This article has been authored by Saransh Chaturvedi and Ditipriya Dutta Chowdhary. 

Introduction

The United States (US) has a very strong regime of IP Law linked with that of Competition Law or Antitrust Law. The US law grants the IP holder to use, offer and sell the invention within the US and also import the same. Since the economy of the US is primarily based upon the industries which deal with IP, hence, the US generally is more tilted towards providing more room to those who work for innovation and promotion. The US Antitrust Law does not impose any obligation to any of the firms if it refuses to licence unlike the case in the EU. The analogy of the US is on the basis that it can undermine incentives for investment and promotions. Intellectual Property licensing is an area that invites the provisions of antitrust law. Licensing of patents which governs the technological standard, for which there are no infringing alternatives, commonly known as Standard Essential Patents (hereinafter, SEP). These licensing agreements do have an anticompetitive effect which can affect the entry and exit barriers resulting into foreclosure of competition in the relevant market. Fair, reasonable and Non-discriminatory terms of licensing (hereinafter, FRAND), play an important role when it comes to licensing. 

Confluence of Antitrust and Industrialization

The first Antitrust Law was passed in 1890 and two more followed in the year 1914. Primary aim was to prevent companies from getting too big and more importantly, allowing smaller firms to enter the market. The primary observation, to conclude is definitely, that antitrust law was the result of rapid industrialization of the 19th century in the US, and it was not a surprise at all. It was a timely action by the US, to stop the concentration of economic power in fewer hands. But on the other hand, a gradual movement related to the notion that bigger businesses were better for the consumer welfare matured. In the US, as mentioned by Naomi Lamoreaux, in his famous book, The Great Merger Movement in American History, 1895-1904, thousands of manufacturing firms in 1895 merged to only 157 corporations. 

But probably the US advocated a different thought process, which was emerging during the 1960s, which was of antitrust backlash coupled with Antitrust Paradox. It advocated that the big mergers will provide better efficiency to the market. Probably this can be said to have a major role in the present antitrust in the US. Antitrust paradox eventually has shaped antitrust law in several ways, prominently by focusing on disciplines on efficiency and articulating its goal as “consumer welfare”. What we see is a “dormant” antitrust law for the last 40 years, where no concerted action took place on the size of companies. The US position resembles itself with that of a free market environment, leading to more investment and letting big mergers to grow on.

There are two agencies which work for antitrust enforcement and focus on concerted action, exclusionary unilateral action, and merger review. These are the Department of Justice (hereinafter, DOJ) and Federal Trade Commission (hereinafter, FTC) and the three core antitrust laws being the Sherman Act, the Clayton Act and the FTC Act, which is solely enforced by the FTC prohibiting unfair methods of Competition and deceptive practices. 

Coming to the Sherman Act, both DOJ and FTC can take action but only DOJ is empowered to take criminal enforcement action. Where section 1 of the Sherman deals with the concerted action, section 2 deals with the unilateral actions. All the concerted actions which result in restraint in trade and which can take place in the form of agreements, contracts, comes within the ambit of section 1 of the Act. There are agreements of IP Licensing which are evaluated under the rule of reason but there are also some of the agreements like that of market allocation, which invites a per se prohibition. Section 2 prohibits the monopoly power of the enterprises through the anticompetitive conduct. On the other hand, the Clayton Act generally deals with the Merger and Acquisition issues. 

FRAND Concern vis a vis Antitrust 

Seeking injunctive relief on SEP will not result in a violation of antitrust law, and that too, no US court has given the decision on the other side and instead is dealing with it under the Contract Law principle. The dealing of such principles under contract law do arise the notion of contractual commitments not giving rise to an antitrust issue. But a stark difference under the FRAND obligation is its legally binding nature of even the “third party beneficiaries”, and this has been well approached under the US Federal Law of Contract. But this contractual nature can never ignore the aspect of antitrust interpretation of FRAND terms. The ‘traditional principle of equity’ as observed under eBay (Petitioner) v. MercExchange (Respondent), does apply to the injunctive relief allowing the court to take up the matter of antitrust and other policies regarding innovation, if the court feels that the particular matter is important for the case. Here, the petitioner functioned as a popular internet website whereby sellers of private nature were given the opportunity to sell their products, by listing the same, either through a fixed price or by auctioning. 

Now, a wholly owned subsidiary of eBay, Half.com, was operating a website of similar nature and the respondent on the other hand had a number of patents and one of them included a method of business which facilitated the transaction between private entities, for an e-market. The respondent, as it had done in the past, had sought to license its patent to the petitioner but a consensus could not be reached and as a result the respondent filed a patent infringement suit against the petitioner in the US District Court for the Eastern District of Virginia. It was found that the patent in question was a valid one and the petitioner had indeed infringed the same.

Therefore, the jury awarded damages but the motion for a permanent injunction was denied by the District Court. This issue does raise some important questions regarding the condition of issuance of permanent injunction. The condition is similar to what we see in different reading, such as, the irreparable injury, coupled with the inadequate legal remedies, considering the hardship of the plaintiff and the public interest. 

Following the decision given in eBay, the Ninth Circuit, in the case of Microsoft v. Motorola, held that injunctions should never be enforced in case of patents which are FRAND encumbered, where the infringing defendant has acknowledged paying the FRAND royalty rates. The Court of Appeal held that “injunctive relief against infringement is arguably a remedy inconsistent with the licensing commitment”.

The observation in Apple Inc. vs. Motorola, Inc. negated any per se rule of barring injunction for the purpose of enforcing the FRAND encumbered patents, but on the other hand this obligation does create “unique aspects of … establishing irreparable harm.” The observation is very important to us. By committing to FRAND terms, Motorola had agreed to license the essential patents to anyone willing to pay a FRAND royalty, so that injunctions could no longer be granted unless the licensee refused to pay a royalty meeting the FRAND requirement.” Motorola was denied an injunction against Apple since irreparable harm could not be established and that monetary damages were satisfactory to make up for the infringement. It would be fair to grant an injunction where the infringing party has been unwilling to pay the royalty or has deferred in negotiating the same, unreasonably. The US courts have reiterated these conclusions and upheld these decisions in several cases related to infringement of SEPs.

Conclusion and Key Takeaway

If we observe the Ebay decision, a direct conclusion regarding that of Motorola seeking injunction for its FRAND encumbered SEPs, would definitely not qualify due to the presence of adequate remedy and the obviousness of no irreparable damage. The case of Apple, Inc. v. Motorola, Inc. too arrived at a similar resolution. Doctrinally, these two decisions give off an impression of being on strong ground to the degree they lay on the adequacy of remedy at law and also the absence of irreparable injury.

In addition to these factors, there are two other aspects which weigh against the grant of injunction in cases involving FRAND terms and SEPs. These factors are those of public interest and balance of convenience, since the licensee would require access to SEPs so as to advertise and market its items, and if an injunction is allowed in this matter, it generates a situation of patent hold-up. 

The issuing of injunctive relief is sometimes seen as a possible remedy for infringement suits of patent under some European setting such as, Germany, France, U.K., and Netherland. If we talk about Germany, as it holds an important part in the patent industry, it awarded the injunctive relief in cases where the concerns were raised about the antitrust barriers. Albeit a few reporters have asserted that Dutch courts quite often grant injunction, however, the court decided on the negatives, when the case of Samsung requesting injunction for SEP against Apple11, comes before it. The reason being obvious, with respect to the abuse of its patents rights by Samsung coupled with no evidential proof of Apple acting as an unwilling licensee.

There are many cases with regards to the observation of the court involving injunction, with the subject matter of FRAND and SEP. The court needs to give much impetus on the term of license, offered by the SEP holder, to be valid. The concentration on the licensing term will eventually be much advantageous for the court, since this is the subject matter of actual dispute in almost all cases. The whole impetus must be put on the parties to resolve the issues at hand. This will help the court to know the earlier efforts by the parties to reach a consensus. If there seems no previous effort, then further reliance must be placed on allowing negotiations for having consent towards FRAND terms, assuming that both parties will definitely negotiate in good faith. It is expected that parties should not derogate from the negotiating process, since it can result in the whole process being disadvantageous. Moreover, it removes the ambit of granting injunction at the initial stage, thereby removing any chance of undue advantage on any side. Probably, the whole process if not successful, will invite the court to decide over the FRAND terms, disobeying can have the implication of issuance of injunction against the SEP user. 

Therefore, while keeping the option of injunction at play, this can have a positive result, giving parties their respective autonomy to negotiate and reach an amicable conclusion on FRAND, within a given time frame. 

References

1. Eleanor Fox et al., COMMENTARY AND PANEL DISCUSSION ON ANTITRUST, COMPETITION LAW AND INTELLECTUAL PROPERTY, 7 Int. Intellect. Prop. Law Policy 1–20 (2002).
2. U.S. DEPARTMENT OF JUSTICE and FEDERAL TRADE COMMISSION, ANTITRUST GUIDELINES FOR THE LICENSING OF INTELLECTUAL PROPERTY (2017) (HEREAFTER, IP GUIDELINES)
3.  https://www.justice.gov/atr/IPguidelines/download.
4. DIRECTORATE FOR FINANCIAL AND ENTERPRISE AFFAIRS COMPETITION COMMITTEE, Licensing of IP rights and competition law – Note by the United States (2019).
5. U.S. DEPARTMENT OF JUSTICE and FEDERAL TRADE COMMISSION, HORIZONTAL MERGER GUIDELINES (2010), https://www.justice.gov/atr/horizontal-merger-guidelines. 
6. Kartikey Kulshrestha & Geethika, Frand-ship through Standard Essential Patent, 64 Pract. Lawyer 65–67 (2016).
7. eBay Inc. v. MercExchange, L.L.C., 547 US 388, 394 (2006)
8. Garry Gabison, Worldwide FRAND Licensing Standard (2019).
9. Microsoft v Motorola Inc, 696 F3d 872 (C App 9th Circuit, 2012).
10. No. 2012-1458, 2014 U.S. App. LEXIS 7757, at *106 (Fed. Cir. Apr. 25, 2014); cf. Realtek Semiconductor Corp. v. LSI Corp., 946 F. Supp. 2d 998, 1006-07 (N.D. Cal. May 20, 2013) (“In promising to license on RAND terms, defendants here admit that monetary damages, namely a RAND royalty, would be adequate compensation for any injury it has suffered as a result of Realtek’s allegedly infringing conduct.”); see also European Commission Decision No. IP/14/489 (Apr. 29, 2014).
11.  No. 2012-1458, 2014 U.S. App. LEXIS 7757, at *106 (Fed. Cir. Apr. 25, 2014).
12. Samsung Electronics-Enforcement of Universal Mobile Telecommunications System (UMTS) SEPs (2014) OJ C 350/8.

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