Outstanding New Global Antitrust Institute Filing on Indian Discussion Paper Regarding Standard Essential Patents

Alden Abbott —  4 April 2016

Over the past year, the Global Antitrust Institute (GAI) at George Mason University School of Law has released some of the most thoughtful critiques of foreign governments’ proposed new guidance documents on competition law.  The GAI’s March 31 comments (see here) in response to the India Department of Industrial Policy and Promotion’s Discussion Paper on Standard Essential Patents is yet another outstanding GAI contribution to practical international antitrust scholarship.  The comments were written by Koren W. Wong-Ervin, GAI Director and former Counsel for IP and International Antitrust at the U.S. FTC; Professor Joshua D. Wright, GAI Executive Director; Judge Douglas H. Ginsburg of the U.S. Court of Appeals for the District of Columbia Circuit; and Professor Bruce Kobayashi.  The comments emphasize that governmental micromanagement of patent licensing related to standards, as specifically proposed in the Discussion Paper, could prove counterproductive.

Below are highlights from the GAI’s comments, summarized by GAI Director Wong-Ervin:

  • Overall, the GAI is concerned with the Discussion Paper’s emphasis on concerns about holdup by patent holders, while omitting any concerns about holdup and holdout by implementers. The GAI is also concerned with the Discussion Paper’s summary of U.S. and EU law.
  • Injunctive Relief: The GAI strongly recommends against imposing an antitrust law sanction for seeking or enforcing injunctive relief, which is likely to reduce incentives to innovate and deter standard essential patent (SEP) holders from participating in standard setting, thereby depriving consumers of the substantial procompetitive benefits of standardized technologies.  Should, however, India decide to adopt such a sanction, at the very least it should adopt a safe harbor approach similar to that of the European Court of Justice’s in Huawei v. ZTE.
  • IPR Policy Guidelines: We respectfully urge that India not issue guidelines or a one-size-fits all template for standard-development organization (SDO) IPR policies.  In the GAI’s experience, the issues and choices regarding specific rules are best left to individual SDOs and their members to decide.
  • Royalty Caps: The GAI strongly urges against the imposition of royalty caps or guidelines on how private parties conduct arms-length licensing negotiations.  To achieve a balance between innovation and the protection of competition, monopoly prices should only be unlawful if they are the result of conduct that is unlawful on other grounds.
  • Nondisclosure Agreements (NDAs) and Transparency: The GAI strongly urges against the imposition of an antitrust sanction for using NDAs, or otherwise requiring transparency of patent licensing terms.  Because patent licenses often include the confidential business information of both the licensor and licensee, and procompetitive licensing depends critically upon the ability of the parties to negotiate without fear that sensitive information will be revealed to non-parties, NDAs are an essential safeguard.  To the extent that the antitrust theory of harm relating to NDAs is that their inclusion in license contracts undermines the “non-discriminatory” commitment in a FRAND license (the requirement that a patent be licensed under “fair, reasonable, and non-discriminatory” or “FRAND” terms), an antitrust remedy is inappropriate and unnecessary.  The FRAND commitment is a contract and failure to perform that contract results in contract remedies.  Moreover, the “nondiscriminatory” prong in FRAND does not require licensing terms, including price, to be identical.
  • Remedies: The GAI strongly urges against the creation of an independent expert body to determine FRAND terms for SEP.  Instead, particularly in cases where a patent owner has a large worldwide portfolio of SEPs, international arbitration on a portfolio basis is likely the most efficient and realistic means of resolving FRAND disputes.  Otherwise, the patent owner would be required to file lawsuits around the world to adjudicate royalties on a patent-by-patent basis.  The availability of injunctive relief is also an essential potential remedy.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.