DOJ and FTC Comment on Proposed Update to 1995 Intellectual Property Licensing Guidelines

At the end of last week, the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) invited comments from interested parties on a proposed update to their 1995 “Antitrust Guidelines for the Licensing of Intellectual Property” (the Proposed Update). The comment deadline is September 26, 2016.

As indicated below, the proposed changes are generally in the direction of greater permissiveness regarding common kinds of restraints and restrictions within intellectual property (IP) licensing agreements, consistent with several Supreme Court decisions and related developments over the 21 years since the Guidelines were adopted. There is nonetheless significant potential for this comment process to increase the agencies’ interventions into IP licensing practices generally, possibilities warranting close attention over the months ahead.

Perhaps the most significant of the proposed changes is in the treatment of minimum price restraints imposed on licensees in their downstream sales or resales of products that incorporate licensed technology. Proposed Update § 5.2. The agencies are effectively falling into line with the Supreme Court’s decision nine years ago in Leegin Creative Leather Products, Inc. v. PSK, Inc., 551 U.S. 877 (2007). Consistent with Leegin, the agencies’ proposed update moves from treating various such “vertical” price restraints from per se illegality to rule-of-reason treatment. (The agencies do note that some states continue to treat such restraints as illegal per se under their state antitrust laws.) Proposed Update § 5.2 (citing Darush v. Revision LP, No. CV 12-10296 GAF (AGRx), 2013 WL 1749539 (C.D. Cal. Apr. 10, 2013); Md. Code Ann., Com. Law § 11-204(b) (West 2016)).

Another important proposed change concerns the fundamental right of an IP owner to exclude others from its IP by refusing to extend licenses to them. Citing to the Supreme Court’s decision of 12 years ago in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2014), the proposed update now appears to highlight the IP owner’s “general” right to be as selective as it wishes in licensing some parties and refusing to license others. Verizon, for example, is cited to support the following new sentence: “The antitrust laws generally do not impose liability upon a firm for a unilateral refusal to assist its competitors, in part because doing so may undermine incentives for investment and innovation.” Proposed Update § 2.1.

There are many other significant “updating” changes as well. When, for example, the agencies in the original 1995 version stated they “will not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner,” they cautioned that “the law is unclear on this issue”—at least as applied to outstanding patents. The proposed update removes that qualification in light of the Supreme Court’s definitive decision on this issue – no market power presumption for patents—in Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006). Proposed Update § 2.2. (A market power presumption would markedly enhance licensors’ antitrust risk in connection with various kinds of license restraints.)

Moving in the opposite direction, however, the proposed update appears to intensify the Guidelines’ general hostility to “horizontal” IP license restraints. It does so through references to (a) the FTC’s decision in Summit Tech., Inc., 127 F.T.C. 208 (1999), holding a patent “pool” between two competing laser eye surgery technology owners to be per se illegal; and (b) the agencies’ 2000 “Antitrust Guidelines for Collaborations Among Competitors,” subjecting restraints within horizontal R&D joint ventures to a relatively strict “reasonable necessity” standard. Proposed Update §§ 3.2.2, 3.36.

One curious aspect of the proposed update is its silence regarding controversial patent licensing and related enforcement practices that both agencies have addressed aggressively over the past decade and that remain unresolved to this day. The practices include (a) allegedly anticompetitive “hold-up” conduct by owners of standard-essential patents (SEP) that are subject to voluntary commitments to open licensing on reasonable and non-discriminatory (RAND) terms, more specifically when such SEP owners seek injunctive relief in lieu of negotiation over license terms; and (b) allegedly abusive license demands and related enforcement strategies of patent assertion entities (PAEs) that remain subject to a pending and broad-ranging FTC investigation.

In announcing this proposed update process, the agencies made clear their intent to “modernize the IP Licensing Guidelines without changing the agencies’ enforcement approach” to IP licensing or “addressing other topics and areas that are addressed, for example, in the 2007 Antitrust IP Report” (which addressed in particular patent policies of standards development organizations). It will be interesting and important to watch whether the agencies stick to this limitation after and in light of comments they receive on the proposed update over the months ahead.