Navigating the Antitrust Minefield
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IAM_51 Paginated - 1 30/11/2011 16:47 Page 59 The competition angle Navigating the antitrust minefield and therefore prevent Google from The Nortel patent auction and obtaining any part of it outright. That is a Google’s proposed takeover of collective acquisition of competing patents, Motorola Mobility have attracted the and the winning bid might or might not be attentions of US competition deemed anti-competitive, depending on how the portfolio ends up being used.” regulators. With several other high- Licensing deals are also at risk from stakes patent transactions on the claims of being anti-competitive. “At one cards, chief IP officers need to time, companies could simply follow the know the dangers of violating government’s list of ‘Nine No-Nos’ when antitrust law and the steps they can licensing IP,” says M Howard Morse, an antitrust partner at Cooley in Washington take to avoid costly consequences DC. The “Nine No-Nos” were a set of rules which per se prohibited practices such as By Jack Ellis mandatory package licensing, mandatory grant-backs, tying unpatented supplies into patent licences and compulsory payment of The huge sums involved in the Nortel unreasonable royalties. “Today, life is more auction and Google’s subsequent purchase complicated, as practices once condemned – of Motorola Mobility have changed the way from tying to grant-backs – are now often that patents are seen. Suddenly, portfolios recognised to be pro-competitive,” continues have gained the attention of chief executives Morse. “But this is not to say that we are and investors like never before. The now in the world of ‘No No-Nos’. The US excitement created has thrust future patent Department of Justice (DoJ) and Federal sales into the limelight, with Kodak and Trade Commission (FTC) believe it is their InterDigital, and perhaps Research In job to ensure that when intellectual property Motion, now considering their options. is at issue, competition is not thwarted With patents driving multibillion-dollar through what they believe is misuse or illegal transactions, yet another dimension has extension. At the moment, they have high- been added to the smartphone wars. The tech industries in their sights.” fast-moving, fast-innovating wireless The US government is currently device industry is dominated by companies investigating both the winning bid for of massive influence in the marketplace, and Nortel and Google’s acquisition of Motorola unfair competition concerns have been Mobility under federal antitrust laws. raised. Robert A Skitol, antitrust partner at Antitrust is a complex and often confusing Drinker Biddle & Reath in Washington DC area; but it is one that IP owners need to be and a member of the board of directors of aware of. Only then can they avoid costly the American Antitrust Institute, explains mistakes which could see them heavily that the outcome of the Nortel auction penalised or even missing out on a game- raises classic concerns: “Once Apple joined changing patent acquisition. the Rockstar consortium, basically all of Google’s competitors in the mobile Competing and complementary patents operating system world had joined forces to The notion of competing and acquire the entirety of the Nortel portfolio complementary patents is an important one www.iam-magazine.com Intellectual Asset Management January/February 2012 59 IAM_51 Paginated - 1 30/11/2011 16:47 Page 60 The competition angle Private antitrust suits What about companies that suspect that they may be the victim of anti-competitive practices? Under US antitrust law, it is not only the federal government that can bring antitrust suit against a party. Attorneys general of the individual states, consumers and competitors can bring antitrust complaints against a company and can ask the DoJ and the FTC to investigate. This is important not just for companies acquiring or licensing patent portfolios, but also for those which feel they are being forced out of the market by anti-competitive practices. In all of these situations, the claimant must provide solid evidence that some antitrust harm has been created if they want to have any chance of bringing a case. “Simply presenting a theory that prices in the industry will go up because of some company’s conduct, and that a competitor should benefit from those higher prices, is not enough to bring an antitrust case,” says Howard Morse. “But if a competitor can prove that it has been or is very likely to be foreclosed from the marketplace by that company’s conduct, then it will likely be able to bring a case.” All potentially anti-competitive uses of intellectual property that could form the basis of federal government antitrust action could also lead to a private antitrust suit. If such a suit succeeds, the penalties for the defendant can be costly. “The remedies would include an award of triple the demonstrated damages from the illegal activity plus attorneys’ fees,” says Robert Skitol, “as well as cost of suit plus injunctive relief aimed at preventing any continuation of the M Howard Morse illegal conduct.” A licensee subjected to patent “hold-up”, or a demand for excessive royalties in Partner, Cooley LLP return for a licence to standards-essential IP, would also have grounds for an antitrust complaint. “The intersection of intellectual property and antitrust law is very much about looking at the combination that is brought about by an for IP owners to keep in mind. If all of the problem surrounding the Nortel purchase is acquisition or IP licence.” competing technologies in a particular that by acquiring an extensive trove of market come under the ownership of one patents covering a wide array of company, then that company will no longer technologies, including a considerable face competition and will effectively be a number of Long-Term Evolution patents, monopoly. Morse explains: “The the Rockstar members will occupy a intersection of intellectual property and dominant position in the wireless device antitrust law is very much about looking at market that could all but totally exclude the combination that is brought about by an their main competitors, such as Google, acquisition or IP licence. A key historical from competing against them. If this is seen example of this is Xerox’s acquisitions of to be the case, then Rockstar could be a the Battelle Memorial Institute’s patents buyer’s cartel, creating a monopsony and relating to copying technology. The Battelle opening itself up to penalties. patents may have been sufficiently strong so The Rockstar members have two main as to create a dominant market power, but options on how to manage their new as long as Xerox didn’t have a strong acquisition to avoid such an eventuality, showing in copying technology patents each with varying degrees of antitrust before making that acquisition, the transfer exposure. The first option is for the didn’t create a larger market power. It consortium members jointly to own and merely shifted the existing market power enforce all of the acquired patents through a from Battelle to Xerox.” patent holding company or a patent pool. The agglomeration of market power over This would come in for obvious antitrust time, Morse says, could also be considered scrutiny, as it could be viewed as a anti-competitive in certain circumstances: concerted attempt to shut out their key “For instance, if one firm has a strong competitor. The second option is for the position in an existing technology, but that consortium members to divide up control of existing technology is going to disappear the portfolio and make separate and and be replaced by some new technology, individual determinations on enforcement then you wouldn’t necessarily be concerned and licensing. with the firm acquiring that new “The latter course would seem a lot technology. On the other hand, if there is safer and a lot easier to defend from an going to be a battle lasting for some time antitrust standpoint,” suggests Skitol. “The between the existing and the new DoJ could impose conditions that enable technologies, then you don’t want to put Google or any other competitor to license them both in the hands of the same firm.” any part of the Nortel portfolio that it needs This monopoly principle applies not in order to compete.” These conditions, he only to single companies, but also to groups explains, could include a stipulation that of companies that team up to achieve the the patents be allocated in such a way that same effects. The potential antitrust each consortium member would get sole 60 Intellectual Asset Management January/February 2012 www.iam-magazine.com IAM_51 Paginated - 1 30/11/2011 16:47 Page 61 The competition angle ownership over those which best The agencies may request additional time to complement its existing portfolio. Granted investigate, as well as more in-depth that the Nortel patents are worth as much information following the initial report. as we have been led to believe, this would Henry C Su, an attorney adviser at the have the effect of strengthening each FTC (speaking to IAM on his own behalf, member’s portfolio in areas where it is and not on behalf of the FTC or its currently lacking. This would also ensure commissioners), explains: “The Hart-Scott- that each member is not given ownership Rodino Act requires the reporting of over competing patents in areas of acquisitions of voting securities, non- technology where it already holds corporate interests or assets. The reporting considerable market power, and would requirement is triggered if the parties to the protect them from accusations of transaction exceed a certain size, or if the monopolism. transaction itself exceeds a certain value.” There is a precedent for such an The thresholds that trigger the reporting arrangement.