New Scholarship on FRAND and Other Issues at the Intersection of IP and Antitrust

1.  Yee Wah Chin has posted a paper on ssrn titled ABA Comments on KFTC's IPR Guidelines.  Here is a link to the paper, and here is the abstract:

Korea's Fair Trade Commission revised its Review Guidelines on Unfair Exercise of Intellectual Property Rights under Korea's Monopoly Regulation and Fair Trade Act in early 2016. Earlier, 4 sections of the American Bar Association submitted comments on revisions to these guidelines. This paper compares the revised IPR Guidelines with the ABA sections' comments.

Not surprisingly, the paper discusses, among other things, standard essential patents and FRAND.

2.  Harry First has posted a paper on ssrn titled Exploitative Abuses of Intellectual Property Rights, which is a forthcoming chapter in Intellectual Property and High Tech Handbook (Roger Blair & D. Daniel Sokol, eds., Cambridge University Press).  Here is a link to the paper, and here is the abstract:

It is the standard view in the United States that U.S. antitrust law does not reach acts of exploitation by a monopolist, particularly monopoly pricing (“rent extraction”). Even more so for intellectual property, where U.S. courts have emphasized the right of an intellectual property right holder to raise prices and exploit its rights to the fullest, constrained only by market demand. Competition law in the rest of the world appears to be otherwise, however, with many countries generally condemning excessive high prices by dominant firms, even if often reluctant to invoke such provisions in practice.

Despite apparent differences in legal approaches, current enforcement practice worldwide with regard to price-raising exploitation of intellectual property rights by monopolists shows a uniform willingness to condemn such conduct as anticompetitive. This paper describes this concern for exploitation, focusing on competition law enforcement in the United States, China, Europe, Japan, and Korea in three substantive areas: patents subject to FRAND licensing obligations, disclosure requirements imposed on patent holders with monopoly power to prevent them from exploiting licensees or potential licensees, and post-expiration royalties.

This paper argues that this concern for exploitative behavior is consistent with sound competition policy. Preventing the undue exploitation of intellectual property rights is an important aspect of economizing on the reward we give to incentivize innovation. Antitrust has traditionally favored placing some limits on intellectual property rights and placing greater reliance on the incentives for innovation that competitive markets can provide.

3. Álvaro Fomperosa Rivero has posted a paper on ssrn titled Standard Essential Patents and Antitrust: A Comparative Analysis of the Approaches to Injunctions and Frand-Encumbered Patents in the United States and the European Union.  Here is a link to the paper, and here is the abstract:

This paper looks at the holdup problem stemming from the apparent incompatibility between Standard Essential Patents — those subject to fair, reasonable and nondiscriminatory (FRAND) licensing — and the use of injunctions, and analyzes the potential complementary use of antitrust rules to strike the right balance to optimize competition and innovation.

I conclude that in the U.S., patent law and the ruling in eBay provide courts with sufficient tools to avoid the holdup problem, though the FTC could still have a policing role under Section 5 of the FTC Act. In the E.U., the fragmentation of remedies in patent law calls for antitrust enforcement by the European Commission, in line with the safe harbor approach adopted in the Samsung case.

Prior to eBay, antitrust enforcement in the United States was limited to the scope of Section 5 of the FTC Act and its associated remedies, i.e. cease and desist orders. However, current patent law counts on judicial tools to identify and prevent holdups created through the threat of injunctions. In particular, the eBay test has enabled courts to limit the potential anticompetitive effects of an injunction sought against a willing licensee. Once courts have signaled the unlikelihood or practical impossibility of obtaining an injunction against such a licensee, holdup issues disappear and any threat to seek injunctions losses all credibility. Courts can then establish damages for past infringement and to set ongoing royalties.

In Europe, remedies for patent law breaches diverge across jurisdictions and while some seem more in line with the eBay balancing test (the Netherlands), others still use injunctions as the default remedy (Germany). The potential benefits of an Ebay-style balancing test are thus not available across the E.U. Meanwhile, patentees can continue to leverage the threat of injunctions to obtain unfair licensing terms. The European Commission has stepped up to take a decisive stance against injunctive relief in the presence of Standard Essential Patents as stated in its decisions in the Motorola Mobility and Samsung cases. The European Commission has the authority to establish an adequate framework for negotiation under FRAND under the Samsung decision. It should exercise this power to set an ex ante expectation that no injunctive relief will be granted and that parties will have to reach to an agreement sooner or later or leave it for the courts to decide the FRAND terms.

4. Koren W. Wong-Ervin and Jorge Padilla have posted a paper on ssrn titled Portfolio Licensing at the End-User Device Level:  Analyzing Refusals to License FRAND-Assured Standard-Essential Patents at the Component Level.  Here is a link to the paper , and here is the abstract:

Competition agencies around the globe have recently initiated investigations involving a standard-essential patent (SEP) holder’s refusal to license patents at the component level, such as the chipset, that it has committed to license on fair, reasonable, and nondiscriminatory (FRAND) terms.  While much has been written about FRAND-assured SEPs, the literature to date focuses largely on the appropriateness of seeking and obtaining injunctive relief on such patents or on the appropriate royalty rate and the meaning of “fair and reasonable” (FR), and has largely ignored the “nondiscriminatory” (ND) prong of FRAND.  This paper analyzes the common-industry practice of licensing on a portfolio basis at the end-user device level and whether a refusal to license at all levels of the production chain may constitute an antitrust violation, concluding that: (1) whether the “ND” prong of FRAND requires licensing at the component level is a fact-specific inquiry that depends upon the specific standard-development organization’s (SDO’s) Intellectual Property Rights (IPR) Policy at issue; and (2) regardless, evasion of a FRAND assurance alone does not constitute an antitrust violation.  In addition, while U.S. antitrust agency practice and law highly disfavor imposing antitrust liability for refusals to license, such liability (including in Europe and elsewhere) would at the very least require a showing of anticompetitive harm such as foreclosure.

Through a simple model, we show that due to the FRAND commitment and because most FRAND-assured SEP holders do not assert their patents at the component level, there is likely no foreclosure or exclusionary conduct or otherwise harm to competition. Our model features two SEP holders, one of which is vertically integrated with a component manufacturer, and a competing non-integrated component manufacturer. By refusing to license at the component level, the vertically integrated SEP holder de facto bundles its component (the bundled product) with its SEP portfolio (the bundling product). We show that this bundling strategy will not lead to the foreclosure of the component market if (i) the vertically integrated SEP holder does not assert its patents at the component level, and (ii) it licenses its SEP portfolio to end-devise manufacturers on FRAND terms irrespective of whether they source components from its own subsidiary or from the non-integrated rival. Intuitively, when (i) and (ii) hold, the bundle offered by the vertically integrated SEP holder can be replicated competitively by end-device manufacturers by mixing and matching the component sold by the non-integrated component supplier and the patent portfolio of the integrated SEP holder. Finally, we note that there are a number of legitimate business reasons for the common industry practice of licensing at the end-user device level, including avoiding patent exhaustion, reducing administrative costs, and ease of monitoring or verifying the number of units sold. These efficiency reasons motivate the decision of both vertically integrated and, tellingly, non-integrated SEP holders to license at the end-user device level only.