Four parties have responded to the ITC’s request for statements on the public interest regarding ALJ Essex’s Initial Determination in Inv. No. 337-TA-868 (see our July 2, 2014 post), all addressing the ALJ’s FRAND analysis rejecting arguments against exclusion orders for standard-essential patents and addressing the obligations held by potential licensees. Three of the responses, submitted by Ericsson, the Innovation Alliance, and Senator Robert P. Casey, Jr. (D-PA), support ALJ Essex’s analysis, whereas Microsoft takes the position that SEP owners should not be entitled to exclusion orders on FRAND-encumbered patents.

Statement’s Supporting ALJ Essex’s FRAND-Defense Analysis

Ericsson’s Statement.  Ericsson agrees with ALJ Essex’s analysis, specifically supporting three findings: (1) FRAND licensing obligations apply to both innovators and implementers; (2) exclusion orders are available where SEP owner has engaged in good faith negotiations, offered a license on FRAND terms, and poses no threat of hold-up; and (3) courts and other decision making bodies should consider whether an implementer failed to negotiate toward a FRAND license, posing a hold-out threat to the patent owner.  Ericsson participants in several SSOs and is both a licensor and licensee of many SEPs.  Ericsson has made significant investments in employees, R&D, and intellectual property related to standards-compliant technology.  The FRAND regime “ensures that those implementing a standard are able to secure access at a fair cost, while those providing innovative technology for the standard are able to secure a fair return on their investments.”  Ericsson agrees with the ALJ’s “proportionate focus on the obligations of the implementer to earnestly seek an amicable royalty rate” during the course of a good faith negotiation. Ericsson then supports the proposition that exclusion orders should be available when the SEP holder has negotiated in good faith and further states that “exclusion orders should also be considered when the implementer has not negotiated in good faith (i.e., there is hold-out).”

Innovation Alliance’s Statement.  Focusing on the pro-consumer and pro-economic benefits derived from patent protection and SSO participation, the Innovation Alliance’s response “commends the ALJ for developing a comprehensive record with respect to the FRAND issues in this investigation and for making explicit findings related to the presence or absence of patent hold-up or reverse hold-up with respect to patents that are subject to a FRAND licensing requirement.” The IA specifically notes that, without exclusionary relief, implementers are “incentivized to engage in ‘reverse hold up'” in which a patent holder is unable to recover its own R&D costs. The IA further commended the ALJ’s acknowledgement of the patent hold-out problem by which those benefiting from patented technology can choose to infringe a SEP and later demand a FRAND rate; the public interest favors exclusion orders to protect and enforce valid and infringed SEPs.

Senator Casey’s Statement.  Pennsylvania Senator Robert Casey also submitted a statement concerning the public interest, “writing to express [his] views on the importance of innovation to our national economy, particularly with respect to small businesses, such as InterDigital, who are significant contributors to U.S. private sector employment.” Noting InterDigital’s investment in research facilities and employees, Sen. Casey’s letter notes that the patent’s principal purpose is to encourage and protect innovation, noting that intellectual property-intensive industries supported at least 40 million U.S. jobs in 2010 and represented 34.8% of total GDP. Writing “[t]he Commission must be mindful of the significant benefits to consumers from standards-setting activities and of the need to continue incentivizing voluntary participation in standard-setting organizations,” Sen. Casey argues that holders of FRAND-committed patents should not be precluded from obtaining exclusionary relief.

Statements Criticizing ALJ Essex’s FRAND Analysis

Microsoft’s Statement.  Unlike the other statements submitted to the ITC, Microsoft’s letter warns against “the severe, long-term, and avoidable harms” caused by exclusion orders for FRAND-encumbered patents. Referring to its earlier July 7, 2012 comments on the public interest, Microsoft argues that exclusion orders should not be granted on FRAND-encumbered patents, relying upon Judge Posner’s recent denial of injunctive relief to Motorola on a FRAND-committed patent (see our April 25, 2014 post for an analysis of that decision). Microsoft argues that the public interest balance is shifted from the side of the patent owner upon assertion of an SEP and that InterDigital should not be permitted to use a threat of injunctive relief to increase royalty rates:

By assuming its FRAND obligations, InterDigital freely gave up exclusionary remedies in favor of a reasonable royalty in to have its technology incorporated into technical standards. InterDigital put its patents on the store shelf for a FRAND price, and they are available to anyone anywhere in the world willing to pay a true FRAND value. Having done so, InterDigital has no “recourse to the equity power of the Commission.”

Microsoft further argues that litigating FRAND-encumbered patents before the ITC harms the public interest, in this case by providing InterDigital with hold-up leverage and threat of an exclusion order that could adversely affect the U.S. phone operating system market. Microsoft argues that even if the ITC issues an exclusion order in the InterDigital case,  enforcement should be delayed for one year to mitigate the harm to the public interest and provide an opportunity “to appeal the ITC decision, to determine a FRAND rate…, or to explore design-around possibilities before the harsh impact of a potential exclusion order.”

UPDATE (July 28, 2014): 

Senator Pat Toomey’s Statement. Pennsylvania Senator Patrick J. Toomey also submitted a statement on the public interest on July 9, 2014, though a copy of the letter was not available until last week. Sen. Toomey’s letter expresses “strong support” for the protections afforded by Section 337 investigations and urges the Commission “to strongly consider InterDigital’s petition for relief from foreign imports that violate their intellectual property.” The letter notes that InterDigital employs “high skilled workers in Pennsylvania who are on the cutting edge of mobile innovation” and that its business model depends on licensing revenues from equipment manufacturers. Absent “adequate remedies for imported goods that use their patents without paying for them,” the letter argues companies like InterDigital will be deterred from “taking bets on future research and development” to the detriment of “American innovation and job creation.”