US policy: friend or foe to SEPs?
In a statement of public interest filed on May 16, FTC chair Lina Khan and commissioner Rebecca Slaughter urged the US International Trade Commission (ITC) to consider the impact that issuing an exclusion order against a willing licensee (ie Thales) would have on competition and consumers in the US.
The ITC, an independent body, has powers under section 337 of the Tariff Act to issue exclusion orders, which essentially ban the importation of products deemed to infringe US patents, subject to certain ‘public interest’ exceptions.
The lawsuit in question, heard in the US District Court of Delaware, saw Philips appeal to the ITC to issue an exclusion order on its patented wireless module products, which it claimed Thales had infringed in some of its components, including in aeroplanes, which implement cellular standards—especially 3G and 4G.
Khan and Slaughter’s statement, which has prompted debate among SEP stakeholders, said: “...we are increasingly concerned that SEP holders who have committed to license SEPs on FRAND [fair, reasonable and non-discriminatory] terms are seeking exclusionary orders to ban products from the marketplace for the purpose of gaining leverage over existing or potential licensees.
“In our view, where a complainant seeks to license and can be made whole through remedies in a different US forum, an exclusion order barring standardised products from the US will harm consumers and other market participants without providing commensurate benefits.”
For the FTC to wade into a legal dispute this way is unusual. And that it followed a proposed policy change by the Biden administration that some believe could weaken SEP protection, has caused consternation among some in the IP industry that SEP owners’ rights are being eroded.
Shift in policy?
Last July, the Biden administration released an Executive Order that promised to promote competition in the US economy.
Former commissioner and chair of the ITC Deanna Tanner Okun wrote in an op ed for IP Watchdog that, while broadly welcoming the White House’s policy shift, expressed her concerns over its potential to “subvert” IP rights.
“I think the US system has worked,” Okun tells WIPR. “And there’s a constitutional basis for patent law: you get your monopoly in exchange for showing the world the patent, and from that, innovation takes place.
“So, I think our laws are meant to, and should, enforce that right. In a country with some of the greatest innovative companies, it's hard for me to say, ‘we must have it really wrong and we have to change things’.”
Okun—who is now managing partner of AMS Trade, but is speaking out on this issue in her capacity as former ITC chair and commissioner—highlights that, while US policy has changed to and fro over the years, the ITC has remained focused on the statute.
“Is there really something going on here that needs to change?” she continues. “Is the balance so far in favour of the patent rightsowner, that you need to change what remedies are available to them? I don't see the evidence of that.”
“If anything,” she adds, “I think patent rightsholders have seen an erosion of rights, and I'm not sure that the information that I've seen supports that we need to change it.”
FRAND obligations
Standard-setting organisations, or standard development organisations (SDOs), require the SEP holder to sign a contractual agreement that says it will licence a product to other companies under certain terms and conditions.
But Paul Ragusa, partner at Baker Botts, says that more important is what happens next.
“The big issues are really what the effect is of the FRAND statement on royalties, and whether or not a patent that has a FRAND obligation should be entitled to an injunction,” says Ragusa.
“The issue there is if you've agreed in writing to license, why are you entitled to an injunction? SEP owners will argue—and I think it's the right view—that that's a contractual obligation. It should not eliminate your right like any other patent owner to seek an injunction under appropriate circumstances.”
Ragusa—who was part of the team that drafted the patent licensing agreements for the MPEG-2 digital video compression standard, which ultimately led to HD TV—continues: “[The FTC statement] came across to me to be more of a real policy statement. It's interesting that an executive department would put in this kind of statement at this juncture.
“If it's adopted it may have an effect that's directly contrary to the purpose of the ITC.”
When asked whether he thinks the US government’s proposed policy change will be adopted, Ragusa is unconvinced: “I don't have a crystal ball, but I don't think this is in line with the other things that we've seen out of the Biden administration—for example on artificial intelligence, and otherwise, where we're trying to spawn innovation and help US industry. I don't see how this achieves that goal.”
Ragusa predicts that the industry response, in the meantime, will likely be mixed. “I've already seen posts on LinkedIn discussions with clients who are obviously concerned that this is going to have the opposite effect of what the Biden administration statement had intended,” he says.
“I'm sure you'll hear from US industry on both sides of the fence—you'll hear from implementers that are in favour of it, and you'll hear from patent owners that are against it.”
Okun, however, stands firm: “People argued to the ITC, will continue to argue to the ITC, that you should treat SEPs somehow differently. I spent some time trying to understand what that argument was based on and again, I don't think it's accurate to say they should be treated differently.”
She adds: “Companies spend a lot of money on patents that don't work out and it's the patents that do [work out] is where they get their payback. And that's what our system has incentivised.”
In the meantime, legislators, lawyers and SEP holders will be watching closely to see whether the FTC’s intervention, coupled with any policy changes from the White House, will change the SEPs landscape—and in whose favour.
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