SEPs, FRAND, and the Power of Section 5

13 Pages Posted: 7 Mar 2023

Date Written: March 2, 2023

Abstract

In the modern Internet of Things, our cars, our televisions, and even our door locks and home thermostats rely on internet connectivity standards. As a result, our interconnected world is ever more reliant on standard-essential patents (SEPs), the key patented technologies that underpin critical connectivity standards. That has put some implementers in a bind, as they face patent royalty claims that they feel far exceed a reasonable royalty – and feel compelled by lock-in to pay those royalties.

The Federal Trade Commission has long been a leader in enforcement and advocacy in this space, a role that it proudly continues. Its involvement started with the Commission’s seminal decision in 1996 to bring an enforcement action against Dell for seeking to collect royalties on a standardized patent in a manner that the Commission found harmful to competition. Other enforcement actions followed, as well as major reports addressing competition in high-tech and often-standardized industries. FTC Commissioners also have issued statements on the topic, both together and individually, and the Commission has submitted comments to the International Trade Commission to explain how the analysis for exclusion orders should change when the infringement of a standardized patent is at issue. Notably, the FTC hasn’t invoked only the Sherman Act in its work here. Instead, it has long taken the position that Section 5’s so-called “standalone” provision gives it the power to act in this space where others – including private parties – cannot.

In light of this history of enforcement and advocacy, we believe the FTC may continue to see itself as the steward of this area of the law. To illustrate our point, we look at a recent patent pool price hike and extrapolate a based-on-a-true-story hypothetical: Suppose an SEP holder burdened with obligations to charge only a reasonable royalty for its patents suddenly and without explanation raised the royalty significantly and threatened to seek injunctions against those who do not pay the new rate. We ask whether the FTC may conclude that this would violate the FTC’s standalone Section 5 provision. Based on precedents like the FTC’s N-Data case from 2008, we think it very well could.

Suggested Citation

Levine, Gail and Longoria-Green, Carmen, SEPs, FRAND, and the Power of Section 5 (March 2, 2023). Available at SSRN: https://ssrn.com/abstract=4376184 or http://dx.doi.org/10.2139/ssrn.4376184

Gail Levine

Mayer Brown LLP

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