[governance] The US Department of Justice and USPTO call for compulsory licenses on thousands of "standards-essential" patents

[Riaz K Tayob]

Should the government intervene in this market?

http://keionline.org/node/1663

The US Department of Justice and USPTO call for compulsory licenses on
thousands of "standards-essential" patents

26. February 2013

On January 8, 2013, the US Department of Justice (DOJ) and the U.S.
Patent and Trademark Office (PTO) issued a joint statement on
"remedies for standards-essential patents subject to voluntary F/RAND
commitments. (Copy of statement here). The statement was directed to
the United States International Trade Commission (ITC) which
administers Section 337 of the Tariff Act of 1930 (19 USC 1337. Unfair
practices in import trade, see:
http://www.usitc.gov/intellectual_property/), and it has the practical
effect of introducing a policy of compulsory licenses for thousands of
standards relevant patents.

DOJ and PTO are responding to growing criticism of the patent system
as it relates to mobile computing devices and other technologies where
product developers find it difficult if not impossible to obtain
voluntary licenses on reasonable terms to the large number of patents
covering various aspects of the product. The decision is important for
four reasons.

(1) A very large number of patents are impacted by the policy,
arguable making it the largest compulsory license decision in history.

(2) DOJ and PTO invoked the sections of U.S. law that allow
infringement of a patent when the ITC considers the "effect of such
exclusion upon the public health and welfare, competitive conditions
in the United States economy, the production of like or directly
competitive articles in the United States, and United States
consumers."

(3) High patent royalties are seen has a potential harm to consumers.

(4) The policy operates outside of Article 31 of the TRIPS, instead
relying upon the considerable flexibility under Article 44 of the
TRIPS Agreement, which allows WTO members to limit the availability of
injunctions when royalty payments or other compensation or
remuneration is available to patent holders.

The policy now being implemented at the ITC is to make it very
difficult for patent owners to obtain injunctions to stop infringement
of valid patents in cases where the patent is subject to a policy of
licensing on reasonable and non-discriminatory terms. And, when
parties cannot reach an agreement on license terms, the ITC or the
courts may step in and set royalties. By making it much more difficult
for a patent holder to obtain an injunction, the bargaining power of
the patent holder is significantly diminished, which is one objective
of the new policy.
The new DOJ/PTO statement is a welcome reform of a patent system that
has increasingly created a drag on innovation. It may also make it
more difficult for the US government to block compulsory licensing
activity in other countries.

The DOJ/PTO statement is attached below. A few quotes from the text follow:

--------begin quote
. . . when a standard incorporates patented technology owned by a
participant in the standards-setting process, and the standard becomes
established, it may be prohibitively difficult and expensive to switch
to a different technology within the established standard or to a
different standard entirely. As a result, the owner of that patented
technology may gain market power and potentially take advantage of it
by engaging in patent hold-up, which entails asserting the patent to
exclude a competitor from a market or obtain a higher price for its
use than would have been possible before the standard was set, when
alternative technologies could have been chosen. This type of patent
hold-up can cause other problems as well. For example, it may induce
prospective implementers to postpone or avoid making commitments to a
standardized technology or to make inefficient investments in
developing and implementing a standard in an effort to protect
themselves. Consumers of products implementing the standard could also
be harmed to the extent that the hold-up generates unwarranted higher
royalties and those royalties are passed on to consumers in the form
of higher prices. . .

The USITC has a mandate to consider the “effect of such exclusion upon
the public health and welfare, competitive conditions in the United
States economy, the production of like or directly competitive
articles in the United States, and United States consumers.” [19] As
the USITC has observed, these public interest factors ‘“are not meant
to be given mere lip service,” but rather “‘public health and welfare
and the assurance of competitive conditions in the United States
economy must be the overriding considerations in the administration of
this statute.’” . . .

The USITC may conclude, after applying its public interest factors,
that exclusion orders are inappropriate in the circumstances described
in more detail above. Alternatively, it may be appropriate for the
USITC, as it has done for other reasons in the past, to delay the
effective date of an exclusion order for a limited period of time to
provide parties the opportunity to conclude a F/RAND license. Finally,
determinations on the appropriate remedy in cases involving
F/RANDencumbered, standards-essential patents should be made against
the backdrop of promoting both appropriate compensation to patent
holders and strong incentives for innovators to participate in
standards-setting activities.
-------end quote


The full text of the policy statement

UNITED STATES DEPARTMENT OF JUSTICE AND UNITED STATES PATENT & TRADEMARK OFFICE
POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENTS SUBJECT
TO VOLUNTARY F/RAND COMMITMENTS
January 8, 2013

    [snip]




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