Posted by Dave Heiner
Vice President & Deputy General Counsel, Microsoft

Earlier today, the U.S. Department of Justice and the Patent and Trademark Office issued an important policy statement on standard essential patents. We welcome the statement as a significant step forward in ensuring the sound operation of the international standards system. Open standards can thrive only if firms can implement any standard free of the threat that other firms who contributed to the standard will later turn around and try to block them from shipping their products. That is why we strongly support the conclusion of the DOJ and the PTO that holders of standard essential patents should not be permitted to seek product injunctions against firms that are willing to take a reasonable license. Simply stated, firms that have promised to make their standard essential patents available on reasonable terms should do so. (Microsoft committed to this approach a year ago.)

The FTC determined last week that Google violated U.S. competition law by suing to block shipments of products such as Xboxes, iPhones and iPads. As the FTC explained, these products implement common industry standards, like those used for video playback and Wi-Fi connectivity, and Google had promised to make its standard essential patents available to all on reasonable terms. The FTC proposed a consent order to remedy Google’s abuse of its patents. Unfortunately, the proposed order does not live up to the approach outlined by the DOJ and the PTO. This is important because the FTC has suggested that its Google order may serve as a template for the resolution of other cases over time.

The FTC’s order grants Google leeway to seek to block shipments of other firms’ products under circumstances not contemplated by the DOJ/PTO statement. Rather than establish a clear rule that holders of standard essential patents should not seek an injunction against any willing licensee, the FTC’s order allows such lawsuits. In particular, the FTC’s order says (in Section IV.F) that Google may abandon its promise to make its standard essential patents available on reasonable terms with regard to any firm that has tried to obtain an injunction against any product made by Google on the basis of that firm’s standard essential patents. Google can seek a product injunction even if the other firm is willing to take a license to Google’s patents on reasonable terms.

We believe that this exception sends the wrong message to the industry about the importance of living up to patent licensing commitments. With it, the FTC appears to endorse the notion that holders of standard essential patents may indeed sue each other for product injunctions. The exception creates the very harm that the FTC is seeking to address by its order—the risk of higher prices for high-tech products and less innovation as firms seek to block each other, rather than license their patents as they promised to do.

The exception is also logically inconsistent with the basis of the FTC’s decision against Google. In its Complaint against Google the FTC explained:

“A SEP-holder that makes a voluntary FRAND commitment promises to license its SEPs on fair and non-discriminatory terms to anyone willing to accept a license, i.e., a ‘willing licensee,’ . . . relinquishes its right to exclude a willing licensee from using technologies covered by its SEPs to implement a standard.”

As the FTC reasoned, Google “relinquished its right” to seek an injunction when it agreed to make its standard essential patents available on reasonable terms. Perhaps other firms won’t live up to their comparable promises, but two wrongs don’t make a right. The best approach is consistent enforcement, not mutual abandonment of licensing commitments. The FTC and DOJ should enforce competition law uniformly, requiring all firms to live up to their commitments.

The Google loophole is of particular concern because it appears to be very broad. The FTC’s official analysis of the proposed order says that Google can sue for an injunction against a firm that seeks an injunction “against Google” on the basis of a standard essential patent that it has promised to make available. But the proposed order appears to say that Google can sue for an injunction even when no firm has sued Google. It is enough that the other firm has sued any third party on the basis of any product (or any device, software, or service) “made, marketed, distributed or sold” by Google, and on the basis of standard essential patents on any standard. This exception threatens to swallow the general rule against injunctions because Google distributes its products through countless manufacturers, software firms and websites. Those products often implement dozens of industry standards, and there is often ample room for disagreement about whether a particular patent is a standard essential patent in the first place.

The FTC’s proposed Google order is subject to revision following a public comment period. We urge the FTC to establish a straightforward, clear precedent requiring all firms to honor their standard essential patent licensing commitments as to any willing licensee.