Justice Department Exits Joint Patent Policy with PTO (1)

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By Kyle Jahner (Bloomberg Law) and Susan Decker (Bloomberg)

The Department of Justice has withdrawn from a joint policy with the Patent and Trademark Office on standard-essential patents.

The 2013 agreement, in which the two agencies said it should be difficult for patent owners to block sales or imports of products based on their use of patents in industry standards, no longer reflects the department’s policy on anticompetitive behavior, Assistant U.S. Attorney General Makan Delrahim said in a Dec. 7 speech in Palo Alto, Calif.

Delrahim, the department’s antitrust chief, said his division will work with the PTO to replace the policy.

The 2013 guidelines were issued at the height of the so-called smartphone war, when all the major manufacturers of handheld devices were filing patent-infringement complaints against each other.

Companies get together to establish standards to insure devices can work with each other—for instance, so a photo taken on a Samsung phone can be received and viewed on an Apple phone or an Amazon Kindle. Since there’s an advantage to having an invention included in the standard, group members pledge to license relevant patents on “fair, reasonable and non-discriminatory terms.”

Most standard-setting boards purposefully avoid defining what that term means and what royalty rates are proper, leaving the companies to figure it out among themselves. Every industry has its own standard, and usually it works, but sometimes courts get dragged in when two sides, particularly in mobile device manufacturing, can’t agree on a fair price. Big tech companies like Google and Apple have argued patent holders abused the benefits of the standard to extract more money.

A PTO spokesman declined a Bloomberg Law request for comment. Current Director Andrei Iancu has said the agency and the courts have gone too far in weakening patent rights, and that standard-setting boards should develop their own policies “independently and without government intervention.’'

Hold Up vs. Hold Out

Delrahim has frequently criticized existing antitrust policy for focusing too much on stopping patent holders from extracting inflated royalties. Delrahim has said courts and other tribunals also must consider the issue of “patent holdout,” where users of patented technology refuse to pay anything in the expectation that they can use the legal system and the backing of regulators to force patent owners to accept lower royalties.

His speech withdrawing from the 2013 guidance said evidence indicates standards organizations have engaged in collusion, the “supreme evil” of antitrust law. While standards organizations’ own safeguards can help, they must be enforced, he said.

“We are concerned that some standards-setting organizations may not even attempt to adopt these safeguards,” Delrahim said. He also said that “a balanced discussion should recognize that some standard-setting organizations may make it too easy for patent implementers to bargain collectively and achieve sub-optimal concessions from patent holders that undermine the incentive to innovate.”

Courts around the world have struggled to find the line for when a patent owner of a fundamental technology can block someone from using their invention, by receiving sales or import bans. The issue has split companies, generally between those who develop fundamental technologies and those who use them.

Many of the smartphone war disputes were focused within the U.S. International Trade Commission, which has the power to block imports of products into the U.S.

The U.S. Federal Trade Commission had said no injunctions should be granted when standard-essential technology is involved. The DOJ and patent office guidelines were a softer version, laying out what should be considered before imports are blocked but agreeing that, generally, such bans aren’t in consumers’ best interest.

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