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24 December 2021PatentsAlex Baldwin

DOJ draft SEP bill: a ‘shot across the bow’ for rightsholders

Earlier this month, the  US Department of Justice (DoJ) revealed a  new draft policy statement on licensing negotiations for standard-essential patents (SEPs).

Broadly, the bill looks to “promote good-faith licensing negotiations” between SEP holders and licensees on fair, reasonable and non-discriminatory (FRAND) terms.

It seems at least partly prompted by President Biden’s July  executive order to promote competition, which calls on agencies (like the DOJ) to enforce antitrust laws “vigorously”.

SEP negotiations and litigation, alongside pay-for-delay deals in the pharmaceutical industry, have been some most high-profile targets of the antitrust pushback in the IP space, and now this new policy raises potential changes to the SEP framework.

The draft bill, which is the result of a collaborative effort between the  US Patent and Trademark Office, the DOJ, and the  National Institute of Standards and Technology (NIST), is open to feedback from the public.

The agencies posed 11 questions to the public that predominantly addressed the potential impact the bill could have on SEP licensing negotiations between rightsowners and licensees and the spectre of injunctions.

‘Vanilla’ policy

The bill’s wording will not surprise many stakeholders, claimed Erik Puknys, partner at  Finnegan.

“It’s a lot of non-controversial statements about how everybody should engage in good faith negotiations. I think you will find people that will nit-pick with one example or another but the general policy itself is pretty vanilla,” said Puknys.

Targeted in the bill specifically are negotiation strategies that can cause harm to the public, including delays to products and the creation of licences that are not FRAND.

The bill also reinforces the trend that, since the Supreme Court’s eBay ruling, injunctive relief for a SEP has rarely been granted. The ruling, handed down in 2006, saw the court unanimously determine that an injunction should not be automatically issued based on a finding of patent infringement, which puts the US at odds with other countries where injunctive relief is more common.

If a dispute should go to court, injunctions are possible, but the agencies believe that this should be a “rare” occurrence.

“Where a SEP holder has made a voluntary FRAND commitment, The eBay factors, including irreparable harm analysis, balance of harms and the public interest generally mitigate against an injunction,” the draft policy said.

Paul Sutton, partner at Sutton Magidoff Barkume said that the bill is designed to keep public interest in mind.

Injunctions may loom large on this issue but “there is no substitute for good faith negotiations between holders of SEPs and those seeking to avoid patent infringement claims,” said Sutton.

SEP ‘stormcloud’

“Vanilla” it may be on detail, but the draft policy could foreshadow what SEP holders may be up against under the Biden administration.

The bill underscores negotiation “strategies” larger entities engage in that can adversely impact small and medium businesses.

While the bill looks to offer guidance to both parties in SEP negotiations, there are warnings for SEP holders that license to smaller companies.

The draft states: “Opportunistic conduct by SEP holders to obtain, through the threat of

exclusion, higher compensation for SEPs than they would have been able to negotiate prior to standardisation, can deter investment in and delay introduction of standardised products, raise prices, and ultimately harm consumers and small businesses.”

Puknys said: “This is a shot across the bow for patent owners.”

He added: “SEP holders will probably look at this as a stormcloud on the horizon as a sign of more aggressive policies to come that could be more hostile than what we are seeing here.”

But given the lack of overtly contentious language in the policy so far, SEP holders are not lining up to denounce the policy just yet.

Nokia, which is among the largest owners of SEP families worldwide, merely stated what it would want from SEP policy, but did not highlight anything present in the current bill that was of immediate concern when asked for its view.

A Nokia spokesperson said: “We strongly believe that the legal and policy framework around SEPs must both incentivise inventors and provide predictability to companies that license the use of another organisation’s inventions.”

‘Correcting imbalances’

Some have a rosier view of the policy and see it as a step forward to level the playing field in SEP negotiations, which spells good news for newer and smaller players looking to enter the countless number of industries where SEPs are a requirement for business.

Morgan Reed, president of  ACT Online, which represents thousands of small businesses in the app and tech space, said: “The entire innovation ecosystem needs certainty that the voluntary FRAND commitment SEP holders make when their patents are included in the standard are honoured consistent with US competition law, particularly with respect to injunctions and exclusion orders.

“Without this certainty, small businesses like our members will find themselves unable to even use key standardised technologies and excluded from IoT opportunities where they are needed to fuel competition. [We] Thank them for taking this important step in restoring pro-innovation and pro-competition standards and SEP policies.”

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