November 13, 2019

Standardize This: Senators Ask Feds for Clarity on Standard Essential Patent Licensing Policy

United States Senators Thom Tillis (R-NC) and Chris Coons (D-DE) recently sent a bipartisan letter to the U.S. Department of Justice (DOJ) requesting clarity surrounding the DOJ’s antitrust enforcement policy against holders of standard essential patents (SEPs), specifically around the licensing of such patents on fair, reasonable and nondiscriminatory (FRAND) terms. According to the senators, inconsistencies in how different agencies enforce antitrust actions against patent holders has created an uncertain, volatile environment for holders of SEPs. The senators have requested that the DOJ work with the U.S. Patent and Trademark Office (USPTO) to develop a new policy statement surrounding the licensing of such patents.

The patent system exists to encourage the disclosure of innovation in exchange for a limited “monopoly” for the disclosed (and claimed) invention. Specifically, patent ownership provides exclusive right to the holding party to use, make, distribute, import or sell the claimed technology within the patent for 20 years from the date the patent was filed, although foreign countries may have their own temporal and other patent law nuances. SEPs claim technologies that are essential to meet technological standards set by standard setting organizations. These organizations choose such standards based in part on the agreement of the patent holder to license the required patents on FRAND terms, without necessarily disclosing the exact terms beyond the statement that the terms are fair, reasonable and nondiscriminatory. Once the standard is set, negotiation related to the exact definition of the FRAND terms begins between the SEP holder and the organizations requiring licenses.

The patent system alone creates tension with U.S. antitrust policies. SEPs exacerbate this tension because the technology claimed within an SEP is required to meet the set standard, giving SEP holders significant leverage when negotiating the licensing of these technologies. However, the DOJ and Federal Trade Commission (FTC) may find that SEP holders violate antitrust laws, under the Sherman Act and other competition laws, when refusing to license their patents to competitors or charging exceedingly high fees for such licenses (in other words, when they do not license the patent on FRAND terms after making a commitment to do so).

The policies surrounding SEPs tend to vary between, and even within, antitrust agencies. The FTC and the DOJ often have expressed incompatible positions. In 2013, the USPTO and DOJ issued joint SEP guidance that was rescinded by the DOJ alone last year for suggesting that an SEP holder’s constitutional rights related to exclusion may be negatively impacted by FRAND commitments. The DOJ has expressed concern that antitrust actions will stifle innovation, while the FTC has stated a much more aggressive approach in enforcement policy against SEP holders. Recently, the DOJ has suggested that antitrust law should not govern SEP licensing, but instead that such enforcement is better suited under contract law.

The current division between agencies surrounding the licensing of SEPs creates an uncertain environment for SEP holders and the competitors of SEP holders alike. Until all involved agencies agree upon, issue and consistently enforce an SEP policy, the FTC and the DOJ likely will continue to hold opposing positions and act individually on antitrust enforcement against SEP holders for FRAND-related licensing issues.

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