Wednesday, 24 March 2021

The Role of Standards and Patents in the Era of Artificial Intelligence

 

Key Take Away

AI systems label a specific model of innovation that benefits from a wide range of contributors; be they inside or outside the firm. The role of patent law as an organizational principle of this type of ‘networked innovation’ remains yet to be adequately governed. In AI business thrives because of the interconnected framework in which it is embedded in.

 The technological transformations enabled have triggered drastic modifications of the nature of economic exchange; making novel ways of doing business possible; not necessarily by owning devices protected by patents, but by owning access to a multitude of devices and facilitating easy interacting and exchange between them. Hence, the classical value proposition, whereby a single invention is protected through patent law and by consequence its owner has the right to exclude third parties from accessing it may risk to harm the nurturing eco system emerging from the standardization process.[1] In that regard, public policy formulation will need to play a major role, so to provide a governance structure that allows all players, be they large or small, to succeed. In particular it will require to study at greater length the role that patents that read on standards will and can play in this promising ecosystem.

 This new economic context asks for a differentiated governance structure that assures in particular the functioning interplay between patents and standards. Against this background, this proposal suggests that the role of the FRAND (fair, reasonable and non-discriminatory) commitment should be further studied. Within a UK context in particular, it should be discussed to what extent it would not be appropriate to run another ‘Heargraves Review’ that addresses in greater detail the role of standard essential patents in the novel business environment provided by AI.

The Novel Economic Framework Provided by Artificial Intelligence

AI is still at its early stage and the opportunities it can offer have not even been seized yet to its full extent. At present, we do not even know the many different creative ways in which entrepreneurs will take AI forward. Entrepreneurs are experimenting with leveraging the AI in areas as vast as fashion or primary healthcare. Which businesses will ultimately prove viable remains still to be seen. AI is also big business. Investors expect growth rates as high as 20%.

In AI it is not the single device that creates value, but the ability to connect a sheer infinite number of devices with each other. The worth relies in the continuous expansion of the connection. It is the interconnectivity that creates value, not just the simple ownership of a single device.

At present most connected devices or telecom networks are controlled by humans. However, a key feature of the AI is that devices will be controlled by other devices (the controllers).  These again can be classified in various ways, so to reflect the specific features of the controller. In the networked architecture of the AI various devices are at the same time receivers and suppliers of information; making it increasingly difficult to untangle the net of who provides and who receives proprietary technology and who adds value to the technology. 

 As such, Artificial Intelligence is a prototypical technology space, where Small and Medium Sized Enterprises (SMEs), universities and their spin-outs as well as big corporations alike could constitute a fruitful innovation ecosystem. All these players could thrive in the spirit of collaborative exchange, so to collectively re-invent the future of society, provided that adequate foundations are set for the role of patents within the context of AI.

 

The Need for Standards

Standard setting will be instrumental for the success of AI. It is only through a common language, the adoption of an interoperable and connected system that the wide spread use of AI can succeed. The process of standardisation will enhance innovation efficiency because it enhances compatibility and increases the credibility of technological solution. This standardisation process will likely be highly beneficial to the widespread dissemination of AI.

The success of a standard is based on its wide dissemination; its value derives from its vast usage. This stands in sharp contrast to patents, which are negative rights built around exclusivity. Contrary to a standard, the value of a patent derives from its strength to exclude to the best extent possible third parties from using it; unless obviously a third party is willing to pay for its usage.  

This is why the inherent dilemma between patents and standards is hard to overcome. It is a tension between ‘free access and tight control.[2]’ This tensions is well pronounced in the standard essential patents debate. A patent declared essential to a standard is a strange hybrid that combines patent laws’ negative right’s aspect with a standard’s capability to disseminate a technology as wide as possible. As this formula bears the potential to accrue exceptional market power in the hands of patent owners, while at the same time rendering access to proprietary technology potentially very expensive, the (F)RAND (fair, reasonable and non- discriminatory) promise was introduced.

 The (F)RAND rationale at its the core seeks to counter anti-competitive aspects of the licensing of standard essential patents. The (F)RAND commitment obligates SEPs owners to make their patents available on fair, reasonable and non-discriminatory terms. The reason why it does this, is because in the absence of doing so, there is a strong concern that opportunist behaviour can arise and by consequence competition in technology markets can be distorted.

 Due to technical standard setting, there often arise only a handful of patent holders in a particular standard.  This may be due to first mover advantages or because some firms have the necessary innovation capabilities to capture the patent landscape.  It is alleged that these patent holders – having claimed an important position in the patent landscape – can charge abnormally high licensing rates to standard essential patent implementers; a phenomenon known as hold up.

 Alongside those undesired consequences, royalty stacking can be another means to prevent downstream innovation. Royalty stacking can be defined as ‘situations in which a single product potentially infringes on many patents, and thus may bear multiple royalty burdens. The term 'royalty stacking' reflects the fact that, from the perspective of the firm making the product in question, all of the different claims for royalties must be added or 'stacked' together to determine the total royalty burden borne by the product if the firm is to sell that product free of patent litigation.’[3]

 Research Questions

Nonetheless the (F)RAND commitment translates into an insufficiently complete contract between licensors and licensees. This is because of a built-in ambiguity over what “fair, reasonable and non-discriminatory” means; an ambiguity that is not addressed by means of the policies themselves but is expected to be resolved by “others”. This has led commentators such as Swanson & Baumol to argue that the (F)RAND commitment is of limited value in the absence of objective benchmarks that make clear the concrete terms or range of terms that are deemed to be reasonable and non- discriminatory.[4] This vagueness can lead to abuse and antitrust issues.[5]  The situation is furthermore complicated by clandestine licensing markets and the absence of publicly available royalty rates that could be used as benchmarks to determine the value of a royalty rate of a SEPs.

 

Further issues pertain to a lack of clarity on ownership and distribution of patents that read on standards. Equally, there is lack of consistency as it pertains to the valuation of standard essential patents. Lack of clarity can also lead to a host of other unresolved challenges, such as negotiations taking potentially place in the shadow of the law and potential asymmetrical bargaining power between SEPs owners and downstream innovators.

Against this background, it is suggested to study the following issues further:

 1)      Valuation of standard essential patents

2)      Clarity on ownership and numbers of standard essential patents

3)      Exploring ways to enhance transparency in markets for standards essential patents by making the licensing rates and licensing contracts publicly available

 



[1] European Patent Office. (2007). Scenarios for the future: how might IP regimes evolve by 2025? What global legitimacy might such regimes have? Europ√§isches Patentamt. See “Blue Skies” scenario

[2] Miller, J. S. (2006). Standard setting, patents, and access lock-in: RAND licensing and the theory of the firm. Indiana Law Review, 40, 2007-6., at P.6

[3] Lemley, M. A., & Shapiro, C. (2006). Patent holdup and royalty stacking. Tex. L. Rev., 85, 2163.

[4] Swanson, D. G., & Baumol, W. J. (2005). Reasonable and non-discriminatory (RAND) royalties, standards selection, and control of market power. Antitrust Law Journal, 73(1), 1-58. At p.5

[5] Lemley, M. A. (2002). Intellectual property rights and standard-setting organizations. California Law Review, 1889-1980; Miller, J. S. (2006). Standard setting, patents, and access lock-in: RAND licensing and the theory of the firm. Indiana Law Review, 40, 2007-6., at P.11. In ‘Rambus Inc. v. Infineone Technologies. 318 F.3d 1081 (Federal Circuit 203) cert. denied 540 US 874 (2003)’ the inherent uncertainty of the (F)RAND agreement played also a major role. Cited according to Miller (2006)

Monday, 8 March 2021

U.S. National Security Commission on Artificial Intelligence Report: Patent Eligible Subject Matter Reform on the Horizon

The U.S. National Security Commission, chaired by Eric Schmidt, has released its final report, over 750 pages, titled, National Security Commission on Artificial Intelligence.  The Report outlines how the United States may be falling behind on certain artificial intelligence research, particularly compared to China.  The opening letter from the Chair states:

The AI competition is also a values competition. China’s domestic use of AI is a chilling precedent for anyone around the world who cherishes individual liberty. Its employment of AI as a tool of repression and surveillance—at home and, increasingly, abroad—is a powerful counterpoint to how we believe AI should be used. The AI future can be democratic, but we have learned enough about the power of technology to strengthen authoritarianism abroad and fuel extremism at home to know that we must not take for granted that future technology trends will reinforce rather than erode democracy. We must work with fellow democracies and the private sector to build privacy-protecting standards into AI technologies and advance democratic norms to guide AI uses so that democracies can responsibly use AI tools for national security purposes.

The Chair’s letter further provides numerous proposals for the United States, including White House level leadership, talent pipelines and chip manufacturing in the United States.  Surprisingly to me ,the Report only calls for a $40 billion investment initially in Artificial Intelligence research.  I wonder why the number is so low.  The Chair’s letter does note that they envision hundreds of billions of dollars of investment in the future.  Notably, the Executive Summary points to a significant issue with United States policy:

Implement comprehensive intellectual property (IP) policies and regimes. The United States must recognize IP policy as a national security priority critical for preserving America’s leadership in AI and emerging technologies. This is especially important in light of China’s efforts to leverage and exploit IP policies. The United States lacks the comprehensive IP policies it needs for the AI era and is hindered by legal uncertainties in current U.S. patent eligibility and patentability doctrine. The U.S. government needs a plan to reform IP policies and regimes in ways that are designed to further national security priorities.

Chapter 12 is dedicated to intellectual property policy.  Some hot button issues for reform include: patent eligible subject matter, IP protection for data and the standard essential patent process.  Trade secrets may not do the job--especially with weak cybersecurity.  The Report also notes: “Lastly, as further evidence that China views IP as essential in its domestic economic development, China continues to pervasively steal American IP-protected technological advances through varied means like cyber hacking of businesses and research institutes, technological espionage, blackmail, and illicit technology transfer.”  The report also points to the need for cybersecurity improvements.  

A Very Large Patent Infringement Verdict: Over US $2.1 billion

In news that has raced across general as well as patent specific news, a Texas jury has awarded VLSI Technology over US $2.1 billion for patent infringement (two patents)--the defendant is Intel.  Of course, this will be subject to post trial motions as well as appeals. We'll have to wait and see if it sticks.  However, I am sure it has other patent holders licking their lips with the prospect of big payouts from Texas juries (this will make a nice addition to that PowerPoint presentation).  

Thursday, 4 March 2021

New Book: Cybersecurity Law: An Evolving Field

In December of 2020, my coauthor, Jack Hobaugh, and I published teaching materials in a casebook concerning Cybersecurity Law with West Academic Publishing [available, here].  I will likely include additional cybersecurity and privacy material as part of the content of the IP Finance blog because of the growing importance of that area of law as demonstrated, in part, by the recent U.S. Government Accounting Office Report discussed below.  Here is a short description of the book:

Cybersecurity Law: An Evolving Field is a casebook that covers the duties of a cybersecurity professional, state and federal regulation, risk assessment and the NIST Risk Assessment Frameworks, common law and statutory causes of action concerning data breach, laws related to anti-hacking, problems concerning the Internet of Things and selected international issues. This text is for law students and counsel who want to understand the connections between cybersecurity laws and cybersecurity requirements, and advise clients concerning cybersecurity related issues. In part, it seeks to bridge the communication gap between the legal department and the cybersecurity team.

In addition, here are some reviews of the book:

“Jack Hobaugh and Michael Mireles have created a masterful work addressing the laws on cybersecurity and data privacy litigation. The casebook is an incredibly comprehensive treatment of these subjects and is an essential resource for students, cyber professionals and lawyers who practice in this area or who seek a basic understanding of the law and issues in these emerging areas. The book is well written and addresses with clarity the hot topics of today and for years to come. I keep the book within arm’s reach as it has become essential in my legal practice as a privacy advocate.”
—John A. Yanchunis, Head of Class Action Department, Morgan & Morgan

Cybersecurity Law: An Evolving Field is a terrific casebook that provides a comprehensive understanding of cybersecurity law. Cybersecurity law is a diverse and fragmented body of law, but the casebook pulls everything together in a clear and well-organized way. The casebook includes background about cybersecurity frameworks, and its focus and approach is practical and wide-ranging. This book also serves as a highly-useful resource on the topic, as it includes a large array of materials with extensive background sections and insightful notes.”
—Daniel J. Solove, John Marshall Harlan Research Professor of Law, George Washington University Law School

The Government Accounting Office of the United States has released its High Risk Series Report on March 2, 2021, which reviews areas of and subjects concerning the U.S. Government needing leadership to address series problems.  The Report points to cybersecurity as a serious concern and notes that there has been a “regression” in cybersecurity in the U.S. Government since 2019.  The Report states: “This regression is due to missing (1) important characteristics of a national strategy in the White House’s September 2018 National Cyber Strategy and the National Security Council’s accompanying June 2019 Implementation Plan and (2) an officially appointed central leader for coordinating the execution of the White House’s approach to managing the nation’s cybersecurity.”  Moreover, the Report identifies several other issues concerning cybersecurity:

Based on our prior work, we have identified four major cybersecurity challenges:

  • establishing and implementing a comprehensive cybersecurity strategy and performing effective oversight,
  • securing federal systems and information,
  • protecting cyber critical infrastructure, and
  • protecting privacy and sensitive data.

 

EIPO and EPO Study on Financial Impact of Patents, Design Rights and Trademarks

The European Intellectual Property Office and the European Patent Office conducted a joint study analyzing the impact of patents, design rights and trademarks on firms.  Interestingly, the study finds that firms with patents, design rights and trademarks pay more to employees and generate more revenue per employee than those firms without those rights.  Notably, firms with patents outperform firms with only design rights or trademarks in both areas: employee pay and employee generated revenue.  Interestingly, firms with combined trademarks and design rights, or combined patents and trademarks, or combined patents, trademarks and design rights, outperform firms only with patents in revenue generated per employee. 

The Executive Summary notes:

The positive association between IPR ownership and economic performance is particularly strong for SMEs. At the same time, less than 9% of SMEs in the sample own one of the three IP rights included in the study. The reasons for the low uptake are explored in the EUIPO survey of European SMEs (EUIPO, 2019). This study (as well its earlier edition from 2015) indicated that barriers faced by SMEs include lack of knowledge about IPRs, a perception that registration procedures are complex and costly, and the high cost of enforcement of those rights, a particular burden for SMEs (EUIPO, 2017). Given this, and the importance of SMEs in the European economy, the EPO and the EUIPO are taking steps as IP offices to address those concerns so as to enable European SMEs to take full advantage of their innovation and intellectual property, in the context of the EPO’s Strategic Plan 2023, the EUIPO Strategic Plan 2025 and the European Commission’s SME strategy formulated in early 2020 (EC, 2020).

The study may be found, here

Thursday, 11 February 2021

LES Silicon Valley Webinar "Funding IP Enforcement to Support Licensing and Monetization"

The Silicon Valley Chapter of the Licensing Executives Society [LES] is hosting a webinar titled, “Funding IP Enforcement to Support Licensing and Monetization” on February 24 from noon to 1:30 pm [Pacific Standard Time].  Here are details concerning the event:

Program:
The LES Silicon Valley Chapter is pleased to present this webinar in which leading experts will provide insight into the funding of IP enforcement to support licensing and monetization. Whether you're trying to protect a product, license your IP or monetize, chances are that expensive litigation will be required.

The webinar will explore the various aspects of financing the litigation process, including:

  • Realities of doing licensing without litigation
  • Financing litigation from the point of view of funders and companies/attorneys seeking funding
  • How litigation funding may influence royalty rates or asset valuation
  • Examine various options that are available
  • What kind of cases are most suitable for financing
  • Typical deal structures
  • Details of the process and how long it takes
  • U.S./Non-U.S. IP assets
  • Other important considerations/lessons learned

Panel:
Michael Gulliford, Founder/Managing Principal, Soryn IP Capital Management, LLC
Phil Hartstein, President and CEO, Finjan Holdings, Inc.
Jeremy Pitcock, Founder, The Pitcock Law Group
Ron Vaisbort, General Counsel & Corporate Secretary, Ivalua
Moderator: Dave Stevens, Stevens Law Group

Panel Bios:
Michael Gulliford, Founder/Managing Principal, Soryn IP Capital Management, LLC
Michael is the Founder of the patent advisory firm Soryn IP Group, as well as its sister company Soryn Capital, which invests significant capital in a host of patent-centric opportunities.  Prior to founding Soryn, Michael was a partner in the IP Litigation group of Kirkland & Ellis LLP.  At Soryn, he is a trusted advisor and investor to a number of the world’s most prestigious universities, law firms, companies and inventors.  He guides the management of private and publicly traded companies with respect to patent strategy, and has been the name behind almost two hundred million dollars in patent related deals.  Michael has also repeatedly been recognized as one of the Leading IP Strategists in the World.

Phil Hartstein, President and CEO, Finjan Holdings, Inc.
Phil is President and Chief Executive Officer of Finjan Holdings, Inc. and oversees the direction and management of current assets and future investments as well as working with the company’s executive management team to execute the shareholders vision as a public technology company.  Phil has worked in a number of technology and intellectual property related roles for over a decade. He started with a boutique IP law firm, worked in an in-house IP function for a VC funded startup, spent time in IP consulting and IP brokerage firms, and prior to joining Finjan spent four years with two groups focused on bringing both private and public market capital, expertise, and credibility in licensing and enforcing patent rights on behalf of owners.

Jeremy Pitcock, Founder, The Pitcock Law Group
Jeremy's current practice involves counseling clients in all areas of intellectual property, with a particular emphasis on patent litigation.  He serves as lead counsel on a variety of patent matters, and has been involved in all aspects of trial and appellate practice before federal courts throughout the country.  He has successfully argued all phases of litigation including at trial and at various summary judgment and Markman hearings, in diverse fields such as, Internet and mobile technology, authentication and encryption, fiber optic networks and various optical components, network and microprocessor architecture, computer software, Ethernet routing and communications, semiconductor manufacturing and fabrication, pharmaceutical inventions and business methods. Jeremy Pitcock also has served as lead counsel in copyright (including computer-related matters), trademark and trade secret litigation.

Ron Vaisbort, General Counsel & Corporate Secretary, Ivalua
Ron is a serial general counsel to world-class software and services companies. Prior to Ivalua, Ron served as the chief legal officer to MemSQL, C3.ai, Good Technology and Trillium Digital Systems. A veteran of the technology, media, and entertainment industries, Ron has been at the forefront of numerous innovative business concepts - 
 as both an attorney and business leader for startups as well as Fortune 100 companies such as Intel and Toshiba. Ron’s expertise is building and leading global legal and business development teams, and spans IPO/M&A readiness, international IP creation, data privacy and protection, commercialization strategy, licensing, and technology alliances.

Moderator: Dave Stevens, Stevens Law Group
Dave’s IP practice includes patent prosecution, transactions, due diligence work, agreements, opinions (including validity, infringement, patentability, right-to-practice (RTP), and freedom-to-operate (FTO) opinions), counseling, offensive and defensive patent issues, licensing, and litigation.  The technical focus of his practice includes electronics, computer technology, automotive technology, communications, optical systems, green technologies, software, semiconductors, and mechanical devices.  He also serves as an expert witness in technical and intellectual property legal issues and has been called as a fact witness in enforcement actions involving the many patents he has written. He also is an expert in copyright (including software, publications, products and artworks, and other copyrightable forms) and open source issues. He works with foreign IP firms and foreign clients with respect to domestic and international patent prosecution, including Patent Cooperation Treaty (PCT) work.

Here is the link to register: Licensing Executives Society (LES) (lesusacanada.org).  The cost for non-LES members is $69.

U.S. Office of Special Counsel finds Misuse of Funding for Vaccine and Emergency Preparedness

The U.S. Office of Special Counsel has found that the U.S. Department of Health and Human Services has misused funding allocated for vaccine preparation and emergency preparedness over the course of many years.  The funding was intended for use by the Biomedical Advanced Research and Development Authority (BARDA).  The press release notes that some apparently referred to the “Bank of BARDA.”  The press release of the Special Counsel states:

The U.S. Office of Special Counsel (OSC) today sent letters to the President and Congress alerting them that, over the last decade, the U.S. Department of Health and Human Services (HHS) misappropriated millions of dollars Congress intended to fund vaccine research and emergency preparedness for public health threats like Ebola, Zika, and COVID-19. A whistleblower alerted OSC to the misuse of funds appropriated to the Biomedical Advanced Research and Development Authority (BARDA) within HHS. OSC referred the allegations for investigation by the agency, which was conducted by HHS's Office of Inspector General (OIG). The investigation substantiated many of the allegations, finding that since at least fiscal year (FY) 2010, the Office of Assistant Secretary for Preparedness and Response (ASPR) misused funds appropriated for BARDA and failed to accurately report this mismanagement to Congress.   

The report contains evidence that ASPR used BARDA's research funds to pay for myriad unrelated expenses, including the removal of office furniture, administrative expenses, news subscriptions, legal services, and the salaries of personnel who did not work for BARDA. The report reveals that the practice of using BARDA funds for non-BARDA purposes was so common, there was even a name for it within the agency: “Bank of BARDA." HHS OIG determined that ASPR had “violated the Purpose Statute" and “potentially violated the Antideficiency Act."

While the report does not contain a specific estimate for total funds misappropriated, it contains evidence that as recently as FY 2019, approximately $25 million was taken from BARDA's Advanced Research and Development (ARD) programs and improperly provided to ASPR. Moreover, from FY 2007 to 2016, ASPR's reporting to Congress failed to account for $517.8 million in administrative expenditures. The report found that “ASPR is unable to demonstrate that the[se] BARDA funds were used for their appropriated purposes."

In response to the findings, HHS's Assistant Secretary for Financial Resources and Office of General Counsel have initiated an internal review of the agency's use of ARD funding for FY 2015 through 2019 to identify potential Antideficiency Act violations. The agency has also hired an outside accounting firm to audit the agency's use of ARD funding, both of which are estimated to be completed by the summer of 2021.

“I am deeply concerned about ASPR's apparent misuse of millions of dollars in funding meant for public health emergencies like the one our country is currently facing with the COVID-19 pandemic," said Special Counsel Henry J. Kerner. “Equally concerning is how widespread and well-known this practice appeared to be for nearly a decade, even garnering the nickname 'Bank of BARDA.' I urge Congress and HHS to take immediate actions to ensure funding for public health emergencies can no longer be used as a slush-fund for unrelated expenses."

Tuesday, 9 February 2021

Senator Klobuchar Introduces Legislation to Strengthen Antitrust Enforcement in United States

Former Democrat Presidential Candidate and current Senator from Minnesota, Amy Klobuchar is the new chair of the antitrust subcommittee in the U.S. Senate.  She recently introduced new legislation designed to reign in technology companies and increase competition through antitrust law.  The Press Release from her office states:

WASHINGTON – U.S. Senator Amy Klobuchar (D-MN), the lead Democrat on the Judiciary Subcommittee on Antitrust, Competition Policy and Consumer Rights, introduced sweeping new legislation today to reinvigorate America’s antitrust laws and restore competition to American markets. The Competition and Antitrust Law Enforcement Reform Act will give federal enforcers the resources they need to do their jobs, strengthen prohibitions on anticompetitive conduct and mergers, and make additional reforms to improve enforcement.

“Competition and effective antitrust enforcement are critical to protecting workers and consumers, spurring innovation, and promoting economic equity. While the United States once had some of the most effective antitrust laws in the world, our economy today faces a massive competition problem. We can no longer sweep this issue under the rug and hope our existing laws are adequate,” said Senator Klobuchar. “The Competition and Antitrust Law Enforcement Reform Act is the first step to overhauling and modernizing our laws so we can effectively promote competition and protect American consumers.”

This bill is cosponsored by Judiciary Subcommittee on Antitrust and Commerce Committee members Richard Blumenthal (D-CT), Cory Booker (D-NJ), Ed Markey (D-MA), and Brian Schatz (D-HI).

Many industries are consolidating as large mergers and acquisitions increase and big companies buy out upstart rivals before they can become a competitive threat. Harmful exclusionary practices by dominant companies – such as refusals to deal with rivals, restrictive contracting, and predatory pricing – squelch competition. U.S. antitrust law enforcement against powerful firms has lagged efforts in other developed countries, particularly when it comes to enforcement against the dominant digital platforms and other large corporations. To remedy these longstanding issues, the Competition and Antitrust Law Enforcement Reform Act will:

1. Increase Enforcement Resources

For years, enforcement budgets at the Justice Department’s Antitrust Division and Federal Trade Commission have failed to keep pace with the growth of the economy, the steady increase in merger filings, and increasing demands on the agency's resources. To enable the agencies to fulfill their missions and protect competition by bringing enforcement actions against the richest, most sophisticated companies in the world, this bill would authorize increases to each agency’s annual budget.

2. Strengthen Prohibitions Against Anticompetitive Mergers

The bill would restore the original intent of Section 7 of the Clayton Act, which was designed to stop anticompetitive mergers in order to address competitive problems in their “incipiency” before they ripened and caused harm. As the law stands today due to court decisions, enforcers can block only the most egregious acquisitions, which has allowed many harmful mergers to escape scrutiny. To remedy this, the Competition and Antitrust Law Enforcement Reform Act will:

  • Update the legal standard for permissible mergers. The bill amends the Clayton Act to forbid mergers that “create an appreciable risk of materially lessening competition” rather than mergers that “substantially lessen competition,” where “materially” is defined as “more than a de minimus amount.” By adding a risk-based standard and clarifying the amount of likely harm the government must prove, enforcers can more effectively stop anticompetitive mergers that currently slip through the cracks. The bill also clarifies that mergers that create a monopsony (the power to unfairly lower the prices a company it pays or wages it offers because of lack of competition among buyers or employers) violate the statute.
  • Shift the burden to the merging parties to prove their merger will not violate the law. Certain categories of mergers pose significant risks to competition, but are still difficult and costly for the government to challenge in court. For those types of mergers, the bill shifts the legal burden from the government to the merging companies, which would have to prove that their mergers do not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony. These categories include:

1.       Mergers that significantly increase market concentration

2.       Acquisitions of competitors or nascent competitors by a dominant firm (defined a 50% market share or possession of significant market power)

3.       Mega-mergers valued at more than $5 billion

3. Prevent Harmful Dominant Firm Conduct

Decades of flawed court decisions have weakened the effectiveness of Section 2 of the Sherman Antitrust Act to prevent anticompetitive conduct by dominant companies. The bill creates a new provision under the Clayton Act to prohibit “exclusionary conduct” (conduct that materially disadvantages competitors or limits their opportunity to compete) that presents an “appreciable risk of harming competition.”

4. The legislation would establish a new, independent FTC division to conduct market studies and merger retrospectives.

5. Implement Additional Reforms to Enhance Antitrust Enforcement

The Competition and Antitrust Law Enforcement Reform Act will also implement a series of reforms to seek civil fines for antitrust violations, study the effect of past mergers, strengthen whistleblower protections, and more.

“This bill will turbocharge antitrust enforcement,” said Charlotte Slaiman, Competition Policy Director at Public Knowledge. “Much-needed updates to the Clayton Act’s merger review and exclusionary conduct provisions, along with a new office at the Federal Trade Commission and more funds for antitrust enforcers, will help level the playing field for enforcers to better protect consumers from anticompetitive abuses. I’m looking forward to continuing to work with Senator Klobuchar on this and other competition policy proposals.”

"Consumer Reports appreciates Senator Klobuchar's steady leadership in working to strengthen our antitrust laws to equip them to protect a competitive marketplace and the benefits that consumers, small businesses, and workers receive from it. This legislation gives our antitrust laws an important re-set. It ensures that harmful merger trends and exclusionary conduct can be stopped before it is too late and the harm is locked in. It extends the reach of the law so that blocking others from a fair chance to compete is a violation, even before a monopoly results. And it gives our government the enforcement authority and resources needed for effective deterrence. We look forward to working with Senator Klobuchar and others to revive our antitrust laws for the marketplace of the 21st century,” said George Slover, Senior Policy Counsel, Consumer Reports.

“Senator Klobuchar’s bill puts us on a path toward tractable, actionable, achievable antitrust reform that will free consumers, workers, and businesses from the crushing economic impact of anticompetitive mergers and monopolies. This is exactly the kind of leadership we need at the moment we need it most,” said Diana L. Moss, President, American Antitrust Institute.

This legislation is endorsed by Professor Jonathan Baker of American University Washington College of Law, Professor Martin Gaynor of Carnegie Mellon University, Professor Nancy Rose of Massachusetts Institute of Technology, Professor Steven Salop of Georgetown University Law Center, Professor Fiona Scott Morton of the Yale University School of Management, and Professor Carl Shapiro of the University of California at Berkeley.

Friday, 15 January 2021

US DOJ Antitrust Division Releases Review Letter Concerning University Patent Pool

The United States Department of Justice, Antitrust Division, (DOJ) has recently released a statement concerning the potential anticompetitive impact of a patent pool involving universities concerning patents involving “autonomous vehicles, the “Internet of Things,” and “Big Data.”  The DOJ finds that the pool is “unlikely to harm competition.”  The Press Release states:

The Justice  Department’s Antitrust Division announced today that it has completed its review of a proposed joint patent licensing pool known as the University Technology Licensing Program (UTLP).  UTLP is a proposal by participating universities to offer licenses to their physical science patents relating to specified emerging technologies.

As part of its review, the division interviewed potential participants and considered its prior guidance on patent pools.  The department has concluded that, on balance, and based on the representations in UTLP’s letter request, the proposed joint patent licensing program is unlikely to harm competition. 

“University research is a key driver of innovation,” said Acting Principal Deputy Assistant Attorney General Michael Murray for the Antitrust Division.  “In the physical science area, however, some university research may never be commercialized due to the costs associated with negotiating multiple licenses and combining the complementary university patents that may be necessary for cutting-edge implementations.  To the extent that UTLP makes it easier for universities to commercialize inventions that may be currently unlicensed and under-utilized, industry participants, university researchers, and ultimately the public can benefit.” 

Currently 15 participating universities intend to cooperate in licensing certain complementary patents through UTLP, which will be organized into curated portfolios relating to specific technology applications for autonomous vehicles, the “Internet of Things,” and “Big Data.”  The overarching goal of UTLP is to centralize the administrative costs associated with commercializing university research and help participating universities to overcome the budget, institutional relationship, and other constraints that make licensing in these areas particularly challenging for them. 

UTLP has incorporated a number of safeguards into its program to help protect competition, including admitting only non-substitutable patents, with a “safety valve” if a patent to accomplish a particular task is inadvertently included in a portfolio with another, substitutable patent.  The program also will allow potential sublicensees to choose an individual patent, a group of patents, or UTLP’s entire portfolio, thereby mitigating the risk that a licensee will be required to license more technology than it needs.  The department’s letter notes that UTLP is a mechanism that is intended to address licensing inefficiencies and institutional challenges unique to universities in the physical science context, and makes no assessment about whether this mechanism if set up in another context would have similar procompetitive benefits.

Under the Department of Justice’s business review procedure, an organization may submit a proposed action to the Antitrust Division and receive a statement as to whether the Antitrust Division currently intends to challenge the action under the antitrust laws based on the information provided.  The department’s conclusions in this business review apply only to UTLP.  They are not applicable to any other agreements or initiatives relating to patent licensing by universities or other entities.  The department reserves the right to challenge the proposed action under the antitrust laws if the actual operation of the proposed conduct proves to be anticompetitive in purpose or effect.

Copies of the business review request and the department’s response are available on the Antitrust Division’s website at https://www.justice.gov/atr/business-review-letters-and-request-letters, as well as in a file maintained by the Antitrust Documents Group of the Antitrust Division. 

The DOJ Business Review Letter is available, here.  The universities' request letter for review is available, here.