UK: Hold Up Or Hold Out: Differing Perspectives On Standard Essential Patent Licensing At The DOJ And FTC

Antitrust regulators have been giving increasing thought to the intersection of intellectual property and antitrust as technology has taken a central role in the day-to-day life of consumers. Industry standards play a vital role in ensuring that this technology functions properly and that complementary products interoperate. In a series of recent speeches, Makan Delrahim, the Assistant Attorney General ("AAG") for the Antitrust Division of the Department of Justice ("DOJ"), has signaled a departure from previous DOJ guidance focused on the behavior of patent holders in the standard setting space. Instead, AAG Delrahim suggests that the true risk lies with entities seeking to use standard patented technology in their products. This shift in attention is in stark contrast to the ongoing enforcement action by the Federal Trade Commission ("FTC") against Qualcomm, a patent holder alleged to have used the inclusion of its technology in a standard to maintain a monopoly.

I. What is Standard Setting?

Standard setting organizations ("SSOs") are private organizations that adopt standards containing technical specifications and other criteria to ensure that the components of technological devices are interoperable. Standards are voted on by SSO members, who are industry participants—both those that invent technology ("innovators") and those that incorporate technology into their products ("implementers"). Standard-essential patents ("SEPs") are patents for any part of the technology that are necessary to meet a technical standard. Some SSO members may own the SEPs that are incorporated into these standards. Implementers seeking to use the technology claimed by a SEP must seek a license from the innovator who owns that SEP.

To prevent innovators from charging excessive royalties on SEPs required to meet a chosen technical standard, many SSOs rely on voluntary licensing commitments by SSO members.2 Under these voluntary commitments, member SEP holders agree to license their patents on fair, reasonable, and non-discriminatory ("FRAND" or "RAND") terms to both SSO members and non-members. These commitments facilitate negotiations between innovators and implementers and enable industry-wide adoption of standards.

II. History of Standard-Setting Guidance at the FTC and DOJ

Historically, guidance from the DOJ and FTC has been concerned with the issue of patent "hold up," which includes the charging of high licensing royalties or fees by a SEP owner once the technology claimed by its patent has been adopted as an industry-wide standard and implementers have no choice but to use that technology. Less discussion has focused on patent "hold out," or an implementer's refusal to pay FRAND royalties or negotiate FRAND terms after an innovator has incurred sunk costs into developing technology.

In 2007, the DOJ and FTC published a joint report that provided guidance to SSOs to help "mitigate the potential for hold up," suggesting mechanisms such as the ex ante consideration of licensing terms.3 In 2011, the FTC published a report stating that "[h]old-up may have especially severe consequences for innovation and competition in the context of standardized technology." 4 Noting that RAND is not clearly defined, the report provided guidance to courts attempting to value RAND royalties. 5 Both this 2011 report and a 2013 joint policy statement released by the DOJ and U.S. Patent and Trademark Office ("USPTO") 6 addressed the use of injunctions in patent infringement suits involving a SEP. The reports suggested that a RAND commitment by a SEP holder evinces that royalties may suffice as a remedy and could weigh against the granting of an injunction. 7 Further, the 2011 report stated that courts should consider whether an injunction would "deprive consumers of interoperable products; raise costs above the incremental value of the invention compared to alternatives at the time the standard was set; or threaten to undermine the collaborative innovation that can result from the standard setting process." 8

This concern was reiterated in the 2013 statement, which stated that "determinations on the appropriate remedy in cases involving FRAND-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." 9 However, the 2013 statement acknowledged that an injunction may be appropriate where an implementer is unable or refuses to take a FRAND license in an attempt to avoid compensating the SEP holder or where a court could not award damages. 10

III. Recent DOJ Statements

AAG Delrahim, the first registered patent lawyer to head the Antitrust Division, 11 has discussed the application of antitrust law to intellectual property rights at length. Describing his "New Madison" approach, AAG Delrahim set out four basic principles aimed at ensuring continued innovation and dynamic competition in the context of standard setting:

(1) antitrust law should not be used as a tool to police FRAND commitments that innovators make to SSOs;

(2) SSOs should not become vehicles for concerted action by implementers, which would reduce incentives to innovate and encourage hold out;

(3) a key feature of patent rights is the right to exclude, therefore SSOs and courts should have a very high burden before adopting rules that restrict that right or amount to a compulsory licensing scheme; and

(4) consistent with this right to exclude, unilateral and unconditional refusals to license a patent are per se legal under the antitrust laws. 12

First, AAG Delrahim posited that condemning hold up in isolation, while ignoring hold out, risks over-enforcement under the antitrust laws. 13 This over-enforcement would, in turn, discourage innovation, particularly in light of the deterrent effect of treble damages available under the Sherman Act. 14 Therefore, antitrust laws should not be used as a tool to ensure that SEP holders fulfill voluntary FRAND commitments. AAG Delrahim supported this principle by pointing to Supreme Court jurisprudence interpreting the Sherman Act, which cautioned against "false positives" condemning lawful pro-competitive conduct and found that there is no antitrust duty to deal with another company or a competitor. 15 Additionally, the Supreme Court has emphasized that the Sherman Act does not recognize a cause of action that would require antitrust courts to determine pricing and deal terms. 16 With this Supreme Court guidance in mind, AAG Delrahim stated that a unilateral refusal to license a SEP is not a form of unlawful exclusionary conduct, and that there is no antitrust-imposed duty for a SEP holder to license on FRAND terms, even after making a voluntary commitment. 17 Further, contrary to the FTC's guidance in its 2011 report, AAG Delrahim counseled that antitrust courts are not authorized to determine what royalty rates meet FRAND requirements. 18 Instead, AAG Delrahim suggested that FRAND disputes are best remedied under contract law because "contract remedies do not involve the threat of treble damages that can deter lawful, procompetitive conduct." 19


1 Justine Haimi is an associate at Skadden, Arps, Slate, Meagher & Flom, LLP

2 While non-member patent holders typically have no legal obligations under SSO policies, an SSO may request that a non-member undertake to grant licenses to patents that may be included in a technical standard on FRAND terms. See, e.g., ETSI, Guide on Intellectual Property Rights (IPRs) 54 (Sept. 19, 2013).



5 Id. at 23.

6 U.S. DEP'T OF JUSTICE & U.S. PATENT & TRADEMARK OFFICE, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (2013) [hereinafter 2013 Statement].

7 2011 Report, supra note 4, at 28; 2013 Statement, supra note 6, at 5 n.11.

8 2011 Report, supra note 4, at 28

9 2013 Statement, supra note 6, at 10.

10 Id. at 7.

11 Makan Delrahim, Assistant Att'y Gen., Antitrust Div., U.S. Dep't of Justice, Remarks at the USC Gould School of Law's Center for Transnational Law and Business Conference (Nov. 10, 2017).

12 Makan Delrahim, Assistant Att'y Gen., Antitrust Div., U.S. Dep't of Justice, The "New Madison" Approach to Antitrust and Intellectual Property Law (Mar. 16, 2018).

13 Id.

14 Makan Delrahim, Assistant Att'y Gen., Antitrust Div., U.S. Dep't of Justice, Remarks at IAM's Patent Licensing Conference in San Francisco (Sept. 18, 2018).

15 Id.

16 Id

17 Id.

18 Id

19 Id.; Delrahim, supra note 11.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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