Richard Lloyd

In a speech that signalled a new approach inside the US government with regards to the interplay between antitrust and IP, the Department of Justice’s antitrust head Makan Delrahim has called for greater scrutiny of hold-out in licensing negotiations and criticised the current inability of holders of standard essential patents (SEPs) to get injunctions.

Delrahim, who was confirmed by the Senate in late September and is the first head of the DOJ’s competition watchdog to be a registered patent attorney, was speaking at an event late last week at the University of Southern California’s Gould School of Law. His comments suggest that after eight years of an Obama administration that encouraged the strong application of antitrust laws in the policing of SEP licensing, the Trump White House is preparing to markedly change tack.

In recent years many SEP patent owners have railed against what they have seen as the misuse of competition laws in the US and overseas. Delrahim indicated that he favours a less activist antitrust policy and more of a market-oriented approach to policing the interests of innovators, who develop patented technology, and implementers, who typically manufacture devices.

He told the audience at USC: “I worry that we as enforcers have strayed too far in the direction of accommodating the concerns of technology implementers who participate in standard setting bodies, and perhaps risk undermining incentives for IP creators, who are entitled to an appropriate reward for developing break-through technologies.” 

In recent years much of the debate around SEP licensing has focused on the threat of hold-up whereby, in a standards setting context, the owners of SEPs can delay licensing until their royalty demands are met. In the mobile world, in particular, that has led to growing pressure on the owners of large SEP portfolios such as Qualcomm, which is currently embroiled in litigation with the Federal Trade Commission (FTC) and with Apple over its licensing practices. The giant chipmaker has also come under growing scrutiny from overseas regulators and has been on the receiving end of fines from authorities in China, Taiwan and Korea.

The prevailing narrative around hold-up prompted one standard setting organisation (SSO), IEEE, to controversially change its patent policy in early 2015, in a move which has been heavily criticised by a group of patent owners including Qualcomm, Nokia and Ericsson – all of which have refused to license under the new terms. That change in policy followed comments by one of Delrahim’s predecessors, Renata Hesse, who in a 2012 speech proposed a number of changes for SSOs to guard against the perceived threat of hold-up.   

As Delrahim pointed out, much has been written about the problems around hold-up, but he cautioned that: “Too often lost in the debate over the hold-up problem is recognition of a more serious risk: the hold-out problem.” In the licensing world that favours implementers who simply decline to take a licence until their demands are met. 

Delrahim claimed that this poses a more serious risk to innovation, in part because those companies that invest in the development of new technology in a standard do so without knowing whether their investment will pay off. An implementer, in contrast, has some protection from the risk of hold-up because a portion of its investment may take place after the royalty rates for a technology have been set. “Because this asymmetry exists, under- investment by the innovator should be of greater concern than under-investment by the implementer,” Delrahim asserted.

He went on to add that his priority “is to help foster debate toward a more symmetric balance between the seemingly dueling policy concerns between intellectual property and antitrust law”.

Delrahim also turned his attention to the availability of injunctive relief, which has been severely curtailed for some patent owners since the Supreme Court’s ruling in eBay and was the focus of a part of the IEEE’s new policy. “Patents are a form of property, and the right to exclude is one of the most fundamental bargaining rights a property owner posseses,” he remarked. “Rules that deprive a patent holder from exercising this right – whether imposed by an SSO or by a court – undermine the incentive to innovate and worsen the problem of hold-out. After all, without the threat of an injunction, the implementer can proceed to infringe without a licence, knowing that it is only on the hook only for reasonable royalties,” he stated.

He also took specific aim at an oft-cited and much debated 2014 litigation: “I believe Judge Posner was badly mistaken in the Apple v Motorola case, in which he held that IP owners who make FRAND commitments somehow sacrifice their right even to seek an injunction.  Though the Federal Circuit corrected that ill-conceived decision, its ruling did not improve matters much.  The court of appeals held that making a FRAND commitment and entering into other licences “strongly suggest” that damages for infringement should be adequate relief, meaning that injunctive relief should be denied except in rare cases.  In my view, that is a distinction without much of a difference.” 

Delrahim’s comments have already made an impact with senior members of the IP community. Former USPTO Director David Kappos, who was in the audience, described it as “the most important DOJ antitrust speech on IP during my decades practising law”. He added that: “It marks a major pro-IP and pro-innovator shift in DOJ antitrust policy.”

There’s no doubt that the speech represents a 180-degree turn on SEP licensing from the previous eight years. But what does that mean on a practical level? Well, for one thing it shows how the conversation around patents is slowly changing in the US.

Rights owners continue to face incredibly tough prevailing winds and with the views of the new USPTO Director (if confirmed) Andrei Iancu on many hot topics still not known, uncertainty remains the rule; especially as we still have a Supreme Court that is more than willing to further muddy the waters.

But for a stakeholder community which has been waiting for any sign of how the Trump White House might approach some of the key patent issues, Delrahim’s speech provides the first concrete indication that the next four years, at least, might be very different to the last eight for patent owners.  If it turns out that the DoJ’s antitrust chief has a fellow pro-patent  traveller in Iancu – whose confirmation hearing in the Senate is rumoured to be scheduled for late November - it could just be that the pendulum shift so many in the US have been waiting for is finally upon us.