Biden administration and US antitrust agencies balance IP protection with competition concerns

In summary

US enforcement agencies under the Biden administration have continued to shift their stance towards balancing intellectual property rights protection with antitrust concerns. This article discusses the agencies’ policies and practice in this area over the past year, noting that both agencies have pushed back on the use of injunctions and other exclusionary remedies sought by the holders of standard-essential patents (SEPs), particularly those with commitments to license on fair, reasonable and non-discriminatory (FRAND) terms. The article also explores the Biden administration’s first non-merger litigation and provides an update on the Qualcomm antitrust case.

Discussion points

• SEP holder and FRAND licensing policy updates from the agencies
• Recent litigation updates, focusing on the right-to-repair, patent thickets and a potential shift in litigation following agency policy updates
• Biden administration ‘whole-of-government’ approach to competition policy
• Developments in the Qualcomm antitrust case

Referenced in this article

• Koninklijke Philips NV v Thales DIS AIS USA LLC, 2022 WL 2708776
• In the Matter of Harley-Davidson Motor Company Group, LLC, Docket No. C-4778
• In the Matter of MWE Investments, LLC, Docket No. C-4774
• In the Matter of Weber-Stephen Products LLC, Docket No. C-4775
• FTC et al v Syngenta Crop Protection AG et al, 1:22-cv-00828
• Intel Corp v Fortress Inv Grp LLC, 2022 US App Lexis 30900
• U-Blox AG v Interdigital, Inc, 2023 U.S. Dist. Lexis 18030
• In Re: Qualcomm Antitrust Litigation, 3:17-md-02773

Both antitrust agencies discourage SEP injunctions but issue no formal guidance

Both the Department of Justice (DOJ) and the Federal Trade Commission (FTC) have hardened their stances against the holders of standard-essential patents (SEPs) under the Biden administration, reversing a Trump-era shift that had seen greater acceptance of SEP-holder injunctions and other exclusionary remedies.

In May 2022, FTC Chair Lina Khan and Commissioner Rebecca Slaughter jointly filed a Written Submission of Public Interest in a Section 337 investigation before the US International Trade Commission (ITC) regarding patent infringement lawsuits and fair, reasonable and non-discriminatory (FRAND) licensing negotiations. Chair Khan and Commissioner Slaughter argued that: (i) SEP holders often seek exclusionary orders through the ITC solely to improperly obtain leverage in licensing negotiations; and (ii) a SEP holder should not be allowed to seek an exclusion order while a district court reviews FRAND licensing terms.^[1]

The underlying dispute began in 2015, when Koninklijke Philips NV offered a licensing rate per device for an SEP that licensee Thales DIS AIS LLC alleged was not FRAND compliant.^[2] Philips later simultaneously filed both a complaint against Thales in the United States District Court for the District of Delaware^[3] and a complaint before the ITC seeking an exclusion order under Section 337. Thales filed a counterclaim in district court for breach of contract, asking the court to set a FRAND rate, and moving for a preliminary injunction barring Philips from seeking the exclusion order from the ITC.

Chief Judge Colm F Connolly, presiding in Delaware, denied Thales’ motion, reasoning that Thales had failed to demonstrate irreparable harm and that enjoining the parallel ITC investigation raised policy issues that the district court was not equipped to decide. Thales appealed to the Federal Circuit, which affirmed the district court’s decision, reasoning that the district court did not clearly err in determining that Thales’ proffered evidence of customer affidavits that merely ‘voice[d] concerns’ about the threat of ITC exclusion were ‘conclusory’ and failed to establish likely irreparable harm.^[4] Shortly before the appellate ruling, the ITC made its own determination in the matter, finding that Thales did not violate Section 337 and that multiple claims of Phillips’s asserted patents were invalid.

In their Written Submission, Chair Khan and Commissioner Slaughter argued that the ITC’s practice of granting exclusionary orders while a court is resolving FRAND terms is ‘against the public interest’ because the district courts are well equipped to effect enforceable rulings via damages. In these cases, they argued, ‘an exclusion order barring standardized products from the United States will harm consumers and other market participants without providing commensurate benefits’.^[5]

Soon afterwards, then-Commissioner Christine Wilson, the sole Republican serving on the Commission at the time, publicly criticised the Written Submission,^[6] contending that Chair Khan’s and Commissioner Slaughter’s policy would unjustly ‘target innovators that hold SEPs’.^[7] Instead, Commissioner Wilson encouraged the FTC to focus on incentivising competition and innovation broadly and not to give any a priori preference to either innovators or implementers. Commissioner Wilson further argued that the ITC already accounts for the situation at hand, citing an article from former ITC commissioner Deanna Tanner Okun and pointing to public interest factors in ITC analysis that allow for arguments that FRAND commitments had been breached.

Another party-line split on antitrust treatment of SEPs arose in June 2022, when the DOJ Antitrust Division, the US Patent and Trademark Office (USPTO) and the National Institute of Standards and Technology withdrew their joint 2019 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments. The Statement, issued under the Trump administration, provided that a patent holder’s FRAND commitment was not an outright bar to seeking an injunction. Specifically, the Statement contended that FRAND commitments are typically a matter best handled under contract law rather than antitrust law.

The agencies did not issue a new policy statement to replace the 2019 Statement, leaving SEP holders and implementers without formal guidance on available remedies and enforcement priorities. In a contemporaneous press release, current DOJ Antitrust Division head Jonathan Kanter stated that he is ‘hopeful [the DOJ’s] case-by-case approach will encourage good-faith efforts to reach F/RAND licenses and create consistency for antitrust enforcement policy’.^[8] The press release also noted that the DOJ will ‘carefully scrutinize opportunistic conduct by any market player’, noting ‘abusive practices that disproportionately affect small and medium sized business or highly concentrated markets’ or ‘emerging technologies’ as areas of focus.

The FTC’s ITC submission and the DOJ’s decision to withdraw the 2019 SEP Statement reflect significant tension between new Democratic leadership at the agencies and their Republican predecessors. In both cases, the direction of the policy preference of the Biden administration enforcement agencies is clear, but actionable guidance for patent holders and licensees is lacking. In the absence of new general guidance, parties negotiating SEP licences or considering possible judicial or ITC remedies will have to consider that the antitrust agencies’ approach to this area could change again following a change in administration.

This lack of clarity in this area may also lead to suits designed to test the bounds of the agencies’ positions or to test their judicial acceptance. For instance, in January 2023, Swiss chipmaker U-Blox AG again went to federal court accusing InterDigital Inc of violating the antitrust laws by demanding unfairly high royalty rates for SEPs related to 3G and 4G cellular standards.^[9] According to the complaint, InterDigital’s conduct was ‘unnecessarily destructive and outrageous’ because U-Blox had been willing to pay a FRAND rate when the rate was determined in negotiations between the parties.^[10]

The claims are nearly identical to a 2019 lawsuit that U-Blox filed against InterDigital. In the 2019 case, the DOJ quickly weighed in on the side of InterDigital, consistent with the 2019 SEP Statement. The DOJ told the court that U-Blox’s reading of the antitrust laws risked ‘unhelpfully distort[ing] licensing negotiations’ and ‘undermining the incentives for innovation’.^[11] The companies later settled. As the 2019 SEP Statement has been withdrawn, it is unclear whether and how the DOJ will give a view on the 2023 case. At the time of writing, the case sits in the Southern District of California, where Judge Gonzalo Curiel has been fully briefed on InterDigital’s pending motion to dismiss.

DOJ supports patent prosecution reform, while courts reject patent thicket suits

In October 2022, the USPTO issued a request for comments on its ‘Initiatives to Ensure the Robustness and Reliability of Patent Rights’. In February 2023, the DOJ filed a comment supporting the USPTO’s efforts to revisit patent prosecution procedures, including policies on continuations practice and obviousness-type double patenting that ‘unnecessarily impede or delay competition’.^[12] The DOJ comment opened by noting the impact of potentially abusive patent prosecution practices in the pharmaceutical industry, calling out patent ‘thicketing’ and product hopping as ‘particularly problematic . . . because firms can exploit regulatory arbitrage between the patenting rules and the drug approval process’ to their advantage by blocking competitive generic products from entering the market.^[13]

The DOJ’s comment also encouraged collaboration with ‘peer agencies’ such as the Food and Drug Administration and the United States Department of Agriculture to ‘prevent regulatory manipulation that is inconsistent with both agencies’ goals’.^[14] The DOJ then advocated for changes to the accuracy of patent examinations, noting that the reforms being considered by the USPTO would, ‘among other improvements, extend the time for examining patent applications and broaden the resources and information available to examiners, including requiring patent applicants to identify additional support for claims of novelty and nonobviousness during patent prosecution’.^[15] According to the DOJ, these reforms would lead to higher quality patents and reduce the likelihood of patent holders harming competition by misusing patents.

In November 2022, the Ninth Circuit considered the antitrust implications of allegedly over-broad patent portfolios, rejecting an appeal from Intel that claimed Fortress Investment Group violated the antitrust laws through a ‘patent thicket’. In 2019, Intel and Apple sued Fortress after Uniloc, a patent assertion entity controlled by Fortress, asserted dozens of patent lawsuits against both Apple and Intel. Apple eventually dropped its claims against Fortress, leaving Intel to continue the suit alone.

The suit alleged that Fortress had engaged in the aggregation of tech patents with the intent of extorting high royalties, a practice that Intel alleged was a violation of the Sherman Act. Intel also alleged that the patent lawsuits filed against Intel and Apple were a part of a larger scheme by Fortress to financially back companies with massive patent portfolios in the hopes of charging excessive royalty fees for weak patents. Intel ultimately lost its suit against Fortress in the Northern District of California in September 2021. There, Judge Edward Chen explained that Intel had failed to allege that Fortress was the cause of supracompetitive prices on patent royalties.^[16] Intel appealed on the grounds that it need only provide a ‘persuasive narrative of how the scheme harms competition’ at the motion to dismiss stage.^[17]

While the appeal was pending, the Seventh Circuit decided a substantially similar case, Mayor and City Council of Baltimore v AbbVie Inc, upholding the lower court’s decision that the defendant AbbVie, the manufacturer of popular drug Humira, had not violated the antitrust laws by obtaining more than 130 patents directed to its drug product.^[18] The lower court’s decision was largely grounded in the Noerr–Pennington doctrine, which provides immunity for certain activity intended to petition the government, including petitioning the USPTO for the issuance of patents.

Fortress filed a letter with the Ninth Circuit, pointing out that Intel’s allegations against them were substantially similar.^[19] Intel argued that the cases are distinguishable, calling the AbbVie case a ‘fundamentally different antitrust claim’.^[20] Ultimately, the Ninth Circuit agreed with the district court and Fortress, finding that they ‘need not resolve the broader question of whether this type of lawsuit reflects a proper invocation of the antitrust laws because we agree with the district court that after receiving multiple opportunities to amend its complaint, Intel has failed to plead facts sufficient to state its antitrust claims’.^[21]

FTC challenge to alleged pesticide pay-to-block scheme includes rare Clayton Act Section 3 claim

In September 2022, the FTC and a group of 10 states sued Syngenta and Corteva, two of the largest pesticide manufacturers in the United States, alleging that they had engaged in anticompetitive ‘pay to block’ agreements to impede generic competition. Specifically, the complaint alleged that Syngenta and Corteva used ‘loyalty programmes’ with distributors, which offered ‘substantial exclusion payments to distributors conditioned on distributors limiting their purchases’ to the defendants’ products and avoiding purchases of less expensive generic substitutes.^[22] As a result of the deals, the defendant manufacturers were allegedly able to artificially extend the life of their patents and potentially keep generic manufacturers – which, according to the FTC, are often the source of innovative new mixtures – from entering the market.^[23] Interestingly, Chair Khan published an opinion piece in the Des Moines Register focused on the case, arguing that ‘[t]he pesticide giants can make more profits by blocking rival products from the market than by competing with them’, and that ‘[t]hose profits ultimately come from [consumers]’ because ‘[f]armers likely end up charging higher prices to pay for the more expensive pesticides’.^[24]

The case is notable both for being the first non-merger litigation brought by the Biden administration and because of the breadth of the legal tools that the FTC has deployed. The complaint includes allegations under Section 3 of the Clayton Act, which is very rarely used by enforcement agencies. Section 3 prohibits conditioning distribution agreements for the sale of goods on not purchasing from a competitor where the effect may be substantially to lessen competition or tend to create a monopoly, a lower bar of proof than Sherman Act exclusive dealing claims.^[25] The complaint also includes a stand-alone claim under Section 5 of the FTC Act. In July 2021, the Commission had rescinded a 2015 policy statement that had limited the reach of Section 5 on a stand-alone basis.^[26] In November 2022, shortly after the Syngenta complaint was filed, the FTC released a sweeping new statement of Section 5 enforcement, which asserted that the provision reached many kinds of conduct not prohibited under Sherman Act case law.^[27] The Syngenta case therefore represents a test of the current FTC’s expansive view of its enforcement tools.

In December 2022, the defendants filed motions to dismiss the FTC’s claims.^[28] In that same month, however, eight different follow-on actions filed by miscellaneous groups of farmers prompted the judge to consolidate all cases, causing the parties to pull their motions to dismiss and refile in the following month.^[29] Syngenta’s motion argued that the FTC’s claims rely on an ‘unprecedented and unfounded theory that an industry-standard rebate program offering a modest, optional discount to customers to incentivise increased purchases violates the antitrust laws’.^[30] The motions to dismiss are pending at the time of writing.

FTC’s right to repair enforcement push yields settlements

The FTC waded into the broader ‘right to repair’ movement^[31] in 2022 in a series of consent orders. In July 2021, the Commission had voted to adopt a policy statement calling for increased enforcement against restraints on consumers’ ability to repair products themselves or using third-party services.^[32] In June 2022, the FTC filed complaints against the Harley-Davidson Motor Company Group,^[33] MWE Investments (which manufactures Westinghouse products)^[34] and Weber-Stephen Products,^[35] for allegedly restricting customers’ right to repair products purchased from the companies. According to the FTC’s complaints, these companies violated the FTC Act and the Magnuson–Moss Warranty Act by including restrictive terms that would void warranties if consumers used third parties for repairs.

The FTC reached settlements with all three companies and issued final orders requiring (among other things):

• an outright recognition of consumers’ right to repair the products, including the use of third-party repair services;
• disclosure to consumers about the changes to the warranty policies;
• disclosure to authorised dealers of the products regarding the changes in warranties; and
• an outright ban on future violations, subject to civil penalties of up to US$46,517 per violation in federal court.^[36]

Qualcomm litigation update

A follow-on class action to the FTC’s case against Qualcomm has been substantially trimmed and is now teed up for summary judgment. In January 2023, Judge Jacqueline Scott Corley of the Federal District Court for the Northern District of California ruled on Qualcomm’s motion to dismiss claims brought under California state law by a class of mobile phone purchaser consumers.^[37] The Court considered whether the plaintiffs’ claims under California’s Cartwright Act could survive notwithstanding the Ninth Circuit’s finding that Qualcomm had not violated federal antitrust laws.^[38] The Court held that the plaintiffs could not state a tying theory because California law has not found tying where there is no rival seller of the tied product.^[39] However, the Court accepted the plaintiffs’ exclusive dealing theory and rejected arguments that the analysis in the FTC case controlled, finding that the consumer plaintiffs’ allegations differed from the FTC’s because they included claims concerning exclusive deals with original equipment manufacturers other than Apple.^[40]

In April 2023, Qualcomm filed a motion for summary judgment (having failed to convince Judge Corley to make a judgment on the pleadings).^[41] The motion takes aim at the sufficiency of the plaintiffs’ expert testimony on a stand-alone exclusive dealing claim, arguing that a ‘few stray conclusory statements’ from the plaintiff’s expert on exclusive deals with manufacturers other than Apple ‘fall far short of the concrete evidence plaintiffs must present’.^[42] The plaintiffs have filed an opposition brief arguing that there is sufficient evidence in the record to proceed to trial and that any evidentiary deficiency arises from the Court’s decision not to allow plaintiffs to update their expert analysis.^[43] At the time of writing, the motion is still pending before the Court.

Notes