1. FRAND Principles and Competition Alden F. Abbott Blackberry NJTIP 10 th Anniversary Symposium Chicago, March 7-8, 2013 The views expressed herein are solely those of the author; they should not be attributed to Blackberry

2. Introduction I will provide my perspective on the competitive implications of “fair, reasonable, and non-discriminatory” (FRAND) patent licensing commitments How to measure FRAND, and the extent to which FRAND promises cabin patentees’ ability to invoke their rights under the patent laws (especially the right to seek an injunction), are the subject of active debate

3. Nature of FRAND FRAND is a promise by patentees to avoid opportunistic exploitation of their SEPs, specifically to prevent them from exploiting the added market power gained as a result of their patents being included in a standard In short, FRAND seeks to give industry participants access to critical IP rights on terms that enable them to compete effectively and advance consumer welfare

4. A Balanced Perspective on FRAND Views on the implications of FRAND commitments run the gamut from those who argue that a FRAND commitment in no way limits injunctive suits to those who claim that a FRAND commitment always bars injunctions I will present what I view as a balanced perspective on this issue, one designed to promote competition while also recognizing the rights of SEP holders

5. Can Holder of FRAND-Encumbered Patents Seek Injunctions? In my view, FRAND generally prevents claims for injunctions by SEP holders against prospective licensees that have a bona fide intention to take a license on FRAND terms, but there are exceptions For example, a firm should be allowed to seek an injunction if faced with a second firm’s failure to deal fairly, or with the threat or filing of an injunctive action Such a defensive action (or the credible threat of such an action) might be the only practical means by which the first firm could stave off an inappropriate accretion of market power by the second firm

6. Does a Patent Licensing Offer Comport with a FRAND Undertaking? I maintain that a licensing offer should not be viewed in isolation, but, rather, within the overall context of the relationship between the parties First, consider the holder of FRAND-encumbered SEPs that offensively seeks excessively high royalties from another producing firm, backed by an injunctive threat This patent holder is effectively reneging on its FRAND commitment, and should not be granted an injunction, because, by its very nature, FRAND requires a firm to license on reasonable terms, and threat of an injunction renders the offer coercive and unreasonable Denying injunctive right here incentivizes reasonable licensing offers and promotes competition on the merits

7. Does a Licensing Offer Comport with FRAND, continued Second, by contrast, consider a FRAND-encumbered SEP holder that is faced with an unreasonably high royalty demand by a counterparty that holds and is invoking non-FRAND encumbered implementation patents Here, if it barred from seeking a defensive injunction, the SEP holder possesses negligible bargaining leverage (given FRAND limitations) and will have to pay exorbitantly high royalty costs – or exit the industry entirely In either case, competition in the product market covered by the patents in question will suffer If, however, SEP holder is allowed defensively to seek an injunction, it can force implementation patent holder to the bargaining table, with a likely negotiated reduction in the cost burden of licensing between the parties Lower cost burden constrains royalties and promotes competition

8. FRAND and Competition These two examples illustrate fact that a one-size-fits-all rule barring entities from seeking injunctions on their FRAND- encumbered SEPs would not always promote competition In short, enforcers and courts should focus on actual bargaining relationship between parties The key question is whether SEP holder is seeking opportunistically to evade its FRAND commitment, or, rather, is defensively using its patents to preclude hold-up by the other negotiating party In short, if the overriding FRAND policy goal is to avoid hold-up and promote standards-based competition, there are circumstances in which a defensive injunctive threat by an SEP holder is procompetitive (and thus in compliance with a FRAND undertaking) – and the denial of the ability to make such a threat is anticompetitive (and thus at odds with the FRAND undertaking)

9. FRAND and Competition, continued Finally, in my view an inflexible “no injunctions” rule denying FRAND-encumbered SEP-holders any ability defensively to prevent opportunism by implementation patent holders would reduce the value of SEPs relative to non-SEPs Over time, this would cause firms to invest less in standard setting and to be less inclined to contribute their technologies to standards As a result, the quality of standards would diminish, depriving consumers of the procompetitive innovations and product improvements due to standard setting

10. January 2013 FTC Google Consent January 3, 2013 proposed FTC-Google Consent Order dealt with FRAND Under the proposed Order, before seeking an injunction on FRAND-encumbered SEPs, Google must: (1) provide a potential licensee with a written offer containing all of the material license terms necessary to license its SEPs, and (2) provide a potential licensee with an offer of binding arbitration to set the terms of a license that are not agreed upon Furthermore, if a potential licensee seeks judicial relief for a FRAND determination, Google must not seek an injunction during the pendency of the proceeding, including appeals

11. Exceptions Allowing a Party to Seek an Injunction There are additional conditions which allow a firm to seek an injunction, under the Consent These conditions include when the potential licensee (a) is outside the jurisdiction of the United States; (b) has stated in writing or sworn testimony that it will not license the SEP on any terms [in other words, is not a “willing licensee”]; (c) refuses to enter a license agreement on terms set in a final ruling of a court – which includes any appeals – or binding arbitration; or (d) fails to provide written confirmation to a SEP owner after receipt of a terms letter in the form specified by the Commission They also include certain instances when a potential licensee has brought its own action seeking injunctive relief on its FRAND-encumbered SEPs

12. FTC Consent: Overall Assessment The FTC Google Consent, which recognizes the general competitive benefits of avoiding injunctions in light of FRAND commitments, does not address the right of a firm to seek injunctive remedies defensively, to offset opportunistic behavior by a counterparty In sum, as I see it, the Consent avoids a one-size-fits-all rule that would absolutely bar injunctive actions But this is a case-specific mutually agreed-upon consent, not a general regulation: the particular conditions it sets forth may not necessarily be deemed appropriate in future litigations, involving different facts and circumstances

13. DOJ-PTO FRAND Statement (2013) On January 8, 2013, The Justice Department and U.S. Patent and Trademark Office jointly issued a “Policy Statement on Remedies for Standards-Essential Patents Subject to F/RAND Commitments” (DOJ-PTO Statement) The DOJ-PTO Statement concluded that, for a valid and enforceable SEP, “[i]n some circumstances, the remedy of an injunction or [ITC] exclusion order may be inconsistent with the public interest”, particularly when an injunctive action would be incompatible with the terms of a patentee’s existing licensing commitment to a standards development organization The DOJ-PTO Statement is, in my view, nuanced, and rejects a one-size-fits-all rule against seeking an injunction on SEPs, as I will explain

14. DOJ-PTO Statement, continued The DOJ-PTO Statement explains that “[a]n exclusion order [or injunction] may still be an appropriate remedy in some circumstances, such as where the putative licensee is unable or refuses to take a F/RAND license and is acting outside the scope of the patent holder’s commitment to license on F/RAND terms” “Such a refusal could take the form of a constructive refusal to negotiate, such as by insisting on terms clearly outside the bounds of what could reasonably be considered to be F/RAND terms in an attempt to evade the putative licensee’s obligation to fairly compensate the patent holder” “An exclusion order also could be appropriate if a putative licensee is not subject to the jurisdiction of a court that could award damages” “This list is not an exhaustive one”

15. DOJ-PTO Statement, continued Moreover, “[a]lthough we recommend caution in granting injunctions or exclusion orders based on infringement of voluntarily F/RAND-encumbered patents essential to a standard, DOJ and USPTO strongly support the protection of intellectual property rights and believe that a patent holder who makes such a F/RAND commitment should receive appropriate compensation that reflects the value of the technology contributed to the standard” In addition, “[i]t is important for innovators to continue to have incentives to participate in standards-setting activities and for technological breakthroughs in standardized technologies to be fairly rewarded”

16. DOJ-PTO Statement: Assessment In short, in my view the DOJ-PTO Statement, like the FTC Consent, should not be read to undermine the ability of SEP holders to seek injunctive relief when faced with unfair behavior by negotiating parties Significantly, the DOJ-PTO Statement recognizes an appropriate role for injunctive actions under appropriate circumstances

17. Considerations Beyond FRAND Role of patents differs substantially industry by industry In pharmaceuticals, for example, one or a few patents may cover an entire product, while in IT industries (e.g., smartphones) many thousands of patents may cover a particular product Thus in IT, inflexibly granting an injunction based merely on infringement of one or a few patents could deny consumers the benefit of a product, even if infringing activity only accounted for a tiny portion of product’s value-added This would sacrifice substantial product market competition and harm consumer welfare, suggesting that injunctions generally would be inappropriate based on considerations of equity (see the Supreme Court’s e-Bay decision) This conclusion arises out of the role patents play in the industry under scrutiny, not on whether particular patents are FRAND- burdened SEPs or non-SEPs (thus considerations other than FRAND)

18. The Role of PAEs Patent assertion entities (PAEs) are patent holding companies that do not make products, conduct R&D, or otherwise innovate This allows PAEs to operate with an extreme bargaining advantage, allowing PAEs to extract anticompetitively high licensing rates, which raise prices to consumers and slow innovation This asymmetry may create opportunities for strategic behavior, where manufacturers are tempted to divest patents from their portfolios to PAEs to raise rivals’ costs To curb PAE opportunism, and to discourage anticompetitive PAE transfers, PAEs should never be granted injunctive relief, in my view In addition, constraints on the royalties PAEs are able to demand on their patents may warrant further public policy consideration

19. My Personal Conclusions The meaning of FRAND, with which antitrust enforcers and courts are grappling, should be based on case and fact-specific inquiries Overall goal of FRAND is to encourage efficient standards While offensive injunctive actions on FRAND-encumbered patents are inappropriate, defensive right to seek injunctions to combat opportunistic abuses by counterparty should be preserved Recent FTC Google and DOJ-PTO actions do not alter this conclusion (also, FTC Consent is case-specific and may be limited to its facts) FRAND should be viewed not in isolation, but in context of the role of patents in the industry in question, taking into account both FRAND-encumbered and non-FRAND-encumbered patents PAEs, which are essentially judgment-proof, should not be entitled to injunctions and subjected to public policy constraints