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Conservatives to DOJ: Don’t Mess Up SEPs

The public comment period on the Justice Department’s “Draft Policy Statement [DPS] on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to F/RAND Commitments” has ended, and quite a number of conservatives and center-right groups filed comments. This post highlights some of the main points these comments register.

These commenters cite the draft’s imbalance disfavoring patent owners and the 2019 joint policy statement's, or JPS's, superiority that’s based on the New Madison Approach.

Not lost is the connection between U.S. intellectual property rights and U.S. national security. The DPS misses this consideration altogether.

On all counts, these commenters find the 2021 draft fails and the 2019 statement wins.

Imbalance Against Innovators

Eagle Forum Education & Legal Defense Fund cites the inherent imbalance, as the DPS “would tilt the playing field in favor of implementers and against innovators.”

Senior Research Fellow Alden Abbott of the Mercatus Center writes that the draft statement’s “analysis of [SEP] licensing . . . , though purporting to be balanced, in reality strongly favors the interests of [standards] implementers at the expense of the sources of innovation, the SEP holders.”

Conservatives for Property Rights notes the DPS “tilts the government’s interpretation of FRAND commitments in favor of implementers and against innovators, who bore the risks. Further, the DPS dictates what licensing negotiations may and may not entail, approached through a distorted lens.”

Abbott, former Federal Trade Commission general counsel, finds the draft policy “errs badly in opining that SEP holders almost never should be able to obtain injunctive relief” and “errs in propounding a framework for bargaining over SEP license terms.”

The Global Antitrust Institute observes, “Despite its gloss of balancing the interests of SEP holders and implementers, the DPS proposes what appears to be an extreme antitrust enforcement posture” thus “setting up a sharp conflict with existing case law.”

Eagle Forum ELDF warns that the DPS “would exacerbate the state of [injunctions] jurisprudence that has followed eBay, where the tail of Justice Kennedy’s concurring opinion has wagged the dog of the [Supreme] Court’s unanimous opinion.”

Abbott states that “the [DPS’s] highly defective treatment of injunctions . . . merits total repudiation.” It “distorts bargaining between SEP holders and implementers and thereby disincentivizes economically beneficial investment in standards-related patenting.”

CPR notes that the draft’s “heightened antitrust exposure [against SEPs] puts a thumb on the scales for implementers.”

Abbott also dismisses the DPS’s highly prescriptive licensing negotiating framework: “government's efforts to micromanage the steps of private licensing negotiations” will “generate outcomes that are economic welfare-inferior.”

After making a similar point, Eagle Forum ELDF notes that the DPS “would jeopardize the dynamic competition that proceeds from a balanced playing field, broader [private party] discretion, and fact-based private negotiations primarily subject to contract law.“

GAI warns how the DPS “would tend to undermine the functioning of good-faith negotiations as traditionally understood.” Its enforcement stance “is troubling on at least two grounds. First, it runs counter to the antitrust wisdom that the focus of antitrust inquiry be on the effects of conduct on final consumers. . . .

"Second, . . . the DPS implicates antitrust as properly mediating bargaining disputes . . . without adequately specifying what types of negotiating strategies might be condemned as conferring undue leverage. This lack of clarity injects considerable uncertainty into the bargaining process ex post, and likewise into ex ante decisions on R&D investment. Even a minor chilling of innovation incentives could have outsized cumulative effects on consumers.”

Well-Founded New Madison Approach

Assistant Attorney General for Antitrust Makan Delrahim developed the New Madison Approach to IP and antitrust. New Madison underpins the 2019 Joint Policy Statement the DPS would replace.

Conservatives for Property Rights writes that “the 2019 JPS and the New Madison Approach strike a wise, prudent balance that shows due respect for both innovators and implementers in their complementary roles. They reflect a neutrality that promotes appropriate application of intellectual property, antitrust, and contract jurisprudence where the important interests of innovation policy and competition policy cross paths.”

Abbott discusses how the NMA strikes an appropriate balance between innovators and standards implementers regarding SEP licensing. “The NMA was a badly needed antidote to a set of public policies and judicial decisions that regrettably undermined incentives to develop economically beneficial SEPs.”

Eagle Forum ELDF says, “The ‘New Madison Approach’ takes a constructive approach to antitrust enforcement where patent rights are being exercised, FRAND-involved patents included.”

CPR praises how “the 2019 JPS states that a FRAND commitment does not amount to a compulsory licensing commitment by a SEP owner, which had been the effect under the 2013 JPS.”

Abbott urges that “the 2021 DPS should be scrapped, and the federal government should strongly reaffirm in all respects the 2019 [SEP policy statement] and the New Madison Approach.”

Economic Security Is National Security

Thirty center-right groups joined a coalition letter focused on the dangers to U.S. national security the DPS poses. This letter, whose signers include CPR, the American Conservative Union, Americans for Tax Reform and FreedomWorks, says “the joint policy statement gives China a tremendous gift that harms U.S. national security.” The DPS “provides Chinese and other rogue nations’ state-owned or state-backed firms, as well as Big Tech, a powerful opening to infringe SEPs with, at best, delayed and partial accountability. They will surely take the ball the statement hands them and run with it. They will infringe first and pay a pittance later.

“Meanwhile, competitive adversaries will have had months or even years to make commercial use of the stolen SEP technology that is central to making cutting-edge technological devices interoperate on the newly standardized foundation for a new technology. That translates into national champions of our adversaries, such as Huawei and ZTE in wireless technology, commanding lucrative earnings for their products and devices, while displacing the true American inventors and stealing their deserved financial returns on R&D investments.”

Eagle Forum ELDF calls the New Madison Approach important “for America’s industrial competitiveness against Chinese national champions that increasingly engage in standards-development organizations.”

* * * * *

Clearly, the DPS forebodes serious dangers at the antitrust-IP intersection. Not the least of its harms is jeopardizing our national security and innovation.

Key takeaways from these insightful comments:

  • The 2019 Joint Policy Statement on SEPs rests on a firm legal, philosophical and constitutional foundation, correcting earlier imbalance against SEPs;

  • The New Madison Approach undergirding the 2019 policy statement strikes the appropriate balance between innovators and implementers, while placing antitrust in its proper place in relation to IP and contract law;

  • The proposed policy statement returns with a vengeance to the infringer-implementer-biased imbalance, deprives SEP innovators of fundamental patent rights and remedies, and assaults the consumer welfare standard;

  • The tempestuous proposal’s one-sided, overly prescriptive course will disrupt standardization, quash U.S. innovation, reduce American wealth creation and R&D and jeopardize U.S. national security.

Generally, these commenters say DOJ should pull the DPS, and the 2019 JPS and the New Madison Approach should be reaffirmed.

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