United States: Assistant Attorney General Makan Delrahim Signals Shift In Antitrust/IP Focus

Key Points

  • Assistant Attorney General (AAG) Makan Delrahim, the new head of the Antitrust Division of the Department of Justice (DOJ), recently announced a shift from the prior Administration's focus on the dangers of patent "hold-up" to the hazards of patent "hold-out."
  • Delrahim also advocated for more rigorous antitrust review of standard setting organizations (SSOs) and said that alleged violations of commitments to license on "fair, reasonable, and non-discriminatory" (FRAND) terms should not be addressed under antitrust law.

In a recent  speech at the USC Gould School of Law, the DOJ's new antitrust chief, AAG Makan Delrahim, announced a shift from the prior administration's focus on the dangers of patent "hold-up" to the hazards of patent "hold-out" and the anticompetitive potential of standard-setting organizations (SSO). AAG Delrahim also indicated that standard-essential patent (SEP) holders' violations of commitments to license on FRAND terms should be addressed under common law and statutory remedies rather than antitrust law.

Background on SSOs

SSOs are organizations that develop and adopt industry standards to promote compatibility between products made by different manufacturers. Along the way, the process itself encourages competition among the technologies that may form the standard.

Under the joint DOJ and Federal Trade Commission (FTC) antitrust guidelines for the licensing of intellectual property, companies are permitted to collaborate through SSOs to jointly evaluate and choose among substitute technologies to develop standards.1 In recent history, however, the agencies have been concerned where an SEP holder "holds up" the practice of the standard by attempting to enforce its patent rights or by demanding higher royalties and/or offering less favorable licensing terms than it could have done had its technology not been included in the standard.2 To reduce the potential for hold-up, SSOs often require participants to disclose intellectual property (IP) rights that could be infringed by a proposed standard, to agree to license SEPs on FRAND terms, or both.3 

Delrahim's Speech

In contrast to the Obama administration's focus on the potential harm of patent "hold-up,"4 Delrahim stated that he views the "hold-out problem as a more serious impediment to innovation."5 Patent "hold-out" occurs when the "implementer" (e.g., the manufacturer of a product incorporating a new technology) objects to the innovator's proposed licensing terms and threatens to "under-invest" in the technology, or not take a license at all, until the implementer's royalty demands are met.6 In that case, the patent owner may be forced to acquiesce to the demands of the implementer to avoid lengthy and expensive litigation. Delrahim explained that there is an asymmetry in investment timing between the owner/innovator and the implementer: innovators invest "before they know whether that investment will pay off" and are thus vulnerable to hold-out, while implementers have a "buffer" against hold-up, because at least some investments needed to implement a new technology occur "after royalty rates for new technologies could have been determined."7 Due to this asymmetry, Delrahim finds that "under-investment by the innovator should be of greater concern than under-investment by the implementer."8

In addition to highlighting the hold-out issue, Delrahim stated that SSOs should face more rigorous antitrust review. He noted that "the incentives participants in SSOs face to bend licensing negotiations to their benefit" create "a risk that members of standard setting bodies could engage in collusive, anticompetitive behavior" and could impose "anticompetitive licensing terms" on innovators.9 Delrahim opined that "enforcers should carefully examine and recognize the risk that SSO participants might engage in a form of buyer's cartel" and advised SSOs to "implement and maintain internal antitrust compliance programs" and assess whether their rules "are or may become anticompetitive." 10 According to Delrahim, "every incremental shift in bargaining leverage toward implementers of new technologies acting in concert can undermine incentives to innovate."11

Another important aspect of the USC speech was Delrahim's stated view that alleged violations of FRAND commitments should not be addressed under antitrust law. Instead, Delrahim believes that common law and statutory remedies are more appropriate vehicles for resolution of FRAND disputes. He stated that enforcing valid patent rights "should not be a violation of antitrust law" and urged "antitrust enforcers to take a more humble approach to the application of antitrust to unilateral violations of SSO commitments."12

Case to Watch

In light of Delrahim's comments that alleged FRAND violations should not be addressed under antitrust law, FTC v. Qualcomm Inc. may provide a test to see if the FTC will alter its position. On January 17, 2017, just days before President Trump's inauguration, the FTC sued Qualcomm Inc. in the Northern District of California, alleging that Qualcomm unlawfully maintained a monopoly in baseband processors in violation of the FTC Act. The FTC alleged that (1) Qualcomm maintained its monopoly by employing a "no license-no chips" policy under which Qualcomm supplied baseband processors only on the condition that customers agree to Qualcomm's preferred license terms, (2) Qualcomm refused to license SEPs to its competitors in violation of its FRAND commitments, and (3) Qualcomm entered into exclusive dealing arrangements with Apple Inc.13 On June 26, 2017, U.S. District Judge Lucy Koh denied Qualcomm's motion to dismiss the FTC's complaint.14

The FTC's decision to sue Qualcomm was made on a 2-1 vote, with Republican Commissioner Maureen K. Ohlhausen dissenting. Ohlhausen focused on the fact that the complaint did not allege that "Qualcomm charges above-FRAND royalties," but rather "dances around that essential element."15 Commissioner Ohlhausen, who is now the Acting Chair of the FTC, also noted that the stand-alone FTC Act Section 5 claim "is no answer to an unsupported Sherman Act theory."16 In explaining the departure from her general policy not to dissent, Ohlhausen stated that she faced "an extraordinary situation: an enforcement action based on a flawed legal theory (including a stand-alone Section 5 count) that lacks economic and evidentiary support."17 Former FTC Chair Edith Ramirez, one of the two votes in favor of filing the Qualcomm complaint, stepped down from the FTC shortly after the complaint was filed. There are currently only two (of five potential) FTC Commissioners in office.18 Upcoming appointments and confirmations of additional FTC Commissioners could thus affect the course of the Qualcomm case.

Implications

AAG Delrahim has encouraged antitrust authorities to scrutinize SSOs closely for collusive behavior and has flagged the patent "hold-out" problem as one that deserves more attention than patent "hold-up." Following his call for review, SSOs would be wise to follow Delrahim's advice in implementing and maintaining internal antitrust compliance programs, and implementers should avoid actions that could be seen as patent hold-out. The Qualcomm case and similar disputes will be useful in assessing whether there is any further retreat from using the antitrust laws to address alleged failures to comply with FRAND obligations.

Footnotes

1 U.S. Dep't of Justice & Fed. Trade Comm'n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition 7, 33 (2007).

2 Id. at 7, 35-36.

3 Id. at 7, 36.

4 U.S. Dep't of Justice & U.S. Patent & Trademark Office, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments 4 (2013).

5 Makan Delrahim, Assistant Attorney Gen., U.S. Dep't of Justice, Antitrust Div., Remarks at the USC Gould School of Law's Center for Transnational Law and Business Conference 2 (Nov. 10, 2017) (transcript available at https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-usc-gould-school-laws-center).

6 Id.

7 Id.

8 Id.

9 Id. at 3.

10 Id.

11 Id. at 2.

12 Id. at 3, 4.

13 Complaint at 2-3, Fed. Trade Comm'n v. Qualcomm Inc., No. 17-cv-00220-LHK (N.D. Cal. Jan. 17, 2017).

14 Order Denying Motion to Dismiss, Fed. Trade Comm'n v. Qualcomm Inc., No. 17-cv-00220-LHK (N.D. Cal. June 26, 2017). In a follow-on private class action suit against Qualcomm, the judge recently granted Qualcomm's motion to dismiss certain consumer claims related to its patent licensing practices under federal antitrust law, but denied Qualcomm's motion to dismiss the entire complaint for lack of antitrust injury, Qualcomm's motion to dismiss plaintiffs' California state antitrust law claims and Qualcomm's motion to strike plaintiffs' nationwide class allegations. Order Granting in Part and Denying in Part Motion To Dismiss and/or Strike, at 45, In re Qualcomm Antitrust Litigation, No. 17-MD-02773-LHK (N.D. Cal. Nov. 10, 2017).

15 Dissenting Statement of Commissioner Maureen K. Ohlhausen, In re Qualcomm, Inc., FTC File No. 141-0199, at 1.

16 Id. at 2.

17 Id. at 1.

18 Commissioner Terrell McSweeny voted in support of the lawsuit and is still in office.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions