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July 31, 2014

FTC Signals Stricter Stance on Injunctions for FRAND-Encumbered Patents

Highlighting its continued focus on standard-setting processes, the Federal Trade Commission (FTC) recently warned patent holders seeking injunctive relief against willing licensees of FRAND-encumbered standards-essential patents (SEPs) that it can and will challenge such conduct as an unfair method of competition under Section 5 of the FTC Act.  The agency’s prominent and controversial warning accompanied its announcement of a proposed Consent Order that requires Robert Bosch GmbH (Bosch) to divest its U.S. automotive air conditioning repair business to remedy the alleged anticompetitive effects of its acquisition of SPX Service Solutions U.S. LLC (SPX). Statement of the Fed. Trade Comm’n, In the Matter of Robert Bosch GmbH,  77 Fed. Reg. 71,593, 71,596 (FTC, Dec. 3, 2012).

According to the FTC, the proposed acquisition would have created a virtual monopoly in the market for “air conditioning recycling, recovery, and recharge devices” (ACRRRs).  The merged company would have accounted for 90 percent of the U.S. ACRRR market. This degree of consolidation alone would likely have attracted the agency’s attention and prompted its ultimate demand for divestiture.  However, the FTC also alleged that SPX had reneged on commitments to license its SEPs on fair, reasonable and non-discriminatory (FRAND) terms to willing licensees by seeking injunctions against competitors using the patents to implement the standards.  The FTC believes the threat of such injunctive relief can cause significant competitive harm:  “[b]y threatening to exclude standard-compliant products from the marketplace, a SEP holder can demand and realize royalty payments that reflect the investment firms make to develop and implement the standard, rather than the economic value of the technology itself.”  The FTC deemed SPX’s conduct an unfair method of competition under Section 5 of the FTC Act.

Bosch agreed to abandon SPX’s claims for injunctive relief.  To further address the FTC’s concerns, the proposed Consent Agreement requires Bosch to offer a royalty-free license for certain patents to potential competitors seeking to manufacture ACRRR devices in the United States.  Bosch must also commit to grant U.S. manufacturers licenses to any additional essential patents it may acquire in the future.

The FTC contends that the courts increasingly recognize FRAND commitments are incompatible with demands for injunctive relief.  See e.g., See e.g., Microsoft Corp. v. Motorola, Inc., (9th Cir., 2012); Apple v. Motorola (N.D Ill., 2012).  Its decision, however, was not without controversy.  Dissenting from her colleagues, Commissioner Maureen Olhausen claimed this policy creates jurisdictional and institutional conflicts and allows the FTC to assume sole responsibility in the “important and complex area of SEPs.”  She also questioned whether seeking injunctive relief is not protected petitioning of the government under the Noerr-Pennington doctrine. 

Practice Note:  While the actions of SPX may have been especially blatant given its substantial market share, the unique facts here should not obscure the clear signal sent by the FTC.  Owners of FRAND-encumbered SEPs will need to proceed carefully before seeking injunctive relief against willing licensees.

© 2014 McDermott Will & Emery

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