IEEE Approves Updated Patent Policy for Standard Essential Patents After Favorable DOJ Business Review Letter

On February 8, 2015, the Institute of Electrical and Electronics Engineers (IEEE) approved an updated Patent Policy for the IEEE Standards Association (IEEE-SA) Bylaws after receiving a favorable Business Review Letter from the Antitrust Division of the Department of Justice (DOJ). The IEEE Patent Policy and the DOJ Business Review Letter are attached. The updated policy (the Update) governs the IEEE-SA’s approach to patents that may be essential to a proposed IEEE standard. The Update states that the IEEE-SA will request a Letter of Assurance from patent holders whose patents may be essential to the proposed IEEE standard. The patent holder may then choose to submit a Letter of Assurance whereby the patent holder agrees to make a license to the essential patent(s) available “under reasonable rates, with reasonable terms and conditions that are demonstrably free of any unfair discrimination” to any applicant and any number of applicants for use in implementing the proposed standard. The DOJ labeled this the IEEE RAND Commitment. The Update makes the following key changes relating to the IEEE RAND Commitment:

If the patent holder agrees to the IEEE RAND Commitment, the holder may not seek an injunction against a potential licensee or implementer of the standard, “unless the implementer fails to participate in, or to comply with the outcome of, an adjudication, including an affirming first-level appellate review…” The patent holder, however, may seek patent damages.
“Reasonable Rate” means “appropriate compensation… excluding the value, if any, resulting from the inclusion of [the patent claim’s] technology in the IEEE standard.” Reasonable Rate may also factor in other considerations such as the “value that the functionality of the claimed invention or inventive feature within the Essential Patent Claim contributes to the value of the relevant functionality of the smallest saleable Compliant Implementation that practices the Essential Patent Claim.” The Update, however, does not mandate any specific royalty calculation method or rate.
Patent holders bound by the IEEE RAND Commitment agree to license their patents to implementers at any level of production, but may use different terms or conditions for different levels of production.
A patent holder is permitted to require a potential licensee to grant back a license to its own patents essential to the same standard. But the patent holder cannot demand licenses to applicants’ patents that are not essential to the same standard as a requirement for obtaining a license (unless mutually agreed to by the parties).

Before final approval of the Update, the IEEE requested a Business Review Letter from the DOJ. The DOJ issued its Business Review Letter on February 2 stating that it has no present intention to challenge the Update. The DOJ “[could not] conclude that the Update is likely to harm competition,” and any potential competitive harms were likely to be outweighed by the procompetitive benefits. The DOJ acknowledged that technological standards “offer significant procompetitive benefits” by, among other things, promoting innovation and increasing competition among technologies for inclusion in the standards. The DOJ stated that clear patent policies at standard setting organizations like the IEEE help to promote the procompetitive benefits of technological standards. The DOJ analyzed the proposed Update and concluded that the Update brought greater clarity to the IEEE’s RAND Commitment and would facilitate licensing negotiations between patent holders and implementers. The DOJ also concluded that the four key changes to the policy would help to mitigate hold up, ensure access to standard essential technology, limit royalty stacking and bring beneficial clarity to the IEEE’s policies on standard essential patents.

The DOJ’s position in the Business Review Letter is consistent with Guidelines and Statements it has issued in the past, both with the Federal Trade Commission and the Patent and Trademark Office. See, e.g., U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS (2007): PROMOTING INNOVATION AND COMPETITION; U.S. DEP’T OF JUSTICE & U.S. PATENT & TRADEMARK OFFICE,, POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENT SUBJECT TO VOLUNTARY F/RAND COMMITMENTS (2013). The DOJ also pointed out that the Update is consistent with emerging case law addressing standard essential patents and F/RAND commitments. In particular, the DOJ explained that courts are making it more difficult for patent holders bound by a F/RAND commitment to obtain an injunction against implementers who have refused to take a license. In addition, courts have agreed that a “reasonable rate” should exclude the value resulting from inclusion of the patent in the standard, as is outlined by the Update. The letter shows that the DOJ supports the trend toward limiting the availability of injunctive relief for F/RAND encumbered patents. Furthermore, excluding the value resulting from inclusion of the patent in the standard addresses the DOJ’s concern regarding patent hold up and royalty stacking when there are standard essential patents. The letter also shows that the DOJ prefers parties to negotiate licensing agreements that are mutually acceptable, rather than resorting to litigation. Several times in the Business Review Letter, the DOJ encouraged parties to negotiate mutually agreeable licenses, rather than litigate.

Some critics have complained that the IEEE’s updated policy is not patent friendly because it limits the patent holder’s ability to threaten an injunction to persuade recalcitrant implementers to take a license and would lead to more litigation rather than less. The Update is also arguably more restrictive than current case law and the DOJ/PTO Statement on Remedies, both of which take the position that there may be some circumstances when injunctions based on standard essential patents are appropriate. Critics within the IEEE also complained that the process by which the IEEE-SA approved the Update was flawed (a complaint the DOJ found to be lacking). On the other hand, many companies that hold extensive patent portfolios supported the Update, including Apple, Samsung, Intel and Microsoft. In their joint letter to the IEEE, the companies noted that the Update supported “legitimate patent holder interests in obtaining reasonable compensation for declared-essential patents, while also protecting companies that make, use and sell devices using IEEE standards from unfair licensing and litigation practices that degrade the IEEE ecosystem.” In other words, the companies supported the Update because they feel it will prevent non-practicing entities (i.e., patent assertion entities) from abusing their standard essential patents.

There are some key takeaways from the updated policy and DOJ’s Business Review Letter:

First, while the IEEE’s updated policy provides a basis on which to disclose standard essential patents, negotiate, and if necessary, litigate, it is up to the patent holders and licensees to determine a mutually agreeable royalty rate for standard essential patents – a process that will still be difficult and could nonetheless result in litigation.
Second, IEEE members that agree to the IEEE RAND Commitment will have a more difficult time securing an injunction against infringers, though it will not be impossible. However, the Update could persuade implementers to agree to a license because of the clarity that the Update provides, alleviating the need for litigation
Third, this is only the IEEE’s policy. It remains to be seen whether other standard setting organizations adopt similar policies.
Fourth, the DOJ’s Business Review Letter signals its support for standard setting organizations to adopt policies that are at least consistent, or even arguably more restrictive, than current case law and DOJ guidelines.
Finally, the DOJ prefers that parties negotiate rather than litigate, and the IEEE’s policy provides a helpful basis on which to do so.