US Antitrust Chief Delrahim Announces Withdrawal from DOJ/USPTO Policy Statement on Remedies for SEPs subject to FRAND

On December 7, the chief of the Antitrust Division at the U.S. Department of Justice (DOJ), Makan Delrahim, announced that the DOJ will be withdrawing from the 2013 USPTO and DOJ joint statement, “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.”  The announcement was part of his speech, titled “Telegraph Road: Incentivizing Innovation at the Intersection of Antitrust and Patent law.”  His speech provides, in part:

. . . In the more recent past, we have seen somewhat of a shift toward the view that patents might confer too much power, particularly if those patents are essential to a technical interoperability standard.  The fundamental right of the patent holder to exclude competitors has been questioned in this context.

In particular, I have criticized the argument that it ought to be a violation of antitrust law for a holder of a standard-essential patent, or SEP, to exclude competitors from using the technology, including by seeking an injunction against the sale of infringing goods—I think that argument is wrong as a matter of antitrust law and bad as a matter of innovation policy. 

. . . When it comes to the test for obtaining injunctive relief against infringement, patent law already strikes a careful balance that optimizes the incentive to innovate, for the benefit of the public.  The test was articulated by the Supreme Court in eBay v. MercExchange.  

. . . A court applying the eBay test is thus allowed to consider effects in the market, including (as Justice Kennedy noted in concurrence) how significant the patented invention is to the use of the product, and whether the patent holder can be properly rewarded for that contribution without the ability to exclude competitors. 

When this test is used to maintain appropriate incentives to innovate, it thus facilitates the goals of antitrust law and patent law alike. 

I fear that we at the Antitrust Division gave some observers the opposite impression, however, with the confusion created by the joint statement issued by the Department of Justice and the U.S. Patent & Trademark Office in early 2013, entitled “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.” 

That Policy Statement purported to offer the agencies’ perspectives on the propriety of a federal court issuing an injunction, or the International Trade Commission’s issuing an exclusion order, “when a patent holder seeking such a remedy asserts standards-essential patents that are encumbered by a RAND or FRAND licensing commitment.”  In particular, the statement discusses what is in the “public interest” because the eBay test and the Tariff Act governing the ITC name the public interest as a relevant factor.

As I have said before, this joint statement should not be read as a limitation on the careful balance that patent law strikes to optimize the incentive to innovate.  There is no special set of rules for exclusion when patents are part of standards.  A FRAND commitment does not and should not create a compulsory licensing scheme.  

In those cases, as in all cases, the question is what result will optimize the incentives to innovate for the benefit of the public.  Since injunctions against infringement frequently do serve the public interest in maintaining a patent system that incentivizes and rewards successful inventors through the process of dynamic competition, enforcement agencies without clear direction otherwise from Congress should not place a thumb on the scale against an injunction in the case of FRAND-encumbered patents. 

Despite my clarification of the Antitrust Division’s position on the propriety of these types of injunctions, the potential for confusion remains high because the joint statement from 2013 indicates that an injunction or exclusion order “may harm competition and consumers,” seeming somehow to suggest an antitrust inquiry that is distinct from the goal of optimizing the incentives for innovation—namely, dynamic competition.  

This potential for confusion has lead me to a conclusion that I would like to announce here today, in the interest of clarity and predictability of the laws, and among the patent law community with whom we share the goal of incentivizing innovation: The Antitrust Division is hereby withdrawing its assent to the 2013 joint “Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments.”

The 2013 statement has not accurately conveyed our position about when and how patent holders should be able to exclude competitors from practicing their technologies.  We will be engaging with the U.S.P.T.O. to draft a new joint statement that better provides clarity and predictability with respect to the balance of interests at stake when an SEP-holder seeks an injunctive order.

Any discussion regarding injunctive relief should include the recognition that in addition to patent holders being able to engage in patent “hold up,” patent implementers are also able to engage in “hold out” once the innovators have already sunk their investment into developing a valuable technology.  Additionally, 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.  That is the topic I want to turn to next.

Although standard-setting organizations can undoubtedly offer enormous benefits to consumers, there are antitrust risks associated with any activity that involves competitors making joint decisions.  When there is evidence that participants in a standard-setting organization have engaged in collusion, which is the “supreme evil” of antitrust law, according to the Supreme Court in Trinko, the Division will be inclined to investigate. 

For instance, there is a potential antitrust problem where a group of product manufacturers within a standard-setting organization come together to dictate licensing terms to a patent holder as a condition for inclusion in a standard because it may be a collective exertion of monopsony power over the patent holder.  . . . 

The Antitrust Division will therefore investigate and bring enforcement actions to end practices that eliminate the independent centers of decision-making and thereby harm competitive processes, including price competition and innovation competition.  Often a single maverick firm may be willing to take a chance on a new and innovative technology or business model that the rest of its competitors would rather see killed off in its incipiency.  Antitrust law recognizes the consumer benefit of those entrepreneurial and innovative tendencies and their vulnerability to collusion.

Although there are certain best practices for guarding the process of standard setting against such abuses, we are concerned that some standard-setting organizations may not even attempt to adopt these safeguards.  

. . . Calling your meetings a standard-setting organization, or even in fact publishing some standards necessary for interoperability, is not a free pass for coordination designed to reduce common competitive threats or forestalling innovative developments in the industry that put a legacy business model at risk.

… Patent policies affect the incentives for innovation.  If an SSO’s policy is too restrictive for one side or the other, it also risks deterring participation in procompetitive standard setting. 

Just as competition in the marketplace results in better outcomes for the consumers of goods and services, competition among standard-setting organizations to adopt better patent policies can result in better outcomes for the consumers of standard-setting activities (that is, for the participants themselves). 

It is for this reason that we will take a dim view of any coordinated effort by competitors to stifle competition among standard-setting organizations, including competition to offer the patent policy that brings the most participants to the table.  For instance, competitors would come under scrutiny if they orchestrated a group boycott of an SSO with a patent policy that is unfavorable to their commercial interests. 

The U.S. Industrial (Technology) Military Complex is Alive and Well: Microsoft and the Defense Innovation Unit

The LA Times recently published an article titled, “Microsoft will Give the U.S. Military Access to ‘All the Technology We Create'.”  The article discusses Microsoft’s recent announcement as well as the tension in some U.S. technology companies concerning working with the U.S. military.  For example, some Google employees have expressed displeasure with Google’s decision to work with the U.S. military.  The article notes that:

The Defense Department has established the Defense Innovation Unit, which is intended to provide capital — without taking an ownership stake — to companies that want to work on prototype projects that help address problems faced by the U.S. military.

The Defense Innovation Unit’s website is here.  The Defense Innovation Unit focuses on five areas: artificial intelligence, autonomous systems, human systems, information technology and space.  Their team includes: “about 75 military and civilian personnel. Prior to joining DIU, we’ve launched and sold companies backed by tier-1 VCs; led teams at the Joint Staff, the Office of the Secretary of Defense, and the White House; served with our military around the world; and helped build some of Silicon Valley's most iconic companies.”  Notably, the program is built around speed—a contractor will know if they have a “pilot” agreement within 30 days with a quick follow-through for a more involved contract.  The 2017 Annual Report states the mission of the Defense Innovation Unit:

The U.S. Department of Defense (DoD) established Defense Innovation Unit Experimental (DIUx) to accelerate commercial innovation to the warfighter in order to meet the changing demands of today’s strategic and technological environments. The Department’s 2018 National Defense Strategy (NDS) boldly acknowledges that our nation’s military-technical advantage is eroding as our competitors and adversaries have the same access to the global technology marketplace driving innovation. Without significant changes to DoD’s acquisition culture and processes, the U.S. military will continue to lose its long-held technological superiority.

Military-technical competition is dramatically different from past decades when key technologies were developed in government labs, often exclusively for military use. A technology first-mover up until the end of the Cold War, DoD must now adopt a fast follower posture to keep pace with commercial refresh cycles. The commercial sector leads the way in many cutting-edge areas from artificial intelligence to autonomous systems to space, the convergence of which generates the prospect of dramatic changes to the character of warfare. The implications of global access to advanced commercial technology are visible in today’s conflicts and the loss of exclusivity means the likelihood of technological surprise is far higher.

It is DIUx’s mission to lead DoD’s break with past paradigms of military-technical advantage to become fast adapters -- as opposed to sole developers -- of technology, integrating the advanced commercial capabilities necessary for strategic advantage. In this hyper-competitive environment, DoD needs to prioritize speed of delivery, rapid and modular upgrades, and quick operational adaptation on the battlefield. Success in this new era of military-technical competition no longer goes to those who seek the most exquisite systems, but rather to those who move fast and think creatively.

Headquartered in Mountain View, CA, with offices in Central Texas (Austin); Boston, MA; and in the Pentagon. . . . 

On intellectual property, the Frequently Asked Questions page states:

How is intellectual property treated and protected?

Prior to the start of a project, it is important that a company identify rights in pre-existing data. In general, companies retain ownership of IP assets created during the effort. DoD is usually licensed certain rights to use these assets in accordance with the agreed OT (i.e., pilot contract) terms and conditions. These rights control, inter alia, how DoD can use, disclose, or reproduce company-owned proprietary information.

What are the different ways IP is licensed under an OT agreement (i.e., pilot contract)?

Unlimited Rights. These give DoD the ability to use, disclose, reproduce, prepare derivative works, distribute copies, and perform publicly, in any manner and for any purpose, and to have or permit others to do so (absent any separate security classification or export control restriction). We usually don't need this and do not anticipate awarding any OT agreements (i.e., pilot contracts) with unlimited rights.

Government Purpose Rights. These give DoD the ability to use, modify, reproduce, release, perform, display, or disclose data only within the Government (including competitive re-procurement). However, DoD cannot release the data for any commercial purpose.

Limited Rights. DoD may use the company’s data, other than computer software, within DoD but not release the data outside of DoD except in limited circumstances. DoD may not use the data for manufacturing additional quantities of the item. Data may not be released without company permission/associated nondisclosure agreement.

Restricted Rights. These apply to noncommercial computer software only. DoD may only run the software on one computer at a time, and may make only the minimum copies needed for backup. The software may not be released outside of DoD except with company permission/associated nondisclosure agreement.

Northwestern Releases Technology Standards and Standard Setting Organizations Databases and Congratulations to Dr. Roya Ghafele!

Northwestern University, Pritzker Law School, has released three databases on technology standards and standard setting organizations.  The announcement states:

The Searle Center on Law, Regulation, and Economic Growth is pleased to announce the release of three important databases on Technology Standards and Standard Setting Organizations (SSOs). The databases are available free of charge for all academic researchers.

The first database, known as the Searle Center Database on Technology Standards and Standard Setting Organizations, created by Justus Baron and Daniel F. Spulber, contains original data on the rules and membership of SSOs, and bibliographic information on published technology standards (including an original database of normative and informative references between standard documents).

The second database, created by Justus Baron and Tim Pohlmann (IPlyitics), contains the currently most comprehensive database of declared standard-essential patents (SEP) and the first detailed mapping of declared SEPs to a systematic dataset of standard documents.

The third database, created by Justus Baron and Kirti Gupta (Qualcomm), includes detailed procedural data on standard development at an important SSO, the 3rd Generation Partnership Project 3GPP.

The three databases are inter-related, and share a common system of identifiers for standards and firms to facilitate research applications combining the various databases.

Under the direction of Daniel F. Spulber, (Kellogg School of Management, Northwestern University, and Research Director of the Searle Center), the Searle Center's Research Project on Innovation Economics addresses a broad range of important issues involving intellectual property (IP), research and development (R&D), the market for inventions, innovation, and technology standards.

For details on the databases and the Searle Center's ongoing Research Project on Innovation Economics Project please visit: http://www.law.northwestern.edu/searlecenter/innovationeconomics
Papers describing the databases can be found at the following links:

- Justus Baron and Daniel Spulber: Technology Standards and Standard Setting Organizations: Introduction to the Searle Center Database, Northwestern Law & Econ Research Paper No. 17-16. Available at SSRN: https://ssrn.com/abstract=3073165 or http://dx.doi.org/10.2139/ssrn.3073165, forthcoming Journal of Economics and Management Strategy, 2018.

- Justus Baron and Kirti Gupta: Unpacking 3GPP Standards. forthcoming Journal of Economics and Management Strategy, 2018.

- Justus Baron and Tim Pohlmann: Mapping Standards to Patents Using Declarations of Standard-Essential Patents, forthcoming Journal of Economics and Management Strategy, 2018.

Please see the following instructions to receive access to the database:

- The three Searle Center databases are intended only for academic research. Commercial and or for-profit research is strictly prohibited.

- Prior to being granted access to the databases, all academic researchers must first compete a Data License Agreement (DUA).

- The DUA is available for download here: http://bit.ly/searlessodua
- Once requestor has filled out the required fields and signed the DUA, email a scan of the DUA to searlecenter@law.northwestern.edu

- Please note that a PDF electronic signature on the DUA is acceptable.

- All research assistants or research personnel that will have access to the data must also complete DUA's.

- Once we receive your signed DUA, we will verify that your application fits the criteria listed above. If we conclude that it does, we will then send you a link to a Box Folder where all of the files and supporting documents will be permanently hosted. You may have to create a Box account in order to access the databases.
. . .

The databases release is apparently for academics.  My guess is that others can access the databases for a fee. 

Congratulations to Oxfirst’s Dr. Roya Ghafele on joining the EU Commissions’ Group of Experts on Licensing and Valuation of Standard Essential Patents!  According to the press release:

The purpose of the expert group is to ‘deepen the expertise on evolving industry practices related to the licensing of standard essential patents in the context of the digitalisation of the economy, the sound valuation of intellectual property and the determination of fair, reasonable and non-discriminatory ("FRAND") licensing terms.’ The Expert Group’s importance to European and international governance formulation on FRAND is widely recognized. The Expert Group will address a host of complex issues pertaining to patents that read on standards, as already set out in 2017 in the E.C.’s ‘Communication from the Commission to the Institutions on Setting out the EU approach to Standard Essential Patents.’

USPTO Director Iancu Calls for Change of Focus in so-called "Patent Troll" Debate

USPTO Director Iancu recently gave a speech in Texas concerning the debate involving innovation and patent enforcement by so-called "patent trolls" in the United States.  Notably, he lauds risk takers and innovators, and states that the patent troll narrative is designed to stifle innovation by essentially creating fear about participating in innovation.  He wants to focus on the positive stories of innovation.  He doesn’t appear to take the position that patent trolls (or patent assertion entities) do not abuse the patent system; just that we should focus on the positive by keeping in mind how far we’ve come from an innovation perspective.  He gets pretty close though.  Here’s a relevant portion of his speech:

Anyone could invent in America and everyone was incentivized by our constitutional patent system to do so. And incentivized they were. And invent they did. And the results have been remarkable.

Our constitutional patent system has given rise to a spark of ingenuity and development the magnitude of which humanity has never before known. Electricity and the telephone; the automobile and the airplane; recombinant DNA and DNA synthesis; the microprocessor, genetics and cancer treatments. And so much more. And all of it done with American patents.

Edison, Bell, and the Wright Brothers; Boyer and Cohen and Caruthers; Ted Hoff and Frances Arnold. These are inventors whose work we should celebrate. And theirs are the stories we should tell. Not scary monster stories.

Repeatedly telling “patent troll” stories is indeed odd, especially when they’re being told to the people who have been responsible for the greatest advances in human history.

The narrative must change. And, at least as far as the USPTO is concerned, it has now changed.

We are now focusing on the brilliance of inventors, the excitement of invention, and the incredible benefits they bring to all Americans and to the world.

Take, for example, Bob Metcalfe, currently a professor of innovation and Murchison Fellow of Free Enterprise at the University of Texas in Austin.

By the age of 10, Bob knew he wanted to become an electrical engineer and attend MIT. He did. And followed that up with a master’s and Ph.D. from Harvard. In 1972, Bob began working at Xerox’s Palo Alto Research Center, where he met electrical and radio engineer D.R. Boggs.

With Boggs, Bob invented what came to be known as the Ethernet, the local area networking (LAN) technology that turns PCs into communication tools by linking them together. Today, more than a billion Ethernet-based devices are shipped every year. And then, in 1979, at the height of his career, Bob took a huge risk and left the comfort of Xerox and founded 3Com Corporation.

An inventor on many U.S. patents, Bob was awarded the National Medal of Technology by President George W. Bush in 2003 for his leadership in the invention, standardization, and commercialization of Ethernet. And in 2007, he was inducted into the National Inventors Hall of Fame.

Bob told us recently: “Rapid execution and patents are probably the two major defense mechanisms against the vicious status quo, which is out to crush you.”

Innovation and IP protection have indeed always been America’s mechanisms for progress in the face of the “vicious status quo.”

Take as another example Susann Keohane, IBM Global Research Leader for the Aging Initiative, another Texas-based inventor. Her inventions combine cognitive technology, the Internet of Things, and other emerging technologies to improve quality of life for people with disabilities and the aging population.

Susann is an IBM Master Inventor who holds 114 U.S. patents. And, importantly, she told me she is working on more!

This is the American patent system. These are the heroes who have taken risks to make something new and to change the world. Theirs are the stories that must drive our patent policies.

Because in this country, we want people to take risks. Like Susann and Bob, we want folks to leave their comfort zones and step into the forests of discovery and innovation. We want folks to step out of their lanes and try big, bold, new things. And scaring them with ugly monster stories does precisely the opposite; it drives towards policies that inhibit innovation.

Remarkably, in what I believe amounts to Orwellian “doublespeak," those who’ve been advancing the patent troll narrative argue that they do so because they are actually pro-innovation. That by their highlighting, relentlessly, the dangers in the patent system, they actually encourage innovation. Right!

After hearing about the Big Bad Wolf eating Little Red Riding Hood and her Grandma, would kids be more eager to go into the woods and more eager to take risks? Come on! What encourages more innovation? Susann Keohane, Bob Metcalfe, Thomas Edison, the Wright Brothers, Frances Arnold—or scary monster stories?

What encourages more folks to take risks and become entrepreneurs and inventors? Is it stories highlighting the success of risk-taking and the personal and public gratification of invention, or is it stories highlighting green monsters under bridges and the faults in the patent system?

Look, people are free to express any point of view, and they can certainly advocate for weakening our patent system. But they should be up front about it. Those who spend their time and money relentlessly preaching the dangers of monsters lurking under the innovation ecosystem, and who work exclusively to identify only faults in the system, are unconvincing when they argue that they are doing so for purposes of increasing innovation.

Certainly, innovation and entrepreneurship are risky. And certainly every system has faults, and we must be vigilant about identifying and eliminating abuses when they arise. I am personally committed to doing so. But for any system to be successful, it cannot focus exclusively on its faults. Successful systems must focus on their goals, successes, and aspirations.

Focusing exclusively on selected, known problems has damaging consequences.

The Issue with China and the United States: What to do about the theft of industrial trade secrets?

The Washington Post Editorial Board recently published an opinion piece, titled “The U.S. must take action to stop Chinese industrial espionage,” which strongly condemns China’s alleged theft of trade secrets.  The Editorial Board pointed to the recent indictment concerning DRAM trade secrets allegedly stolen from Micron, a U.S. based company.  The piece notes that a worker from Micron joined a state-supported Chinese company along with other employees--carrying with them trade secrets.  The editorial ends with the statement that, “In the end, China will only respond to compulsion.”  This is a powerful indictment of China from one of the leading newspapers in the United States.  The editorial can be found, here.  

The question is what are the next steps to exercise “compulsion."  This situation is somewhat different than the Chinese government requiring the disclosure of trade secrets for essentially market access to China. Indeed, even for non-state owned Chinese companies, my understanding is that the Chinese government is involved in technology development even in early stages and exercises a veto power over the direction of technology development. Recently, the Chinese government announced a ban on all new computer games in China.  As I've mentioned in a prior post, this could be a case of rogue Chinese employees attempting to become wealthy who may not be acting with express approval of the Chinese government; although perhaps with tacit approval of the government or willful blindness of the government.  Of course, this ultimately is to the great benefit of China.  However, what is our response?  That is the very difficult question the editorial does not address.  We all know there is an issue.  

Moreover, the problem with trade secrets is that once they are disclosed it is very hard if not impossible to put them back in the box.  Once we've lost it; it's likely lost irrevocably.  And, I don't think putting a few people in prison is going to provide much general deterrence to similar behavior.  Will we start seizing assets--does it matter from whom?  That seems unlikely to be smart--our interests are so intertwined now.  As I've mentioned before, will we attempt to ban all Chinese citizens from working or studying in the United States?  Is that in the best interest of our country?  That may not stop the bleeding of information through cybertheft.  More tariffs?  Does that work?

USPTO Discards Broadest Reasonable Interpretation Standard

The USPTO has discarded the broadest reasonable interpretation standard.  This may lead to fewer patents held to be invalid during IPR, PGR, and CBM proceedings.  The announcement states: 

The United States Patent and Trademark Office (USPTO) has published a final rule changing the claim construction standard applied during inter partes review (IPR), post-grant review (PGR), and the transitional program for covered business method patents (CBM) proceedings before the Patent Trial and Appeal Board (PTAB). 

The final rule replaces the “broadest reasonable interpretation” standard with the federal court claim construction standard that is used to construe a claim in a civil action under 35 U.S.C. § 282(b). This is the same claim construction standard articulated in Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir. 2005) (en banc), and its progeny. Additionally, under the final rule, when construing a claim term in an IPR, PGR, or CBM, the PTAB will take into consideration any prior claim construction determination that has been made in a civil action, or a proceeding before the International Trade Commission (ITC), if that prior claim construction is timely made of record in that IPR, PGR, or CBM.

. . . As noted in the rule package, the change will lead, among other things, to greater consistency and harmonization with the federal courts and the ITC and lead to greater certainty and predictability in the patent system. . . .  Several comments questioned the proposed “retroactive” application of the rule. In response to these comments, the final rule will not be retroactively applied and instead will apply only to IPR, PGR, and CBM petitions filed on or after the effective date of the final rule, which is November 13, 2018.

University of California Office of Innovation and Entrepreneurship Opens Liaison Office in Beijing

The University of California [UC] has opened a “liaison office” in Beijing to provide opportunities for UC startups to access China’s large market for products and services as well as its venture capital market.  The press release states, in part:

Office Opening

In June, 2018, UC’s Office of Innovation and Entrepreneurship (I&E) established a liaison office in Beijing at TusStar, a leading tech incubator and early-stage investment fund. The key objective of this liaison office is to provide business development and business-matching services as well as overall administrative support to UC startups looking to expand their business in China.

TusStar operates over 160 incubators globally; it has deployed over $2 billion in investment capital since 2001.  It is owned by Tus Holdings, a large integrated enterprise with 500+ subsidiaries and $15+ billion in investment capital.  

The new UC office will be located inside TusPark, the largest science park in Zhongguancun, the “Silicon Valley hub” of Beijing where multinational tech companies, such as Google, are based. 

Key Objective

The creation of this new office and relationship with TusStar will help UC startups connect with resources to market their products to Chinese customers, find additional sources of investor funding, connect with strategic manufacturing and distribution partners, and network with other UC alumni and UC entrepreneurs in China.

The Beijing office will also provide UC’s Office of Innovation and Entrepreneurship with the necessary business network and program support to coordinate alumni events and other programs connecting with Chinese investors and industry partners, i.e., cross-border tours, pitch competitions, conferences, forums and symposiums.