A Step in the Right Direction for SEP Litigation
On January 3, 2013, the Federal Trade Commission announced an agreement with Google Inc. to settle and close certain claims and investigations. There are two aspects to the settlement, both of which address competition in the marketplace. As described by FTC Chairman Jon Leibowitz, The first involves Googles misuse of patent protection to prevent competition . . . The second concerns allegations that Google unfairly biases its search results to harm competition. While the latter aspect generated more reaction, the former should not be overlooked as it could profoundly impact IP litigation involving standard essential patents (SEPs).
There are several notable parts to Googles settlement with the FTC. Google must abandon its claims for injunctive relief on any of its SEPs with a fair, reasonable, and non-discriminatory (FRAND) commitment, and it must offer a license on FRAND terms to any company that wants to license these patents in the future. David Drummond, Googles senior vice president and chief legal officer, responded to the FTC announcement stating, [W]eve agreed with the FTC that we will seek to resolve standard-essential patent disputes through a neutral third party before seeking injunctions. This is significant. After a lengthy and contentious battle with market participants, Google is finally agreeing to seek remedy outside of court.
In addressing the misuse of patent protection to prevent competition, the FTC sought to address what has become a problem facing certain industries, including the smartphone and tablet industries: the pursuit of injunctions in patent litigation of SEPs. The FTCs actions specifically addressed the actions of Google and its acquired entity Motorola Mobility LLC.
The FTC describes SEPs as the cornerstone of the system of interoperability standards that ensure that wireless Internet devices and mobile phones can talk to one another. Years ago, Motorola promised to license its SEPs on FRAND terms to interested manufacturers; however, Motorola, and later Google, sought numerous injunctions and exclusion orders across the world regarding these SEPs. In the Agreement Containing Consent Order (Proposed Consent Order) between the parties, the FTC makes clear that companies that commit to include patents in a standard must make them available on reasonable terms and must stand by that commitment.
The FTCs settlement with Google is by no means an end to disputes regarding SEPs and licensing on FRAND terms. However it does begin to outline a roadmap toward resolution wherein injunctions are less likely an available remedy, at least within the United States. It remains to be seen whether that roadmap contains loopholes or exceptions that will enable Google to continue pursuing injunctions for SEPs. However, the FTCs actions and statements suggest that it desires to put an end to such abuses.
The comment period regarding the Proposed Consent Order closed on February 22, with 25 responses received. The responses were filed by corporations including Ericsson Inc., Microsoft Corporation, Qualcomm Incorporated, and Research In Motion, and by interest groups including the American Arbitration Association, Application Developers Alliance, IEEE, and the Intellectual Property Owners Association.
The respondents approached the Proposed Consent Order from a variety of perspectives. For instance, Microsoft is embroiled in litigation with Google involving SEPs, while respondents such as Ericsson and Qualcomm have contributed considerably to the telecommunication standard-setting process and have a vested interest in maximizing the return they can earn on the thousands of SEPs they hold. While the responses vary greatly in some respects, in other respects the parties find themselves in agreement.
Just one day after the FTC-Google announcement, Microsoft filed a Notice of Development with the International Trade Commission stating, As a result of the settlement Motorola and Google have entered with the FTC, Microsoft expects that Motorola will immediately dismiss from this investigation its claims in connection with the 094 and 596 patents, which Motorola asserts to be H.264 standard essential patents. Motorola subsequently filed on January 8 a motion to terminate the ITC investigation of these same two patents. Motorola further stated that it will not waive any rights in its pending lawsuits against Microsoft in the U.S. District Courts for the Western District of Washington and the Western District of Wisconsin, and that it fully intends to enforce its rights for past damages. Microsoft Deputy General Counsel David Howard said he was pleased that Google withdrew its claims for exclusion orders against Microsoft and hopes Google will withdraw similar claims in other jurisdictions.
Interestingly, in its formal response to the FTC more than a month later, Microsoft noted, The Order indeed appears to ban Google from continuing to pursue its pending injunctive relief actions. Nevertheless, Google has not withdrawn all of its pending injunctive relief actions based on FRAND-encumbered SEPs . . . We assume that Googles refusal to withdraw its pending claims for injunctive relief means that it interprets the proposed Order to permit it to continue its existing claims for injunctive relief, notwithstanding the Commissions public statement to the contrary.
An additional concern put forth by some of the respondents is that the FTC-Google settlement will be used as a template for the resolution of other disputes involving SEPs. Ericsson addressed this issue in its response stating, From Ericssons perspective, the existing standard setting process in the telecommunications industry, which contemplates the availability of injunctive relief, has encouraged the development of an extremely competitive and innovative industry. Ericsson therefore urges the Commission to limit the Order to the unique circumstances of this case and to refrain from identifying the resolution with broader applicability. Meanwhile, Qualcomm took a stronger position regarding similar concerns stating, We encourage the Commission to proceed carefully, on a fact-specific and case-by-case basis, to guard against genuine and demonstrated abuses, rather than attempting to rely on a regulatory construct that will for a time confuse the industry, and that will face serious judicial challenge.
The FTC settlement with Google and Motorola regarding SEPs may have a profound impact on pending and future litigation. Google and Motorola have agreed to resolve SEP disputes through a third party before seeking injunctions. Such activity will almost certainly reshape the IP litigation involving Google and Motorola regarding SEPs. However, other parties that hold SEPs, or that have or may have SEPs asserted against them, may also be affected. Although the FTC Proposed Consent Order pertains specifically to Google and Motorola, the enforcement action will establish, according to the FTC, a template for resolution of SEP licensing disputes across many industries. It is expected that defendants in such cases will ask courts to rely on the FTC Proposed Consent Order when considering injunction remedies for infringement of SEPs.
The FTC now has the responses of 25 interested parties to the FTC-Google settlement. The impact of this agreement and the responses filed is yet to be seen. However parties have for some time been struggling to find a way to resolve disputes surrounding the terms for SEPs. This agreement is a step in the right direction.
Marylee P. Robinson is a director with the accounting, financial, and economic consulting firm Invotex Inc. She can be reached at firstname.lastname@example.org or 410-824-6006.