PublishedDecember 22, 2022

Even Avanci’s Supporters Don’t Defend its Litigation Funding Scheme

In July 2020, the U.S. Department of Justice’s Antitrust Division issued a business review letter (BRL) addressing Avanci LLC’s proposed pool pursuant to which it would “license patent claims that have been declared ‘essential’ to implementing 5G cellular wireless standards.” The Antitrust Division’s review procedures are intended to allow the Division to offer its views on whether the competitive impact of proposed conduct necessitates enforcement action. This upfront analysis can help prevent anticompetitive conduct and legal action.

There has not been a BRL like the one blessing the Avanci patent pool. In contrast to previous letters, which addressed patent pools that reduced transaction costs, this pool threatened to increase litigation. This is not contested. The 2020 BRL itself conceded that the pool’s reimbursement of litigation costs could “incentivize more licensors to sue” and that they could “assert their essential patents when they otherwise would not have done so (perhaps due to the questionable strength of their declared SEPs).” BRL, at 11. The passage of time has validated these concerns.

That is why, on October 17, 2022, twenty eight former government enforcement officials, professors, and public interest advocates – including both authors of this piece – urged Assistant Attorney General Jonathan Kanter to reconsider the BRL. On November 30, a group of former judges and government officials, legal academics, and economists responded to our letter. But it was a curious response, for it had little to do with the concerns we raised to AAG Kanter.

For starters, it did not engage with the BRL’s three “questionable positions.” Letter, p. 2. It did not mention our most fundamental critique: that the reimbursement of litigation costs naturally encourages litigation. Id. Nor did it answer our concern about implementers’ inability to receive licenses outside the pool. Id. And while it commented on concerns relating to the level of licensing, it did so only in the context of “wireless communications.” Response, at 7. But as even the BRL acknowledged, that offers a far different setting than the automotive industry, where “suppliers . . . typically take a license to any intellectual property necessary to produce a particular component.” BRL, at 21.

If the response is 10 single-spaced pages but does not address most of our critiques of the BRL, what does it address? Extraneous issues, many of which were recycled from previous submissions to various government agencies.

For example, many of those signing on to the response submitted a joint comment to the European Commission about why “SEP owners have strong incentives to offer rates that encourage adoption by implementers who often can select competing standards” and how “[t]he thriving ecosystem in wireless technologies relies on balancing the interests of innovators and implementers through good-faith negotiations of licensing terms based on . . . FRAND[] royalty rates.” Comments, at 4. The response to our letter includes this language, taken verbatim from these comments. Response, at 2-3.

Similarly, many of the signers submitted a joint comment on three U.S. agencies’ 2021 draft policy statement on SEPs and FRAND that pointed to “an extensive body of empirical research” that has “fail[ed] to find support in real-world markets for the patent holdup and royalty-stacking theories.” Comments, at 2. And again, those comments are reflected nearly word-for-word in the response to our letter. Response, at 2.

Perhaps recognizing that the response ranges far beyond the scope of the concerns we raised to the Antitrust Division, it claims that our letter (to offer just two examples):

  • “continue[s] to assert that one-sided ‘patent holdup’ is endemic in high-tech industries generally and the mobile telecommunications sector specifically,” Response, at 1; 
  • “claims, or at least strongly implies, that a FRAND commitment by an SEP owner with a standard development organization (SDO) precludes the SEP owner from obtaining injunctive relief,” id. at 3.

Even the briefest glance at our letter makes clear that we do not (1) address, let alone focus on, the telecommunications sector or (2) imply that injunctions are not appropriate.

There are a range of other issues reaching beyond our letter that could be refuted (Why focus on Chinese courts while ignoring those in Taiwan and Korea? Why focus on courts in Europe that are more likely to issue injunctions?), but they are not relevant to the focus on the Avanci pool.

No patent pool in the past 30 years has employed a structure that directly increases litigation costs rather than reduces transaction costs. 10 pages of nonresponsive argument to the side, there is no reason this vestige of the prior administration should continue to tilt the playing field in favor of patent assertion entities, patent trolls, and foreign companies who take advantage of Avanci’s litigation-cost reimbursement to sue U.S. automobile manufacturers.  

Alex Moss

Executive Director, Public Interest Patent Law Institute

Alex Moss is the executive director of the Public Interest Patent Law Institute. Alex previously worked as a staff attorney and the Mark Cuban Chair to Eliminate Stupid Patents at the Electronic Frontier Foundation and continues to serve as a Special Advisor. Before joining EFF, she was an attorney at Sullivan & Cromwell and Durie Tangri. After graduating from Stanford Law School, she served as a judicial clerk to the Honorable Timothy B. Dyk of the U.S. Court of Appeals for the Federal Circuit. She has argued cases in state, federal district, and appellate courts. In 2019, she spoke at the National Academy of Sciences and testified before the Senate Judiciary Committee on the state of patent-eligibility law in the U.S. Before law school, Alex worked for independent record label Rough Trade.

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Prof. Michael Carrier

Distinguished Professor of Law, Rutgers University

Michael A. Carrier is a leading authority in antitrust and intellectual property law with expertise in the pharmaceutical, high-technology, and music industries. He is a highly sought-after media expert and has frequently been cited by courts. He is a co-author of the leading IP/antitrust treatise and the author of more than 120 articles and book chapters.

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