Federal Trade Commission (FTC) Chairwoman Edith Ramirez took the unusual step on July 13, 2015, of filing a written submission on her own behalf — and expressly not on behalf of her agency — in Investigation No. 337-TA-613, Certain 3G Mobile Handsets and Components Thereof (the 613 Investigation). The Written Submission on the Public Interest of Federal Trade Commission Chairwoman Edith Ramirez (Written Submission) argues in essence that complainants at the ITC should bear the burden of rebutting the “FRAND defense” — the defense that exclusionary relief should not be available for infringement of FRAND-encumbered standard-essential patents (SEPs). Since at least 2012, the FTC has taken the position that, in cases involving FRAND-encumbered SEPs, the ITC should “consider the impact of patent hold-up on competitive conditions and United States consumers” as part of its analysis of whether the issuance of an exclusion order would be in the public interest. See Certain Wireless Communication Devices, Portable Music and Data Processing Devices, Computers and Components Thereof, Inv. No. 337-TA-745, Comments on the Public Interest by Third-Party United States Federal Trade Commission (June 6, 2012) (the FTC’s 2012 Statement) at 6. The FTC has not publicly taken a position on who bears the burden of proof on that issue, however. The significance, if any, of the failure of other FTC commissioners to join Chairwoman Ramirez’s Written Submission remains unclear.
Standard-setting organizations (SSOs) frequently require members to commit to license their standard-essential patents on fair, reasonable, and nondiscriminatory (FRAND) terms, to promote the widespread adoption of standards. See, e.g., European Telecommunications Standards Institute Rules of Procedure, Annex 6: Intellectual Property Rights Policy, § 6 (Nov. 19, 2014). Respondents at the ITC are increasingly asserting the FRAND defense. Since at least 2012, FTC has urged the ITC to issue exclusion orders for FRAND-encumbered patents only upon a finding that such a remedy would not lead to patent hold-up — the practice whereby a patent holder “holds-up” practitioners of a standard to license SEPs for royalties in excess of the patents’ value independent of their inclusion in the standard. In its 2012 Statement, the FTC did not address whether the party asserting patents alleged to be FRAND-encumbered should be required to prove that no hold-up would ensue from an exclusion order, or whether respondents should bear that burden.
The threshold question of whether and under what conditions exclusionary relief is (or should be) available to the owner of a patent that may be committed to FRAND licensing terms has been a hot issue at recent ITC proceedings. It was therefore no surprise when the ITC recently announced its intent to review the Initial Determination on Remand (RID) rendered by Administrative Law Judge Essex in the 613 Investigation, as the RID set forth an evidence- and contract-based multistep framework for adjudicating the FRAND defense. First, citing Commission Rule 210.37(a), Judge Essex held that the party asserting the defense must prove that the asserted patent is, in fact, standard-essential. A patent owner’s declaration that its patents “may be or may become” essential to the practice of a standard does not necessarily establish that they are SEPs. Second, the party advancing the FRAND defense must establish that the patents are actually FRAND-encumbered; this is generally a contract-based inquiry that requires consideration of the relevant governing documents of the SSO. Third, after proving the asserted patents are standard-essential and FRAND-encumbered, the party asserting the defense must prove that the patent owner violated its FRAND obligations and engaged in patent hold-up. To meet that burden, Judge Essex observed, one must proffer actual evidence that the patent owner engaged in patent hold-up, not speculations about the theoretical possibility that patent hold-up might at some point occur somewhere.
Judge Essex found no evidence of patent hold-up in the 613 Investigation, but he did find that the respondents in the 613 investigation had engaged in reverse hold-up by refusing to take a license after the Federal Circuit issued a claim construction that undermined their non-infringement positions.
Disagreeing with Judge Essex’s holding on the burden of proof issue, Chairwoman Ramirez stated in her Written Submission that, to satisfy the public interest requirement of 13 U.S.C. §§ 1337(d)(1) and (f)(1), complainants should effectively bear the burden for respondents’ affirmative FRAND defense. Written Submission at 2 (“as part of its public interest analysis before issuing an exclusion order, the ITC [should] require a SEP holder to prove that the implementer is unwilling or unable to take a FRAND license”). An SEP holder could meet this burden, she posits, with evidence that the standard implementer declined to negotiate for a license at all or “insist[ed] on terms that are clearly outside a reasonable interpretation of FRAND.” Id. at 7. Chairwoman Ramirez contended that any proposed remedy should be forestalled while the metes and bounds of a FRAND rate are litigated and the parties are given additional time to negotiate thereafter:
When there is a dispute between the parties about what terms are FRAND terms, the meaning of FRAND must first be determined by a neutral adjudicator in order for the implementer’s offer to be evaluated in the context of a FRAND range. ... [I]f, during the course of the Section 337 investigation, a FRAND range is determined, I recommend that the ITC delay the effective date of Section 337 remedies and provide parties an opportunity to execute a FRAND license.
Chairwoman Ramirez alluded in passing to a concern about the anticompetitive effects of reverse hold-up or (hold-out) — whereby practitioners of a standard leverage their entitlement to FRAND licensing terms to license SEPs at lower rates — but did not address that concern substantively. Nor did she address the issue of who must prove that an asserted patent is standard-essential and FRAND-encumbered in the first place, or what evidence would meet any such burden. But she made clear that she does not consider the SSO governing documents — the contracts allegedly giving rise to the encumbrance in the first instance — dispositive of a determination of the nature or scope of that encumbrance. See Written Submission at 4 n.14 (“an [SSO’s] IPR policy is instructive, but not dispositive, on the question of whether an exclusion order is in the public interest”). In so doing, she echoed the position articulated by the FTC in its 2012 statement that concern over patent hold-up should drive the ITC’s public interest analysis when determining whether to issue an exclusion order for SEPs.