Published: 2/2/15
This Business Review Letter (“BRL”) affirms the U.S. Justice Department’s intention not to challenge on antitrust grounds the proposed revisions to the IEEE’s patent policy (“IEEE Revisions”). The IEEE’s revisions concern the terms of letters of assurance (“LOAs”) through which participants in IEEE-SA standards development make licensing commitments on a RAND basis. After analyzing the following four key concepts in the IEEE Revisions, DOJ concluded that they were consistent with U.S. law and would not harm competition:
1. Availability of Injunctions and Other Prohibitive Orders. The first provision considered by DOJ requires that companies agreeing to the IEEE RAND commitment not seek or enforce a prohibitive order, such as an injunction, against standard implementers “unless the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review” by a court with the authority to determine a reasonable rate and to adjudicate patent validity, enforceability, essentiality and infringement. According to DOJ, U.S. patent courts have recognized that a RAND commitment embodies an agreement “not to exclude … implementers from using the standard unless they refuse to take a RAND license.” BRL p. 9. DOJ added that the new provision, “in practice, will not be significantly more restrictive than current US. case law,” but will add clarity that “may help parties reach agreement more quickly.” BRL p. 10.
2. The Meaning of Reasonable Royalty Rate. DOJ next assessed in its BRL a provision in the IEEE Revision stating that a reasonable royalty rate “shall mean appropriate compensation … excluding the value, if any, resulting from the inclusion of [the patent claim’s] technology in the IEEE standard.” DOJ concluded that “[t]his provision aligns with generally accepted goals of RAND commitments, namely, providing the patent owner with appropriate compensation, while assuring implementers that they will not have to pay any hold-up value connected with the standardization process.” DOJ cited Ericsson, Inc. v. D-Link Sys, Inc., 773 F.3d 1201, 1232 (Fed. Cir. 2014) as direct support on the subject. BRL p. 12.
DOJ also addressed the IEEE’s attempt to give greater definition to the term reasonable rate by recommending (not mandating) consideration of three other factors:
(1) “The value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of … the smallest saleable Compliant Implementation that practices the Essential Patent Claim.” DOJ concluded that use of the smallest saleable unit that practices an essential patent claim as the royalty base “may be appropriate in calculating a royalty that is correctly tied to the patented invention, particularly when the product is complex and incorporates many patented technologies.” BRL p. 12.
(2) “The value that the Essential Patent Claim contributes to the smallest saleable Compliant Implementation that practices that claim, in light of the value contributed by all Essential Patent Claims for the same IEEE Standard practiced in that Compliant Implementation” (i.e., royalty stacking concerns may be taken into account). As to this factor, DOJ concluded that “appropriately apportioning the value of all essential patent claims in an IEEE standard addresses royalty stacking, which may hamper implementation of a standard.” BRL p. 13.
(3) “Existing licenses covering use of the Essential Patent Claim, where such licenses were not obtained under the explicit or implicit threat of a Prohibitive Order, and where the circumstances and resulting licenses are otherwise sufficiently comparable to the circumstances of the contemplated license.” In reference to this factor, DOJ noted that “courts consider whether licenses offered as evidence are comparable and hence relevant to calculating a reasonable royalty.” DOJ concluded that the IEEE-SA’s revised policy “does not prevent consideration of licensing agreements other than those specifically identified therein.” BRL p. 13.
According to DOJ, all of these recommended factors are “[c]onsistent with U.S. case law” and do “not mandate any specific royalty calculation methodology or specific royalty rates.” Rather, they provide “additional clarity regarding the IEEE RAND Commitment, which could help speed licensing negotiations, limit patent infringement litigation, enable parties to reach mutually beneficial bargains that appropriately value the patented technology, and lead to increased competition among technologies for inclusion in IEEE standards.” BRL pp. 12 & 14.
3. Licensing All Standard Implementers. The next provision analyzed by DOJ in its BRL is the obligation of patent holders bound by the IEEE RAND commitment to license their SEPs for all compliant implementation of an IEEE-SA standard. This IEEE Revision effectively prohibits refusals by such companies to license their SEPs to companies at certain levels of production. DOJ concluded this provision could foster competition and innovation, as “[p]arties contemplating manufacturing products conforming to an IEEE standard, or investing in research and development related to such a standard, will know that they will have access to necessary technology, thereby facilitating implementation of these standards, to the benefit of consumers.”
4. Prohibition on Forcing the Tying of SEP Licenses to Non-SEPs. The last provision analyzed by DOJ prohibits licensors from conditioning SEP licenses on licensees’ agreement to grant back licenses to patents that are not essential to the same standard and forcing licensees to take licenses to patents that are not essential to the same standard. DOJ concluded that “[t]hese prohibitions will reduce the possibility that a holder of a RAND-encumbered patent could leverage that patent to force a cross-license of, among other things, a potential licensee’s differentiating patents and limit the potential for anticompetitive tying.” Yet, the agency also pointed out that this IEEE Revision does not prohibit the parties from voluntarily negotiating licenses for entire patent portfolios. BRL p. 15.
In summary, DOJ concluded that the IEEE Revisions are not likely to harm competition, and to the extent they created any potential competitive harms, the “potential procompetitive benefits likely outweigh those harms.” BRL p. 16.