Recent Developments Relating to Antitrust and Intellectual Property: Patent Assertion Entities, FRAND and Patent Misuse

On Thursday November 6, the Federal Trade Commission (FTC) announced it had reached an agreement with MPHJ Technology Investments (MPHJ), a patent assertion entity, to settle the FTC’s Complaint that MPHJ allegedly made deceptive representations in a campaign of letters sent to thousands of small businesses across the United States in an attempt to sell licenses for certain U.S. patents. Specifically, the Complaint alleged that MPHJ stated in the letters that many small businesses had already agreed to pay thousands of dollars for such licenses and falsely represented that a patent infringement lawsuit would be filed against the recipient if it did not respond to the letter and that this suit would be filed imminently. Neither the FTC’s Complaint, nor its press release, made any statements or judgments regarding whether MPHJ or patent assertion entities generally were pro-competitive or anticompetitive. The focus was solely on the allegedly false and deceptive statements in the letters. The FTC charged such practices violated Section 5 of the FTC Act. Section 5 of the FTC Act prohibits “unfair methods of competition…and unfair or deceptive acts or practices in or affecting commerce,” which is broader in some sense than the Sherman Act and Clayton Act, which, generally speaking, prohibit illegal restraints of trade, illegal monopolization and anticompetitive mergers. The FTC uses this Act to bring consumer protection as well as competition actions that do not fit neatly into the Sherman Act or Clayton Act. The Complaint against MPHJ came out of the FTC Bureau for Consumer Protection, signifying the broad scope of the FTC’s authority. The FTC’s Complaint is also in line with states, such as Wisconsin, Virginia, Oregon and Vermont, that have recently passed or proposed laws presumably aimed at limiting deceptive or abusive assertions of patent litigation. For patent assertion entities, while they may enforce their patents, the reminder is that they must do so truthfully and within the limits of both state and federal antitrust and consumer protection laws. The FTC’s press release on the settlement can be found here.

Additionally, the FTC is also using the broad reach of Section 5 of the FTC Act to investigate Qualcomm’s patent licensing businesses for potentially violating its commitment to license on fair, reasonable and nondiscriminatory (FRAND) terms. Qualcomm disclosed this investigation in its 10-K report for the year ending September 28, 2014, stating that it is cooperating with the investigation. While the FTC has not disclosed any information relating to this investigation, we know from this disclosure that the FTC continues its interest in the intersection of antitrust and IP with regard to FRAND commitments. The FTC has previously settled claims that companies have violated FRAND commitments. In July 2013, the FTC alleged that Google and Motorola Mobility, Inc. violated Section 5 of the FTC Act by breaching commitments to standard setting organizations to license standard essential patents on FRAND terms. The settlement required Google to abide by its commitments to license its standard-essential patents on FRAND terms, unless the standards were withdrawn, the patents expired or Google no longer owned the patents. The settlement with Google provides for arbitration if there are disputes. It is possible the FTC would seek a similar settlement with Qualcomm if FTC uncovers sufficient facts to warrant filing a complaint.

Lastly, a rare patent misuse case, Kimble v. Marvel Enterprises, Inc., is pending a decision on a petition for writ of certiorari in the U.S. Supreme Court. The issue is whether the payment of royalties after the expiration of a patent should remain a per se violation of the antitrust laws. The U.S. Solicitor General filed a brief with the Supreme Court urging the Court not to overrule Brulotte v. Thys Co., 379 U.S. 29 (1964), which held that licenses requiring royalty payments for the use of a patent after it expires are per se unlawful. The Solicitor General’s position, however, breaks from the views of several courts, including the Ninth Circuit, and even the view of the FTC and the Antitrust Division of the Department of Justice, all of which have criticized the per se condemnation of royalties after the expiration of a patent. The criticism is based on the fact that the holding in Brulotte was in part based on the now overruled view that a patent alone confers market power. Condemning royalties after the patent expiration date as per se illegal also fails to consider potential efficiencies and benefits gained by both the licensee and licensor by expanding royalties beyond expiration. Even critics do not take the position that post-expiration royalties are always legal-- only that they should be evaluated on a Rule of Reason (versus per se) basis, which balances anticompetitive effects against procompetitive justifications. The petition has been set for conference on December 5, 2014.