Patent policy proposal stirs the pot of business versus innovation interests

On February 2, the U.S. Department of Justice (DOJ) announced that it will not challenge a proposal by the Institute of Electrical and Electronics Engineers (IEEE) to update the IEEE Standards Association’s (IEEE-SA) patent policy. That policy governs the incorporation of patented technology in IEEE standards and explains the terms under which holders of patents essential to IEEE standards commit to make licenses available for use in implementing IEEE standards.

The IEEE had submitted a business review letter on September 30, 2014, asking for a statement on the intentions of the DOJ’s antitrust enforcement of a proposed update to the IEEE-SA’s patent policy.

But what was the update the IEEE-SA was asking the DOJ to review? The IEEE claims that the purpose of the policy revision was to provide greater clarity on issues that have divided Standard Essential Patent (SEP) owners and standards implementers in recent years. Four key elements were included in the policy update:

  • Greater clarity on the meaning of “Reasonable” rate; the value of a patent.
  • Greater clarity on non-discrimination (through definition of “compliant implementation”); distinguishing between suppliers and end users.
  • Greater clarity of availability of “prohibitive orders”; preventing threats of withholding patent licensee after submitting patent letter of assurance.
  • Greater clarity on permissible demands for reciprocal licenses; preventing licensing without reciprocal licenses on own essential patent claims on same standard.

While I am not a legal authority, I thought it would be interesting to hear from industry pundits on what they thought of the proposed update. Most comments blame this policy update on past issues with patents in various standards that are developed through the IEEE-SA. Issues have arisen over Fair, Reasonable, and Non-Discriminatory (FRAND) terms. This is an age-old challenge that has no easy definition, but the IEEE is trying lay down some ground rules to get a step closer.

Rather than try to analyze or reproduce the comments of some of the pundits, I will summarize their positions and leave it for you to make your own interpretation. Erik Telford, acting president at the Franklin Center for Government & Public Integrity, posted his concerns that the Obama administration, with its regulate-rather-than-investigate approach, was trying pressure the IEEE to change its policy:

“Specifically, the DOJ and a few companies with uncomfortably close ties to the White House are pressuring the IEEE to change its current patent policy to shift power away from innovators – imposing price caps and weakening patent enforcement rights of all innovators who contribute to IEEE standards.”

He ends his comments with this question: “Why [would] the DOJ involve itself in a technical organization’s internal rule-making process? Did I mention the DOJ isn’t saying anything public about this, either?” His post went up before the DOJ released its letter to the IEEE.

Patent licensing professional Alex Fasell goes into more detail in his analysis of the update to the IEEE patent policy, and I recommend reviewing his blog post to consider his perspective:

“The Standardization Setting Organizations (SSO) IPR policies set the delicate basis for achieving a long-term balance between incentive for innovation and incentive for implementation. This balance is for the common good of technological innovation, a healthy marketplace for implementers, and ultimately consumer choice. However, it seems to me that in the new draft patent policy for IEEE, shorter-term business interests of implementers may have been allowed to take on rather more weight than they should have. To my knowledge, no obvious market need has been demonstrated for any of the changes proposed. Nor is there any legal mandate for them and in fact, some changes even tend to run contrary with U.S. Federal Circuit opinion.”

Ray Alderman, VITA chairman of the board and self-proclaimed ex ante pundit, had this to offer:

“I think it basically says that (1) once an SEP holder declares their patent to a committee and offers RAND licensing, if something goes wrong for some reason, that patent holder CANNOT ask a court for an injunction against the implementers using their patented technology without a license. The patent holder must negotiate and resolve the problems with the potential licensees in good faith. (VITA’s policies already have this provision: disputes go to arbitration.)

“(2) It says that an SEP holder CANNOT ask for fees and royalties for the patent being put in the standard that are greater than if the patent was NOT being put in the standard. In other words, an SEP holder cannot benefit from the power of the patent being in the standard as leverage to demand higher royalties and fees from licensees (how they intend to establish those two numbers is not stated). Also, an SEP holder CANNOT get an injunction to coerce the licensees to pay higher fees and royalties than the patent would demand if it were not included in the standard.

“VITA’s policies do NOT have this provision. But what we do have is ‘mandatory disclosure of maximum fees, royalty rates, and terms’ ex ante, before the fact. That way, implementers can see what their costs are at the beginning, before they invest in compliant products. The IEEE has ‘voluntary disclosure’ of the rates and terms, and only two companies (out of 40 disclosures) have voluntarily disclosed their rates and fees on the front end (they waited until implementers had invested in compliant products, and THEN announced rates, which were obviously higher than anticipated and based on the value of the patent being put in the standard rather than standing alone).

“What the IEEE has done is try to plug up the holes in their ‘voluntary’ disclosure policies. If they had just adopted VITA’s policies of ‘mandatory ex ante disclosure,’ none of these changes here would be needed (but, I suppose they could not get the members to support mandatory disclosure). And they seem to have created a new Frankenstein: How do they value a patent both before and after it has been put into a standard?”

Summary

On December 6, 2014, the IEEE Board of Governors voted 9-3 to approve the update, without modification, contingent upon receipt of a favorable business review letter from the DOJ and review by the IEEE Board of Directors. The IEEE Board is expected to vote on the update at its regularly scheduled meeting in February 2015. By the time you read this, the vote may be tallied.

I agree with Ray that if the IEEE had a stronger position on ex ante patent disclosure upfront, many issues could be circumvented much earlier in the process. The area I continue to struggle with is the definition of FRAND. Minds much greater than mine have attempted to put together clear definitions to no avail. I do not believe that a better definition will stifle innovation, as some pundits claim. As long as business is at stake and lawyers exist, an acceptable definition will be difficult to construct.

References

[1] Full text of the redlined policy, Draft 39, http://grouper.ieee.org/groups/pp-dialog/drafts_comments/SBBylaws_100614_redline_current.pdf

[2] Business review request letter from the IEEE, September 30, 2014, http://www.justice.gov/atr/public/busreview/request-letters/311483.pdf

[3] U.S. Department of Justice response, February 2, 2015, http://www.justice.gov/atr/public/busreview/311470.htm

[4] U.S. Department of Justice press release, February 2, 2015, http://www.justice.gov/atr/public/press_releases/2015/311475.htm

[5] “On the draft IEEE patent policy,” Alex Fasell, December 29, 2014, http://patentperspectives.blogspot.com/2014/12/on-new-draft-ieee-patent-policy.html

[6] “Obama’s Government Takeover of WiFi,” Erik Telford, RedState, January 30, 2015, http://www.redstate.com/diary/eriktelford/2015/01/30/obamas-government-takeov

 

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