Patents as Holdups and the DOJ Controversy

by Dennis Crouch

In February 2018, I wrote an essay titled Patents and Antitrust: Trump DOJ Sees Little Connection.  USDOJ’s chief antitrust lawyer Makan Delrahim has repeatedly stated his position that patent holders rarely create antitrust concerns — even in the standard setting organization and FRAND framework. Mr. Delrahim explained recently:

By denying injunctive relief to standard essential patent holders except in the rarest circumstances, courts in the U.S. run the risk of turning a FRAND commitment into a compulsory license. As a defender of competitive markets, I am concerned that these patent law developments could have an unintended and harmful effect on dynamic competition by undermining important incentives to innovate, and ultimately, have a detrimental effect on U.S. consumers.

Another advocacy position we have taken relates to how patent holders are held to their commitments to license on FRAND terms. . . [U]nilateral patent hold-up is not an antitrust problem. Where a patent holder has made commitments to license on particular terms, a contract theory is adequate and more appropriate to address disputes that may arise regarding whether the patent holder has honored those commitments. . . . Using the antitrust laws to impugn a patent holder’s efforts to enforce valid IP rights risks undermining the dynamic competition we are charged with fostering. So when it comes to disputes that arise between intellectual property holders and implementers regarding the scope of FRAND commitments, we advocate for the application of more appropriate theories, other than the blunt instrument of antitrust.

A third topic I have addressed recently is the need for balanced patent policies in standard setting organizations. As I and others at the Division have said on many occasions, by allowing products designed and manufactured by many different firms to function together, interoperability standards create enormous value for consumers. But standard setting only works—and consumers only reap the benefits of innovative and interoperable products—when both patent holders and patent implementers have the incentives to participate in the process. To that end, I have encouraged standard setting organizations to think carefully about the patent policies they adopt, so that incentives are not skewed towards one group or the other.

Delrahim Keynote Text.

A large group of leading law professors and former government antitrust enforcement officials have now continued the debate with an eight-point letter explaining the “broad bipartisan legal and economic consensus” on the antitrust concerns of patent holdups and the market benefit of SSOs.  [Read the Full Letter: DOJ patent holdup letter].

The points:

  1. “The anticompetitive harms from patent holdup have been consistently acknowledged by officials in Republican and Democratic administrations,” including in a unanimously adopted 2007 joint agency report.
  2. “The holdup problem has been recognized by courts and standard setting organizations themselves.” This is the reason why SSOs (made-up of industry player patent owners) adopt FRAND practices.
  3. Holdup concerns (by the patentee) “presents the more serious antitrust concern” as compared with Holdout concerns (by infringers who refuse to license).
  4. A patentee who obtains or maintains market power by breaching a FRAND commitment is liable for monopolization.
  5. While “injunctive relief often is appropriate” as a remedy in patent cases, the right to exclude granted by patents does not mean that a patentee’s unilateral refusal to license is ‘per se legal.’  Rather there are many doctrines that the right of a property owner to exclude others whether land, personal property, or intellectual property.
  6. eBay is the law; patent infringement no longer necessarily results in an injunction. “Because there could be thousands of patents in a product today, it is not appropriate uniformly to apply standards from the 18th century.”
  7. Patent rights should be considered for their utilitarian purpose – rather than as primarily a natural property right.
  8. Holding patentees to their own FRAND licensing commitments should not be seen as controversial in any way.

The letter here different from an amicus brief or comments to a notice of proposed rule-making since Delrahim need not respond or even consider the ideas presented.  The reality is that nothing in the letter is ‘new’ information and I am confident that Delrahim has already considered all of these points.  Still, it makes sense to speak the truths that you know. But still I wonder whether there is an intended shadow audience for the letter.

38 thoughts on “Patents as Holdups and the DOJ Controversy

    1. 12.1

      great reply (especially the inclusion of the “other letter” from a “large group of leading law professors and former government antitrust enforcement officials” that had previously thrown cold water on the basis of the current “now continued [ ] debate with an eight-point letter explaining the “broad bipartisan legal and economic consensus”” – or lack thereof with any ACTUAL study – “on the antitrust concerns of patent holdups and the market benefit of SSOs

      It’s nice to see what a “broad bipartisan” narrative actually includes.

  1. 11

    Amazed by the anti-Google venom. Still, the commenters might be interested to know that at least one signatory has never received any funds from Google and has worked on matters opposing Google.

    Ex-academic

  2. 10

    There is a “holdup” and a “controversy” alright – just not how this group of 77 would have it.

  3. 9

    Hey post my comment Dennis. That was spun gold!

  4. 8

    I don’t think it’s unnatural that the opinions of academics would eventually align with commercial interests. And receiving funding from companies to produce papers that advance corporate interests doesn’t mean that the authors don’t earnestly believe what they write. More insidiously, young professors have always found that their careers benefit from adopting the perspectives of those who are in a position to help them. Getting faculty appointments, getting tenure or grants, getting published in high-impact journals, getting invited to speak or teach, getting cited in other peoples’ papers, getting side-jobs as legal experts or consultants – it just helps if you happen to share your reviewers’ opinions. Before you know it you’re part of a crowd proclaiming the existence of a “broad bipartisan consensus” while those holding contrary views are slowly starved out of the system, and only a few are tolerated as token contrarians.
    That said, many of the signatories of this letter have for many years relentlessly focused on the negatives and drawbacks of the patent system, identifying or hypothesizing one problem after another, pushing, pushing, pushing the pendulum. They’re part of an agenda and there’s nothing wrong with that.

    1. 8.1

      There is everything wrong with that when a cornerstone “belief” is that there is nothing wrong with that.

      You’ve just described a captured and institutionalized bias that is incapable of even recognizing its own bias.

  5. 7

    A lot of these are Google Professors, i.e., bought boys and girls.

  6. 6

    Dennis —

    I don’t think your article or the first sentence of paragraph “First” of this letter are factually accurate.

    The recognition that exists as consensus is that the theoretical possibility of competitive harm from patent holdup that survives in a world of FRAND commitments. But I know of no empirical demonstration that it has existed in fact since FRAND commitments became the norm. The FTC report only uses words like “could” The Innovatio case acknowledges teh problem only in absence of FRAND commitments.

    The letter’s substitution of words like “harms … acknowledged” is pretty disingenuous.

    The problem existed decades ago — the Dell case at the FTC, the Rambus case. But standard-setting organizations responded with FRAND policies. Once an SSO requires standard-essential patents have to be declared, everyone is bargaining with symmetric information, and the SSO negotiations can proceed on an informed consent basis. I know of several papers (by Ron Katznelson, Steven Haber, and others) that show that the “holdupers” best examples in a FRAND-SSO world don’t hold up to empirical scrutiny.

    I read Mr. Delrahim’s speeches only to say that the pendulum should swing back to where it was say 2000 or so — that SSOs should continue to require FRAND commitments , etc. — but DoJ and FTC should back off from some of the extreme positions of the early 2010s. There were suggestions that an SSO should require non-enforcement, no injunction commitments, etc. As far as I know, these never matured into actual governemnt policy (only at one SSO, IEEE). Those DoJ and FTC thought-bubbles were crazy in the anti-patent direction, and I read Mr. Delrahim’s speeches only as backing off from that.

    I read the law professors’ letter as responding to an overstated parody position that no one is advocating.

    I have only read a few of the papers in the footnotes of this letter — do you know of any empirical study that shows the actual existence of a holdup in a FRAND? Sure, if a patent contributor breaches a FRAND commitment, things go badly, but that’s a reassurance taht the law is working. And of course parties will disagree on what “fair” means, and may well need to seek the help of a judge or arbitrator–standard contract dispute, not a demonstration that FRAND commitments aren’t working.

    The cite to Oil States — in which the letter confuses the concept of “private” vs “public right” for Article III purposes with the concept of “property” vs “not property” for antitrust purposes — is pretty embarrassing for law professors to sign on to, isn’t it?

    In short, this letter looks more like sloppy reasoning than a basis for actual enforcement policy.

    1. 6.1

      I’m sorry Dennis, I goofed. I misattributed a couple sentences of the letter to you. I withdraw the fourth and fifth words of my post, and apologize for the error.

    2. 6.2

      I would agree that it is sloppy reasoning.

      It is DEVOID of any factual economic data to support their belief that there is a problem of with patent holdup.

      Stating that former anti-trust officials, academics, and judges have acknowledged something only show that there is an urban myth/belief that has been developed…in most part through the writing of many of the same authors (Shapiro, Lemley, Melamed, etc.) over the past 15 years.

      When you don’t have the facts on your side….argue emotionally, holding out the ‘reputations’ of those who believe a certain side of the argument as sufficient “proof” of correctness in the absence of other proof.

      Bring out some hard data on the economic hardship imposed by patent holdup….and get it peered reviewed out side the current Stanford/Berkeley/George Mason Univ efficient infringement echo chamber…and people might accord this letter more weight. Right now its a just a PR piece addressed to a jaded audience.

  7. 5

    Lemley’s earliest major paper (Patent Holdup and Royalty Stacking in 2006…which he wrote soon after joining Stanford…the birthplace of Google) on the efficient infringement front (typically arguing that corporates should ignore licensing requests given the very small chance of actually being found guilty and paying anything)…which I believe he wrote with Carl Shapiro….was directly funded by Apple, Cisco Intel, Microsoft, Micron, and SAP. Later, after critics linked his position with these large corporate infringers, the corporates became better at hiding the payments….such that the indirect compensation (going through some ‘third-party’ think tank or non-profit via scholarship chairs or grants).

    Plus the fact that Lemley’s wife (Rose Hagen) was (2004- 2010) one of the top lawyers for Google when it was under attack for ripping off code to include in Android. She was retired as Google’s Deputy General Counsel for Trademarks …..and was good friends with PTO Director Michelle Lee (who was Google’s Deputy General Counsel for patent and patent strategy at the time she was there).

    Notably…try searching Rose Hagen and Mark Lemley together in the Google search engine…..and there is only one link (a post I made year ago) which actually provides the FACT that they are married…..probably because Lemley didn’t want to demonstrate even more how his research isn’t unbiased by his economic interests (i.e. he benefits from his wife’s stock position of near-IPO priced Google insider stock….plus Google is a client of his active law firm). I never would have linked the two if his early paper with Shapiro hadn’t thanked Rose for her proofreading….which caused me to research her more and find the connection elsewhere.

    1. 5.1

      The real scandal here to my mind is Stanford Law School. They have provided a harbor for Lemley to act as a tool for Google and rake in many millions of dollars. I also think that Google is giving money to universities for IP professors and that Lemley picks the professors for their anti-patent bias.

      Nothing about Lemley has to do with scholarship or objective search for truth. He is a tool of Google with an academic cloak that he dons.

      Another aspect of this is the “papers” that Lemley generates largely independent of reality that the SCOTUS cites to burn the patent system down.

      Consider the paper UVA printed of Lemley’s about the privy counsel. The majority cited it for proof that the privy counsel could invalidate patents at the time of the formation of the US (that was the point when English common law was adopted in US law and was frozen). The minority did not agree with Lemley.

      Think about that. The factual nature of Lemley’s paper was challenged by two justices. What is going here? The whole country has gone third world.

      1. 5.1.1

        And just to be clear, if Lemley’s paper is factually wrong about the privy counsel, then even by the admissions of the majority, IPRs are unconstitutional.

        Think about that. No ethical complaints possible against Lemley. It is well documented that law schools don’t care what their professors do. And come paper with no peer review and no recourse for unethical conduct is used for a dispositive fact regarding whether the privy counsel could invalidate a patent at the time of our formation.

        This means the whole country is without ethics and up-for-sale.

        1. 5.1.1.1

          Lemley is an ‘earner’ for that school, meaning grant money for ‘research’ etc etc. You could have a open Communist advocating for ‘each to his means, and to the best of his ability’ and not be too far off.

      2. 5.1.2

        I’m not attack his academic research…because for the most part his observations regarding the low probability of infringers successfully being forced to pay anything to patent owners is entirely true. Thus it is imminently logical that corporate America (and the world) would listen to him and raise up his soapbox. (I agree with you he misrepresented the power of the privy council….but other amici’s correctly pointed out the actual process and how Lemley’s superficial view was wrong. I put the Oil States decision entirely on Kennedy, Thomas, and Alito failure to read each amici brief and recognize the inconsistancy. Obviously the BEST legal position doesn’t always have the BETTER advocate.)

        My main contention is that he actively promotes the destruction of economic incentives underlying intellectual property by promoting policies which FURTHER weaken patents rather than FIXING the problems. His message and solutions accentuates MORAL decay by promoting THEIF. His Lex Machina start-up was specifically used to skew litigation statistics (at the PBIA and PTAB) regarding patents by controlling the standard by which they are measured….present a misleading picture that the PTAB wasn’t as bad a “death squad” as it really is….particularly when it comes to VALUABLE NPE patents being asserted.

        People forget he is a lawyer too….and by controlling the dialogue as one of the most cited academics in the field, he has been able to shape opinion (especially in judicial circles which tend to listen to academics) to the point at which the patent system loses much of its utility.

        1. 5.1.2.1

          Totally agree. 1. Make fake stats, 2. Write law review articles, citing your fake stats, 3. Write briefs citing your law reviews, citing the fake stats. Classic Chorus – Amen Choir – PR strategy.

      3. 5.1.3

        The real scandal here to my mind is Stanford Law School.

        It is not just Stanford, and it is not just law school.

        It is academia and the entire lack of meritocracy tied to a system in which advancement is gauged by how well one hues to the orthodoxy of those in power.

        **

        However, the aspect of academia intersecting with law DOES bring about an interesting wrinkle that does (or at the very least should) raise some serious concerns (as witness the eagerness in accepting “as fact” things truly not vetted AS facts from “friends of the court” that those ON the Court use to re-write law).

        As I have postulated previously, our profession of attorneys recognizes that our role in the system of justice (and we are not even those who WRITE the laws – just that our role is NEAR the formulation of justice) mandates a rather strict code of ethics.

        For attorneys, this IS – and should be – a big deal.

        But one turns around and has to wonder about academia involved with law.

        NOT ONLY are these folks “in charge” of forming the skill sets (and mindsets) of ALL upcoming people looking to join the profession…

        NOT ONLY are these folks USING their “expertise” to shape those minds, but also, these same folks seek to directly and deliberately SHAPE the law.

        Any existing “ethics” rules are run through the circles of academia – which as already noted, lack any notion of meritocracy and any sense of “peer review” is itself questionable, given that “peers” are merely already entrenched in the grasp of entrenched power.

        So instead of an active (and forceful) mechanism existing to ensure ethics, we have a total lack – on the very people for whom an active (and forceful) mechanism should be arguably DOUBLE that of mere attorneys.

        Note that this is not to say that all academia lack ethics – each, I suppose runs by their own “personal” code of ethics.

        This IS to say that in contrast to attorneys, the STANDARD of ethical control for legal academia is an abyss.

        (and everyone knows what a rotten reputation attorneys have – not to sat that our profession does not have its bad apples – heck, we have Malcolm as a professed attorney for example)

      4. 5.1.4

        Read the Stanford brief in eBay v Mercexchange. Stanford was pro patent owner and said without the injunction possibility it would have never got the 1 billion dollar donation from google for the page rank patent.

        1. 5.1.4.1

          Contrast that with Stanford v Roche

    2. 5.2

      Google has friends and you know, some people not so much. Google amicus briefs mercexchange v. eBay. The pro google briefs pop right up, the pro-inventions briefs, well . . . not so much.

  8. 4

    Is there really such thing as a “bi-partisan group of law professors?”

    1. 4.1

      >>bi-partisan group of law professors?”

      They are all members of the Google bucks party.

    2. 4.2

      Sort of a poker tell – right?

  9. 3

    This is an odd letter. The signatories are entitled to their opinions, and there’s nothing wrong with this sort of public debate about antitrust policy. But on what basis do the writers to call their views a “broad bipartisan legal and economic consensus that has existed for over a decade regarding standard setting?”

  10. 2

    Wow does this smack of the Efficient Infringers mindset.

    (and against the Lockean nature of patents upon which was a foundation for this country’s patent system).

    We, 77 former government enforcement officials and professors of law, economics, and business,

    A veritable rogue’s gallery (notwithstanding ANY “political spectrum” effects) – including Chien, Burk, Chao, Contreras, Cotropia, Lemley, Meurer, Sagers, Sandoval, and Sarnoff, as known suspect “friends” of the patent system.

    1. 2.1

      Against the Lockean nature of patents. “Big lie”

      1. 2.1.1

        …personal property?

        We don’t need no stinkin personal property.

        (just get down on your knees with Jane and pray and be thankful for your doled out Government Franchise).

        The commune (well, the “leaders” of the commune – much like, well, exactly like the State, or those who have captured the State) deign it so.

  11. 1

    Can we clarify how much money the “professors” are being paid to write this?

    We know now that Mark Lemley admitted to having a large financial stake in burning down the patent system.

      1. 1.1.1

        The list of folks signing here are from across the political spectrum – conservative to liberal.

        1. 1.1.1.1

          >>conservative to liberal—

          My guess all taking some of those Google bucks.

      2. 1.1.2

        Probably sending a message to the new director.

    1. 1.2

      Mark Lemley admitted to having a large financial stake in burning down the patent system

      That’s too bad because the patent system is alive and well.

      1. 1.2.1

        Malcolm,

        Your version of “alive and well” falls to the maxim of “with friends like this, who needs enemies?

        (and particularly ironic as you STILL kvetch about the patent system on a nigh constant basis).

    2. 1.3

      I’m not disagreeing, but what is your support for the statement about Mark Lemley?

      1. 1.3.1

        I put a link up a couple of weeks ago that tracks dollars from Google. Lemley was quoted as saying that he was not an objective observer, i.e., not an academic but that he had a lot of money at stake and lots of connections with Google.

    3. 1.4

      Can we clarify how much money the “professors” are being paid to write this?

      If you have any evidence, perhaps you can go first with the clarifying.

Leave a Reply

Your email address will not be published. Required fields are marked *

 Notify me of followup comments via e-mail.

You can click here to Subscribe without commenting

Add a picture