Advertisement

July 24, 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

About the Author

Associate

Daniel Powers is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Washington, D.C., office. He focuses his practice on antitrust and competition. 

202-756-8131

Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on www.NatLawReview.com are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is www.NatLawReview.com  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other profe