Guest Post by Professor Jorge L. Contreras
On February 8, the Board of Directors of the Institute of Electrical and Electronics Engineers (IEEE) voted to approve a set of amendments to the organization’s patent policy. The changes largely relate to the commitment of IEEE members to license patents to users of IEEE standards on terms that are “fair, reasonable and nondiscriminatory” (FRAND). As most readers are aware, these commitments have been the subject of recent litigation. IEEE’s Wi-Fi standards alone have played prominent roles in Microsoft v. Motorola, Apple v. Motorola, In re. Innovatio and Ericsson v. D-Link, among others. In most of these cases, there has been sharp disagreement over whether the patent holder complied with its FRAND obligations. To decide these cases, judges and juries have been required to speculate regarding the scope and intent of these obligations, choosing between the divergent views advanced by the litigants and their experts.
Observers of these disputes have long wondered why standards-setting organizations (SSOs) like IEEE have not simply clarified these issues in their patent policies. Doing so would eliminate much of the uncertainty and debate that currently characterizes disputes over FRAND compliance. In fact, in a 2013 article, the chief economists of the U.S. Department of Justice, Federal Trade Commission and European Commission Directorate-General for Competition jointly urged SSOs to clarify issues surrounding FRAND in their patent policies. Yet few SSOs, if any, did so. Until now.
The IEEE amendments do several things. Most notably they makes clear that IEEE members holding patents covering IEEE standards:
- must offer to license those patents to all applicants requesting licenses, and cannot pick and choose among licensees,
- may not seek, or threaten to seek, injunctions against potential licensees who are willing to negotiate for licenses,
- may insist that licensees offer them reciprocal licenses under their own patents,
- may arbitrate disputes over FRAND terms,
- may charge a reasonable royalty that is based, among other things, on the value that the patented technology contributes to the smallest salable component of the overall product, and
- should ensure that subsequent purchasers of these patents agree to abide by the same commitments.
Readers may recall that disputes regarding several of these issues have arisen in recent litigation. For example, myriad articles and briefs have debated whether or not a FRAND licensing commitment precludes a patent holder from seeking injunctive relief against an infringer who is willing to negotiate a license. On one hand, committing to license one’s patents on FRAND (or any) terms implies that monetary compensation is acceptable to the patent holder, thus weighing heavily against the issuance of an injunction under the Supreme Court’s 4-factor test in eBay v. MercExchange (U.S. 2006). However, patent holders have argued that FRAND commitments were never intended to eliminate one of the principal equitable remedies available to them should potential licensees be intransigent or unwilling to negotiate on reasonable terms. Arguments have been made under antitrust, contract, estoppel and various other theories, all seeking to adduce the “intention” of the parties submitting to the FRAND commitment. Now, the speculation is over, at least for IEEE standards. The SSO members have announced what their FRAND commitment means, and further dispute is unnecessary. The same can be said for most of the other issues addressed by the IEEE amendments. Such clarity can only help to reduce the uncertainty and litigation burden that has affected the standardization world over the last few years.
IEEE sought and obtained clearance for the amendments from the Department of Justice, which issued a favorable Business Review Letter on February 2. Among other things, the DOJ concluded that the amendments have “the potential to benefit competition and consumers by facilitating licensing negotiations, mitigating hold up and royalty stacking, and promoting competition among technologies for inclusion in standards.” Readers may recall that this is not the first DOJ Business Review Letter that the IEEE has obtained. It 2007 it also sought clearance for a set of patent policy amendments that permitted patent holders to disclose maximum royalty rates prior to approval of a standard (so-called “ex ante” disclosure). Though the DOJ approved these amendments as well, the procedures they introduced were not widely used by IEEE members.
The passage of the amendments within IEEE required a significant effort over a period of approximately two years. As reported in the DOJ letter, the initial drafts generated 680 public comments. The resulting document was narrowly approved by a 3-2 vote of the IEEE Standards Association’s (IEEE-SA) Patent Committee. The IEEE-SA Standards Board approved it by a vote of 14-5, and the IEEE-SA Board of Governors, usually the final authority on standardization matters, voted 9-3 in favor of the amendments. Nevertheless, opponents brought the amendments before the Board of Directors of the IEEE parent organization, which finally voted to approve the amendments on February 8. In the weeks leading up to the final vote, both supporters and opponents of the amendments mustered support from industry and academia, resulting in numerous public statements and letters both pro and con the proposed amendments.
The vigorous pubic debate over the IEEE amendments highlights a rift in the standardization world between what I have termed patent-centric and product-centric firms. The business models that these firms have adopted are different, yet they have co-existed for decades. Some have predicted that important contributors will leave IEEE as a result of the recent amendments. This may happen. But more likely it will not. Similarly dire predictions were made prior to the IEEE’s 2007 amendments, but the ill effects that were predicted never materialized. In this author’s opinion, the IEEE’s policy amendments offer much-needed clarity to the murky world of FRAND commitments, and it is hoped that other SSOs will soon follow with clarifications of their own patent policies.