Thursday, September 10, 2020

Antitrust Division Issues Supplement to 2015 IEEE Business Review Letter

Readers may recall that in February 2015 IEEE issued a revised IPR Policy that, among other things, stated that a FRAND commitment signifies  "that reasonable terms and conditions, including without compensation or under Reasonable Rates, are sufficient compensation for a license to use those Essential Patent Claims and precludes seeking, or seeking to enforce, a Prohibitive Order except as provided in this policy."  (For previous discussion of the revised policy on this blog, see herehere, here, here, here, and here.)  Adoption of the policy was preceded by a February 2, 2015 Business Review Letter from Renata Hesse, Acting Assistant U.S. Attorney General, to Michael Lindsay, which stated that the DOJ did "not intend presently to challenge the Update if it goes into effect." 
On Thursday, the Antitrust Division issued a new letter, from Assistant Attorney General Makan Delrahim to Sophia Muirhead of IEEE, purporting to "supplement, update, and append" the 2015 letter.  Today's letter does not expressly state that DOJ intends to challenge the IEEE's 2015 policy.  But it is consistent with Mr. Delrahim's many other pronouncements favoring SEP owners over implementers, emphasizing "holdout" and deemphasizing "holdup," and cautioning SSOs that attempts to constrain SEP owners may put the SSOs themselves in peril of antitrust liability.  (For previous discussion by me regarding some of Delrahim's previous statements on these topics, see here, here, here, and here.)

The new letter begins by stating, correctly, that the 2015 letter was not an "endorsement," as such, of the IEEE policy revision, but only (as noted above) a statement that the DOJ wasn't planning to challenge it.  To the extent the 2015 Letter has been characterized as an "endorsement," then, Delrahim may be correct in stating that that has been an overstatement.  Of greater concern, however, is his second stated reason for issuing the new letter, namely "to align the now outdated analysis in the 2015 Letter with current U.S. law and policy" (p.1).  In particular, Delrahim asserts the following, all of which are (in my view) much more of an overstatement than the overstatement he claims to be correcting:

1.  "The 2015 Letter has proven incorrect . . . in anticipating that 'hold-up' would be a competitive problem. Rather, concerns over hold-up as a real-world competition problem have largely dissipated" (p.4).  Rather, "[t]here continues to be little evidence that hold up is a significant problem (much less a competition concern)" (id. n.18),  In fact, the theory of patent holdup is firmly grounded in mainstream economics, as Erik Hovenkamp, Norman Siebrasse, and I demonstrate here.  Moreover, as Mark Lemley and Carl Shapiro demonstrate here, while may be impossible to quantify the social losses caused by holdup, the studies that purport to debunk the holdup theory are themselves full of holes.  Finally, while Delrahim cites the recent Ninth Circuit decision in Qualcomm in support of his not-a-competition-law-issue point, there are decisions from other courts (e.g., the Third Circuit in Broadcom) that take a different view. 

2. Delrahim cites his "New Madison" speech in stating that "the Department observed the serious harm to innovation that could arise from limiting injunctive relief" (p.5), and later states that "[d]enying essential patent holders access to injunctive relief has the potential to lessen returns for inventors and thereby to harm incentives for future innovation" (p.6).  I think a better word than "observed," in the first statement, would be "assumed," since (contrary to the second statement) the empirical evidence, to my knowledge, hasn't shown any negative impact from the limitations on injunctive relief resulting from the Supreme Court's eBay decision.  (See my discussion from one year ago on this topic, here, at p.3 n.12).

3. At the bottom of page 5, Delrahim refers to the "consensus view in the United States that seeking an injunction is an 'exclusive right' conferred by the U.S. Constitution."  The Supreme Court clearly didn't perceive any such "consensus" in eBay, however, and as I have noted elsewhere, Congress didn’t expressly authorize the federal courts to grant injunctions in patent infringement actions until 1819.

4.  Delrahim states that "The 2015 Letter focused on the risk of so-called 'hold up' by patent-holders without considering the possibility of 'hold out' by patent implementers or the Policy's effect on patent holders' innovation incentives.  Yet studies and analyses conducted in the intervening years about hold out have confirmed that these are serious concerns, as well" (p.8).  In support, he cites two law review articles, but none of the commentary, including the two articles cited above and work by Jorge Contreras, taking precisely the opposite view.  

Elsewhere in the letter Delrahim talks about FRAND disputes being "essentially contractual disputes" (p.4), and states that "parties should be given flexibility to fashion licenses that reward and encourage innovation" (p.8); but apparently concepts like flexibility and freedom of contract have their limits, when their exercise conflicts with the division's ideological positions.  Delrahim also states that, since IEEE's policy has gone into effect, "negative assurances--those in which a technology contributor declines to give a RAND assurance--have increased significantly" (p.9).  I would have thought that someone who believes in free markets would conclude that, if a private entity adopts a policy that turns out badly, that entity should have to suffer the consequences, rather than needing the guiding hand of the Antitrust Division to save it from itself.  Or could this be a not-to-subtle hint that, if Donald Trump wins re-election, IEEE could find itself in the agency's cross-hairs?

Update:  Also of possible interest, and in a similar vein, are remarks Mr. Delrahim delivered at the LeadershIP Virtual Series on September 10, titled Broke. . . but Not No More: Opening Remarks--Innovation Policy and the Role of Standards, IP, and Antitrust.

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