FTC\'s Assault on IP: Regulatory Patent Reform?


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Jan. 22, 2009 Presentation at WSGR Client MCLE Day

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  • INTRO: Looking today at patent reform from the perspective of the FTC’s recent enforcement actions. Questions posed include: + Is legislative reform still needed, and if so, in what respects? + Have the antitrust enforcers gone too far, particularly concerning hostility to NPEs and Standard Setting abuse, threatening to stifle rather than encourage SSOs and so deter innovation rather than foster it.
  • Theme: The FTC has aggressively pursued an enforcement agenda during the past 5 years directed at perceived abuses of IP. + Some might see it as an assault on IP, to extent the FTC is seeking to constrain the exercise of market power arising from IP. + Others think it an overdue recognition that IP plays a crucial role in our economy and the competitiveness of our markets, and has been abused. FTC, like DOJ, address IP issues in mergers. But today we focus on single firm conduct, and FTC enforcement efforts under Sherman Sec. 2 and FTC Act section 5, which prohibits “Unfair methods of competition” arguable broader than Sherman Act’s monopolization offense. My personal conclusions: + FTC should tread cautiously in taking Section 5 beyond Sherman 2 violations. + FTC should not extend its SSO enforcement to FRAND violation claims. + FTC should rethink its hostility to NPEs, and any sense that their IP rights are somehow less than practicing entities.
  • Legislative Recommendations by FTC 2003 and 2007 Reports led up to Sept. 8, 2008 “Unilateral” DOJ Report, next slide.
  • “ Competition and Monopoly: Single-Firm Conduct Under Section 2 of the Sherman Act.” --DOJ Report “seriously overstates the level of legal, economic, and academic consensus regarding Section 2” --FTC majority said the DOJ’s proposed standards “would make it nearly impossible to prosecute a case under Section 2 of the Sherman Act.” --“At almost every turn, the Department would place a thumb on the scales in favor of firms with monopoly or near-monopoly power and against other equally significant Shearing Plough from 2d Circuit, where FTC sought cert and DOJ disagreed (not granted, so FTC lost). Compare Cipro from Fed Circuit, Oct. 2008. Leegin: FTC Commissioner Harbor’s unusual “white letter” urging that Dr. Miles rule of per se illegality be retained linkLine now pending in Supreme Court, from 9 th Circuit.
  • FTC has largely been unsuccessful in pursuing its reverse payments agenda. Cipro held that absent fraud on Patent Office or sham litigation, no antitrust liability if settlement is within the exclusionary scope of the patent. --Rule of reason applies. Non-rebuttable presumption that patent is valid and infringed, absent fraud or sham. Supreme Court has not granted cert, though 6 th Circuit in In re Cardizem, 332 F.3d 896 (2003) found per se illegality in settlement that also delayed others’ entry, since generic agreed not to relinquish its 180 day exclusivity and also agreed not to market even non-infringing versions of the drug.
  • Note only Rambus has been tested in court, and was under Section 2 (Section 5 subset). Others were consents brought under FTC Act Section 5., Dell had dissent by Mary Asquinaqua re no showing of actual knowledge, no market power. Remedy in both Dell and Unocal: no enforcement of IP (compulsory free license). Rambus defeat for FTC in DC Circuit: FTC’s alternative theories of deceptive conduct. But for deception, JEDEC would have either: (1) Chosen different technology Remand to for further evidentiary proceedings (2) Secured FRAND commitment from Rambus Loss of opportunity to secure higher prices not “antitrust harm” “ Staggering lack of defining details” in SSO’s IP disclosure policies raised doubts about deception
  • Analysis and Statement by FTC: SSO context was critical. Mere breach of licensing commitment not enough. Patent hold up after lock in and reliance was oppressive and likely to result in higher prices and undermine SSO process. Note that noone sought to license N-Wave technology before 2002 “revised” commitment letter. N-Data was small, immediately caved when FTC came knocking.
  • Both “unfair method of competition” and also “unfair or deceptive act or practice.” UMC : 1. Oppressive or coercive conduct 2. Having adverse effect on competition UDAP : 1. Likely to cause substantial injury to consumers 2. Not reasonably avoidable by them 3. Not outweighed by countervailing benefits to consumers or competition.
  • AAI: Says Sherman Section 2 also breached (prob w/ causation; with “acquisition” of Monop Power via later breach—absent “false promise.” Note: Broadcom v. Qualcom (3d Cir Sept 2007): No problem with difficulty of determining FRAND, sufficient to uphold dismissal. -- Intentionally false promise to ETSI, if relied upon, can be exclusionary violation of Sec. 2. --DC Cir in Rambus distinguished it; to extent inconsistent with Discon , holding that mere loss of opportunity to extract higher payments is not antitrust harm, reject it
  • Rosch: May 2008 Paper: “Patent Trolls: Broad Brush Definitions and Law Enforcement Ideas.” See Oct 2008 speech, favoring more use of Section 5, while acknowledging that after several court defeats in 1980s, only used occasionally --E.g., Valassis , where only “invitation to collude” (no agreement) in press conference.
  • Kovacic dissent in N-Data worried about private suits following Sec. 5 enforcement. Public Comments, including by several SSOs, expressed concern re overly broad interpretation or application of N-Data. --Each SSO different --SSO serve different masters: participants (IBM vs. Rambus); others in industry; suppliers, customers, those outside SSO. --Must remain flexible re rules to encourage participation; speed vs. certainty; collusion in ex ante negotiations vs. later hold-up. David Meyer, DOJ in March 2008 after N-Data: --”When is patent holdup in the SSO context an antitrust problem?” --SSOs need flexibility, encouragement to craft solutions that work for them. --Participants should not look to antitrust as “a shield” against patent owners. --If AT claims too easy, it will “threaten the efficiency of the standards development process.” -AT shd focus on process, not whether prices seem too high. EC: 7/30/07 Statement of Objections to Rambus; Oct. 1 vs. Qualcomm.
  • eBay : Injunctions no longer automatic. Apply tradition equity test: irreparable injury, adequacy of legal remedy, balance of hardships. KSR: 35 U.S.C. 103 says grant only if invention is “non-obvious.” Rejected Fed Circuit’s requirement of showing a teaching, motivation or motivation to combine prior art teachings. If a design need or market pressure with a finite number of identified, predictable solutions, invention may just be product of ordinary skill and common sense. --Post KSR, USPTO rejections way up, as are rejections in district courts. Quanta: Rejects Fed Circuit on patent exhaustion test, where LG licensed Intel and then tried to collect royalties from customers too. Medimmune: Supremes struck down special dec relief rule for patent cases. Can license and still seek Dec Judgment. Microsoft: No liability for copying overseas from master disk created in U.S. Seagate : No presumption of wilfulness just because no opinion of counsel. In re Bilski: Repudiated business method patentability tests created by Fed Circuit, of “questionable validity” in eBay.
  • Harbour term ends Sept. 2009, creating another vacancy
  • FTC\'s Assault on IP: Regulatory Patent Reform?

    1. 1. The Federal Trade Commission’s Assault on IP: Regulatory ‘Patent Reform?’ Chris Compton Jan. 22 , 2009 WSGR Client MCLE Day San Francisco, CA
    2. 2. Battlegrounds for FTC Assault on IP <ul><li>Urging legislation to lessen “bad patents,” scope of patentability and shift balance to those opposing IP </li></ul><ul><li>Enforcement efforts against patent settlements in pharmaceutical industry having ‘reverse payments’ </li></ul><ul><li>Enforcement against standard-setting abuses, now expanding under section 5 of FTC Act </li></ul><ul><li>Growing hostility to IP rights of Non-Practicing Entities </li></ul>
    3. 3. FTC’s Concern with IP/Antitrust Imbalance <ul><li>2003 FTC Report, “To Promote Innovation” </li></ul><ul><ul><li>Overbroad or invalid patents can harm competition and innovation </li></ul></ul><ul><ul><li>10 recommendations to redress balance </li></ul></ul><ul><li>Apr 2007Joint FTC/DOJ Report on Antitrust & IP </li></ul><ul><li>General perception that many “bad patents” are issued, and litigation is getting out of hand. </li></ul>
    4. 4. Sept. 8, 2008 Unilateral Conduct Report by DOJ <ul><li>FTC refuses to join, issues stinging “dissent” </li></ul><ul><li>Previous divergence at the Agencies </li></ul><ul><li>--FTC “ stands ready to fill any Sherman Act enforcement void that might be created if the Department actually implements the policy decisions expressed in its Report.” </li></ul><ul><li>FTC’s standard setting and reverse payment enforcement cases ignored </li></ul><ul><ul><li>“ When people agree with me, I always feel I must be wrong.” Oscar Wilde </li></ul></ul>
    5. 5. FTC’s Battle Against Reverse Payment Patent Settlements <ul><li>Takes position that reverse payments with agreed date for entry by generic competitor harms consumers. </li></ul><ul><li>FTC reversed (11 th Cir.) in Schering-Plough , 2005 </li></ul><ul><li>Other contra decisions: </li></ul><ul><ul><li>Geneva v. Valley Drug , 11 th Cir 2003 </li></ul></ul><ul><ul><li>In re Tamoxifen , 2d Cir. 2006 </li></ul></ul><ul><li>Latest: In re Ciprofloxacin , Fed. Cir. (Oct. 15, 2008). </li></ul>
    6. 6. FTC’s History of SSO Enforcement <ul><li>(1996) </li></ul><ul><ul><li>Alleged intentional failure to disclose patents, violating VESA rules. (2003) </li></ul></ul><ul><ul><li>Alleged affirmative misrepresentations to California Air Resources Board </li></ul></ul><ul><li>(2002-present) </li></ul><ul><ul><li>Alleged failure to disclose IP to JEDEC </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><ul><li>Rambus appeal to DC Circuit successful, April 2008. FTC seeking cert. </li></ul></ul>
    7. 7. N-Data Consent Decree (Jan 2008) <ul><li>Predecessor National gave1994 commitment letter to $1000 license; new letter by Vertical in 2002, uncontested by IEEE: intent to seek FRAND terms. </li></ul><ul><li>N-Data bought IP, sought to enforce at higher rates. </li></ul><ul><li>FTC: Violation of Section 5. </li></ul><ul><ul><li>Remedy in consent: $1000 license except for those who refuse. Extends to later improvements, standards. </li></ul></ul><ul><li>Controversy erupts </li></ul>
    8. 8. N-Data Dissent <ul><li>3-2 majority found liability as both “unfair method of competition” and “unfair act or practice.” </li></ul><ul><li>Commissioner Kovacic dissents, critical of loose analysis, concern about follow-on treble damage litigation in states. </li></ul><ul><li>Chairman Majoras dissents even more broadly: </li></ul>
    9. 9. Reactions to N-Data <ul><li>AAI seeks expansion of Section 5 enforcement to FRAND disputes with Rembrandt petition to FTC </li></ul><ul><li>Majority of Public Comments raise concerns about: SSOs </li></ul><ul><li>Oct. 8, 2008: Zoran sues DTS for FRAND violations. </li></ul>
    10. 10. FTC Remains Adamant <ul><li>Despite defeats in Rambus and Ciprofloxacin, divergence with DOJ, Commissioner Rosch makes his position clear: </li></ul><ul><ul><li>Expand use of Section 5 where IP raises competition issues. </li></ul></ul><ul><li>Particularly hostile to “trolls,” who “lie in wait . . .” </li></ul>
    11. 11. Risks of Expanded FTC Enforcement <ul><li>More lawsuits. </li></ul><ul><li>Discourage participation in SSOs or patent settlements </li></ul><ul><li>Widen substantive antitrust policy gap with DOJ </li></ul><ul><li>Effective devaluation of IP </li></ul><ul><ul><li>With ongoing private and EC actions vs. Qualcomm, Rambus that may further deter SSO abuse (or participation?) </li></ul></ul>“ The business of government is to keep government out of business—that is, unless business needs government aid.” Will Rogers
    12. 12. Meanwhile, Judicial “Patent Reform” Far Along <ul><li>eBay v. MercExchange (2006) </li></ul><ul><li>KSR v. Teleflex (2007) </li></ul><ul><li>Medimmune v. Genentech (2007) </li></ul><ul><li>Quanta v. LG Electronics (2008) </li></ul><ul><li>Microsoft v. AT&T (2007) </li></ul><ul><li>Federal Circuit now falling in line: </li></ul><ul><ul><li>In re Seagate Technology (2007) </li></ul></ul><ul><ul><li>In re Bilski (2008) </li></ul></ul>
    13. 13. Will “Obama’s FTC” Pursue its IP Campaign? <ul><li>Will new administration move DOJ toward FTC, rein in FTC, or maintain status quo? </li></ul><ul><ul><li>Obama: Will “ reinvigorate efforts to identify and take action against illegal monopolies.” </li></ul></ul><ul><li>Coming to FTC: New chairman and fifth commissioner to join Kovacic, Rosch (Republicans), Harbour & Leibowitz </li></ul><ul><ul><li>Chairman appoints 3 Bureau Directors, Gen Counsel </li></ul></ul><ul><li>Net: Little reason to expect FTC will lighten foot on enforcement pedal, especially re IP, under Sec. 5 </li></ul>
    14. 14. Questions & Discussion?
    15. 15. Thank you Copyright Chris Compton, WSGR 2009 WSGR Client MCLE Day
    16. 16. CONTACT: 650 Page Mill Road Palo Alto, CA 94304 Phone | 650-493-9300 Fax | 650-493-6811 [email_address] <ul><li>Charles T. (Chris) Compton plays a leadership role in the firm's antitrust practice, focusing on merger regulatory and intellectual property issues. </li></ul><ul><li>Since joining Wilson Sonsini Goodrich & Rosati in 1980, Chris has overseen the antitrust regulatory work in more than 900 mergers, acquisitions, and joint ventures—many of which involved formal investigations by the Federal Trade Commission, the Department of Justice, the European Commission, and other international competition agencies. The firm's record of success, including Hewlett Packard's $18.7 billion acquisition of Compaq Computer in 2002, has been unparalleled: No Wilson Sonsini Goodrich & Rosati transaction since 1980 has ever been blocked or abandoned due to an antitrust challenge by a U.S. or foreign competition agency. Early in his career, Chris served as a litigator on the watershed IBM antitrust cases in the late 1970s at O'Melveny & Myers. </li></ul><ul><li>In addition to a wide range of intellectual property litigation, including Lotus v. Borland , Chris has handled antitrust suits involving alleged price discrimination, refusals to deal, distributor terminations, group boycotts, monopolies, state law Cartwright Act claims, grand jury investigations, and price fixing. Chris wrote the firm's Antitrust & Trade Regulation Primer for attorneys and clients, and regularly counsels many of its private and public clients on antitrust and intellectual property issues arising in the course of marketing, distribution, pricing, and standard-setting activities. </li></ul><ul><li>Named a Northern California &quot;Super Lawyer&quot; in 2004-2008 by Law & Politics magazine, Chris also was cited in the 2003-2008 editions of Chambers USA: America's Leading Lawyers for Business , commended as &quot;a great lawyer&quot; and for his ability to &quot;establish an immediate rapport, trust, and confidence, in a nonadversarial way.&quot; He also was listed as one of the &quot;Top-Ranking Competition Lawyers in Europe and Northern America&quot; in the Practical Law Company's Global Competition Handbook (2004-2005), and earned a &quot;highly recommended&quot; listing in the PLC Which Lawyer? Yearbook (2007). Additionally, Chris is listed in the 2006 edition of Best Lawyers in America and Legal Media Group's Euromoney Guide to World's Leading Competition and Antitrust Lawyers . </li></ul><ul><li>Chris has written extensively over the years for publications such as the Antitrust Law Journal , the Antitrust Report , Corporate Counsel Outlook , and the International Business Lawyer . He teaches an antitrust/intellectual property course for the Santa Clara University School of Law LL.M. program, and has lectured at the University of California, Berkeley, Boalt Hall School of Law. He is a regular speaker at American Bar Association and International Bar Association events, as well as other conferences in the United States and Europe. Chris also served in the Air Force JAG Corps as a military judge. </li></ul><ul><li>EDUCATION: </li></ul><ul><ul><ul><li>J.D., New York University School of Law, 1968 Root-Tilden Scholar; Managing Editor , New York University Law Review </li></ul></ul></ul><ul><ul><ul><li>B.S, United States Air Force Academy, 1965 With Honors </li></ul></ul></ul><ul><li>ASSOCIATIONS AND MEMBERSHIPS: </li></ul><ul><ul><ul><li>Member, Advisory Board, Santa Clara University, High Technology Law Institute </li></ul></ul></ul><ul><ul><ul><li>Board Member and Past President, Law Foundation of Silicon Valley </li></ul></ul></ul>(cont’d) Charles T. (Chris) Compton
    17. 17. <ul><li>HONORS: </li></ul><ul><ul><ul><li>Selected for inclusion in The International Who's Who of Competition Lawyers & Economists 2008 </li></ul></ul></ul><ul><ul><ul><li>Named in the 2007 and 2008 editions of Chambers USA: America's Leading Lawyers for Business </li></ul></ul></ul><ul><ul><ul><li>Selected for inclusion in the 2007 and 2008 editions of Best Lawyers in America and Who's Who Legal: California 2007 </li></ul></ul></ul><ul><ul><ul><li>AV Peer Review Rating, Martindale-Hubbell </li></ul></ul></ul><ul><li>SELECT PUBLICATIONS: </li></ul><ul><ul><ul><li>&quot; IP Issues in the Antitrust Treatment of Mergers ,&quot; The Berkeley Conference on Antitrust in the Technology Economy, June 9, 2005 </li></ul></ul></ul><ul><ul><ul><li>&quot; Lessons from Trinko for a Consolidating Telecom Industry ,&quot; 16th Annual Communications and Competition Law Conference, Madrid, Spain, May 24-25, 2005 </li></ul></ul></ul><ul><ul><ul><li>&quot; What United States v. Oracle Says about High-Tech Merger Review in the U.S. ,&quot; corporatefinancemag.com , May 2005 </li></ul></ul></ul><ul><ul><ul><li>Please see wsgr.com for a complete list of publications. </li></ul></ul></ul><ul><li>ADMISSIONS: </li></ul><ul><ul><ul><li>Bar of the District of Columbia </li></ul></ul></ul><ul><ul><ul><li>State Bar of California </li></ul></ul></ul><ul><ul><ul><li>Several U.S. District Courts </li></ul></ul></ul><ul><ul><ul><li>U.S. Court of Appeals for the Ninth Circuit </li></ul></ul></ul><ul><ul><ul><li>U.S. Court of Military Appeals </li></ul></ul></ul><ul><ul><ul><li>U.S. Supreme Court </li></ul></ul></ul>(cont’d) Charles T. Compton