US enforcement agencies under the Biden administration have continued to shift their stance towards balancing intellectual property rights protection with antitrust concerns. This article discusses the agencies’ policies and practice in this area over the past year, noting that both agencies have pushed back on the use of injunctions and other exclusionary remedies sought by the holders of standard-essential patents (SEPs), particularly those with commitments to license on fair, reasonable and non-discriminatory (FRAND) terms. The article also explores the Biden administration’s first non-merger litigation and provides an update on the Qualcomm antitrust case.
Both antitrust agencies discourage SEP injunctions but issue no formal guidance
Both the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have hardened their stances against the holders of standard-essential patents (SEPs) under the Biden administration, reversing a Trump-era shift that had seen greater acceptance of SEP-holder injunctions and other exclusionary remedies.
In May 2022, FTC Chair Lina Khan and Commissioner Rebecca Slaughter jointly filed a Written Submission of Public Interest in a Section 337 investigation before the US International Trade Commission (ITC) regarding patent infringement lawsuits and fair, reasonable and non-discriminatory (FRAND) licensing negotiations. Chair Khan and Commissioner Slaughter argued that: (i) SEP holders often seek exclusionary orders through the ITC solely to improperly obtain leverage in licensing negotiations; and (ii) a SEP holder should not be allowed to seek an exclusion order while a district court reviews FRAND licensing terms.
The underlying dispute began in 2015, when Koninklijke Philips NV offered a licensing rate per device for an SEP that licensee Thales DIS AIS LLC alleged was not FRAND compliant. Philips later simultaneously filed both a complaint against Thales in the United States District Court for the District of Delaware and a complaint before the ITC seeking an exclusion order under Section 337. Thales filed a counterclaim in district court for breach of contract, asking the court to set a FRAND rate, and moving for a preliminary injunction barring Philips from seeking the exclusion order from the ITC.
Chief Judge Colm F Connolly, presiding in Delaware, denied Thales’ motion, reasoning that Thales had failed to demonstrate irreparable harm and that enjoining the parallel ITC investigation raised policy issues that the district court was not equipped to decide. Thales appealed to the Federal Circuit, which affirmed the district court’s decision, reasoning that the district court did not clearly err in determining that Thales’ proffered evidence of customer affidavits that merely ‘voice[d] concerns’ about the threat of ITC exclusion were ‘conclusory’ and failed to establish likely irreparable harm. Shortly before the appellate ruling, the ITC made its own determination in the matter, finding that Thales did not violate Section 337 and that multiple claims of Phillips’s asserted patents were invalid.
In their Written Submission, Chair Khan and Commissioner Slaughter argued that the ITC’s practice of granting exclusionary orders while a court is resolving FRAND terms is ‘against the public interest’ because the district courts are well equipped to effect enforceable rulings via damages. In these cases, they argued, ‘an exclusion order barring standardized products from the United States will harm consumers and other market participants without providing commensurate benefits’.
Soon afterwards, then-Commissioner Christine Wilson, the sole Republican serving on the Commission at the time, publicly criticised the Written Submission, contending that Chair Khan’s and Commissioner Slaughter’s policy would unjustly ‘target innovators that hold SEPs’. Instead, Commissioner Wilson encouraged the FTC to focus on incentivising competition and innovation broadly and not to give any a priori preference to either innovators or implementers. Commissioner Wilson further argued that the ITC already accounts for the situation at hand, citing an article from former ITC commissioner Deanna Tanner Okun and pointing to public interest factors in ITC analysis that allow for arguments that FRAND commitments had been breached.
Another party-line split on antitrust treatment of SEPs arose in June 2022, when the DOJ Antitrust Division, the US Patent and Trademark Office (USPTO) and the National Institute of Standards and Technology withdrew their joint 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments. The Statement, issued under the Trump administration, provided that a patent holder’s FRAND commitment was not an outright bar to seeking an injunction. Specifically, the Statement contended that FRAND commitments are typically a matter best handled under contract law rather than antitrust law.
The agencies did not issue a new policy statement to replace the 2019 Statement, leaving SEP holders and implementers without formal guidance on available remedies and enforcement priorities. In a contemporaneous press release, current DOJ Antitrust Division head Jonathan Kanter stated that he is ‘hopeful [the DOJ’s] case-by-case approach will encourage good-faith efforts to reach F/RAND licenses and create consistency for antitrust enforcement policy’. The press release also noted that the DOJ will ‘carefully scrutinize opportunistic conduct by any market player’, noting ‘abusive practices that disproportionately affect small and medium sized business or highly concentrated markets’ or ‘emerging technologies’ as areas of focus.
The FTC’s ITC submission and the DOJ’s decision to withdraw the 2019 SEP Statement reflect significant tension between new Democratic leadership at the agencies and their Republican predecessors. In both cases, the direction of the policy preference of the Biden administration enforcement agencies is clear, but actionable guidance for patent holders and licensees is lacking. In the absence of new general guidance, parties negotiating SEP licences or considering possible judicial or ITC remedies will have to consider that the antitrust agencies’ approach to this area could change again following a change in administration.
This lack of clarity in this area may also lead to suits designed to test the bounds of the agencies’ positions or to test their judicial acceptance. For instance, in January 2023, Swiss chipmaker U-Blox AG again went to federal court accusing InterDigital Inc of violating the antitrust laws by demanding unfairly high royalty rates for SEPs related to 3G and 4G cellular standards. According to the complaint, InterDigital’s conduct was ‘unnecessarily destructive and outrageous’ because U-Blox had been willing to pay a FRAND rate when the rate was determined in negotiations between the parties.
The claims are nearly identical to a 2019 lawsuit that U-Blox filed against InterDigital. In the 2019 case, the DOJ quickly weighed in on the side of InterDigital, consistent with the 2019 SEP Statement. The DOJ told the court that U-Blox’s reading of the antitrust laws risked ‘unhelpfully distort[ing] licensing negotiations’ and ‘undermining the incentives for innovation’. The companies later settled. As the 2019 SEP Statement has been withdrawn, it is unclear whether and how the DOJ will give a view on the 2023 case. At the time of writing, the case sits in the Southern District of California, where Judge Gonzalo Curiel has been fully briefed on InterDigital’s pending motion to dismiss.