The Biden administration has revealed new details on its revamped policy toward standard essential patent (SEP) licensing. On December 6, the US Department of Justice (DOJ), the National Institute of Standards and Technology (NIST), and the USPTO released a draft joint policy statement for public comment that lays out its posture toward remedies and licensing negotiations in SEP disputes. The statement walks back certain key aspects of a prior joint policy statement released by those same agencies in December 2019 under previous leadership. Perhaps most notably, the new proposal asserts that injunctions should not be issued in SEP cases when monetary damages are available—whereas the 2019 statement argued in favor of such injunctive relief. However, the draft policy also includes recommendations related to alleged implementer misconduct, building on prior statements from DOJ officials favoring a policy that balances the interests of both licensors and licensees.
The agencies’ new proposal marks the second significant policy shift in the past decade. In January 2013, the Antitrust Division of the Justice Department under President Barack Obama issued a joint policy statement with the USPTO that formalized the previous US antitrust policy toward SEP licensing, which focused more on patent owner hold-up. In particular, the statement addressed the anticompetitive effects of injunctive relief as used to gain leverage in SEP licensing disputes. While the statement acknowledged that an exclusion order for infringement may be appropriate in some circumstances, it argued that an injunction would be against the public interest where the accused infringer is “acting within the scope of the patent holder’s [commitment to license its patents on fair, reasonable, and non-discriminatory (FRAND) terms] and is able, and has not refused, to license on [FRAND] terms”.
However, in December 2018, Assistant Attorney General Makan Delrahim—the head of the Antitrust Division under President Donald J. Trump—announced the DOJ’s withdrawal from the 2013 policy statement, stating that the prior policy viewing SEP injunctions as potentially anticompetitive was “wrong as a matter of antitrust law and bad as a matter of innovation policy”. In December 2019, the DOJ then issued a new joint policy statement with the USPTO and the National Institute of Standards and Technology (NIST) detailing why, in that administration’s view, injunctions should be available in SEP disputes. In particular, the statement asserted that a SEP holder’s FRAND commitment is relevant for determining “appropriate remedies” but “need not act as a bar to any particular remedy”; that both injunctions and damages should be available as remedies for the infringement of SEPs subject to FRAND commitments; and that the framework for determining those remedies should be the same as other cases: “there are no special rules limiting” such remedies.
The most recent policy shift was set in motion in July 2021, when President Joseph R. Biden Jr. signed an executive order on competition law that explicitly called for the Attorney General and Secretary of Commerce to consider taking SEP antitrust policy in a new direction. That directive included a specific mandate to revisit the December 2019 joint policy statement, in order to “avoid the potential for anticompetitive extension of market power beyond the scope of granted patents, and to protect standard-setting processes from abuse”. The order was bookended by statements from administration officials that the policy would be “balanced”, from acting Assistant Attorney General Richard Powers in June and Dr. Jeffrey M. Wilder, Economics Director of Enforcement for the Antitrust Division, in September. Assistant Attorney General Jonathan Kanter, who was confirmed to head the Antitrust Division on November 16, reiterated that same focus on balance in the DOJ’s December 6 announcement of the new joint policy statement: “We are committed to taking a principled, transparent, and balanced approach at the intersection of intellectual property and antitrust law”.
The proposed policy expanded on that theme of balance by emphasizing the importance of discouraging improper behavior by both implementors and licensors: “Specific terms of a F/RAND license are negotiated bilaterally by the SEP holder and an implementer after a standard has been set, and in that context opportunistic behavior by both parties can occur.” (The compound term “F/RAND”, including the slash, refers to both FRAND and RAND (reasonable and nondiscriminatory) licenses, the latter highlighted as a common type of commitment by members of US standards-development organizations (SDOs): “Often in the United States, SDO members may commit to license all of their patents that are essential to the SDO standard on RAND terms”. For simplicity, this article uses only the “FRAND” acronym.) On the implementer side, the statement argues that implementer holdout incentivizes patent holders to opt for “closed, proprietary standards” rather than contributing to a “consensus-based process”: “[W]hen standards implementers are unwilling to accept a F/RAND license or delay licensing negotiations in bad faith, these strategies can lessen patent holders’ incentives to participate in the development process or contribute technologies to standards voluntarily”.
As noted above, the proposed policy departs most significantly from the 2019 statement on the topic of remedies. At the negotiation stage, the agencies assert that when an implementer is willing and able to take a license to FRAND-encumbered patents, “seeking injunctive relief in lieu of good-faith negotiation is inconsistent with the goals of the F/RAND commitment”. Such “[o]pportunistic conduct” by licensors, by enabling them to obtain higher license fees through the “threat of exclusion . . . can deter investment in and delay introduction of standardized products, raise prices, and ultimately harm consumers and small businesses”, argue the agencies.
Should a SEP licensing dispute reach the courts, the agencies assert that both the existence of FRAND commitments and the specific licensing circumstances between the parties “will affect the appropriate remedy for infringement of a valid and enforceable SEP”, similar to language in the prior statement. Largely as before, the agencies explain that “[r]elevant considerations are enumerated . . . as appropriate” in the statutes governing injunctions and damages (35 USC Sections 283 and 284), the statute establishing exclusion orders as the sole remedy for International Trade Commission investigations, and the US Supreme Court’s 2006 decision in eBay v. MercExchange. In eBay, the Court established a higher threshold for injunctive relief in patent cases, holding that injunctions should not issue automatically after a finding of infringement and should instead be granted or denied based on a set of equitable factors.
The statements differ, however, on the proper application of eBay and decisions interpreting it, including the Federal Circuit’s 2014 opinion from Apple v. Motorola. While the 2019 statement argues that a key takeaway from Apple is that eBay does not require a blanket prohibition of injunctive relief in SEP cases, in support of its assertion that such relief should be available; the 2021 proposal notes that Apple also establishes that “[a] patentee subject to FRAND commitments may have difficulty establishing irreparable harm”. Indeed, the agencies now argue that under Apple, “[a]s a general matter, consistent with judicially articulated considerations, monetary remedies will usually be adequate to fully compensate a SEP holder for infringement”. The agencies further state that “the availability of monetary damages”, in turn, “counsels against an injunction”. Per Apple, they continued, courts applying eBay must also consider the “public’s interest in ‘encouraging participation in standard-setting organizations but also in ensuring that SEPs are not overvalued’”. “Where a SEP holder has made a voluntary F/RAND commitment, the eBay factors, including the irreparable harm analysis, balance of harms, and the public interest generally militate against an injunction”, they summarized.
However, the agencies also state that injunctions may still be available “where an implementer is unwilling or unable to enter into a license”, providing examples of what constitutes unwilling behavior. For instance, the agencies clarify, an implementer would be unwilling if it rejects terms that a court or “neutral decision maker” decide are FRAND. On the other hand, the agencies assert an implementer “should not be deemed unwilling” if it agrees to be bound by such adjudicated terms—nor “if it reserves the right to challenge the validity, enforceability, or essentiality of the standards-essential patent in the context of an arbitration or F/RAND determination; or if it reserves the right to challenge the validity or essentiality of a patent after agreeing to a license”. Moreover, the agencies argue that the FRAND commitment does not take enhanced damages for the patent holder off the table: “A F/RAND commitment does not preclude enhanced damages for willful infringement if a potential licensee acts in bad faith”.
The agencies also detail a series of examples of good-faith conduct that they “encourage” parties to consider in “pursuit” of a good-faith negotiation. These recommendations specify that both potential licensees and licensors respond to offers or counteroffers “within a commercially reasonable amount of time in a manner that advances the negotiation or results in a license”. Additionally, the agencies recommend “proposing that contested issues be resolved by a neutral third party”. Should licensing negotiations break down, the agencies “encourage the parties to resolve contested issues by seeking alternative dispute resolution or a judicial resolution of F/RAND-related disputes in a mutually agreeable jurisdiction”, further urging that parties do so after a good-faith attempt to arrive at a license or otherwise resolve the dispute.
The statement concludes by underscoring the importance of a neutral, balanced, and fact-based approach in determining remedies in SEP cases:
In the Agencies’ view, courts and other neutral decision makers in their discretion should continue to consider all relevant facts, including the F/RAND commitment and the conduct of the parties during bilateral licensing negotiations, when making remedy determinations involving standards-essential patents. A balanced, fact-based analysis will facilitate and help to preserve competition and incentives for innovation and continued participation in voluntary, consensus-based standards-setting activity.
The new US policy was announced just one day before the UK released new details on its own balance-focused SEP policy initiative. On December 7, the UK government issued an “open consultation” seeking the public’s views as to whether the SEP ecosystem—specifically, the “enabling participants, commercial relationships, infrastructure, and legal and regulatory environment”—is “functioning efficiently and effectively and striking the right balance for all entities involved”, in order to “help assess whether government intervention is required”. Unlike the US statement, the UK initiative does not state any particular viewpoints, instead posing 27 questions that address a wide variety of FRAND-related topics, including market power and competition issues in the SEP context; transparency as it relates to essentiality declarations, licensing negotiations, and pricing; territoriality in SEP enforcement; remedies; ways to improve efficiency in SEP licensing; patent pools; and alternative dispute resolution. Comments are due on March 1, 2022.
The UK’s policy initiative is likely to see significant interest in light of recent court decisions that may elevate the country’s appeal as a SEP litigation venue. In August 2020, the country’s Supreme Court issued its landmark decision in Unwired Planet v. Huawei, holding that UK courts have the jurisdiction to impose global licenses for multinational patent portfolios and determine what terms would be FRAND. In that opinion, the court ruled that it has the authority to resolve licensing disputes over portfolios including non-UK assets because those disputes turn not on patent law but on contract law, since a patent owner’s FRAND commitments stem from contractual agreements made to SSOs. Stakeholders have raised the possibility that this decision may encourage forum shopping, arguing that plaintiffs with multinational SEP portfolios may increasingly litigate FRAND licensing disputes in the UK as a result.
More on key developments impacting international SEP licensing can be found in RPX’s third-quarter review, which also addresses a variety of other trends shaping patent litigation and the patent marketplace.
