It’s no secret that government agencies in the United States and abroad are paying more attention to standard-essential patent issues.  More evidence of this trend came this past Friday, when Deputy Assistant Attorney General Renata B. Hesse of the Antitrust Division of the U.S. Department of Justice delivered a speech at the Global Competition Review Antitrust Law Leaders Forum in Miami.  Hesse’s speech makes it clear that FRAND licensing issues are a high priority for the DOJ’s antitrust division, and that the agency remains open to exploring new ways of enforcing FRAND commitments — potentially including pursuing standard-essential patent holders for violations of Section 2 of the Sherman Act (anticompetitive monopolies or attempts to monopolize).

Deputy Assistant AG Hesse began her speech by recapping the DOJ’s approach to antitrust enforcement and policy over the past four years, repeating a key theme of “vigorous and prudent enforcement” of the antitrust laws.  The second half of Hesse’s remarks focused on the role of patents in high-technology industries, with Hesse expressing support for the USPTO’s proposed rules regarding increased transparency in patent ownership.  (In fact, she noted that the DOJ and FTC recently submitted a joint statement to that effect to the PTO.)  Hesse then turned specifically to standard-essential patent issues, explaining that:

[T]he division has also been focused on the role that Section 2 of the Sherman Act might play in protecting competition in high-technology industries from certain exclusionary practices involving patent licensing. This is a challenging and complex area of the law but it is one that we feel is particularly worthy of thoughtful exploration.

This appears to be a not-so-subtle reminder to standard-essential patent holders to honor SSO-based licensing and disclosure obligations or potentially face claims for antitrust violations.  Hesse specifically noted the importance of standard-essential patents to smartphone industry, where many FRAND licensing issues have arose and/or led to litigation.  She referenced recommendations she had previously proposed to SSOs to mitigate patent hold-up issues, such as:

  1. Clarifying the meaning of FRAND obligations;
  2. Requiring FRAND obligations to “follow the patent,” clearly binding subsequent owners;
  3. Permitting “cash-only” licensing options for standard-essential patents;
  4. Create guidelines or methods (such as arbitration provisions) to determine FRAND terms; and
  5. Determining the universe of patents that are actually essential (as opposed to merely declared essential) to any given standard.

But stating that “competition advocacy can only go so far” Hesse addressed — although did not specifically answer — the following question:

“Is it potentially a violation of Section 2 when a FRAND-encumbered SEP owner exercises the monopoly power that he or she acquired through participation in the standard-setting process in breach of the SEP owner’s FRAND commitment?”

Hesse acknowledged disagreement among commentators and attorneys about the applicability of the Sherman Act to FRAND licensing commitments, noting that in 2007, the 3rd Circuit Court of Appeals found that Broadcom properly pled a Sherman Act § 2 claim based on Qualcomm’s allegedly deceptive SSO-related activities (Broadcom v. Qualcomm, 501. F.3d 297 (3d Cir. 2007)).  But Hesse also questioned whether Section 2 violations could also occur in situations where the SEP owner did not act deceptively during standard-setting, but instead violated its FRAND commitments after the standard was set (e.g., by demanding exorbitant, non-FRAND royalties).  She appeared to imply that distinction between the two situations may be meaningless, stating that “competition and consumers appear to suffer either way.”

The implication of the speech overall is clear: SEP owners, obey your FRAND obligations or you may be violating the antitrust laws.  But as her speech itself also implies, FRAND obligations themselves are very murky: given the myriad disputes and competing views on the scope and meaning of FRAND obligations (availability of injunctive relief, how to calculate FRAND terms, scope of grantback licenses, etc.), this is not necessarily so easy to do.  In fact, disputes over FRAND terms often appear akin to routine business disputes — is this the type of activity that the Sherman Act is supposed to reach?

The FTC has recently faced some criticism that it overreached in using Section 5 of the FTC Act to challenge Google and Motorola Mobility’s standard-essential patent licensing and enforcement activities (comments echoed in Commissioner Olhausen’s dissent).  If (when?) the DOJ likewise uses the Sherman Act as mechanism to enforce FRAND obligations, we can probably expect similar criticism to follow — but based on the Deputy Assistant Attorney General’s speech, the DOJ is not going to be dissuaded from taking action.

[Renata B. Hesse Feb. 8, 2013 Speech]