Jorge Contreras on Patent Pledges Outside Standards-Setting Organizations

Jorge Contreras is a professor at the Washington College of Law at American University and a contributor at Patent Progress.  He also happens to be one of the world’s foremost legal authorities on the U.S. patent system, particularly in areas of patent law and policy that focus on standards bodies.

Recently, I interviewed Jorge to discuss his new paper, “Patent Pledges” and talk about a new venture that he has been leading aimed at cataloguing the myriad of patent commitments made outside the confines of standards bodies on which market participants rely.

Dan O’Connor (DO): As you have noted in your academic writing, patent pledges have been getting more attention lately – especially in connection with the smartphone wars.  Can you briefly explain the different types of patent commitments and their purpose?  

Jorge Contreras (JC): First are commitments made in formal standards-development organizations (SDOs).  These commitments are often required by SDO rules and require a patent holder to declare that it will license its patents that are essential to a standard on terms that are “fair, reasonable and non-discriminatory” (FRAND).  The ongoing litigation involving Microsoft, Motorola, Apple, Samsung and other companies involves SDO-based FRAND commitments.

But companies make patent commitments outside SDOs as well.  For example, last year Apple, Google and Microsoft all committed to the US Department of Justice that, under most circumstances, they would refrain from seeking injunctions to enforce  standards-essential patents that were subject to FRAND commitments.  The DOJ relied on these commitments in approving some very large patent acquisitions that were under review.  The commitments weren’t embodied in a written agreement or a consent decree, but they were certainly viewed as binding by the DOJ.

Even more interesting are pledges that are being made by companies voluntarily in order to promote the adoption of certain standardized technologies and platforms.  For example, several companies have publicly stated that they will not assert their patents against implementations of the Linux operating system.  IBM publicly pledged not to assert 500 patents against open source software, and Google has made a multi-patent “Open Patent Non-Assertion Pledge”.  In addition to these “non-assertion” pledges, some companies have committed that they will license patents on FRAND terms.  One such pledge is contained in Microsoft’s Interoperability Principles, which relates to a number of open protocols.


An Analysis of the Final FTC-Motorola Settlement

Today, the FTC released its Final Order in its settlement with Motorola on the company’s use of standard essential patents (SEPs).  Although there isn’t much “here” here, as the Commission is required by law to open Consent Decrees to public comment before it finalizes them, the 25 public comments (including one from my organization) the Commission received led to some minor tweaks and improvements of the original Order, none of which altered the scope of the original settlement in a significant way.

Although I will get into the more mundane details of the Order below, the main takeaways are this:

  1. The changes were largely technical in nature.  Language was refined to better reflect the FTC’s stated goals, and a balanced approach to SEP enforcement was maintained.  (Which is encouraging, given the complexity of the SEP ecosystem.)
  2. The FTC rejected the call (see comment by Apple), to categorically rule out injunctions in the case of SEPs (similar to the FTC’s Bosch Order, which was technically different as the FTC has broader authority to impose conditions on mergers) or require arbitrators to examine the validity, essentiality and infringement of individual patents in the arbitration itself.  Google/Motorola can still seek injunctions as long as they follow the agreed upon procedures outlined in the settlement.  Furthermore, the “defensive use” exception still applies and Google/Motorola can still seek injunctions against companies that seek SEP injunctions against Google/Motorola.
  3. As far as the FTC is concerned this likely puts the SEP injunction debate to rest, and the Commission is moving on to deal with larger patent system problems.  First and foremost on its agenda, a 6b study that will allow the commission to examine, in detail, the business models of patent trolls.  This is a major step that will give the Commission (and Congress) more raw material to pursue actions against patent trolls, particularly trolls that have questionably collusive ties to operating companies, which falls in the crosshairs of the FTC’s competition authority.

Now, for the wonks out there, onto the minutiae…


Patent Fixes Pick up Steam in Congress

(Cross post on DisCo)

What a difference a year makes in Congress.  Last year, Reps. DeFazio (D-OR) and Chaffetz (R-UT) introduced the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act.  The bill generated some attention in the press, but never made it onto the campaign year legislative agenda.

Then we hit a tipping point of sorts.  It has been widely known that troll litigation is unsavory and inefficient, but many ardent defenders of the current patent system argued that patent trolls were a sideshow.  In 2005, trolls accounted for 23% of patent litigation.  Then, in December of last year, Santa Clara Law’s Prof. Colleen Chien released the results of her study showing that trolls accounted for 61% of patent lawsuits in 2012, which marked the first year that trolls accounted for more than half of all patent litigation.  The rhetorical rubicon had been crossed, which helped put the gears of Washington, DC in motion.

In December, the FTC and DOJ held a joint workshop on patent trolls, which marked the first time that our nation’s antitrust regulators took serious steps to examine the competition problem posed by patent assertion entities.  (Last April, I asked the former Assistant Attorney General for Antitrust, Sharis Pozen, about the DOJ’s stance on patent trolls and she said the agency was still internally thinking about how to handle trolls and had no comment beyond that [@ 39:10]).

Then this February the SHIELD Act was amended and reintroduced.  As some commenters have pointed out, the SHIELD Act is a small, but important tweak to get at some of the problems with trolls, but it does not go far enough on its own.  And, at the time of its introduction, it seemed like the SHIELD Act was as far as Congress was willing to go to help update our misfiring patent system, after having failed to agree on comprehensive reform in the America Invents Act.

However, the patent troll problem escalated to the Presidential level, with the President giving a well thought out response to a question on patent trolls in a Google Hangout he held in mid-February where he condemned the practice of trolling and discussed the need for more patent “balance” generally.


CCIA Files Comments to US Antitrust Regulators on Patent Troll Activity

(Cross-posted on DisCo)

Last Friday, CCIA filed its comments to the FTC/DOJ’s Public Workshop on Patent Assertion Entities (PAEs) (aka patent trolls).  Although antitrust authorities cannot fix all of the foundational problems in the patent system — such as the patent quality problem – they can certainly use their competition expertise and authority to help rein in some of the most egregious attempts to game the system to the detriment of both consumers and innovation.  Furthermore, the FTC and DOJ should continue their long tradition of excellent marketplace research that can be used as raw material to update competition law, as the patent system does not function in the stylized way that much of our patent law and antitrust jurisprudence contemplate.

Specifically, we stressed three particular areas that the FTC and DOJ should focus on in the short run.

  • FTC 6(b) Study – Much of patent troll activity occurs in the shadows, and it is often covered up by a maze of shell companies and non-disclosure agreements.  In order for antitrust regulators to figure out which business arrangements and relationships violate antitrust law, they need to have a more comprehensive picture of PAE relationships and practices.  Luckily, the FTC is armed with just the tool for this – a 6(b) study.  This allows the agencies to send out subpoena-like questionnaires to PAEs and their associates that they are compelled to respond to.

  • Ensure Commitments Travel With Patents – In order to provide marketplace certainty, technology companies make frequent commitments as to how they will or will not enforce their patents.  These commitments include the now infamous FRAND commitments, pledges not to “stack royalties,” pledges not to assert against open-source software, pledges to only use defensively, etc.  Companies make these pledges to induce the marketplace to adopt their technology.  If trolls acquire patents with previous commitments, and then revoke them, it amounts to an unfair method of competition (and antitrust violation if the market is “locked-in” to the technology in question).

  • Closely Monitor Patent Privateering – The relatively new phenomenon of patent privateering, where operating companies enlist trolls to attack their rivals for them, raises some potential antitrust questions.  The problems become even more acute when multiple competitors collaborate through a troll to bring lawsuits against mutual competitors.  The FTC and DOJ should closely monitor this activity and update their guidance — including the 1995 IP Licensing guidelines — with this behavior in mind.

For CCIA’s full comments click here and for a look at the entire FTC/DOJ public comments docket click here.

Mobile-Related Patents Are Increasing: One in Four Patents Issued Last Year Pertain to the Smartphone

(Cross Post on DisCo)

A few months ago, I pointed out that approximately ⅙ of all active patents (roughly 250,000) read on the smartphone.  If you estimate that each patent has 20 claims, that is 5 million potential restrictions on smartphone innovation.  With numbers that staggering, it is impossible for the patent system to function as intended.  Even the best due diligence can turn up only a fraction of these potential landmines.  Furthermore, innovators who actually produce novel, patent-worthy inventions lose out as their rights are diluted by the host of spurious patents in the same space.  This patent inflation only helps those that seek to game the underlying complexity of the system to make a quick buck or prevent new competition from challenging incumbents.

Now, a new report by industry analyst Chetan Sharma shows that roughly ¼ of U.S. patents issued this year are likely to be related to mobile technology (contrast this with roughly 10 percent of European patents).   As Ina Fried at AllThingsD said in her article, “[i]f you think the smartphone wars are winding down, think again.”  In fact, the parties are laying even more landmines.  And since there is no effective way to identify all the possible landmines, innovators will step on more of them.  Expect more collateral damage.

And if you think the major litigants in the smartphone wars are the primary victims of this patent explosion, think again.  Admittedly, these players are wasting considerable money and diverting engineering resources that could be used on actual innovation in fighting these needless patent wars.  The major tech companies can afford this expense, however – at least in the short run.  The real victims are the startups that can’t afford armies of patent lawyers from the get go.  If a VC has a choice between funding a smartphone or mobile-related company versus another company in a less patent-intensive field (or just declining to make an investment altogether), the increased risk of patent infringement in the mobile space is sure to tip the balance.

That isn’t to say that the explosion in the number of patents that pertains to the smartphone is surprising.  Smartphones are increasingly adding more functionality (mobile Internet, full software suites, digital photography, video conferencing, motion sensing, etc.).  As a result, the fields of patents that read on the smartphone are naturally increasing.  However, as the raw numbers reflect, the multifunctional smartphone is becoming the embodiment of all that is wrong in the underlying patent system.  As smartphones naturally evolve by incorporating new features, the mobile patent problem will only get worse unless something is done to change the underlying system.  For starters, raising the standards for patentability — and actually enforcing them — would go a long way towards making the patent system work better for real innovators.