Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments

Update: This Statement has been withdrawn. Find the current Statement here: https://www.justice.gov/atr/page/file/1228016/download

UNITED STATES DEPARTMENT

OF JUSTICE AND

UNITED STATES PATENT & TRADEMARK OFFICE

POLICY STATEMENT ON REMEDIES FOR STANDARDS-ESSENTIAL PATENTS SUBJECT TO

VOLUNTARY F/RAND COMMITMENTS

January 8, 2013

The U.S. Department of Justice, Antitrust Division (DOJ), and the U.S. Patent &

Trademark Office (USPTO), an agency of the U.S. Department of Commerce, provide

the following perspectives on a topic of significant interest to the patent and standards-

setting communities: whether injunctive relief in judicial proceedings or exclusion orders

in investigations under section 337 of the Tariff Act of 1930

are properly issued when a

patent holder seeking such a remedy asserts standards-essential patents that are

encumbered by a RAND or FRAND licensing commitment.

The patent system promotes innovation and economic growth by providing

incentives to inventors to apply their knowledge, take risks, and make investments in

research and development and by publishing patents so that others can build on the

disclosed knowledge with further innovations. These efforts, in turn, benefit society as a

whole by disseminating knowledge and by providing new and valuable technologies,

Although the focus of the present policy statement is on exclusion orders issued pursuant to 19 U.S.C. §

1337, similar principles apply to the granting of injunctive relief in U.S. federal courts, which is governed

by the standards set forth by the U.S. Supreme Court in eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388

(2006). The present policy statement is not, however, intended to be a complete legal analysis of injunctive

relief under the eBay standard.

For purposes of this statement, a patent is RAND- or FRAND-encumbered where a patent holder has

voluntarily agreed to license the patent on reasonable and non-discriminatory (RAND) terms or fair,

reasonable, and non-discriminatory (FRAND) terms while participating in standards-setting activities at a

standards-developing organization (SDO). In the United States, SDO members may commit to license all

of their patents that are essential to the SDO standard on RAND terms. In other jurisdictions, SDO

members may commit to license such patents on FRAND terms. For the purposes of this letter, F/RAND

refers to both types of licensing commitments. Commentators frequently use the terms interchangeably to

denote the same substantive type of commitment.

lower prices, improved quality, and increased consumer choice.

The DOJ and USPTO

recognize that the right of a patent holder to exclude others from practicing patented

inventions is fundamental to obtaining these benefits. It is incorporated into section 337

of the Tariff Act of 1930 itself, which forbids the unlawful “importation into the United

States . . . of articles that . . . infringe a valid and enforceable United States patent.”

noted in the Administration’s 2010 Joint Strategic Plan on Intellectual Property

Enforcement, “[s]trong enforcement of intellectual property rights is an essential part of

the Administration’s efforts to promote innovation and ensure that the U.S. is a global

leader in creative and innovative industries.”

Accordingly, as historically has been the

case, exclusion typically is the appropriate remedy when an imported good infringes a

valid and enforceable U.S. patent.

Standards, and particularly voluntary consensus standards set by standards-

developing organizations (SDOs), have come to play an increasingly important role in

our economy.

Voluntary consensus standards, i.e., agreements containing technical

See, e.g., OFFICE OF THE U.S. INTELLECTUAL PROP. ENFORCEMENT COORDINATOR, OFFICE OF MGMT. &

BUDGET, EXEC. OFFICE OF THE PRESIDENT, 2010 JOINT STRATEGIC PLAN ON INTELLECTUAL PROP.

ENFORCEMENT 3 (2010) [hereinafter 2010 JOINT STRATEGIC PLAN],

http://www.whitehouse.gov/sites/default/files/omb/assets/intellectualproperty/intellectualproperty strategic

plan.pdf. (“Enforcement of intellectual property rights is a critical and efficient tool we can use, as a gov-

ernment, to strengthen the economy, support jobs and promote exports. Intellectual property supports jobs

across all industries, and in particular where there is a high degree of creativity, research and innovation.”).

19 U.S.C. § 1337(a)(1)(B)(i) (2006).

2010 JOINT STRATEGIC PLAN, supra note 3, at 4.

Congress and the Executive Branch have recognized the benefits of voluntary consensus standards. SDOs

play an essential role in the development of such standards. See, e.g., National Technology Transfer and

Advancement Act of 1995, Pub. L. No. 104-113 § 12(d), 110 Stat. 775, 783 (1996), 15 U.S.C. § 272 note

(2006)); O

FFICE OF MGMT. & BUDGET, EXEC. OFFICE OF THE PRESIDENT, OMB CIRCULAR A-119, FED.

PARTICIPATION IN THE DEV. AND USE OF VOLUNTARY CONSENSUS STANDARDS AND IN CONFORMITY

ASSESSMENT ACTIVITIES (1998), www.whitehouse.gov/omb/circulars a119; see also Mem. from the Exec.

specifications or other criteria, are generally produced by private-sector organizations

engaged in the development of standards.

Voluntary consensus standards serve the public interest in a variety of ways, from

helping protect public health and safety to promoting efficient resource allocation and

production by facilitating interoperability among complementary products.

Interoperability standards have paved the way for moving many important innovations

into the marketplace, including the complex communications networks and sophisticated

mobile computing devices that are hallmarks of the modern age. Indeed, voluntary

consensus standards, whether mechanical, electrical, computer-related, or

communications-related, have incorporated important technical advances that are

Office of the President on the Principles for Fed. Engagement in Standards Activities to Address Nat’l

Priorities for the Heads of Exec. Dep’ts and Agencies (Jan. 17, 2012),

http://www.whitehouse.gov/sites/default/files/omb/memoranda/2012/m-12-08 1.pdf.

Participation in their development is optional and the resulting standards are generally intended for

voluntary use. U.S. Dep’t of Commerce, Standards and Competitiveness: Coordinating for Results 5

(2004),

http://www.ita.doc.gov/td/standards/pdf%20files/Standards%20and%20Competitiveness.pdf.

In the United States alone, there are approximately 50,000 private-sector voluntary standards developed by

more than 600 organizations. See Overview of the U.S. Standardization System, Am. Nat’l Standards Inst.,

http://www.standardsportal.org/usa en/standards system.aspx (last visited Dec. 7, 2012). The U.S.

standards system is tremendously diverse, resulting in a system that is largely sectoral in focus. This is a

logical approach because SDOs developing standards for use in each industrial sector, such as the

information technology, telecommunications, automotive, medical devices, and building technology

sectors, are most likely to understand that sector’s needs and to know what standards best meet those needs.

Many products, including those in the telecommunications sector, are based on multiple voluntary

consensus standards developed by a number of different SDOs with different patent-licensing policies.

Due to the important role of F/RAND-licensed intellectual property in the standards process, we

understand that the National Science and Technology Council Subcommittee on Standards, which includes

broad representation from stakeholder agencies, plans to study this issue to explore any broader potential

impacts of this, and other, related policies.

fundamental to the interoperability of many of the products on which consumers have

come to rely.

However, collaborative standards setting does not come without some risks. For

example, when a standard incorporates patented technology owned by a participant in the

standards-setting process, and the standard becomes established, it may be prohibitively

difficult and expensive to switch to a different technology within the established standard

or to a different standard entirely. As a result, the owner of that patented technology may

gain market power and potentially take advantage of it by engaging in patent hold-up,

which entails asserting the patent to exclude a competitor from a market or obtain a

higher price for its use than would have been possible before the standard was set, when

alternative technologies could have been chosen. This type of patent hold-up can cause

other problems as well. For example, it may induce prospective implementers to

postpone or avoid making commitments to a standardized technology or to make

inefficient investments in developing and implementing a standard in an effort to protect

themselves. Consumers of products implementing the standard could also be harmed to

the extent that the hold-up generates unwarranted higher royalties and those royalties are

passed on to consumers in the form of higher prices.

See SUBCOMM. ON STANDARDS, NAT’L SCI. & TECH. COUNCIL, OFFICE OF SCI. & TECH. POLICY, EXEC.

OFFICE OF THE PRESIDENT, FED. ENGAGEMENT IN STANDARDS ACTIVITIES TO ADDRESS NAT’L PRIORITIES:

BACKGROUND AND PROPOSED POLICY RECOMMENDATIONS 1 (Oct. 10, 2011),

http://standards.gov/upload/Federal Engagement in Standards Activities October12 final.pdf.

See U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL

PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION 35-36 (2007),

http://www.justice.gov/atr/public/hearings/ip/222655 htm.

In an effort to reduce the occurrences of opportunistic conduct in the adoption of

voluntary consensus standards, while encouraging participants to include the best

available technology in standards, some SDOs have relied on voluntary licensing

commitments by their participants, including commitments to license the patents they

own that are essential to the standard on F/RAND terms. SDOs and their members rely

on these voluntary F/RAND commitments to facilitate the bilateral licensing negotiations

necessary for successful widespread adoption of a standard and to provide assurances to

implementers of the standard that the patented technologies will be available to parties

seeking to license them.

In making such voluntary F/RAND licensing commitments, patent holders that

also sell products and services related to the standard benefit from expanded marketing

opportunities, and patent holders that focus on licensing their inventions benefit from an

expanded source of revenues. These incentives encourage patent holders to contribute

their best technology to the standardization process. F/RAND commitments may also

contribute to increased follow-on innovation by allowing non-discriminatory access to

networks both to new entrants and to established market participants to introduce new

generations of network-operable devices.

In light of these and other potential benefits,

the United States continues to encourage systems that support voluntary F/RAND

licensing—both domestically and abroad—rather than the imposition of one-size-fits-all

By participating in the standards-setting activities at the SDO and by voluntarily making a F/RAND

licensing commitment under the SDO’s policies, the patent holder may be implicitly acknowledging that

money damages, rather than injunctive or exclusionary relief, is the appropriate remedy for infringement in

certain circumstances, as discussed below.

See Letter from Thomas O. Barnett, Assistant Att’y Gen., U.S. Dep’t of Justice, to Robert A. Skitol, Esq.

7 (Oct. 30, 2006),

http://www.usdoj.gov/atr/public/busreview/219380.pdf.

mandates for royalty-free or below-market licensing, which would undermine the

effectiveness of the standardization process and incentives for innovation.

A patent owner’s voluntary F/RAND commitments may also affect the

appropriate choice of remedy for infringement of a valid and enforceable standards-

essential patent. In some circumstances, the remedy of an injunction or exclusion order

may be inconsistent with the public interest. This concern is particularly acute in cases

where an exclusion order based on a F/RAND-encumbered patent appears to be

incompatible with the terms of a patent holder’s existing F/RAND licensing commitment

to an SDO. A decision maker could conclude that the holder of a F/RAND-encumbered,

standards-essential patent had attempted to use an exclusion order to pressure an

implementer of a standard to accept more onerous licensing terms than the patent holder

would be entitled to receive consistent with the F/RAND commitment—in essence

concluding that the patent holder had sought to reclaim some of its enhanced market

power over firms that relied on the assurance that F/RAND-encumbered patents included

in the standard would be available on reasonable licensing terms under the SDO’s

policy.

Such an order may harm competition and consumers by degrading one of the

tools SDOs employ to mitigate the threat of such opportunistic actions by the holders of

F/RAND-encumbered patents that are essential to their standards.

Moreover, this type of hold-up may be exacerbated when patents are sold or otherwise transferred by

their owners. If F/RAND licensing obligations do not travel with a transferred patent , the potential for

hold-up from the network effects of a standard may be substantially increased. For this reason, we believe

that F/RAND commitments should bind subsequent patent transferees. See Renata B. Hesse, Deputy

Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Six “Small” Proposals for SSOs before Lunch:

Remarks as Prepared for the ITU-T Patent Roundtable (Oct. 10, 2012),

http://www.justice.gov/atr/public/

speeches/287855.pdf

This is not to say that consideration of the public interest factors set out in the

statute would always counsel against the issuance of an exclusion order to address

infringement of a F/RAND-encumbered, standards-essential patent. An exclusion order

may still be an appropriate remedy in some circumstances, such as where the putative

licensee is unable or refuses to take a F/RAND license and is acting outside the scope of

the patent holder’s commitment to license on F/RAND terms.

For example, if a

putative licensee refuses to pay what has been determined to be a F/RAND royalty, or

refuses to engage in a negotiation to determine F/RAND terms, an exclusion order could

be appropriate. Such a refusal could take the form of a constructive refusal to negotiate,

such as by insisting on terms clearly outside the bounds of what could reasonably be

considered to be F/RAND terms in an attempt to evade the putative licensee’s obligation

to fairly compensate the patent holder.

An exclusion order also could be appropriate if

a putative licensee is not subject to the jurisdiction of a court that could award damages.

This list is not an exhaustive one. Rather, it identifies relevant factors when determining

whether public interest considerations should prevent the issuance of an exclusion order

As courts have found, when a holder of a standards-essential patent makes a commitment to an SDO to

license such patents on F/RAND terms, it does so for the intended benefit of members of the SDO and third

parties implementing the standard. These putative licensees are beneficiaries with rights to sue for breach

of that commitment. See Microsoft Corp. v. Motorola, Inc., 864 F. Supp. 2d 1023, 1030-33 (W.D. Wash.

2012); Microsoft Corp. v. Motorola, Inc.,854 F. Supp. 2d 993, 999-1001 (W.D. Wash. 2012); see also

Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 884 (9th Cir. 2012) (holding that the “district court’s

conclusions that Motorola’s RAND declarations to the ITU created a contract enforceable by Microsoft as a

third-party beneficiary (which Motorola concedes), and that this contract governs in some way what actions

Motorola may take to enforce its ITU standard-essential patents (including the patents at issue in the

German suit), were not legally erroneous”); Apple, Inc. v. Motorola Mobility, Inc., --- F. Supp. 2d ---, No.

11-cv-178bbc, 2012 WL 3289835, at *21-22 (W.D. Wis. Aug. 10, 2012); Apple, Inc. v. Motorola Mobility,

Inc., No. 11-cv-178bbc, 2011 WL 7324582, at *7-11 (W.D. Wis. June 10, 2011).

We recognize that the risk of a refusal to license decreases where the putative licensee perceives a cost

associated with delay and increases where the putative licensee believes its worst-case outcome after

litigation is to pay the same amount it would have paid earlier for a license.

based on infringement of a F/RAND-encumbered, standards-essential patent or when

shaping such a remedy.

Voluntary consensus standards-setting activities benefit consumers and are in the

public interest. Although we recommend caution in granting injunctions or exclusion

orders based on infringement of voluntarily F/RAND-encumbered patents essential to a

standard, DOJ and USPTO strongly support the protection of intellectual property rights

and believe that a patent holder who makes such a F/RAND commitment should receive

appropriate compensation that reflects the value of the technology contributed to the

standard. It is important for innovators to continue to have incentives to participate in

standards-setting activities and for technological breakthroughs in standardized

technologies to be fairly rewarded. By providing these views on ways in which

opportunistic conduct by patent holders and putative licensees may be mitigated, the DOJ

and USPTO seek to ensure that there is greater certainty concerning the meaning of a

F/RAND commitment so that incentives to participate in voluntary consensus standards-

setting activities continue to be strong.

The DOJ is the executive-branch agency charged with protecting U.S. consumers

by promoting and protecting competition. The USPTO, an agency of the Department of

Commerce, is the executive-branch agency charged with responsibility for examining

patent applications, issuing patents, and—through the Secretary of Commerce—advising

the President on domestic and certain international issues of intellectual property

policy.

The DOJ and USPTO are concerned about the potential impact of exclusion

See 35 U.S.C. §§ 1, 2 (2006).

orders on “competitive conditions in the United States” and “United States consumers” in

some cases involving F/RAND-encumbered patents that are essential to a standard, and

the conditions under which they may be denied.

Although, as described above, an

exclusion order for infringement of F/RAND-encumbered patents essential to a standard

may be appropriate in some circumstances, we believe that, depending on the facts of

individual cases, the public interest may preclude the issuance of an exclusion order in

cases where the infringer is acting within the scope of the patent holder’s F/RAND

commitment and is able, and has not refused, to license on F/RAND terms.

The approach the U.S. International Trade Commission (USITC) adopts in cases

involving voluntarily F/RAND-encumbered patents that are essential to a standard will be

important to the continued vitality of the voluntary consensus standards-setting process

and thus to competitive conditions and consumers in the United States. In an era where

competition and consumer welfare thrive on interconnected, interoperable network

platforms, the DOJ and USPTO

urge the USITC to consider whether a patent holder

has acknowledged voluntarily through a commitment to license its patents on F/RAND

terms that money damages, rather than injunctive or exclusionary relief, is the appropriate

remedy for infringement.

The USITC has a mandate to consider the “effect of such exclusion upon the

public health and welfare, competitive conditions in the United States economy, the

19 U.S.C. § 1337(d)(1) (2006).

See 19 U.S.C. § 1337(b)(2) (2006) (directing the USITC to consult with the Department of Justice and

“other departments and agencies as it considers appropriate”).

production of like or directly competitive articles in the United States, and United States

consumers.”

As the USITC has observed, these public interest factors ‘“are not meant

to be given mere lip service,” but rather “‘public health and welfare and the assurance of

competitive conditions in the United States economy must be the overriding

considerations in the administration of this statute.’”

The USITC may conclude, after applying its public interest factors, that exclusion

orders are inappropriate in the circumstances described in more detail above.

Alternatively, it may be appropriate for the USITC, as it has done for other reasons in the

past, to delay the effective date of an exclusion order for a limited period of time to

provide parties the opportunity to conclude a F/RAND license.

Finally, determinations on the appropriate remedy in cases involving F/RAND-

encumbered, standards-essential patents should be made against the backdrop of

promoting both appropriate compensation to patent holders and strong incentives for

innovators to participate in standards-setting activities.

19 U.S.C. § 1337(d)(1).

Certain Inclined Field Acceleration Tubes & Components Thereof, Inv. No. 337-TA-67, USITC Pub.

1119, Comm’n Op., at 22 (Dec. 1980) (emphasis in original) (quoting S. R

EP. 93-1298, at 197 (1974),

reprinted in 1974 U.S.C.C.A.N. 7186, 7330).