The DOJ is requesting public comment on a new draft policy concerning licensing negotiations and remedies for standards-essential patents (SEPs) subject to voluntary F/RAND commitments recently jointly issued by the U.S. Patent & Trademark Office (USPTO), the National Institute of Standards and Technology (NIST), and the U.S. Department of Justice, Antitrust Division (DOJ)(collectively, “the Agencies”).  The Agencies have requested comment on eleven questions until the comment period closes January 5, 2022.

The draft joint policy is the third in a trilogy concerning Agency guidance regarding SEP negotiations, and the potential for parties on both sides to abuse their dominant positions. The latest iteration outlines steps that SEP-holders and potential licensees should take in negotiations, and again calls into question the viability of injunctive relief for SEP-holders by providing vague and ambiguous circumstances in which injunctive relief may be available to SEP holders. The apparent goal of the new policy is to pull back on the present perceived pro-patent owner thrust of the 2019 Joint Statement under the guise of rebalancing the F/RAND-rate negotiations, and the draft policy had the purported intent to create a more efficient licensing market that avoids hold up and hold out. Since there is little empirical evidence of hold up having occurred in any manner that would require “rebalancing” this is an apparent first step toward a policy change considered political to some observers and specifically directed to appease key Silicon Valley corporations who seek to avoid or least delay paying for SEP licenses. See 2019 Joint Policy. Thus, the 2021 draft policy is a reversal from the previous administration and undermines the thrust of the 2019 policy and appears to land this rebalancing back in large implementers’ favor.        

SEP-Negotiation Roadmap

In order to advance F/RAND negotiations, the Agencies laid out a proposed model roadmap for SEP licensing discussions.

First, the SEP-holder should:

1. Alert the potential licensee of specific SEPs believed to be infringed;

2. Provide information as to “how the SEPs, to the extent practicable, [are] a representative set of the SEPs being infringed”; and

3. Make a good-faith F/RAND offer. 

In response, the implementer should assess the information provided and respond within a “commercially reasonable amount of time in a manner that advances the negotiation or results in a license.” The Agencies have enumerated the following potential responses for implementers. 

1. Accept the offer;

2. Make a good-faith counteroffer;

3. Raise specific concerns about the terms or patents;

4. Propose a neutral party for resolution of contested issues; or

5. Request more specific information reasonably needed to evaluate the offer.

Finally, the SEP-Holder can:

1. Accept the counter-offer;

2. Address concerns and make a new F/RAND offer;

3. Provide more information on previous F/RAND offer; or

4. Propose a neutral party for resolution of contested issues.

The inherent pitfall in this process is that it places more burden on the SEP-holder (which is the apparent intent), allows the implementer to delay the processes, and requires no up-front commitment by the implementer to ultimately taking a license, even if the SEP-Holder has offered terms that are objectively FRAND. The obvious, and permissible, first step that an implementer could take is to wait a “commercially reasonable amount of time” and then respond by requesting more information. An implementer could arguably do this repeatedly, slowing the process considerably, while still holding itself out as a willing licensee and avoiding a potential injunction based merely on its statement of a commitment to license rather than its actions.

If and when negotiations fail, courts are urged to consider the relevant facts through the lens of eBay Inc. v. MercExchange, L.L.C. Whether the eBay standard is the appropriate standard to view a potential injunction for infringement of an SEP is the subject of much debate in the industry, whereas the Agencies fall squarely on the said of applying eBay. As industry participants are aware, obtaining an injunction for infringement of even non-SEPs since eBay has been exceedingly difficult. The application of eBay, even incorporating the unwilling licensee test, will continue to result in an unbalanced field that favors implementers over SEP holders.

Balancing ‘Hold-Up’ vs. ‘Hold-Out’ – A False Narrative?

The draft policy attempts to balance inequities in F/RAND rate negotiations by curtailing ‘hold-up’ and ‘hold-out.’ The policy seeks to prevent ‘hold-up,’ in which SEP-holders attempt to exact supra-F/RAND rates via their dominant market position and/or use the threat of litigation, as well as, ‘hold-out’ by implementers attempting to delay the process or avoid paying royalties. The issue with the current draft is that it is ultimately lopsided in favor of implementers and discourages injunctive relief in the U.S., which leaves American SEP-holders at a disadvantage. This lopsidedness is even more concerning since hold out is a much greater challenge than hold up—hold up is a purported problem that never materialized, while the industry is rife with examples of hold out and intentional delays by implementers. See “The focus in Europe moves from patent hold-up to hold-out,” January 24, 2020, IAM. Globally, injunctive relief is readily available for SEP-holders in other jurisdictions.

Injunctive Relief is Still Available, But Discouraged

At least twice, the current draft policy undermines potential injunctive relief for SEP-holders. Again, this appears to be an attempt to appease implementers who want to “rebalance” the licensing dynamic to increase the opportunity to avoid or delay licensing. The Agencies state that, “[w]here a potential licensee is willing to license and is able to compensate a SEP holder for past infringement and future use of SEPs subject to a voluntary F/RAND commitment, seeking injunctive relief in lieu of good-faith negotiation is inconsistent with the goals of the F/RAND commitment.” December 6, 2021, DRAFT – Joint Policy (“Draft Policy”) at 4. The Agencies then state that“[a]s a general matter, consistent with judicially articulated considerations, monetary remedies will usually be adequate to fully compensate a SEP holder for infringement.” Draft Policy at 8. With the presumption that injunctive relief is difficult if not impossible to get, implementers will be incentivized to delay negotiations and, at worst, ultimately pay a F/RAND rate to be determined later. Additionally, the concept that monetary remedies are adequate belies the fact that SEP infringers have employed tactics that delay these payments for as many years as possible, attempting to wait the SEP holders out. 

Licensees Get the Last Word

The policy attempts to balance this chilling effect by opening the door to injunctions against unwilling licensees. The Agencies state, “[a]t the same time, when standards implementers are unwilling to accept a F/RAND license or delay licensing negotiations in bad faith, these strategies can lessen patent holders’ incentives to participate in the development process or contribute technologies to standards voluntarily… [and] [a]n injunction may be justified where an implementer is unwilling or unable to enter into a F/RAND license.” Draft Policy at 8-9. The Agencies go on to state that, “[a] potential licensee could be judged unwilling to take a license if it refuses to pay what has been determined by a court or another neutral decision maker to be a F/RAND royalty.” Draft Policy at 9. The policy then states, however, that “a potential licensee should not be deemed unwilling to take a F/RAND license if it agrees to be bound by an adjudicated rate determined by a neutral decision maker; if it reserves the right to challenge the validity, enforceability, or essentiality of the standards-essential patent in the context of an arbitration or F/RAND determination; or if it reserves the right to challenge the validity or essentiality of a patent after agreeing to a license.” Id. This statement from the Draft Policy appears to be saying that a potential licensee can avoid unwilling licensee status by merely reserving the right to challenge the patent. That is the opposite of a willing licensee, and allows an implementer to appear as a willing licensee while delaying negotiations or failing to pay. 

Questions for Comment

The eleven questions posed to the public for comment, summarized and categorized below, request comments on a range of topics from broader policy concerns, to practical suggestions to aid in F/RAND negotiations, and the potential impact of the revised policy. 

Policy Consideration Questions:

(1) Should the 2019 Policy be revised?

(2) Does the draft policy balance the interests of SEP-holders and implementers?

(3)Does the draft revised statement address the competition concerns about the potential for extension of market power beyond appropriate patent scope identified in the Executive Order on Promoting Competition in the American Economy?

(9) Resources that the U.S. government could provide or produce to help inform businesses about    SEPs subject to voluntary F/RAND commitments?

(10) Other factors (than those outlined in the draft policy) that make a party an unwilling licensee?

(11) How have previous policy statements been used in litigation or negotiations?

Questions about how to Make SEP Negotiations More Balanced and Efficient:

(4) Is the possibility of injunctive relief a significant factor in negotiations?

(5) Are there typical challenges in SEP negotiations? If so, what information should be exchanged to make negotiations more efficient or transparent?

(6) Are small business owners and small inventors impacted by perceived licensing inefficiencies involving SEPs? How can they be made more efficient?

Questions about the Potential Impact of the Revised Policy:

(7) Is the proposed negotiation framework helpful? How can it be improved?

(8) Impact on SSOs and standard contributors?

In the main, the F/RAND policy ostensibly provides guidance to allow a level playing field for SEP licensing negotiations. The questions solicit input related to whether the policy strikes the right balance between the competing SEP interests, especially as it relates to whether one side is unfairly leveraged over the other with respect to the availability (or lack thereof) of injunctive relief for SEP holders. We will see what public comments are forthcoming. For example, in response to question (2) expect SEP owners to comment that the draft policy fails to balance the interests of SEP-holders and implementers and could be further equalized by clearly establishing that injunctive relief is the default when implementers will not commit to taking a SEP license or unreasonably delay negotiations. Questions (4) and (10) also deal with the effect of injunctive relief on negotiations and other factors relevant to an implementer being seen as an unwilling licensee.   

Another important consideration—on which the Agencies seek comment—is whether the draft policy addresses the concerns raised in the July 9, 2021 Executive Order on Promoting Competition in the American Economy.  There is an open question as to how the portion of Promoting Competition directed to SEPs could promote competition when it has as one impact of allowing the largest and most successful technology companies operating in the US to avoid or delay paying their fair share of the SEP licensing fees while taking all the benefits of the those technologies foster by SEPs.

Clearly the policy will limit the potential for SEP owners to obtain injunctive relief on SEPs which some may consider to be a protection against anticompetitive market power beyond the scope of granted patents. However, the scope of granted patents has always included the right to exclude (the core right granted by a patent) such that the right to exclude, even on an SEP, is not an anticompetitive extension of a granted patent right. Instead, arguably it is the interplay between SDO membership contracts and how those contracts effect the ability to assert patent rights that should be analyzed by the Agencies.

Conclusion

Overall, while the revised policy is more balanced than its 2013 predecessor, it is a step backwards from the 2019 guidance by favoring implementers at the expense of patent owners and done to appease large successful hi-tech stake holders including well known Silicon Valley companies and automotive companies. As drafted, the policy points toward an approach that mirrors the EU guidance in Huawaei v. ZTE which was subject to regular abuse by potential licensees to delay negotiations and was recently clarified in Germany in a manner to prevent such dilatory tactics. While some of the guidance for licensing discussions is practical (and largely implemented by the market), the proposed course of conduct prescribed to parties in F/RAND negotiations gives far more leeway to implementers to delay and takes the wind out of the sails of injunctive relief, absent narrow circumstances. The change will not simply “rebalance” but be used as a tool to delay and avoid paying licensing SEP fees by the exact companies and should be paying those fees. In light of the obvious effects of the new policy, it will be interesting to see the level of comment from the public, and the direction those comments take.