May 7, 2013
LES Insights
By John C. Paul
Authored by Kenneth M. Frankel and John C. Paul
The Justice Department Antitrust Division (DOJ) declined to state its enforcement intentions regarding a proposed trading exchange for licenses to patents in multiple fields of use. In its March 26, 2013 Business Review letter to Intellectual Property Exchange International (IPXI),1 DOJ explained that it was premature to conclude whether antitrust concerns would be raised once the exchange became operational, in view of the undefined patents or markets that may be in issue. DOJ's letter provides guidance on its concerns, however, which appear to remain consistent with those DOJ discussed in prior Business Review letters2 for patent pools and in intellectual property-antitrust guidelines.
IPXI proposed to establish a trading exchange for buying and selling patent license rights in individual units (ULRs). According to DOJ's letter, IPXI would obtain exclusive rights from patent owners in many industries to non-exclusively license the patents in defined fields of use, and would package those licenses in units, either alone or with other patents from the same or other patent owners. Each ULR would be a nonexclusive license for a single unit of a product for the defined field of use. IPXI would offer the ULRs for direct purchase through its primary market, and purchasers could use the ULRs or sell them to others through a secondary trading market that IPXI would establish. IPXI would choose the patents, analyze their validity, potential infringement, and marketability, package licenses to them, and offer licenses for the packages. IPXI and the patent owner together would set the price, number, and terms of ULRs offered, and bring infringement actions against non-licensees practicing a ULR patent in the field of use. IPXI would share with the patent owners the revenues from the ULR sales and infringement actions. IPXI also would make efforts not to simultaneously offer separate ULRs for technologies or products that compete with each other.
Some of the ULRs would be pools of patents. If IPXI packages multiple patents together in a ULR, each patent would be "reasonably relevant or beneficial" to the ULR's field of use. If it packages multiple patent owners' patents in the same ULR, each patent owner also must make its patents available in separate ULRs, unless the field of use is to conform to or implement a technical standard. For ULRs for technical standards, each patent must be technically or commercially necessary to conform to or implement the technical standard, i.e., effectively essential to practice the standard, as confirmed by an independent expert.
Purchasers of the ULRs (sublicensees) practicing the patents periodically would report to IPXI the number of units of ULRs that they consumed, i.e., the number of licensed products they made, used, or sold within the field of use. IPXI would publish data on these amounts only if the information is aggregated and individual sublicensees remain unidentified.
DOJ concluded that the proposed exchange would provide potential competitive benefits, but also raised certain competitive concerns that DOJ could not evaluate fully before the exchange became operational.
Due to the inherent uncertainties and potential competitive concerns associated with IPXI's novel business model that are discussed in detail below, the Department declines to state its present enforcement intentions regarding IPXI's proposal at this time. We simply do not know enough to conclude that IPXI's activities, once operational, will not raise competitive concerns.3
Its press release added that:
because IPXI cannot predict in advance the patents or markets that might be at issue, the department is unable to engage in the fact-intensive analysis necessary to assess the likely competitive effects of the proposal. In addition, given the novelty of IPXI's proposal, it is possible that other potential competitive concerns may later emerge once IPXI's platform is operational.4
DOJ's response shows that the guidance from prior Business Review letters and the DOJ/FTC guidelines on patent pools still provides good advice on reducing competitive concerns when the relevant markets and technologies are narrowly defined. But when a proposal involves undefined relevant markets and technologies, the competitive effects are much harder to foresee.
Endnotes
1 http://www.justice.gov/atr/public/busreview/295151.pdf. The information about the IPXI exchange described in this article comes from that business review letter.
2 DOJ's Business Review procedure allows the public to determine DOJ's current antitrust enforcement intentions about proposed business conduct. Persons requesting a business review submit information to DOJ, which often requests further information. DOJ will promptly issue a Business Review letter stating its then-present enforcement intentions regarding the conduct. The Business Review letter and information submitted is public, but confidential commercial or financial information submitted may remain confidential upon request. See http://www.justice.gov/atr/public/busreview/index.html.
3 http://www.justice.gov/atr/public/busreview/295151.pdf at 1.
4 http://www.justice.gov/opa/pr/2013/March/13-at-349.html.
5 http://www.justice.gov/atr/public/busreview/215742.htm (June 26, 1997, MPEG-2); http://www.justice.gov/atr/public/busreview/2121.htm (Dec. 16, 1998, 3C DVD); http://www.justice.gov/atr/public/busreview/2485.pdf (June 10, 1999, 6C DVD).
6 http://www.justice.gov/atr/public/busreview/200455.htm (Nov. 12, 2002, 3G); http://www.justice.gov/atr/public/busreview/238429.htm (Oct. 21, 2008, RFID).
7 Outside of the Business Review context, the FTC brought an action in 1998 against a patent pool involving eye-laser technology, in which two patent owners pooled their patents for competing technology and shared the proceeds; the FTC complaint charged price fixing. In re Summit Technology, Inc. and VISX, Inc., Docket No. 9286 (FTC Mar. 24, 1998), http://www.ftc.gov/os/1998/03/summit.cmp.htm. The parties entered consent judgments; subsequently the complaint was dismissed. http://www.ftc.gov/os/1998/08/d09286suagr.htm; http://www.ftc.gov/os/1998/08/d09286viagr.htm; http://www.ftc.gov/os/2001/02/summitvisxorder.htm.
8 http://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf at 64-85; http://www.justice.gov/atr/public/guidelines/0558.pdf at 28-30.
Copyright © Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. This article is for informational purposes, is not intended to constitute legal advice, and may be considered advertising under applicable state laws. This article is only the opinion of the authors and is not attributable to Finnegan, Henderson, Farabow, Garrett & Dunner, LLP, or the firm's clients.
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