Concerns Raised About Potential Patent Abuse

WASHINGTON (CN) - Antitrust regulators are concerned that companies owning "standard-essential" patents use the threat of import exclusions and sales bans to "hold-up" competitors for higher licensing fees once the covered technology becomes the industry-standard.

Recent high profile battles between standard-essential patent owner Motorola and Microsoft before the International Trade Commission and in federal courts have shaken up the usually staid world of RAND licensing for covered technologies.

Standard-essential patents cover inventions that are required for products to conform to an industry standard like digital movie formats or wireless communication protocols.

Holders of these kinds of patents usually belong to industry standards setting organizations which agreed to include the patented technology in the standard if the owners agree to license the technology to all comers on a reasonable and non-discriminatory (RAND) basis. Such patents are often referred to as being RAND-encumbered.

In written testimony before the Senate Judiciary Committee, Federal Trade Commissioner Edith Ramirez expressed the FTC's concern that patent holders could use the mere threat of a complaint before the International Trade Commission to extract higher licenses fees from would-be competitors.

"Simply put, the FTC is concerned that a patent holder may use the threat of an ITC exclusion order, or an injunction issued in district court, to 'hold-up' or demand higher royalties or other more costly licensing terms after the standard is implemented than could have been obtained before its [intellectual property] was included in the standard," Ramirez said.

Under section 337 of the Tariff Act the ITC can ban import and sale of goods its finds infringe on intellectual property rights. The ITC is a popular forum for patent litigation because it tends to resolve complaints faster than the courts and it has jurisdiction over imported goods which allows patent holders to bring cases

The ITC is also popular because it can only consider exclusion and cease-and-desist orders when it finds infringement has occurred and can not consider equitable remedies like money damages the way Federal courts can.

This creates an incentive for patent holders to go to the ITC first because Federal courts can simply award money damages for infringement without banning a competitor's product.

Acting Assistant Attorney General for the Antitrust Division of the Department of Justice Joseph Wayland stressed that the ITC needed to exercise its discretion not to issue exclusion and cease and desist orders even where it finds infringement has occurred if doing so would harm the public interest in competitive conditions.

Commissioner Ramirez took that sentiment one step farther saying, "If the ITC finds that its public interest authority is not flexible enough to prevent hold-up, then Congress should consider whether legislative remedies are necessary."

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