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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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THE LATEST: American Guild of Organists Reaches Settlement Agreement with the FTC over Challenged Professional Association Rules

The two current commissioners of the Federal Trade Commission (FTC) approved a final order and consent agreement with the American Guild of Organists (AGO) after a public comment period of two months. The FTC alleged that the AGO violated Section 5 of the Federal Trade Commission Act by agreeing to restrain competition among its organist and choral conductor members. Under the terms of the settlement, the AGO agreed to make certain changes to its rules and policies.

WHAT HAPPENED

  • The AGO represents approximately 15,000 member organists and choral directors in 300 chapters in the United States and abroad.
  • The FTC initiated an inquiry into the AGO’s practices in late 2015 after receiving complaints from consumers and organists regarding guild rules.
  • Specifically, the AGO’s rules required a customer seeking to hire a musician who was not dedicated as the “incumbent musician” in a particular area to pay both the “incumbent musician” in the area as well as the hired musician. The AGO’s Code of Ethics stated that members should “protect themselves” through contracts that secured fees even when not performing.
  • Also, the AGO published compensation schedules and formulas, instructing its membership to use the formulas to determine pricing in their region.
  • Finally, the AGO’s rules prohibited a member from soliciting employment from an organization already employing an “incumbent musician.”
  • The FTC’s complaint alleged that these actions restrained competition by encouraging a fixed pricing schedule between and among the AGO’s membership, and by preventing members from freely seeking or accepting employment. It also alleged that the AGO’s rules and guidelines likely raised prices for consumers seeking to employ organists for special occasions, as well as the organizations that employed organists.
  • The settlement requires the AGO to change its rules and Code of Ethics, and mandates that each chapter of the AGO certify compliance in order to remain in the organization. In particular, the AGO no longer can publicize or endorse any standardized or suggested prices or interfere with any member’s ability to seek work as an organist or choral conductor.

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Drug Testing Company Settles FTC Case Alleging Invitation to Collude

The FTC has entered into a final settlement with Drug Testing Compliance Group LLC (DTC Group) by order issued January 21, 2016, resolving an administrative case that alleged DTC Group had invited a competitor to collude with respect to customer allocation in violation of §5 of the Federal Trade Commission Act.

Specifically, the FTC complaint alleged that the president of DTC Group, an Idaho-based compliance company servicing the trucking industry, approached an unnamed direct competitor to complain about the competitor’s acquisition of a DTC Group customer.  This allegedly led to a meeting, wherein the DTC Group president proposed to the principals of the competitor that the two companies agree not to solicit or compete for each other’s customers, and that they abide by a “first call wins” approach to customers.  Allegedly the DTC Group president explained that this arrangement would allow each company to sell its services without fearing that its rival would later undercut with a lower price offer.  This alleged conduct ran afoul of the §5 prohibition on “unfair methods of competition in or affecting commerce” even without any proof or allegation that the competitor accepted the invitation.  Indeed, there exists legal precedent under which the FTC can pursue an action for such conduct even without a demonstration of market power on the part of the respondent.

The settlement agreement prohibits DTC Group from communicating with competitors about pricing or rates, though public posting of rates is permitted.  DTC Group is further prohibited from soliciting, entering into, or maintaining an agreement with any competitor to divide markets, allocate customers or fix prices.  DTC Group is additionally prohibited from urging any competitor to raise, fix or maintain prices, or to limit or reduce service.  The settlement requires DTC Group to report to FTC as to its compliance for the next 20 years.  Based on publicly available information, there has been no apparent action taken against the unnamed competitor with respect to these allegations.

Of note for corporate counsel, there was no allegation in the case that DTC Group and its competitor had actually entered an agreement – rather, the underlying allegation was simply that DTC Group had invited a competitor to enter a customer allocation agreement.  While it is unclear from the publicly-released materials how the FTC was alerted to this alleged invitation, this is an important reminder to companies that invitations to competitors to collude can result in legal action even if no further communications occur on the subject.  Such overtures further provide an approached competitor with the opportunity to gain a competitive advantage by reporting the approaching company to the FTC.




FTC Commissioner Brill Comments on Potential Reforms in Data Privacy Enforcement

On February 18, 2015, Commissioner Julie Brill spoke to students at the Tuck School of Business at Dartmouth concerning the Federal Trade Commission’s (FTC’s) recent data privacy and security enforcement, as well as the FTC’s interactions with international regulators in this area.  In her prepared remarks, Commissioner Brill described ways she hopes the FTC and other regulators can improve their current data privacy enforcement regimes to “develop practical, effective, and interoperable frameworks that will allow data to be adequately protected.”

Commissioner Brill addressed the skepticism of those who believe the United States is the “Wild West” of data privacy, by highlighting the FTC’s enforcement of Section 5 of the Federal Trade Commission Act.  However, she made clear that the U.S. “consumer privacy and data security framework can and should be improved.”  She specifically endorsed President Obama’s proposed legislation as described during a recent visit to the FTC.  These legislative proposals include strengthening the FTC’s existing data security enforcement tools by authorizing the FTC to obtain civil penalties from companies that break the law.  Further, the White House and the FTC seek legislation that would provide consumers with greater transparency concerning how their data is collected and used by data brokers.

In addition to her comments concerning methods to improve the U.S. data security regime, Commissioner Brill described ongoing discussions with foreign data security regulators, especially those in Europe, concerning the global flow of personal data.  Like their counterparts in the U.S., European regulators are in the process of drafting a new regulation to heighten data security protections and address the dynamic new ways companies are using personal data.  As they modify their own data security frameworks, the FTC and foreign regulators are engaged in a dialogue concerning the interoperability of their data privacy laws.  Both groups recognize the importance of the flow of data to their respective economies, but each seeks to protect the interests of consumers and companies under their own laws.  Commissioner Brill is “optimistic” that agreements will be reached to promote the interoperability of the data privacy regimes.

As more companies create products that will collect and transmit personal data, there will likely be significant changes to the data privacy regimes attempting to protect consumers from harm.  To avoid potential regulatory action, any company that collects, uses or shares consumers’ personal data should ensure that there are protections in place to secure personal data from breaches or hacks.  In addition, companies should promote transparency by providing clear statements about their data collection and use to consumers.




FTC Commissioners Disagree on Section 5 Authority

Section 5 of the Federal Trade Commission (FTC) Act confers broad enforcement powers on the Commission to prohibit “unfair methods of competition.”  In her February 13, 2014 keynote address to the Competition Law & Economics Symposium at George Mason law school, FTC Chairwoman Edith Ramirez argued that it would be a mistake for the Commission to circumscribe its authority by issuing guidelines for Section 5 enforcement.  While Chairwoman Ramirez “do[es] not object to guidance in theory,” she believes any guidance should be descriptive rather than prescriptive.

Other commissioners, however, have strongly backed providing companies with a clearer set of rules.  Commissioner Maureen K. Olhausen has said that she would refuse to support any Section 5 enforcement actions until the FTC establishes guidelines, while Commissioner Joshua D. Wright has already proposed such guidelines.

Section 5 may confer broader powers than the Sherman Act and Clayton Act in theory, but many courts have in practice treated Section 5 as coterminous with these other antitrust statutes and the far more extensive body of caselaw interpreting them.  Whether the FTC can extend its power with Section 5 may depend on the specific circumstances of any action.  Invoking Section 5, however, is a somewhat fraught exercise for the Commission, which would not want an unfavorable court decision that could tie its hands in the future.  Indeed, Chairwoman Ramirez made a point of saying that for “most of [its] antitrust cases,” the FTC has no need of Section 5.

The scope of Section 5 may remain uncertain, but one can be sure the debate will continue.




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