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Barnes & Noble and MS Agree: Ballmer Will Not Have to Testify Live at ITC, and Some Antitrust Homework ~pj
Sunday, January 29 2012 @ 11:30 AM EST

B&N and Microsoft have come to an agreement about Steve Ballmer's participation in the Microsoft v. Barnes & Noble action at the ITC. They were arguing about it, and they've now agreed that Ballmer will not have to testify live at the ITC hearing, currently scheduled for February. Instead, B&N will present designated portions of his deposition, and Microsoft's lawyers have sent a letter [PDF] to the ITC stating officially that it withdraws its motion for a protective order, attaching to the letter a proposed schedule on the parties' next steps in figuring out exactly what each side wants in the way of details. This means there will be no further motion practice on the live testimony issue. But it does mean that Microsoft's effort to have Ballmer avoid being deposed ended with him being deposed.

Meanwhile, I took some time to try to understand why Barnes & Noble is fighting with such vigor, when a patent misuse defense is so hard to win. What do they know that I didn't? I will share with you what I've learned.

First, here are all the filings:

01/24/2012 - 469591 - Complainant Microsoft Corporation's Opposition to Respondents Barnes & Noble's Motion to Hold the Record Open to Receive Evidence Obtained from Nokia Corp. (or Its Affiliates) and Mosaid Technologies Inc. (or Its Affiliates)

01/24/2012 - 469594 - Notice of Withdrawal of Microsoft's Motion for Protective Order re Mr. Steven A. Ballmer

01/24/2012 - 469604 - Complainant Microsoft Corporation's Responses to Commission Staff's High Priority Objections to Complainant's and Respondent's Proposed Direct Exhibits

01/24/2012 - 469606 - Respondents' Response to Commission Investigative Staff's High Priority Objections to Respondents' Proposed Direct Exhibits

01/24/2012 - 469611 - Complainant Microsoft Corporation's Response to Respondents' Objections to Microsoft's Direct Exhibits, Witness Statements and Deposition Designations

01/24/2012 - 469613 - Respondents' Response to Complainant Microsoft Corporation's Objections to Direct Exhibits, Witness Statements and Deposition Designations of Respondents Barnes & Noble, Inc., LLC and Inventec Corporation

01/25/2012 - 469774 - Agreement to be Bound by the Protective Order of David J. Wolfsohn

01/25/2012 - 469818 - Complainant Microsoft Corporation's High Priority Objections Statement

01/25/2012 - 469823 - Complainant Microsoft Corporation's High Priority Objections Statement (Part 2)

01/25/2012 - 469830 - Respondents' High Priority Objections (Part 1)

If you notice, in the discussions on what evidence the ITC will accept, Microsoft responds by pointing out that portions of depositions can be presented in lieu of live testimony. That's on page 3 at the end and 4 at the top.

Microsoft is also opposing Barnes & Noble's request that the record be held open to include Nokia and MOSAID's evidence, if Barnes & Noble is finally able to get it. And they parties continue to try to whittle into shape what each may use as evidence.

Lots of sealed filings, once again. But don't worry. By hook or by crook, we usually find out in due time what the filings were about.

I had a chance to talk to Andy Updegrove, of Standards Blog, who as you probably know is a lawyer who does patent work in the standards area. I wanted to pick his brain, because the 2000 patents Nokia sold to MOSAID relate to standards, according to their statements. Just how many patents could possibly be required for a phone to be built? Surely not 1,200 out of the 2,000, I was thinking. Yet, that is the claim.

Here's what I learned. It's a bit depressing. But I'll get to the encouraging part at the end. Smartphones are so complex and involve so many technologies, it's conceivable that there are more patents involved than one would imagine. If not precisely 1,200, at least a lot, even if one subtracts for the usual patent hyperbole, meaning some, maybe all, may be trivial. Who knows? That's what courts are for. If a patent is trivial, you pay less. The other thing I learned is that in the telecom area, as compared to Web and Internet standards, we're looking at an industry where everyone expects to make money on standards. So, no wonder Barnes & Noble thought it had to fight, given that it can't afford to pay what Microsoft was demanding, even before the MOSAID patents entered the picture.

It also means I was right to realize early that this case matters a great deal to us in the FOSS community.

He suggested that we read some Department of Justice 'business review letters' on patent pools, because a patent pool is an example of multiple patent owners getting together to agree on a price for technology required to implement a standard. That's not exactly what Microsoft, Nokia and MOSAID say they are doing, but we're getting warm. You get to read in the letters the way the pool participants set the pool up, what safeguards they took (in the request letter), and the way the DoJ analyzed the request and either approved, qualified, or rejected the request. The controls traditionally include hiring a third party expert to review each supposedly essential claim and determine whether it's valid, whether it's essential, and what it's worth relative to the other essential claims. So he thought we might find it interesting to look at what a legal pool looks like, and then we can contrast that to the actual conduct that is being alleged here.

Here's a link to a summary of the RFID Consortium pool, with an embedded link to the review letter. You have to register to get at it, but it's at least free. [Update: A helpful reader lets us know you can get it without registration from the DOJ here.] And here's an article by Jones Day, the law firm that represented the RFID Consortium, explaining what some of the safeguards are that the agencies look for:

In concluding that the patent pool is unlikely to cause harm to competition, the business review letter identifies numerous safeguards included in the structure of the patent pool, including the limitation of the pool to patents determined by an independent expert to be essential; a method to remove patents found to be invalid, unenforceable or no longer essential; allocation of royalties in part based on the number of patents in the pool; the retention by pool members of the ability to license their patents independently; and the pool’s willingness to license all interested parties on a non-discriminatory basis. The business review letter also observes that grantback rights are limited to essential patents and provide for compensation on the same terms as for other pool members. Finally, the business review letter notes that the pool’s proposed engagement of an independent licensing administrator renders anticompetitive harm from collusion unlikely, but declines to state DOJ’s enforcement intentions if the RFID Consortium ultimately does not retain an independent licensing administrator.
That RFID decision was the first after a report in 2007, jointly issued by the FTC and DOJ, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition [PDF], and here's the press release about it. The two agencies at the time assumed that strong intellectual property protection encourages innovation, a conclusion not all would agree with, but this is what the press release said:
The agencies’ analysis of intellectual property focuses on preserving competition and incentives for creativity and innovation. The report indicates that the FTC and DOJ will analyze the vast majority of conduct involving intellectual property rights using a flexible rule of reason approach that considers both the efficiencies of a particular activity as well as any anticompetitive effects it may create. With the agencies’ improved understanding of intellectual property, the agencies can better ensure that intellectual property and antitrust laws continue to achieve their common goals of “encouraging innovation, industry and competition,” according to the report. The report’s conclusions include the following:
  • Antitrust liability for mere unilateral, unconditional refusals to license patents will not play a meaningful part in the interface between patent rights and antitrust protections. Antitrust liability for refusals to license competitors would compel firms to reach out and affirmatively assist their rivals, a result that is in tension with the antitrust laws.

  • Conditional refusals to license that cause competitive harm are subject to antitrust scrutiny.

  • Joint negotiation of licensing terms by standard-setting organization participants before the standard is set can be procompetitive. Such negotiations are unlikely to constitute a per se antitrust violation. The agencies will usually apply a rule of reason analysis when evaluating these joint activities.

  • The agencies evaluate the competitive effects of cross-licenses and patent pools under the rule of reason framework articulated in the 1995 Antitrust-IP Guidelines.

  • Combining complementary patents within a pool is generally procompetitive. A combination of complementary intellectual property rights, especially those that block the use of a particular technology or standard, can be an efficient and procompetitive way to disseminate those rights to would-be users of the technology or standard. Including substitute patents in a pool does not make the pool presumptively anticompetitive–competitive effects will be ascertained on a case-by-case basis.

  • The agencies apply a rule of reason analysis to assess intellectual property licensing agreements, including non-assertion clauses, grantbacks, and reach-through royalty agreements.

  • The Antitrust-IP Guidelines will continue to guide the agencies’ analysis of intellectual property tying and bundling. The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie, and would be likely to challenge a tying arrangement if: (1) the seller has market power in the tying product, (2) the arrangement has an adverse effect on competition in the relevant market for the tied product, and (3) efficiency justifications for the arrangement do not outweigh the anticompetitive effects. If a package license constitutes tying, the agencies will evaluate it under the same principles they use to analyze other tying arrangements.

  • The agencies consider both the anticompetitive effects and the efficiencies attributable to a tie or bundle involving intellectual property.

  • The starting point for evaluating practices that extend beyond a patent’s expiration is an analysis of whether the patent in question confers market power. If so, these practices will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation.

  • Collecting royalties beyond a patent’s statutory term can be efficient. Although there are limitations on a patent owner’s ability to collect royalties beyond a patent’s statutory term, see Brulotte v. Thys Co., 379 U.S. 29 (1964), that practice may permit licensees to pay lower royalty rates over a longer period of time which can reduce the deadweight loss associated with a patent monopoly and allow the patent holder to recover the full value of the patent, thereby preserving innovation incentives.
So they say they look for arrangments that are efficient, benefit consumers, incentivize creativity and preserve competition. But the rules themselves are, to me, top-heavy in favor of pooling. No doubt you also note the first item on the list, because it explains why Microsoft in the Novell v. Microsoft antitrust case kept saying that it had no duty to help a competitor.

If you Google "patent pool business review letter" you'll find a wealth of information, including other such letters, as well as law review articles and other commentaries, as well as relevant FTC and DoJ guidance. I'm going to be doing just that, and I hope you will too. If you do, please share anything of particular interest.

So, those were the 2007 guidelines. But this is 2012. If you go to that first link, to Mondaq, you'll see another paper listed that is a bit more encouraging, a more recent one by a Jones & Day lawyer, titled "Antitrust & Competition: Does Recent FTC Consent Agreement Signal Heightened Antitrust Scrutiny for Information Sharing by Competitors?" One hopes so. And there appears to be agreement in the field that the current administration indeed is much more interested in antitrust enforcement than the previous, more laissez-faire one. The idea used to be more that the market would take care of things. After Wall Street demonstrated that this is a fantasy, thinking began to shift. In 2009, the rules on monopoly shifted, as US News reported:

The Obama administration has swept away policy after policy from the Bush administration, and the top antitrust regulator, Assistant Attorney General Christine Varney, made it clear in her first speech this week that she's coming in with a very big broom.

Varney repudiated the Bush administration's more laissez-faire approach to monopoly cases in a forceful speech to a liberal think tank and then in another one to the U.S. Chamber of Commerce. A report issued last year by the Bush administration on monopoly regulation is no longer government policy, she warned judges, lawyers, and companies. "As antitrust enforcers, we cannot sit on the sidelines any longer, both in terms of enforcing the antitrust laws and contribution to sound competition policy as part of our nation's economic strategy," she said in her speech.

Varney's temporary replacement, Sharis Pozen, is stepping down in April, but the guy President Obama would like to fill her shoes permanently, William J. Baer, is reportedly very much in the same mold, if not more so, as the New York Times described him:
Antitrust experts said that Mr. Baer would continue the government’s reinvigorated enforcement of the antitrust laws, recently seen in its vocal opposition to the proposed merger between AT&T and T-Mobile USA that collapsed last month.
So it's a new day in antitrust enforcement, so another reason Barnes & Noble may have thought it was worth trying to fight is because it just might work.

Update: Andy Updegrove just sent me some references to add to what I posted earlier, so thank you!

Here's the archive for business review letters generally - well worth a browse;

Here's a Stanford Law Review article [PDF] on the evolution of patent pools, including comments on the MPEG patent pool, one of the more notorious pools;

Here's an article on patent misuse and patent pools, which might be of interest in the context of Barnes & Noble.


Barnes & Noble and MS Agree: Ballmer Will Not Have to Testify Live at ITC, and Some Antitrust Homework ~pj | 168 comments | Create New Account
Comments belong to whoever posts them. Please notify us of inappropriate comments.
Authored by: grouch on Sunday, January 29 2012 @ 12:40 PM EST
Please post corrections here.

Thank you.

-- grouch

GNU/Linux obeys you.

[ Reply to This | # ]

News picks
Authored by: feldegast on Sunday, January 29 2012 @ 01:10 PM EST
Please make links clickable

My posts are ©2004-2012 and released under the Creative Commons License
Attribution-Noncommercial 2.0
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[ Reply to This | # ]

Off topic
Authored by: feldegast on Sunday, January 29 2012 @ 01:10 PM EST
Please make links clickable

My posts are ©2004-2012 and released under the Creative Commons License
Attribution-Noncommercial 2.0
P.J. has permission for commercial use.

[ Reply to This | # ]

Comes transcribing
Authored by: feldegast on Sunday, January 29 2012 @ 01:11 PM EST
Thank you for your support

My posts are ©2004-2012 and released under the Creative Commons License
Attribution-Noncommercial 2.0
P.J. has permission for commercial use.

[ Reply to This | # ]

Well over 90% of all patents are invalid
Authored by: Anonymous on Sunday, January 29 2012 @ 01:28 PM EST
I used to read a lot of patents. It was part of my job. Almost always even
supposedly solid patents from huge companies (no, I won't name them)
had existing prior art. Would you believe product that had been for sale ten
years prior to the filing date for the patent?

PJ often says that software and patents need a divorce. The problem goes
far deeper than that. The U.S. Patent Office is probably costing the United
States millions of lost jobs. I wish I could come up with some solid
numbers, but this is the job for the research department at one of the big
universities, not one man.


[ Reply to This | # ]

Speaking of patent cesspools
Authored by: jvillain on Sunday, January 29 2012 @ 04:58 PM EST
What ever came of MPEG-LAs attempt to troll Google and the rest of the world
over WebM? Last I heard members had stepped up with patents and MPEG-LA was
evaluating them. Has any thing happened since?

[ Reply to This | # ]

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