Government Intervention Needed to Aid SSOs in Addressing Patent Issues, Klobuchar Says
Senate Antitrust Subcommittee Chairwoman Amy Klobuchar, D-Minn., said Tuesday she plans to introduce legislation to address “competition issues in the patent world.” Witnesses at a subcommittee hearing Tuesday had made it evident that some standard-setting organizations (SSOs) are taking antitrust concerns related to standard-essential patents (SEPs) “seriously” by voluntarily adopting best practices and updating their intellectual property rights policies, Klobuchar said. However, it may now be time for Congress to get involved or “we need to up the role of enforcement agencies and have that complementary to the work of the SSOs,” she said. Klobuchar said she’s considering legislation that would “clarify” the standards for issuing injunctions and U.S. International Trade Commission (ITC) exclusion orders related to SEPs, along with legislation to address the FTC’s role in the “patent troll” debate and its impact on competition and consumers. Klobuchar told us after the hearing that she plans to introduce that legislation in the fall.
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A Klobuchar bill on “patents trolls,” also known as patent assertion entities (PAEs), would join multiple other bills introduced in recent months that aim to curb what some see as abusive patent litigation brought by PAEs (CD June 3 p7). Bills introduced in the Senate include the Patent Quality Improvement Act (S-866) and the Patent Abuse Reduction Act (S-1013); three other bills are currently active in the House.
Sen. Chuck Schumer, D-N.Y., who sponsored the Patent Quality Improvement Act, said Tuesday his bill would “clear out poor-quality business method patents” that PAEs often exploit, but the FTC must “be vigilant” in protecting small businesses against abusive patent litigation. The FTC has authority under Section 5 of the FTC Act, which allows it to investigate and prevent deceptive acts or practices, to protect against PAE activities, said Suzanne Munck, the FTC’s chief IP counsel. The FTC has made PAE activities a major focus recently, with FTC Chairwoman Edith Ramirez urging commissioners in June to authorize the agency to use its Section 6(b) authority to investigate PAEs’ business practices and determine whether they harm competition and consumer interests (CD June 21 p16). Klobuchar was among the members of Congress who have been pushing for the FTC to conduct a 6(b) study -- something she said Tuesday is “critically important.” Munck said she did not have an update on the status of a possible FTC investigation, but noted that a 2000 investigation of generic drugs took two years to complete.
Patent holdup -- when a patent owner agrees to issue licenses to essential patents on fair, reasonable and non-discriminatory (FRAND) terms in exchange for an SSO’s designation of the patent as an SEP and subsequently demands higher-than-promised fees -- is also becoming an increasingly frequent problem for companies, said Subcommittee Ranking Member Mike Lee, R-Utah. The Senate Judiciary Committee should “seriously consider taking steps to discourage such behavior,” he said. Continued oversight of the SEP process is “important,” said Senate Judiciary Committee Ranking Member Chuck Grassley, R-Iowa. There are certain circumstances where it is not anticompetitive for an SEP holder to seek a court injunction or ITC exclusion order if it is clear a potential licensee is unwilling to negotiate on FRAND terms, Munck said. By the same token, SEP holders must always offer a license for the SEP on FRAND terms once they've “made that commitment,” she said.
The Institute of Electrical and Electronics Engineers Standards Association (IEEE-SA) recognizes that some of the companies it works with have had trouble with holdup, but the IEEE-SA itself has tried to remain neutral on the issue, said IEEE-SA Board Chairman John Kulick. The IEEE-SA has not adopted a policy governing when circumstances should allow an SEP holder to seek an injunction or exclusion order, he said. The SSO is currently considering the issue, but Kulick said he did not want to “prejudge” the conclusion of that process.
Injunctions and exclusion orders “might be appropriate” when a potential licensee is unwilling or unable to pay the SEP holder a royalty, but if the licensee is willing, “injunctions and exclusion orders should be off the table,” said Intel General Counsel Douglas Melamed. Holdup is effectively a “tax on industry and innovation,” he said. “We don’t know how much more innovation there could be if FRAND agreements were more frequently complied with.” Melamed recommended in written testimony that the government “establish a default baseline that protects the public and prevents inappropriate opportunism by SEP holders if … the [SSOs] do not themselves solve the problem.”
A problem of holdup caused by SEP holders is “one more perceived than real,” said Donald Rosenberg, Qualcomm’s general counsel. He cautioned the committee against introducing legislation to address what he called a “fringe problem.” The communications industry is healthy and dynamic, with ample evidence of falling prices and multiple new entries into the sector, Rosenberg said. “How does one enter a market where there is holdup?” he asked. Congressional action is necessary to address PAE activities, but “you need to operate with a scalpel, not a cleaver,” Rosenberg said.