Federal Trade Commission

On Friday, the U.S. Department of Justice (“DOJ”) announced that it was closing its investigation into Samsung’s use of standard essential patents, which investigation had “focused on Samsung’s attempts to use its SEPs to obtain exclusion orders from the [ITC] relating to certain iPhone and iPad models.”  DOJ stated that further investigation was no longer needed given U.S. Trade Representative Michael Froman’s disapproval last year of an exclusion order in the ITC’s investigation of Apple’s infringement of Samsung’s SEPs (see our Aug. 3, 2013 post).

Samsung’s Proactive European Proposal.  DOJ states that its “Antitrust Division has worked closely and consulted frequently with its colleagues at the European Commission,” which raises the question whether DOJ took comfort in Samsung’s recent European activities.   Recall that the European Commission is considering Samsung’s proactive proposal  in response to a competition investigation that, during the next five years, Samsung would not seek injunctive relief within the European Economic Area (EEA) on SEPs in the field of mobile communications against companies that agree to a particular framework for determining fair, reasonable and non-discriminatory (FRAND) licensing terms either by agreement, by court determination or by arbitration (see our Oct. 18, 2013 post).  Samsung made this proposal on Sep. 27, 2013, several weeks after USTR Froman’s Aug. 3, 2013  disapproval of the exclusion order Samsung was awarded against Apple.  Further, Samsung’s proposal to the European Commission is similar to the consent decree entered between the U.S. Federal Trade Commission and Google/Motorola to settle an investigation about Motorola’s assertion of SEPs (see our July 24, 2013 post).

Samsung’s Cross-Licensing.  In addition to the European activity, Samsung recently entered into cross-license agreements with at least Google and Cisco.  Perhaps recent successful cross-licensing of Samsung’s patents by sophisticated companies through bilateral negotiations gave DOJ further comfort in ending its investigation.

Yesterday patent monetization entity MPHJ filed a Complaint in W.D. Tex. against the U.S. Federal Trade Commission (FTC) for threatening an enforcement action against MPHJ premised on MPHJ’s extensive letter campaign to accumulate license fees on its scanner patents by threatening small end-users with litigation that MPHJ allegedly did not actually intend to pursue.  We previously posted about MPHJ receiving attention from the Vermont Attorney General and those of other states based on that letter campaign.

MPHJ’s Complaint against the FTC is an interesting, long read of MPHJ’s side of the story: see Complaint and its Exhibits (patents not included to reduce file size).

For example, MPHJ explained why it mailed its licensing letters to end-users, rather than vendors.  The patent claims “relate to networked scanning systems that are connected and interfaced such that they permit the seamless transmission of a scanned document image into application software running on a destination computer.”  MPHJ asserts that it sent letters to end-users because no single equipment vendor supplied the entire claimed system or would be liable for direct infringement (MPHJ did not address liability for induced or contributory infringement).  For example, the vendor of an off-the-shelf scanner may not supply network equipment, a destination computer or other equipment/software separately purchased and combined by an end-user with the scanner to practice the claimed invention.

MPHJ gained attention because it sent a large volume of licensing letters to many small businesses–including home-businesses–that purchased and used off-the-shelf scanner equipment for its intended purpose with other conventional equipment.  Concern was raised that MPHJ might be seeking to extract unwarranted, nuisance licensing fees from many of those small businesses who did not have the resources, sophistication or motivation to engage in costly patent infringement negotiation or litigation.  Among other things, MPHJ explains that it did not intend to target really small businesses — those with less than 20 employees — but inadvertently mailed letters to some given erroneous public information about their size.

MPHJ also explained that its letter campaign was a required pre-requisite to filing suit.  MPHJ  asserts that what system a particular entity uses is not publicly available.  MPHJ sent letters to those it thought likely infringed — without actually asserting they did infringe — and simply sought a response and information on whether the recipient infringed the patents as part of MPHJ’s required Rule 11 diligence.  Given the small number of responses, MPHJ escalated follow-up letters by sending draft Complaints because that tended to spur recipients to respond.  MPHJ supports its letters seeking information by citing to the Federal Circuit’s decision in Hoffman-La Roche v. Invamed that approved a complaint filed without full knowledge of non-public portions of a system where the patent owner (1) could not reverse engineer that information and (2) first drew-the-foul by unsuccessfully seeking that information from the putative infringer before filing suit.

And MPHJ raises other issues, such as First Amendment Constitutional right to access to courts (including pre-litigation activity) and whether the FTC has been acting outside its statutory mandate.  An interesting case we will keep an eye on.


Today, the Second Circuit will hear argument in an important case on the extent that foreign injury (reduced foreign sales and closure of foreign plants) arising from foreign RAND breaches can have remedy in the U.S. based on their impact on U.S. commerce.  The case, Lotes Co., Ltd. V. Hon Hai Precision Industry Co., Ltd., et al. (13-2280), concerns whether a Taiwanese corporation’s breach of contract and antitrust claims arising from standard setting obligations were rightly dismissed under the Foreign Trade Antitrust Improvements Act (FTAIA), which bars Sherman Act claims to conduct involving export or wholly foreign commerce except where that conduct has a “direct, substantial, and reasonably foreseeable effect” on U.S. commerce.

In the fall of 2012, Lotes sued Hon Hai, Hon Hai subsidiary Foxconn and several other related entities in S.D.N.Y. for reneging on licensing commitments made to the USB Implementers Forum (USB-IF) (see our February post for a full recap). Lotes asserts that, not only did defendants breach contracts with the USB-IF by failing to license USB 3.0-related patents on FRAND-Z terms (i.e., royalty free), but defendants also violated U.S. antitrust laws by instituting foreign patent-enforcement proceedings against Lotes in China given its FRAND-Z obligations. Defendants moved to dismiss, arguing that the FTAIA deprived the court of jurisdiction to adjudicate antitrust claims based on the alleged foreign activity. The district court found the entirely foreign activity did not have the type “direct” impact on U.S. consumers to fall within an FTAIA exception. The case was dismissed. Lotes appealed.

The FTC recently filed an amicus brief urging the Second Circuit to affirm the dismissal on alternative grounds without endorsing what it called “the District Court’s Flawed Analysis of Direct Effect”. Arguing that “direct” within the FTAIA refers to a “reasonably proximate causal nexus” rather than an “immediate consequence”, the FTC asserts that the district court was wrong to dismiss the action based on no “direct” effect on U.S. commerce because a foreign manufacturing process involving multiple transactions or steps may have a direct effect on U.S. Commerce.

Rather than affirming dismissal on that grounds, the FTC recommends affirming dismissal of Lotes’ antitrust claims “on the simpler basis” that Lotes cannot show that the alleged effect on U.S. commerce gives rise to the claims.  Rather, the FTC argues Lotes has alleged the reverse — that the foreign injury gave rise to the effect on U.S. commerce: “Lotes suffered only foreign injury from lost sales of USB 3.0 connectors in wholly foreign commerce and the potential closures of its foreign factories; that injury results from defendants’ conduct, not its effect on U.S. commerce.”  Thus, “[t]o the extent Lotes alleges any causal connection between its injury and the effects on U.S. commerce, the line of causation runs in the wrong direction.”

Whereas the Sherman act requires that the adverse effect on U.S. commerce be the direct and proximate cause of the plaintiff’s injury, Lotes alleged its foreign injury (lost sales, potential closure of foreign factories) will have an adverse effect on U.S. commerce (price increases to USB 3.0 connector purchasers).  As such, the FTC argued relief cannot be granted under the FTAIA.  The Second Circuit has invited the FTC to present oral argument on this specific alternative ground.

Today the Federal Trade Commission made its long-awaited announcement that it has voted to seek public comment on a proposal to conduct a Section 6(b) study of patent assertion entities and their impact on innovation and competition.  The FTC proposes this study based on requests from the public and Senators as well as the FTC’s “own role in competition policy and advocacy.”  The FTC will entertain public comments on its proposal to gather information from about 25 Patent Assertion Entities (PAEs) and about 15 other entities.

Importantly, issues regarding PAEs are distinct and separate from issues relating to standard essential patents and they should not be conflated.  So why does the Essential Patent Blog care?  Two reasons.

First, the FTC’s study will include specific requests for information about whether a PAE owns patents that are subject to a standard setting organization (SSO) obligation (see Information Request C(1)(o) at page 5 of the proposal):

o.  whether the Patent (or any claims therein) is subject to a licensing commitment made to a Standard-Setting Organization and specify:
(1) all Standard-Setting Organizations to which a licensing commitment has been made;
(2) all standards to which such a licensing commitment applies;
(3) the Person(s) who made the licensing commitment;
(4) the date(s) on which the licensing commitment was made;
(5) all encumbrances, including, but not limited to, all commitments to license the Patent or any of its claims on reasonable and non-discriminatory (RAND), fair, reasonable, and non-discriminatory (FRAND), or royalty-free (RF) terms;

Second, the FTC is targeting non-innovating, non-practicing patent monetization entities.  Specifically, the FTC defines the PAEs that are the subject of its study to be “firms with a business model based primarily on purchasing patents and then attempting to generate revenue by asserting the intellectual property against persons who are already practicing the patented technology.”  The FTC distinguished such PAEs “from other non-practicing entities or NPEs that primarily seek to develop and transfer technology, such as universities, research entities and design firms.”  This focus on non-innovating, non-practicing entities may address concerns that some have raised about patent assertion entities that own SEPs and do not have the reputational concerns of actively innovating SSO members whose licensing approach will seek to foster adoption of their continued innovations in future versions of the standard.

The FTC will accept public comments about its proposed study up to 60-days after it is published in the Federal Register.

Late last week, the American Antitrust Institute submitted a very interesting petition to the U.S. Dept. of Justice and the Federal Trade Commission.  In the petition, which is titled “Request for Joint Enforcement Guidelines on the Patent Policies of Standard Setting Organizations,” the AAI urges these agencies to step up their enforcement of the antitrust laws with respect to SSOs themselves — not merely the participants in the standard-setting process.  To that end, the AAI requests that the FTC/DOJ (1) issue specific guidelines for what should be included in SSO patent policies, and (2) hold SSOs liable for not adopting procedural safeguards to prevent patent hold-up behavior.

Continue Reading American Antitrust Institute calls on FTC, DOJ to force standard-setting organizations to adopt more stringent patent policies

Back in December 2012, the Federal Trade Commission and the Department of Justice held a joint workshop to explore the impact that patent assertion entities (PAEs — or non-practicing entities/NPEs) may be having on innovation, competition, and the U.S. economy.  The FTC and DOJ invited the public to submit comments for consideration by the agencies, even extending the deadline for submission until early April.  All in all, 68 separate submissions have been received and posted on the FTC/DOJ workshop’s site.

The commenters represent a wide variety of industries and interests, and express divergent viewpoints and positions about the effects of PAE activity.  Many comments focus on the newly-reintroduced SHIELD Act.  Given that the main focus of this blog is on standard-essential patent issues, we won’t even try to give a comprehensive rundown of all of the comments — we’ll leave the focus on non-practicing entities to others.  But several of the comments do express particular concern about the interplay between PAEs, standard-setting organizations and standard-essential patents.  After the jump, we’ll discuss some of these issues that are being flagged as troublesome.

Continue Reading Public comments on FTC/DOJ Patent Assertion Entity Workshop include worries that PAEs may “game the system” of standard-setting and RAND licensing

On March 5, 2013 at 2:00pm, the Intellectual Property Owners Association is holding a webinar to discuss the potential implications that the FTC-Google consent decree may have on the world of standard-essential patents.  The webinar is taking place as part of of IPO’s weekly IP Chat Channel series.  David W. Long, a member of Dow Lohnes’s Litigation group and a co-author of The Essential Patent Blog, will be one of the webinar presenters.  Details on the webinar and information on how to register for it is after the jump.

Continue Reading Upcoming IPO webinar on standard-essential patents and FTC-Google consent decree features Dow Lohnes’s David Long

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.

Continue Reading FTC-Google public comments round-up #2: Tech companies have their say

FTCWe’ve finally sifted through the many public comments submitted in response to the FTC-Google consent decree and proposed order.  As we noted Monday, over two dozen individuals, companies, and organizations representing a wide range of interests submitted comments.  Later this week, we will do a post featuring the details of some of the post submitted by interested companies, such as Apple, Ericsson, Microsoft, Qualcomm, and Research In Motion.  But today, we are going to focus on the comments that have been submitted by other types of organizations, which include a veritable alphabet soup of interest groups, professional organizations, and industry or trade associations.

Continue Reading FTC-Google public comments round-up #1: Interest groups and industry/professional organizations weigh in

This past Friday (Feb. 22) was the deadline for the public to submit comments to the Federal Trade Commission on the FTC’s consent decree that it entered into last month with Google and Motorola Mobility.  More than two dozen individuals, companies, and organizations chose to submit comments, and their submissions reflected a wide range of interests and opinions about issues relating to both standard-essential patent issues and Google’s search practices.

These comments may be accessed from the FTC’s web site.  In a future post, we will do a deep dive into some of the more interesting comments submitted.  In the meantime, after the jump is a list of the entities that submitted comments, along with links to their web sites: