On January 3, 2013, the Federal Trade Commission (FTC) entered into a Consent Decree with Google Inc. (“Google”) and its wholly owned subsidiary Motorola Mobility LLC (“Motorola”). The decree settles allegations that Google and Motorola violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. § 45, by engaging in unfair methods of competition and unfair practices relating to the licensing of standard-essential patents (SEPs). An SEP is a patent for a technical standard adopted by an industry standard-setting organization (SSO). In return for being included in the technical standard, companies generally must promise to license their SEPs on fair, reasonable, and non-discriminatory (FRAND) terms.
Background of Dispute and Terms of Decree
The FTC alleged that Motorola, after promising to license its SEPs on FRAND terms, wrongfully sought injunctions and exclusion orders against willing licensees of those SEPs. In doing so, the FTC believed Motorola tried to abuse the market power it gained through the standard-setting process. Google continued Motorola’s practice after its acquisition of Motorola closed in May 2012. These actions can damage the integrity of the standard-setting process and decrease the incentives to participate in the standard-setting process. Electronic device manufacturers are harmed because they implemented relevant industry standards into their products in reliance on Motorola’s promise to license its SEPs on FRAND terms. Further, this practice may decrease competition and increase prices.
The terms of the decree restrict Google from seeking injunctions on SEPs against potential licensees who are willing to enter into a license on FRAND terms. As a result, Google is prohibited from seeking injunctions, or obtaining or enforcing existing claims for injunctive relief, for FRAND-encumbered SEPs. Although Google is allowed to seek injunctions in certain narrow situations—such as when a potential licensee refuses to enter into a license agreement on FRAND terms—the decree outlines specific procedures that Google must follow when negotiating with potential licensees for its SEPs.
Impact of Consent Decree on Owners of SEPs and Potential Licensees
Although the decree is specific to Google, it has broader implications for owners of FRAND-encumbered SEPs and for potential licensees. The decree reinforces that, as a general rule, owners of SEPs may not seek injunctions. However, by establishing elaborate procedures that Google must follow before invoking an “unwilling licensee” exception to the general rule, the decree might have the unintended consequence of encouraging opportunistic behavior by SEP owners in an attempt to portray companies as “unwilling licensees.”
Specifically, the decree likely has the following implications for SEP owners:
SEP owners are barred from seeking injunctions against willing licensees. A willing licensee is a potential licensee who has not indisputably demonstrated that it is not willing to pay a reasonable fee for use of the SEP.
SEP owners are prohibited from revoking or rescinding any FRAND commitment that they made or assumed unless the relevant standard no longer exists, the SEP owner no longer owns the SEPs encumbered by the FRAND commitment, or such SEPs are no longer enforceable.
SEP owners are permitted to seek patent cross-licenses when licensing their SEPs, provided that those cross-licenses are limited only to SEPs covering the same standard.
SEP owners may be permitted to seek injunctive relief in four narrow situations:
Potential licensee is not subject to United States jurisdiction;
Potential licensee has declared in writing or sworn testimony that it will not accept a license for a FRAND-encumbered license on any terms;
Potential licensee refuses to enter a license agreement for FRAND-encumbered SEPs on terms determined by a court or through binding arbitration; or
Potential licensee fails to assure SEP owner, after an opportunity to do so, that it is willing to enter into a license on FRAND terms.
If a potential licensee desires to arbitrate or seek judicial relief to obtain a FRAND determination, SEP owners cannot seek an injunction during the pendency of the proceedings.
SEP owners are prohibited from selling or assigning FRAND-encumbered SEPs to third parties unless those parties agree to assume FRAND commitments and condition any further sale or assignment of the FRAND-encumbered SEPs on the same.
The decree likely has the following implications for potential licensees:
Potential licensees should pay particular attention to notices of alleged infringement for SEPs, as failure to respond to such notices could be interpreted as being an “unwilling licensee.”
In order to avoid injunctions on FRAND-encumbered SEPs, potential licensees must be willing to enter good faith negotiations after being notified of alleged infringement. This includes being willing to determine, and accept, disputed license terms via litigation or binding arbitration.
While licensing negotiations are pending, potential licensees are not barred from challenging the validity, essentiality, claim of infringement, or value of the patents at issue.
If you desire more information about the implications of the FTC-Google consent decree, please contact the authors or your Orrick relationship partner.