licensing and competition: ftc/doj views presentation to: les washington, dc chapter may 20, 2003
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Licensing and Competition: FTC/DOJ Views Presentation to: LES Washington, DC Chapter May 20, 2003 Presented by: Walt Bratic Shirley Webster. Agenda. History of Views on IP and Competition Overview of FTC/DOJ Hearings Patent Pools Grantbacks Cross-Licenses Standard Setting Tying - PowerPoint PPT PresentationTRANSCRIPT
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Licensing and Competition:FTC/DOJ Views
Presentation to:LES
Washington, DC Chapter
May 20, 2003
Presented by:
Walt Bratic Shirley Webster
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
History of Views on IP and Competition
Overview of FTC/DOJ Hearings
Patent Pools
Grantbacks
Cross-Licenses
Standard Setting
Tying
Refusals to License
Agenda
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
History of Views on IP and CompetitionHistory of Views on IP and Competition
Early 1900s – Patent Rights viewed as paramount, overcoming all antitrust concerns
Patents a government endorsed exception to antitrust laws
Market Power inferred from existence of a patent
This immunity from antitrust scrutiny decreased over time
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
History of Views on IP and CompetitionHistory of Views on IP and Competition
1970 – Nine No No’s (per se prohibitions) Grantbacks Royalty payment unrelated to sales volume of patented product Patent Pools (Mandatory Package Licensing) Tying of unpatented supplies Restrictions on sales of unpatented products made by a patented
process Post-sale restrictions on resale by purchasers of patented products Tie-outs (restrictions on licensee’s ability to sell products that
compete with patented product) Licensee veto power over licensor’s grant of future licenses Specifying prices a licensee could charge upon resale of licensed
products
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
History of Views on IP and CompetitionHistory of Views on IP and Competition
Current view – both patent law and antitrust law have the goal of encouraging innovation, industry and competition
1995 Antitrust Guidelines for the Licensing of Intellectual Property
Same general antitrust principles applied to IP as to conduct involving any other form of property
Intellectual Property NOT assumed to create market power
Intellectual Property Licensing generally pro-competitive
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
History of Views on IP and CompetitionHistory of Views on IP and Competition
Rule of Reason Analysis Is restraint likely to adversely affect competition? If so, do pro-competitive benefits or efficiencies
outweigh anticompetitive effect What is the relevant product and geographic market Market Power – the ability to profitably maintain
prices above, or output below, competitive levels for a significant period of time.
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Overview of FTC/DOJ HearingsOverview of FTC/DOJ Hearings
Hearings held in 2002 to explore the interrelationships between competition and patent policy
Both IP law and antitrust law seek to promote innovation and enhance consumer welfare – but questions exist as to the proper balance to achieve goal
Role of the Federal Circuit
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Overview of FTC/DOJ HearingsOverview of FTC/DOJ Hearings
Antitrust Community Antitrust Laws eliminate monopolies and
encourage competition IP Laws reward creators and inventors with
limited monopoly IP Community
IP Rights protect investment, encourage R&D However,
• Patent Thicket – Is it a problem?• Increasing number of patents – too many?
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Overview of FTC/DOJ HearingsOverview of FTC/DOJ Hearings
Topics of interest in hearings included: Interrelationships between competition and patent policy Standard setting Patent pools Cross-licensing Unilateral refusals to license Proliferation of patents Changing scope of patents Role of the Federal Circuit
E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pools
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pool - Definition
Sometimes referred to as Mandatory Package Licensing
Agreements among two or more owners of different items of intellectual property to license third parties, and one another
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pools – Patent Pools – Pro- or Anti-CompetitivePro- or Anti-Competitive
May provide competitive benefits One Stop Shopping Integrate complementary technologies Reduce transaction costs Clear blocking position Avoid costly infringement litigation
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pools – Patent Pools – Pro- or Anti-CompetitivePro- or Anti-Competitive
May restrict competition Reduce competition among IP rights within the
pool Reduce competition between products
incorporating the pooled patents Reduce innovation among parties to the pool Collective price or output restraints may be
deemed unlawful
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Business Review Letters on Patent PoolsBusiness Review Letters on Patent Pools
MPEG-3 – June 26, 1997
DVD (Philips, Sony and Pioneer) – December 16, 1998
DVD (Hitachi, Matsushita, Mitsubishi, Time Warner, Toshiba, and Victor) – June 10, 1999
3G – November 12, 2002
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pool -- How to be pro-competitivePatent Pool -- How to be pro-competitive
Integrate Complementary Patent Rights License “Essential” Patents
Necessarily or practically infringed in order to comply with standard
Determination of “essentiality” by independent expert
Open pool to any owner of an essential patent willing to license on the programs terms and conditions
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pool -- How to be pro-competitivePatent Pool -- How to be pro-competitive
Retain Independent Patent Expert to Determine Essentiality
Do Not Restrict Licensing to the Pool Allow licensing directly with each entity that has
patents in the patent pool (separately from pool)
Allow licensing of individual patents (no requirement to license all patents included in the pool)
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pool -- How to be pro-competitivePatent Pool -- How to be pro-competitive
Royalty Rates Royalty should be small relative to the total
costs of manufacturing the product Offer fair, reasonable, and non-discriminatory
terms to Licensors and all other licensees of the pool
Offer most-favored-nations clause to allow licensee to opt for more favorable royalties offered another licensee, if licensee agrees to any additional benefits to Licensor included in terms and conditions for that royalty rate
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Pool -- How to be pro-competitivePatent Pool -- How to be pro-competitive
Grantbacks Licensee’s grantback obligation to be limited to
essential patents Licensee to grant non-exclusive licenses to
essential patents on fair, reasonable and non-discriminatory terms
Open pool to any owner of an essential patent
E C O N O M I C S V A L U A T I O N S T R A T E G Y
Cross Licenses
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Cross LicensesCross Licenses
Considered similar to patent pools Many of the same considerations apply in
the analysis of pro- and anti-competitive effects
E C O N O M I C S V A L U A T I O N S T R A T E G Y
Standard Setting
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Examples of Standard Setting OrganizationsExamples of Standard Setting Organizations
OrganizationOrganization AcronymAcronym Product AreaProduct AreaInternational Organization for
Standardization(umbrella organization for numerous standard-setting
groups)
ISO
American National Standards Institute(umbrella organization for numerous standard-setting
groups)
ANSI Communications and telecom technology
European Telecommunications Standards
ETSI Communications and telecom technology
International Telecommunications Union ITU Fax transmissionsand modem protocol
National Electric Manufacturers Association
NEMA Electrical equipment
Joint Electron Device Engineering Council
JEDEC Solid-State products
American Petroleum Institute API Oil field services equipment and petroleum products
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Benefits of Standard Setting
Consumers more likely to embrace new product (reluctance to repeat VHS/Beta format problems)
Allows multi-industry coordination of products
Efficiency in technological advancement as companies share the risks and costs of new product development
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent Rights in Standard SettingPatent Rights in Standard Setting
Standards that rely on IP may be argued to present a danger to competition
Inclusion of a patent in a standard can provide that technology with market power that it previously lacked
Refusal to issue standard because only one or a small number of manufacturers patent or make product can also limit competition
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Dell Computer
Unfair competitionUnfair competition under Sec. 5 of Federal under Sec. 5 of Federal Trade Commission Act Trade Commission Act
Dell’s failure to disclose patents as required by a Dell’s failure to disclose patents as required by a standard-setting group’s rules and later attempt to standard-setting group’s rules and later attempt to enforce patent rights against users of a standard enforce patent rights against users of a standard adopted by the group found to be a violation.adopted by the group found to be a violation.
In re Dell ComputersIn re Dell Computers 931-0097 (F.T.C. 1996)931-0097 (F.T.C. 1996)• Dell entered into a consent order agreeing not to seek Dell entered into a consent order agreeing not to seek
royalties, but the FTC stated, “the relief in this case royalties, but the FTC stated, “the relief in this case should not be read to impose a general duty to search … should not be read to impose a general duty to search … The order should not be read to create a general rule that The order should not be read to create a general rule that inadvertence in the standard-setting process provides a inadvertence in the standard-setting process provides a basis for enforcement action.”basis for enforcement action.”
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Rambus v. InfineonRambus v. Infineon
Rambus accused of fraud from failure to disclose patent applications in a meeting of a standard setting body
Federal Circuit 2003: Duty of disclosure as a JEDEC participant applies only to patents containing claims reasonably necessary to practice proposed standard and arises only when work formally begins on proposed standard. Duty to disclose did not cover a participant’s future plans or intentions. Since Rambus withdrew from participation before proposals on the DDR-SDRAM standard had been submitted and before formal consideration of the standard had begun, no duty of disclosure had arisen.
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Rambus – FTC Complaint
Commission challenges a pattern of anticompetitive acts and practices undertaken by Rambus over the past decade through which Rambus has engaged in unfair methods of competition related to DRAM
Rambus’s anticompetitive scheme involved participating in JEDEC without letting it be known that Rambus had a patent and patent applications ultimately adopted in the relevant standards. Once the standards became widely adopted, Rambus proceeded to enforce its patents against companies manufacturing memory products in compliance with the standard.
This conduct has caused or threatened to cause substantial harm to competition.
E C O N O M I C S V A L U A T I O N S T R A T E G Y
Tying
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
TyingTying
Requiring a licensee to purchase or use unwanted products or services in order to receive a desired IP license
Concern is projection of market power from market of licensed IP to other market
There must be a showing of market power for concerns to arise
E C O N O M I C S V A L U A T I O N S T R A T E G Y
Refusals to License
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Refusals to LicenseRefusals to License
Courts have held that failure to license a patent, standing alone, is not an antitrust violation
Refusals to license can rise to the level of an antitrust violation if:
Part of a scheme to acquire or maintain an unlawful economic monopoly or
Concerted action among two or more independent parties
E C O N O M I C S V A L U A T I O N S T R A T E G Y
Summary of Current Positions on Nine No-No’s
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Patent PoolsPatent Pools
May provide competitive benefits Integrate complementary technologies Reducing transaction costs Clearing blocking positions Avoid costly infringement litigation
Can restrict competition Reducing incentive to innovate Reducing competition within pool Reducing competition for pooled patents
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Tying of Unpatented SuppliesTying of Unpatented Supplies
Without a showing that the patent actually conveys market power, antitrust concerns do not arise
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Royalties not Reasonably Related to Royalties not Reasonably Related to Sales of the Patented Product Sales of the Patented Product
Royalties based on other measures, such as units produced by the licensee may be found to be more efficient
Any antitrust concern depends on the presence of market power
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Mandatory GrantbacksMandatory Grantbacks
Grantbacks may be pro-competitive and will be evaluated under a rule of reason
Grantbacks may adversely affect competition if they reduce the licensee’s incentives to engage in R&D, and limit incentive to innovate
Whether the licensee has market power in a relevant market is important to the agencies’ analysis
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Licensee Veto Power over Licensee Veto Power over Licensor’s Grant of Further LicensesLicensor’s Grant of Further Licenses
Absent showing of market power or foreclosure, this type of restriction may have a net pro-competitive effect
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Restrictions on Sales of Unpatented Restrictions on Sales of Unpatented Products Made by Patented ProcessProducts Made by Patented Process
These restrictions are unlikely to raise concerns to the extent that
the licensee and the licensor would not be actual or potential competitors absent the licensing relationship, or
the licensor does not have market power
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Tie-OutsTie-Outs
Anticompetitive concerns are unlikely to arise unless patentee has market power in the relevant market for the patent or patented product, under the patent misuse statute
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Restraints on DistributionRestraints on Distribution
Restrictions on “single use only” label license or prohibition on resale are subject to Rule of Reason analysis
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E C O N O M I C S V A L U A T I O N S T R A T E G Y
Resale Price MaintenanceResale Price Maintenance
Only one of the Nine No-No’s remaining as a per se violation
According to Section 5.2 of the IP Licensing Guidelines, it is per se illegal for a patentee to fix the minimum resale price for a good that has been fully sold to dealers.