PublishedJuly 24, 2013

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…

In a separate letter, the FTC responded to public comments and explained their “technical” changes to the original Consent Order agreed to in January.   Although some parties had called for significant changes to the original order, the Final Order remains consistent with the preliminary Order.

One non-technical change that the FTC made that careful readers of the Commission’s explanation probably noticed can be found in footnote 2:

The Commission has decided to remove the count from the complaint alleging that Google has engaged in unfair or deceptive acts or practices. Removing this count does not indicate a Commission view on the application of its unfair acts or practices authority in other matters alleging harm to competition or the competitive process.

Although this seems significant, it actually has very little effect on the order itself.  Instead of citing two different sources of its authority (“unfair methods of competition” and “unfair acts or practices in or affecting commerce”), the Commission dropped the more controversial of the two.  This was expected, because footnote 9 of the original FTC Statement noted that Commissioner (now Chairwoman) Ramirez and Commissioner Ohlhausen did not agree that the conduct at issue invoked the FTC’s “unfair acts” authority.  With Chairman Leibowitz and Commissioner Rosch no longer on the Commission, the majority of voting commissioners no longer agree that “unfair acts” authority applies.  Or, in less FTC jargon, the Commission is no longer invoking both its antitrust/competition authority and consumer protection authority in the case.  Instead it is just relying on competition authority.  While this might have a slight effect on future precedent (although the authority was not tested in court), it has little bearing on the actual Google/Motorola Consent Order.

Other changes of note include:

  • The Commission modified the agreement to make clear that Google/Motorola can still negotiate broad cross-licenses (with SEPs and non-SEPs) if the potential licensee is interested in such a deal.  However, potential licensees still have the option to seek separate FRAND licensees on FRAND-encumbered SEPs.
  • The modified Order allows either Google/Motorola or the potential licensee to substitute a Standard Setting Organization’s mandatory arbitration rules for the arbitration schemes included in the Order provided that both Google/Motorola and the proposed licensee are members of the SSO.  The motive for this is pretty clear.  Without such language Google could be subject to conflicting, non-compatible obligations.
  • Clarified arbitration language:
    • The FTC solidified the timeline potential licensees have to select an “arbitration organization” and clarified that both sides of the binding arbitration agreement are really bound to accept the outcome.
    • Given concerns raised about the settlement being too US-centric for non-US based international licensees, WIPO’s Arbitration and Mediation Center (located in Geneva) was added to the list of “Qualified Arbitration Organizations.”
    • The FTC provided a pre-approved form letter for Google/Motorola to send potential licensees so they understand the terms of the settlement [see Exhibit D].

The only real “news” to report is that the process worked like it was supposed to.  The FTC and the party under investigation agreed to a settlement that allayed the FTC’s concerns.  Given that the FTC is charged with protecting the “public interest,” the FTC put the agreement up for public comment as required by law and made some minor improvements and tweaks based on those comments.  Furthermore, the FTC explained why it addressed some concerns and rejected others in its letter to commenters.  Case closed.

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Dan O'Connor

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