Last month, when a majority of the commissioners on the Federal
Trade Commission issued a statement warning about aggressive
assertion of standard-essential patents in connection with the
merger of two companies that make car air conditioners, Reuters
took note. On its own, the FTC's statement wasn't particularly
interesting. But the antitrust watchdog is reportedly looking
into allegations that Google is abusing the portfolio of
essential tech patents it acquired in its merger with Motorola.
Perhaps the FTC's statement in the auto air-conditioning case,
Reuters said, was an indicator of where the commission stood on
Google's use of Motorola's patents.
We now have some more substantive evidence of what the FTC
thinks about those patents -- and it doesn't bode well for
Google. This week the agency filed an amicus brief in
cross-appeals by Apple and Motorola of Judge Richard Posner's
pox-on-both-your-houses dismissal of their claims against one another last summer. (Posner sits on the 7th Circuit Court of
Appeals but heard the case as a district judge in federal court
in Chicago; Apple and Motorola's cross-appeals of his ruling are
before the Federal Circuit.) The brief claims to be in support
of neither party, but in reality the FTC sided squarely with
Apple, arguing that when Posner refused to grant Motorola an
injunction based on Apple's unlicensed use of standard-essential
patents, the judge correctly applied the U.S. Supreme Court's
2006 ruling in Ebay v. MercExchange.
More broadly, the agency asserted that injunctions should
not be wielded as a threat in licensing negotiations by holders
of standard-essential patents, which are supposed to encourage
competition by promoting interoperability. In exchange for the
industrywide adoption of their patents, the FTC said, companies
like Motorola commit to licensing their patents on reasonable
and non-discriminatory terms. "However, a royalty negotiation
that occurs under the threat of an injunction may be heavily
weighted in favor of the patentee in a way that is in tension
with the RAND commitment," the agency's brief said. "High
switching costs combined with the threat of an injunction could
allow the patentee to obtain unreasonable licensing terms
despite its RAND commitment because implementers are locked into
practicing the standard." That's particularly true, the brief
said in an argument that echoed Posner's ruling, when the patent
at issue covers just one component of a complex device. Using
the leverage of an injunction in licensing talks "is the essence
of hold-up," the FTC argued.
The FTC's brief is hardly the only encroachment on the
dominion of Motorola's standard-essential patents. As you
probably remember, two different federal district judges have
held that Motorola is obligated by the terms of its agreements
with standard-setting bodies to license its IP to third parties
(such as Apple and Motorola) on reasonable terms. U.S. District
Judge James Robart of Seattle held a bench trial in November todetermine what such terms should be, rejecting Motorola's
attempts to reshape the case. (The company fared better at the
end of Apple's parallel case in federal court in Madison,
Wisconsin, when U.S. District Judge Barbara Crabb decided on the
eve of a bench trial that she wasn't going to go to the trouble
of finding a reasonable rate if Apple wouldn't agree to abide by
her ruling.) But the regulator's firm stance is yet another indication that Motorola's patents may not be as potent as
Google thought when it acquired the company -- particularly
because the FTC is reportedly still deciding whether to bring an
antitrust action against Motorola.
I should point out that the agency wasn't the only amicus to
file a brief at the Federal Circuit in the Apple and Motorola
cross-appeals. Five other amici made appearances. All purported
to support neither party, but only the brief from The Institute of Electrical and Electronics Engineers seems truly non-partisan
and informational. A brief by Cisco, Wal-Mart and several other
big companies asks the Federal Circuit to clarify a standard for
damages that reflects the value of any particular patent to an
entire product; the argument seems to be a slap at Apple, which
has accused other smart-device makers, including Motorola, of
infringing its patents on nifty features. The Intellectual
Property Law Association, on the other hand, argued in its amicus brief that the standard Posner applied in deciding that
Apple hadn't shown its potential damages would, if broadly
adopted, make it impossible for patent holders to prove how much
harm they suffered from infringement. That's a pro-Apple
argument.
Like the FTC, both Verizon and the American Antitrust Institute addressed injunctions based on standard-essential
patents in their amicus briefs. Both agreed with the FTC (and
Apple) that, generally speaking, injunctions shouldn't be
permitted when patent holders have agreed to license their IP on
reasonable terms.
I left a message with Motorola counsel David Nelson of Quinn
Emanuel Urquhart & Sullivan but didn't hear back. Apple's lawyer
in the appeal, Joshua Rosenkranz of Orrick, Herrington &
Sutcliffe, declined to comment.
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