FTCYesterday we covered several public comments submitted to the FTC by various professional organizations and trade/industry associations surround the FTC-Google consent decree.  Today, we’re here to tackle the submissions from several large companies that chose to comment on the FTC order.  These companies include Apple, Ericsson, Microsoft, Qualcomm, and Research in Motion.

While these companies all appear to agree that at least in most cases, injunctions for infringement of FRAND-pledged standard-essential patents should not be available, the parties pretty clearly diverge into two camps when it comes to many other issues (including a complete bar on injuctions) — with Apple/Microsoft on one side and Ericsson/Qualcomm/RIM on the other.  Below, we’ve tried to hit the high points of each company’s submission.

Apple Inc.

  • Apple expresses substantial approve of the FTC’s complaint and proposed order (not surprising, given its standard-essential battles with Motorola in the ITC, Wisconsin, and Illinois, among other places).  Apple characterizes the FTC’s action as “a principled stand” and “a significant step forward…to ensure that consumers fully realize the promise of industry standards.”  But Apple goes even further, expressing concerns about how it believes the FTC order could be manipulated or avoided, and adds additional suggestions.
  • While Apple generally approves of the FTC’s action, it does note several areas where it believes further clarification may be necessary.  In particular, Apple explains that while SEP patent holders may declare or claim that their patents are essential to standards, these claims often fail under the scrutiny of litigation (here, Apple calls out both Motorola and Samsung).  Thus, Apple asserts that it is important that in order to be entitled to a FRAND royalty, a standard-essential patent holder should be forced to demonstrate essentiality/infringement and rebut any claims of invalidity or unenforceability.  Apple asks for further clarification from the FTC on this issue.
  • Other areas where Apple requests clarification or additional language include:
    • Creation of a process to ensure the parties actually enter into arbitration before injunctive relief may be sought.  Additionally, Apple requested that the FTC outline the process for selecting arbitrators and to broaden the pool of potential arbitrators.
    • Use of a “representative set” approach to evaluating a standard-essential portfolio, where a sample of SEPs are used as a proxy for the entire portfolio and are evaluated for essentiality, validity, value, etc.  According to Apple, this can help make the process more efficient.
    • Mandatory discovery of other license agreements involving the patents, in order to fully evaluate the “FRAND-ness” of offered terms.  Apple claims that “only with meaningful discovery will the licensee be able to properly test the patent holder’s claims of patent essentiality, non-discrimination, and reasonableness.”
    • Transparency and appealability of any arbitration decisions, in order to create a body of decisions and case law that may be relied on in other FRAND disputes.
    • Finally, Apple closes by identifying several principles it views as “critical” to FRAND licensing:
      • The use of a common royalty base “that reflects the actual value of the standardized technology.”  Apple argues that this should be the “smallest priceable component containing the invention,” such as a baseband processor.
      • The use of a proportionality approach.  This means that Apple believes FRAND royalties “must be set at a level that would be reasonable if all declared-essential patent holders used the same approach.”
      • “Truly non-discriminatory” terms — i.e., a FRAND patent holder cannot request “materially different consideration from different parties for the same technology.”

Microsoft Corp.

  • Like Apple, Microsoft generally commends the FTC’s action, asserting that it “would go a long way toward” preventing Google/Motorola from seeking injunctions against willing licensees.  But also like Apple, Microsoft expresses concerns about several areas and requests clarifications or additional safeguards.  One major difference between Microsoft’s  and Apple’s statement, though, is that while Apple expounded on many FRAND-related issues, the primary focus of Microsoft’s statement appears to be on injunctive relief.
  • As we noted earlier this week, Microsoft has claimed that Google/Motorola is currently breaching the FTC order by maintaining its infringement action in Germany.  Microsoft requests additional clarification from the FTC about whether Google/Motorola’s conduct is proper.
  • Microsoft also claims that under the terms of the order, there is ambiguity about whether Google may seek injunctive relief even if there is pending litigation to determine FRAND terms.  Microsoft asks the FTC to clearly state that Google cannot seek injunctive relief in this situation, even if the injunctive relief is invoked under the “defensive use” provision.
  • Speaking of the defensive use provision (§ IV.F), this is where Microsoft’s largest concerns seem to lie.  (This is the provision that allows Google to seek injunctive relief on FRAND-based SEPs against a party that itself seeks injunctive relief against Google or Google products based on FRAND SEPs).  Microsoft argues that this provision is unnecessary and should be eliminated or at least narrowed, because it promotes “mutually assured destruction.”
  • First, Microsoft asserts that the defensive use provision should not apply to Microsoft due to its February 2012 pledge not to seek injunctive relief on any SEPs.  Second, Microsoft expresses concerns about the breadth of the defensive use provision, claimed that it could allow Google to seek injunctive relief based on a lawsuit against a company other than Google (who happens to distribute a Google product or service).  Microsoft also asserts that to the extent a defensive use provision is included at all, it should be limited to the definition of “Reciprocity” — i.e., limited only to countersuits based on patents essential to identical standards.  Finally, Microsoft suggests that uncertainty in determining true “essentiality” could lead Google to seek injunctive relief based on another party’s assertion of non-SEPs (that Google might allege to be standard-essential in order to strategically use its own SEPs).  To this end, Microsoft alleges that the order could improperly impose obligations and have a chilling effect on patent holders who might otherwise file legitimate infringement actions against Google (or its distributors).

 Ericsson Inc.

  • Ericsson urges the FTC to limit its order to the specific circumstances of this case, claiming that “the Google template may adversely affect the standard setting process and inhibit innovation” and that the potential harm identified by the FTC “may not be supported by actual industry experience.”
  • While it agrees with the FTC that injunctive relief on FRAND patents should generally not be available against willing licensees, Ericsson takes issues with both the FTC’s basis for its action and some of the procedures specified in the FTC order.
  • In particular, Ericsson urges the FTC to carefully consider whether limits on injunctive relief are necessary to remedy actual (as opposed to theoretical) competitive harm, and whether the limits might reduce incentives for companies to participate in open standard-setting procedures.
  • Ericsson characterizes the procedures in the FTC order as “cumbersome and potentially lengthy,” asserting that they will “foster litigation, delay the resolution of FRAND licensing disputes,” and potentially depress royalties to sub-FRAND levels.  Ericsson also expresses concerns that potential licensees may use the procedures strategically in an attempt to depress royalties (or avoid them altogether) — creating a situation of “reverse patent hold-up” (also sometimes known as licensee “hold-out”).

Qualcomm Inc.

  • Qualcomm echoes Ericsson’s concerns about the length and detail of the FTC-mandated process, arguing that widespread implementation of these procedures will lead to more litigation and will undermine incentives of infringers to negotiate with standard-essential patent holders (the “hold-out” problem).
  • Like Ericsson (and many others), Qualcomm agrees that no injunction should issue for a FRAND-pledged standard-essential patent until any defenses relating to FRAND (e.g., waiver, estoppel) have been fully adjudicated by a court.  But Qualcomm distinguishes between courts issuing injunctions and parties seeking injunctions, arguing that the latter is appropriate behavior that is necessary to bring licensees to the table.
  • Qualcomm urges the FTC not to treat the procedures in its order as a generally applicable model, claiming that it would “inefficiently delay and fragment licensing disputes.”  Qualcomm worries that an infringer could “keep the scales tilted in its favor” by refusing to accept a FRAND patent holder’s offer, litigating infringement, hoping for a favorable outcome, and then only settling at the very end of “this long chain.”
  • Qualcomm also argues that the notion of a “willing licensee” should be evaluated on a case by case basis, asserting that “any infringer would be ‘willing’ to take a license if it could apply the Priceline “Name Your Own Price” principle.”
  • The option of arbitration is also an issue that Qualcomm expresses concerns about.  According to Qualcomm, the unequivocal right to arbitration will “radically change incentives” during negotiation, and may even cause both parties to exaggerate demands rather than to meet in the middle.  Qualcomm stresses the enormous complexity often present in many high-technology patent license agreements, which may encompass wide varieties and large numbers of both standard-essential and non-standard-essential patents.  Arguing that arbitrators cannot understand the parties’ businesses as well as the parties themselves, Qualcomm worries that the FTC may be taking steps to push standard-essential patent licensing toward a “rate regulation” model rather than private negotiation — an asserted “radical change.”
  • Note that Qualcomm, like many of the organizations whose statements we touched on earlier this week, also argues that the categorical ban on seeking injunctions violates the First Amendment and the Noerr-Pennington doctrine.

Research In Motion Corp.

  • RIM submitted comments to the FTC and attached two prior submissions it previously made to the U.S. International Trade Commission relating to the interplay between standard-essential patents and injunctive relief — a Nov. 30, 2012 statement in Inv. No. 337-TA-794 and a July 9, 2012 statement in Inv. No. 337-TA-745.
  • RIM agrees with Ericsson and Qualcomm that injunctions are generally inappropriate for FRAND SEPs, but calls a one-size-fits-all rule barring injunctions “economically undesirable.”
  • According to RIM, an antitrust enforcer should take a nuanced approach and evaluate whether the SEP hold is seeking to opportunistically avoid a FRAND commitment or is instead defensively using its patents to preclude hold-up by the negotiating party.  RIM believes that there are procompetitive benefits to a defensive injunctive threat, and that elimination of this defensive option would actually be anticompetitive.
  • Lastly, RIM also expresses the concern that an inflexible ban on SEP injunctions would reduce the value of SEPs and disincentivize participation in standard-setting activities.

Now it will be time to play the waiting game, to see if the FTC adopts any of the comments offered and adjusts the order and consent decree accordingly.