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This week, the Antitrust Division of the Department of Justice
("DOJ") issued a business review letter to the RFID
Consortium stating that it has no present intention of challenging
the formation of a patent pool to license patents essential to a
radio-frequency ID standard. This is the first business review
letter of a patent pool to be issued since the release of
"Antitrust Enforcement and Intellectual Property Rights:
Promoting Innovation and Competition" (the "Antitrust and
IP Report"), the joint report issued in April 2007 by the DOJ
and the Federal Trade Commission regarding the interplay between
intellectual property and the antitrust laws. This business review
letter reinforces the view that, with appropriate safeguards,
patent pools can be procompetitive and provides additional guidance
to future patent pools.
The RFID Consortium was formed to jointly license patents, held
by any interested entities or persons, that are essential to the
implementation of a standard for radio-frequency ID labels and
readers. Current members of the RFID Consortium include 3M
Innovative Properties Co., France Telecom S.A., Hewlett-Packard
Company, LG Electronics, Motorola, Inc., ThingMagic, Inc., and
Zebra Technologies Corp.
Patent pools are created to help companies, especially in
emerging industries, avoid high transaction costs, blocking patent
positions and costly litigation, while providing licenses to
patents that are essential to implementing the new technology on
fair, reasonable and non-discriminatory terms. Without appropriate
safeguards, however, a patent pool may create a risk of
facilitating collusion among pool members or of excluding
non-members. A patent pool may cause harm to competition either in
a market for the licensing of technologies or in a downstream
product market. In recent years, antitrust law has become much more
receptive to patent pools as courts and the government agencies
have developed a more sophisticated understanding of the potential
procompetitive benefits. The Antitrust and IP Report, for example,
recognized that joint licensing arrangements can serve as an
effective way to cut through patent thickets and to help make
available some or many of the patents necessary to comply with a
standard. Nevertheless, antitrust risks remain.
The DOJ's business review procedure provides a means of
reducing this risk. Pursuant to that procedure, a business or other
organization may submit a proposed action and receive a statement
as to whether the DOJ currently intends to challenge the action
under the antitrust laws. For the RFID Consortium, receipt of this
favorable business review letter is a crucial step forward because
it permits the RFID Consortium to begin offering patent licenses to
interested third parties with confidence that the arrangement is
highly unlikely to be challenged by the government under the
antitrust laws.
This favorable business review letter provides helpful guidance
for future patent pools. The business review letter specifically
notes several efficiencies expected to be realized by the patent
pool, including limitation of the threats of hold-up and royalty
stacking and reducing transaction costs. In concluding that the
patent pool is unlikely to cause harm to competition, the business
review letter identifies numerous safeguards included in the
structure of the patent pool, including the limitation of the pool
to patents determined by an independent expert to be essential; a
method to remove patents found to be invalid, unenforceable or no
longer essential; allocation of royalties in part based on the
number of patents in the pool; the retention by pool members of the
ability to license their patents independently; and the pool's
willingness to license all interested parties on a
non-discriminatory basis. The business review letter also observes
that grantback rights are limited to essential patents and provide
for compensation on the same terms as for other pool members.
Finally, the business review letter notes that the pool's
proposed engagement of an independent licensing administrator
renders anticompetitive harm from collusion unlikely, but declines
to state DOJ's enforcement intentions if the RFID Consortium
ultimately does not retain an independent licensing
administrator.
The RFID Consortium was represented by Jones Day partners
William F. Dolan and Geoffrey D. Oliver.
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