctions.
  • The withdrawal of the Policy Statement may affect patent cases not only before federal district courts, but also before the International Trade Commission (ITC). The Policy Statement was designed to inform the ITC, as well as federal courts, on the appropriateness of issuing an exclusion order in patent cases.
  • Delrahim announced two policies the DOJ will adopt with respect to SSOs. First, the DOJ will investigate and bring enforcement actions against standard setting practices that are anticompetitive. Second, the DOJ will embrace a policy of encouraging competition between SSOs. As part of the policy, the DOJ may, for example, scrutinize competitors for [...]

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FTC Secures Partial Victory Requiring SEP Holder to License to All Comers in Antitrust Case

Recently, a federal district court in California granted partial summary judgment for the US Federal Trade Commission (FTC) in an important intellectual property and antitrust case involving standard essential patents (SEP). The court’s decision requires an SEP holder to license its SEPs for cellular communication standards to all applicants willing to pay a fair, reasonable and non-discriminatory (FRAND) rate, regardless of whether the applicant supplies components or end-devices. The decision represents a significant victory for the FTC in enforcing its views of an SEP holder’s commitments to license patents on FRAND terms.

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THE LATEST: DOJ and FTC Take Divergent Positions on Intellectual Property Issue

In testimony before the Senate Subcommittee on Antitrust, Assistant Attorney General Makan Delrahim from the US Department of Justice (DOJ) and Chairman Joseph Simons from the US Federal Trade Commission (FTC) staked out differing interpretations of when antitrust considerations are relevant in standard setting agreements restricted by fair, reasonable and non-discriminatory (FRAND) rates, a rare divergence of opinion between the two antitrust enforcement agencies.

WHAT HAPPENED:
  • Since AAG Delrahim took over as head of the DOJ Antitrust Division in September 2017 he has consistently hinted at a differing interpretation of antitrust law as it relates to standard essential patents and FRAND rates in the context of antitrust. 
  • Standard essential patents (SEPs) are patents that have been incorporated into a standard by a standard setting organization and industry participants to facilitate interchangeability between products. Often, to be included in a standard, patent holders agree to license a patent essential to that standard at a FRAND rate. 
  • With the proliferation of standards, more scrutiny has been devoted to SEPs and FRAND rates, and some companies have brought antitrust suits relating to “patent hold-up” or the refusal to license a patent on FRAND terms (typically seeking higher royalties or fees on patents for widely adopted standards). 
  • In testimony on October 3, 2018, AAG Delrahim indicated his view was that a patent holder’s unilateral decision not to license a patent—even if that patent is part of a standard—is not conduct intended to be reached by the antitrust laws. AAG Delrahim indicated such a dispute would more appropriately be handled by contract law. 
  • This position differs from that of the FTC, where Chairman Simons has indicated that antitrust law can be relevant in patent hold-up cases.
    •  The FTC demonstrated its view in a recent complaint filed against Qualcomm, Inc. The complaint summarizes the patent hold-up concern:

Once a standard incorporating proprietary technology is adopted, the potential exists for opportunistic patent holders to insist on patent licensing terms that capture not just the value of the underlying technology, but also the value of standardization itself. To address this “hold-up” risk, [standard setting organizations] often require patent holders to disclose their patents and commit to license standard-essential patents (“SEPs”) on fair, reasonable, and non-discriminatory (“FRAND”) terms. Absent such requirements, a patent holder might be able to parlay the standardization of its technology into a monopoly in standard-compliant products.

WHAT THIS MEANS:
  • Going forward, US antitrust enforcement with respect to SEP issues may be limited to the FTC. AAG Delrahim’s speeches indicate that it will be the rare case that the Antitrust Division pursues such cases in the future.
  • This divergence between the two US agencies responsible for enforcing antitrust laws will create confusion for SEP holders and their licensees with respect to the risks of US government intervention. Companies dealing with SEPs and FRAND rates will want to be cognizant of which agency is reviewing, as approaches may be [...]

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