[PP-DIALOG] Comments on So-Called "Balanced Safe Harbor Approach"

["Gil Ohana (gilohana)" <gilohana@xxxxxxxxx>]

I wanted to respond to comment 13, the proposal to include in the IEEE-SA By-Laws the so-called “Balanced Safe Harbor Approach”.  In fact, as discussed below, the proposal is neither balanced nor safe.

 

I set out below the text of the “Balanced Safe Harbor Approach”, with some added footnotes in [brackets] that refer to subsequent comments.

 

Add: Balanced Safe Harbour Approach (2-stage RAND

determination)

 

An owner of Essential Patent Claims relating to an IEEE Standard and subject to a RAND

licensing assurance shall not EXCLUDE a potential licensee [1], other than one in breach of a

license agreement with the owner of Essential Patent Claims covering such Essential

Patent Claims, unless the potential licensee fails, within sixty days of receiving a written

Request[2], to agree in writing to enter into a license if RAND terms are offered by the owner of

Essential Patent Claims [3] and, in the case of dispute to participate in, and be bound by, a

RAND ADJUDICATION to verify [4] or determine RAND terms which will then constitute a

binding licence agreement between the Essential Patent Claims owner and the potential

licensee.

 

A potential licensee may challenge, outside the RAND ADJUDICATION [5], the essentiality,

infringement, validity, or enforceability of any Essential Patent Claims without losing the

benefit of this Clause.

 

DEFINITIONS

 

RAND ADJUDICATION shall mean a fair, independent, and internationally-recognized

adjudication process to determine primarily whether license terms and conditions offered by

the Essential Patent Claims owner are not inconsistent with the Essential Patent Claims

owner’s RAND licensing assurance . Only if such terms are determined to be inconsistent

with the Essential Patent Claims owner’s RAND licensing undertaking [6] then the adjudication

process shall secondarily determine the RAND terms. The adjudication process shall

consider relevant arguments subject to the time constraints of the adjudication process, but

shall not be required to issue separate determinations of the essentiality, infringement,

validity, or enforceability of any Essential Patent Claims [7]. The adjudication process may

allow a period for negotiation between the primary and secondary determinations.

 

EXCLUDE shall mean to enjoin (e.g. through an injunction or exclusion order) from

practising any of the rights set forth in the RAND licensing assurance under such Essential

Patent Claims.

 

Comments:

 

[1]  The so-called “Balanced Safe Harbor Approach” focuses solely on efforts to “Exclude a potential license”, and “Exclude” is defined to mean actually enjoining that licensee.  This is problematic for two reasons.  First, the proposal says nothing about efforts to seek or threaten to seek an injunction.  The courts and competition enforcement agencies have recognized that such threats of injunctive relief are themselves anticompetitive tools, because they coerce implementers of standards to accept licensing offers that are inconsistent with RAND because of their fear that their sale of compliant products will be enjouned.  The proposal’s failure to regulate such behaviors is reason enough to dismiss it.  Second, by focusing only on the use of injunctions against a particular licensee, the proposal fails to address situations where injunctions may be sought against a licensee’s customers.  For instance, the proposal would appear to permit a patent holder to refuse licenses to manufacturers of 802.11 compliant components, and nonetheless to seek an injunction against customers of that manufacturer based on those very same components.  At a time when “direct to consumer” threats of infringement actions are becoming more common, this is a weakness that proponents of the so-called “Balanced Safe Harbor Approach” should clearly address. 

 

[2] The 60 day period proposed is insufficient to permit a prospective licensee to assess whether it is willing to accept a license to offer what may be numerous patents issued in multiple jurisdictions, each of which may be subject to specific invalidity and non-infringement defenses in the country of issuance, and to evaluate non-patent defenses and counterclaims.  The submitter of the so-called “Balanced Safe Harbor Approach” may have based the 60-day period on the FTC’s consent decree in Google.  But, as the submitter is surely aware, in the FTC-Google consent decree, the 60-day period provided to licensees follows a longer period of 6 months in which the parties are to try to agree on the terms of a negotiated license.  The so-called “Balanced Safe Harbor Approach” dispenses with this negotiation period, and substitutes instead only the second phase of the FTC’s framework, a 60-day period for the potential licensee to evaluate the entire portfolio it is offered.

 

[3] The phrase “if RAND terms are offered by the owner of Essential Patent Claims” may be intended to conceal a strategy of proposing a portfolio that includes one or more Essential Patent Claims, but also includes other patents, perhaps essential to other standards (whether created by IEEE-SA or another standards development organization, or perhaps not essential to any standard, and offering a single rate for the entire set).  This strategy may be intended to protect from scrutiny (in particular, from challenges to validity and infringement) numerous patents that the offered portfolio may contain.  Rather than offer terms for an entire portfolio, the patentee should be required to offer either patent-specific licensing terms or, at most, terms for all patents in its portfolio valid in a particular jurisdiction that it believes are essential to a particular IEEE-SA standard.

 

[4] As will be discussed further in comment 6, below, the word “verify” used here is intended to place artificial limits on the scope of the adjudication process.  If the parties are unable to agree to RAND terms, then their dispute must be submitted to one or more dispute resolution processes, which can occur in national courts (as has, for example, recently occurred in several US judicial proceedings) or before a mutually agreed arbitration panel.  The decision-maker in the process is not bound by any terms proposed by either the patentee or the prospective licensee, and is, instead, free to reach its own determination of a RAND rate and other licensing terms.   In reaching this determination, the decision-maker is, of course, free to consider terms proposed by each party, but its role is not limited to “verify[ing]” whether terms proposed by one side or the other are or are not consistent with RAND.

 

[5] Participants in the discussions of injunctive relief at ETSI and ITU-T will recall comments from the companies that supported the so-called “Balanced Safe Harbor Approach” or predecessor proposals expressing concern with the time it would take to reach what they described as a “patent-by-patent” approach to portfolio valuation.  Given this ostensible concern with the time it would take to resolve FRAND disputes, it is therefore surprising to see the proponents of the so-called “Balanced Safe Harbor Approach” propose an entirely separate process or processes for determination of fundamentally important issues such as patent validity and infringement.  We all recognize (hopefully) that the RAND royalty for a patent that is not infringed is zero, and that the RAND royalty for a patent that is invalid is zero.  It is difficult to understand, then, how the proponents of the “Balanced Safe Harbor Approach” expect a court or arbitrator to determine a RAND royalty rate (or even, as discussed in the previous comment, to conduct the inquiry they propose as to whether the patentee has  offered RAND terms) without determining questions of patent validity and non-infringement (at least).  Perhaps the process that the proponents of the so-called “Balanced Safe Harbor Approach” envision is that a court or arbitrator will value patent portfolios based on the assumption that all offered patents are valid and infringed.  This assumption would be heroic indeed in the context of recent litigation in the smartphone space, in which – according to published analyses – the majority of patents claimed to be essential have, when tested in court, been determined to be invalid or not infringed.  It is far from “balanced” to require implementers of standards to begin paying royalties before they have had the opportunity to test whether they even infringe the patents for the use of which they would be required to pay.

 

[6]  The phrase “determined to be inconsistent with the Essential Patent Claims owner’s RAND undertaking” is further evidence that what the proponents of the so-called “Balanced Safe Harbor Approach” seek is, in fact, entirely unbalanced (and, for implementers of standards and their customers, entirely unsafe).  Proponents of the so-called “Balanced Safe Harbor Approach” seek an adjudication process limited to a determination of whether one of the licensor’s offers complies with RAND, an ambiguous term that the same companies advocating for the “Balanced Safe Harbor Approach” are strenuously resisting clarifying at other standards development organizations and in comments they have submitted to IEEE-SA.  As noted in Comment 4, what opponents of the so-called “Balanced Safe Harbor Approach” seek instead is what several courts in the US have recently provided:  a determination of specific licensing terms.

 

[7]  The phrase “shall not be required to issue separate determinations of the essentiality, infringement, validity, or enforceability of any Essential Patent Claims” underscores what proponents of the so-called “Balanced Safe Harbor Approach” want:  a determination of “FRAND-ness” divorced from questions of patent validity, patent infringement, and patent enforceability.  Of course, all of those issues are frequently litigated in national courts that are called upon to resolve patent infringement litigation.  The burden is on the proponents of the so-called “Balanced Safe Harbor Approach” to explain why – as a condition to avoiding the use of SEP injunction claims against IEEE standards – implementers of standards should be forced to surrender rights to contest validity, and to require patentees to prove infringement and enforceability, that they have under national legal systems.  It appears that, in response to the increasing disfavor with which competition enforcement agencies around the world see the use of injunctive relief for standard-essential patents that are subject to voluntary RAND or FRAND licensing commitments, the proponents of the so-called “Balanced Safe Harbor Approach” are hoping to be compensated for giving up the right to enjoin or exclude by forcing implementers of standards to surrender the rights they may otherwise exercise in the normal course of litigation or arbitration as those dispute-resolution procedures are currently structured.  The IEEE-SA should reject this approach to compel implementers of standards to forfeit their fundamental procedural and substantive rights in order to avoid an anticompetitive SEP injunction threat.