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 “Standard-Essential Patent. A patent that a participant in standards development process declares to be essential to the practice of the standard. 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 An attempt by a patent owner, by threatening litigation, disproportionate damages, or injunction/exclusion of a product, to extract payment from a producing company greater than the value of the patented technology. 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 "Fair, Reasonable, and Non-Discriminatory" licensing. A licensing commitment made for standard-essential patents in the context of technology standard setting activities. See also RAND. commitment by an Standard-Essential Patent. A patent that a participant in standards development process declares to be essential to the practice of the standard. owner with a standard development organization (SDO) precludes the Standard-Essential Patent. A patent that a participant in standards development process declares to be essential to the practice of the standard. 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.