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To read comments to this article, go here
Qualcomm, WLF, Ericsson, and More Comments Opposing the FTC's Google/Motorola Agreement ~pj
Tuesday, March 05 2013 @ 11:01 PM EST

There are more comments filed with the FTC in response to its request for input on the proposed agreement in In the Matter of Motorola Mobility LLC, a limited liability company, and Google Inc., a corporation; FTC File No. 121 0120. As I mentioned earlier, not everyone is jumping on the currently fashionable bandwagon holding that if you donate a patent to a standards body, you give up all rights to injunctions. In fact, it's easier to find opposition than support.

I showed you RIM's and CCIA's last time, two of the entities that don't think it's right to take away property rights from patent owners. And here are two more, the Washington Legal Foundation [PDF] and Qualcomm [PDF]. WLF argues that what the FTC proposes is in excess of its authority and its expertise, that it's a violation of the Noerr-Pennington doctrine and the First Amendment. Qualcomm says if the FTC makes this a template applicable to everyone else, it will result in more litigation, not less. I've done them both as text for you, and I have snippets from several more, who raise serious questions about the legality, including the Constitutionality, of what the FTC is proposing.

Jump To Comments

In case you think I've just cherry-picked the few comments that oppose the agreement, I'll show you a few more introductions, to give you the full picture. This proposed agreement is wildly unpopular.

For example, here's the introduction to the comment [PDF] from the International Center for Law & Economics, which argues that the FTC's enforcement action has no "proper grounding in antitrust law" in that there is no punishment for a monopoly legally acquired, besides which there is no evidence of consumer harm, that FRAND disputes are essentially contractual disputes, and there is no one-size-fits-all solution, and therefore the FTC solution will actually encourage infringement by lowering its cost:

Introduction

We appreciate this opportunity to comment on the proposed Consent Agreement and Order in this matter. The Order is aimed at imposing some limits on an area of great complexity and vigorous debate among industry, patent experts and global standards bodies: the allowable process for enforcing FRAND licensing of SEPs. The most notable aspect of the Order is its treatment of the process by which Google and, if extended, patent holders generally may attempt to enforce their FRAND-obligated SEPs through injunctions.

As an initial and highly relevant matter, it is essential to note that the FTC’s enforcement action in this case has no proper grounding in antitrust law. Under the doctrines set down in Trinko1 and NYNEX,2 among other cases,3 there is no basis for liability under Section 2 of the Sherman Act because the exercise of lawfully acquired monopoly power is not actionable under the antitrust laws. Even under Section 5 of the FTC Act the action has no basis: The Commissioners who supported the action could not agree whether its legal basis rested in unfair acts or practices or unfair methods of competition, and under an unfair methods of competition analysis (which was supported by most of the commissioners), the action is unsound because there is no evidence of consumer harm.

With respect to the terms of the Order itself, we believe that superimposing process restraints from above is not the best approach in dealing with what is, in essence, a contract dispute. Few can doubt the benefits of greater clarity in this process; the question is whether the FTC’s particular approach to the problem sacrifices too much in exchange for such clarity. FRAND terms are inherently indeterminate and flexible. Indeed, they often apply precisely in situations where licensors and licensees need flexibility because each licensing circumstance is nuanced and a one-size-fits-all approach is not workable. Enforced “certainty” by the Commission, without proper grounding in antitrust principles and doctrine, may impose costly constraints on innovation without commensurate gains.4

Instead, we believe that parties should be held to the agreements they make with SSOs, whose role is to ensure that standards are workable and that the licensing of patents that read on them is not abused. This approach has worked in the past and still functions well today. The proposed Order alters the current incentive structure, encourages infringement by lowering its costs, and creates a disincentive to standardize and to license. Where anticompetitive practices occur, as with unlawful collusion, the FTC clearly has authority to act. However, blanket constraints without antitrust grounding on a crucial method of patent enforcement will weaken the very structure the FTC is trying to strengthen.

___________
1 Verizon Commc’ns Inc. v. Law Offices of Curtis v. Trinko, 540 U.S. 398, 411 (2004).

2 NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 133 (1998).

3 See, e.g., Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1078 (2007); Brooke Group Ltd. v. Brown & Williamson Tobacco Co., 509 U.S. 209, 223 (1993).

4 On the problem of error costs in antitrust, particularly in innovative markets, see Geoffrey A. Manne & Joshua D. Wright, Innovation and the Limits of Antitrust, 6 J. COMPETITION L. & ECON. 153 (2010). See also Frank H. Easterbrook, The Limits of Antitrust, 63 TEX. L. REV. 1 (1984).

By the way, Apple even says in its comment [PDF]: "SEP holders should not seek injunctions when they have made a FRAND commitment absent exceptional circumstances." So Apple is not seeking a total ban on injunctions.

And who defines "exceptional circumstances"? How about when Apple told the judge in Wisconsin that they'd only obey her order setting a FRAND rate for Apple if Apple thought it was low enough? Would that be an "exceptional circumstance" that would allow the other side to seek an injunction? After all, is that your definition of a "willing" licensee, one that sets a price itself while denying the patent holder the right to even negotiate and dictates to judges what the price should be?

And here's a taste of Ericsson's comment [PDF]:

Ericsson has extensive experience with standard essential patents ("SEPs") in the telecommunications industry as a member of standard setting organizations and as both a licensee and a licensor of SEPs. Based on this experience, Ericsson believes that the Google template may adversely affect the standard setting process and may inhibit innovation. Ericsson is also concerned that the assumptions about potential competitive harm underlying the Google template may not be supported by actual industry experience. From Ericsson's perspective, the existing standard setting process in the telecommunications industry, which contemplates the availability of injunctive relief, has encouraged the development of an extremely competitive and innovative industry.

Ericsson therefore urges the Commission to limit the Order to the unique circumstances of this case and to refrain from identifying the resolution as a template with broader applicability. Ericsson also requests that the Commission conduct further empirical investigation and analysis based on input from standard-setting organizations, and industry participants before reaching any further conclusion regarding the appropriate use of injunctive relief with respect to standard essential patents.

Although Ericsson agrees with the Commission that, in general, injunctive relief should be available against an unwilling licensee who refuses to accept a license on fair, reasonable, and non-discriminatory ("FRAND") terms, Ericsson believes that the specific procedures described in the Order, if widely adopted, may cause unintended and undesirable consequences, particularly within the telecommunications industry. For example, unnecessary restrictions on the availability of injunctive relief against unwilling licensees may discourage companies such as Ericsson from contributing to open standards, with their demonstrated benefits of improving consumer choice, lowering prices, and encouraging ongoing innovation.

Due to these concerns, Ericsson advocates a more deliberate and consensus-oriented approach to any changes to FRAND licensing practices within the telecommunications industry and beyond. Ericsson believes that the facts of this case should not be extrapolated into wider policy guidance by the Commission on how FRAND licensing should be done. Rather, any changes to FRAND policies should involve industry wide consultation with key stakeholders both implementers of and contributors to the standards-in order to ensure that the right balance between open access to the standards and proper incentives to contribute to the standards is reached.

Here's part of the comment from the Innovation Alliance [PDF], which points out that in the US, the Constitution permits citizens to seek redress of grievances from the government, and that means access to the courts ("Because of the First Amendment rights involved, not even Congress may enact laws that punish or prohibit good faith efforts to petition a court for injunctive or other relief by any citizen, including FRAND-encumbered patent holders>":
The Proposed Order threatens to challenge SEP-holders' attempts to enjoin infringement by "willing licensees" as stand-alone violations of Section 5 of the FTC Act. As explained fully below, the Commission's sweeping declaration would unlawfully interfere with rights guaranteed by the U.S. Constitution and would otherwise represent an impermissible expansion of the Commission's authority under Section 5. Indeed, the Proposed Order would permit the Commission to usurp the role of the courts and the International Trade Commission (the "ITC"). Moreover, the context of this matter-a consent decree concerning a proposed merger independently raises serious concerns about using the Proposed Order to declare that requests to enjoin infringement of FRAND-encumbered patents violate Section 5. It would be imprudent at best for the Commission to adopt such a sweeping rule in the context of a matter that, at most, only tangentially implicates the issue and in which the Commission knows the parties have no serious incentive to oppose the rule.

I. The Proposed Order Would Unlawfully Impinge on Patent Holders' First
Amendment Right to Petition The Government.

A. SEP-Holders, Like All Citizens, Have the Right to Petition Courts in Good
Faith for Relief.

The First Amendment guarantees all citizens the right "to petition the Government for a redress of grievances." U.S. CONST. amend I. That fundamental right is "among the most precious ofthe liberties safeguarded by the Bill of Rights." United Mine Workers of Am., Dist. 12 v. Ill. State Bar Ass 'n, 389 U.S. 217, 222 (1967); accord Hollister v. Soetoro, 258 F.R.D. 1, 1 (D.D.C. 2009) ("Our liberties are manifold and are the envy ofthe world. In the very top tier of those liberties, enshrined in the First Amendment, is 'the right of the people . . . to petition the Government for a redress of grievances."'). The right to petition includes " [t]he right of access to the courts." Ca. Motor. Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510 (1972). For this reason, under what is commonly known as the Noerr-Pennington doctrine, the Supreme Court has unequivocally declared that good faith efforts to seek relief from courts cannot give rise to liability under antitrust or other laws, regardless of any anticompetitive impacts that may flow from the litigation or requested relief. Prof'l Real Estate Investors, Inc. v. Columbia Pictures Indus., Inc., 508 U.S. 49, 56 (1993) ("Those who petition government for redress are generally immune from antitrust liability."); City of Columbia v. Omni Outdoor Adver., Inc., 499 U.S. 365, 381 (1991) ("If Noerr teaches anything it is that an intent to restrain trade as a result of the government action sought ... does not foreclose protection."); id. at 379-80 ("The federal antitrust laws . .. do not regulate the conduct of private individuals in seeking anticompetitive action from the government.").

Holders of FRAND-encumbered patents are entitled to exercise their fundamental right to petition the courts and government agencies to the same extent as other citizens. See, e.g, Apple, Inc. v. Motorola Mobility, Inc.,--- F. Supp. 2d ---, 2012 WL 3289835, at *11 (W.D. Wis. Aug. 10, 2012); see also ERBE Elektromedizin GmbH v. Canaday Tech. LLC, 629 F.3d 1279, 1291-92 (Fed. Cir. 2010). The District Court for the Western District of Wisconsin recently recognized this basic constitutional principle in Apple v. Motorola by rejecting Apple's argument that antitrust principles precluded Motorola from seeking injunctive relief related to FRAND-encumbered patents. See Apple, 2012 WL 3289835, at* 14. Indeed, the court made clear that Motorola's request for injunctive relief was "immune under the Noerr-Pennington doctrine." Id.

Because of the First Amendment rights involved, not even Congress may enact laws that punish or prohibit good faith efforts to petition a court for injunctive or other relief by any citizen, including FRAND-encumbered patent holders.

As you can see, the FTC proposed agreement isn't popular at all, and many are expressing deep and abiding concerns about fundamental legal and Constitutional principles being undermined by any rule that FRAND patent holders have no right to seek injunctions. Companies that are familiar with standards bodies and SEPs are telling the FTC that it's gone too far and that there will be unintended consequences that nobody will like.

Well, Apple and Microsoft maybe will like it. This is their party. And if you were around and watching Microsoft's behavior getting its OOXML approved as a so-called standard, you know what it is capable of. But if their proposed legal theory about FRAND patents violates the First Amendment, the Noerr-Pennington doctrine, anti-trust law, etc., not to mention simple fairness, what are they smoking?

No. What would *we* need to be smoking to go along with it?

Here's the Washington Legal Foundation's comment [PDF] in full, as text:

File No. 121-0120

__________________

COMMENTS
of
THE WASHINGTON LEGAL FOUNDATION
to the
FEDERAL TRADE COMMISSION

Concerning

IN THE MATTER OF
MOTOROLA MOBILITY LLC and GOOGLE INC.;
REQUESTS FOR COMMENTS ON
PROPOSED CONSENT AGREEMENT

Richard A. Samp
Cory L. Andrews
Washington Legal Foundation
[address, phone]

February 22, 2013

[Washington Legal Foundation letterhead]

February 22, 2013

Submitted Electronically
Federal Trade Commission
Office of the Secretary
[address]
Washington, DC 20580

Re: In the Matter of Motorola Mobility LLC and Google Inc.;
Request for Comments on Proposed Consent Agreement
File No. 121-0120; 78 Fed. Reg. 2398 (January 11, 2013)

Dear Commissioners:

The Washington Legal Foundation (WLF) appreciates this opportunity to submit these comments to the Federal Trade Commission (FTC) in connection with the FTC’s proposed Consent Agreement with Motorola Mobility, LLC and Google Inc. WLF is a non-profit public interest law and policy center based in Washington, D.C. with supporters nationwide. WLF promotes free-market policies through litigation, administrative proceedings, publications, and advocacy before state and federal government agencies, including the FTC.

The proposed Consent Agreement arises in connection with litigation initiated by Motorola (and continued by Google following Google’s June 2012 purchase of Motorola) in which Motorola sought injunctions and exclusion orders against competitors who allegedly were infringing patents held by Motorola. The patents in question have been designated as standard essential patents (SEPs) for cellular, video codec, and wireless LAN standards. The FTC’s Complaint alleges that Motorola and Google, by seeking injunctive relief and exclusion orders, engaged in unfair methods of competition and unfair acts or practices, in violation of Section 5

Federal Trade Commission
February 22, 2013
Page 2

of the Federal Trade Commission Act, 15 U.S.C. § 45. Under the proposed Agreement, Motorola and Google do not admit that they violated the FTC Act, but they have agreed to a Consent Order that would significantly restrict the forms of relief they are entitled to seek in patent infringement proceedings.

WLF expresses no views regarding factual allegations contained in the FTC’s Complaint. WLF lacks any detailed knowledge regarding patent infringement litigation initiated by Motorola and thus is not in a position to take issue with the FTC’s factual allegations. Moreover, WLF sees no basis for challenging the wisdom of the patent dispute resolution procedures set forth in the Consent Order. Those procedures appear reasonably well designed to reduce the level of patent litigation by encouraging parties to settle their disagreements regarding the appropriate size of patent royalties.

But WLF strenuously objects to the FTC’s exercise of its Section 5 authority with total disregard for the Noerr-Pennington doctrine, a Supreme Court doctrine designed to protect the First Amendment rights of businesses (including monopolists) to petition the government for relief without regard to whether the requested relief would restrain trade. The conduct alleged here (seeking injunctive relief in court proceedings and seeking exclusion orders in proceedings before the International Trade Commission) fits squarely within the four corners of the Noerr- Pennington doctrine. Accordingly, the conduct is not subject to sanction under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 & 2. The Statements of the various Commissioners do not explicitly set forth their views on whether the Commission’s Section 5 authority is similarly constrained by the Noerr-Pennington doctrine. The answer to that question is reasonably clear:

Federal Trade Commission
February 22, 2013
Page 3

the doctrine does, indeed, limit the reach of Section 5 because it is based on principles set forth in the First Amendment, a constitutional provision that is binding on the Commission.

Several Commissioners suggest that Motorola and Google may have waived their First Amendment rights. Yet they fail to point to any evidence to support that claim. The contractual commitments made by Motorola to standard-setting organizations (SSOs) are silent regarding the relief that may be sought in patent infringement litigation; more importantly, they say absolutely nothing about the First Amendment. Case law is clear that constitutional rights are not deemed waived unless the alleged waiver is set forth explicitly. Motorola and Google promised to offer licenses for their SEPs on FRAND (“fair, reasonable, and non-discriminatory”) terms, but that promise says nothing about the nature of litigation they would initiate against companies that practice the SEPS without a license. The FTC alleges that they failed to offer licenses on FRAND terms to several willing licensees; if so, they breached a contractual commitment. But any such breach is separate and apart from the efforts of Motorola and Google to petition the federal courts, efforts that are protected by the First Amendment.

If, as the FTC believes, the FRAND commitment bars Motorola and Google from obtaining injunctive relief against alleged infringers, then one can expect federal courts and the International Trade Commission to arrive at the same conclusion after reviewing the same contractual material. Indeed, the evidence indicates that federal courts are quite reluctant to grant injunctive relief to SEP holders that have made FRAND commitments. Accordingly, there is little reason for the FTC to run roughshod over First Amendment rights in order to achieve a result that almost surely would have been achieved in any event. Moreover, the danger

Federal Trade Commission
February 22, 2013
Page 4

(perceived by the FTC) that an injunction demand might cause defendants to sign settlement agreements calling for unreasonably high royalties (and then pass those costs on to consumers) becomes a factor of diminishing importance as their awareness increases that courts are highly unlikely to grant requested injunctive relief.

I. Interests of the Washington Legal Foundation

The Washington Legal Foundation is a public interest law and policy center based in Washington, D.C., with members and supporters in all 50 States. WLF devotes a substantial portion of its resources to defending free enterprise, individual rights, and a limited and accountable government. To that end, WLF regularly appears before federal and State courts and administrative agencies to promote economic liberty, free enterprise, and a limited and accountable government. WLF has frequently appeared as amicus curiae in the federal courts to address the proper scope of the antitrust laws. See, e.g., Pacific Bell Tel. Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009); Weyerhaeuser Co. v. Ross-Simmons Hardware Lumber Co., 549 U.S. 312 (2007); Bell Atlantic Corp. v. Twombly, 550 U.S. 127 (2007). In particular, WLF filed briefs in several of the principal federal court cases that have addressed the antitrust implications of patent litigation settlements under which the defendant agrees to delay plans to market a generic version of a prescription drug. See, e.g., In re K-Dur Antitrust Litigation, 686 F.3d 197 (3d Cir. 2012), petitions for cert. pending, Nos. 12-245 & 12-265 (filed Aug. 2012); Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005), cert denied, 548 U.S. 919 (2006); Valley Drug Co. v. Geneva Pharms., Inc., 344 F.3d 1294 (11th Cir. 2003). WLF is scheduled to file a merits brief in the U.S. Supreme Court next week on that same issue,

Federal Trade Commission
February 22, 2013
Page 5

in FTC v. Actavis, No. 12-416. WLF also filed a brief with the FTC in Schering-Plough when that case was before the Commission.

WLF is filing these comments due to its interest in promoting patent rights, including the rights of patentees to petition the federal courts in an effort to protect their patents. WLF has no direct interest in this matter and has not discussed its comments with any of the parties. WLF takes no position regarding any of the factual allegations in either the Complaint or the Statement of the Commission, other than the allegation that Motorola and Google took actions that constituted a waiver of their First Amendment rights.

II. FTC’s Statutory Authority

Federal law authorizes the FTC to prevent businesses and individuals (with certain limited exceptions) from “using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” 15 U.S.C. § 45(a)(2). The FTC “shall have no authority” to declare an act or practice unfair unless it is “likely to cause substantial injury to consumers,” and the injury “is not reasonably avoidable by consumers themselves and not outweighed by countervailing benefits to consumers or to competition.” 15 U.S.C. § 45(n). It is empowered to issue cease-and-desist orders, ordering individuals and entities not to engage in acts or practices it determines to be in violation of the FTC Act. 15 U.S.C. § 45(b).

As an agency of the United States, the FTC is subject to limitations imposed by the First Amendment of the U.S. Constitution, which explicitly protects the right of the people “to petition the Government for a redress of grievances.”

Federal Trade Commission
February 22, 2013
Page 6

III. The Sherman Act and the Noerr-Pennington Doctrine

The Sherman Act prohibits contracts, combinations, or conspiracies “in restraint of trade,” 15 U.S.C. § 1, and monopolizing or attempting to monopolize “any part of the trade or commerce among the several States.” 15 U.S.C. § 2. In a series of cases dating back more than half a century, the Supreme Court has made clear, however, that the Sherman Act does not restrict the rights of people to associate together to persuade the government to adopt new laws, even if the laws would have the effect of restraining trade or promoting a monopoly. See, Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961); Mine Workers v. Pennington, 381 U.S. 657 (1965). The petitioners’ motivation in urging government action is deemed irrelevant; “[j]oint efforts to influence public officials do not violate the antitrust laws even though intended to eliminate competition.” Id. at 670. The law established by those cases is generally referred to as the Noerr-Pennington doctrine.

The Court reasoned that in light of the Government’s “power to act in [its] representative capacity,” and “to take actions . . . that operate to restrain trade,” the Sherman Act should not be deemed to punish “political activity” through which “the people . . . freely inform the government of their wishes.” Noerr, 365 U.S. at 529. Noting that the First Amendment protects the right of the people to petition the Government, the Court said that it would not “impute to Congress an intent to invade” First Amendment rights when adopting the Sherman Act. Id. at 530. Although Noerr and Pennington involved petitions submitted to legislative and administrative bodies, the Court later clarified that the Noerr-Pennington doctrine also applies to the filing of lawsuits. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508

Federal Trade Commission
February 22, 2013
Page 7

(1972). The Court has repeatedly made clear that the doctrine is firmly grounded in First Amendment doctrine: “[I]t is obviously peculiar in a democracy, and perhaps in derogation of the constitutional right ‘to petition the Government for a redress of grievances,’ U.S. Const., Amdt. 1, to establish a category of lawful state action that citizens are not permitted to urge.” City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 379 (1991). See also Prof. Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49, 56 (1993).

IV. The Noerr-Pennington Doctrine Is Fully Applicable to the FTC

The Statement of the Commission in this matter does not state explicitly whether the Commission deems the Noerr-Pennington doctrine to be applicable to FTC proceedings. It is true, of course, that the Noerr-Pennington doctrine arose in the context of litigation under the Sherman Act, not under Section 5 of the FTC Act. WLF recognizes that the Commission on occasion takes the position that its Section 5 antitrust enforcement powers extend beyond the confines of the Sherman Act. Case law is nonetheless reasonably clear that the Noerr- Pennington doctrine is fully applicable to Section 5 proceedings and constrains the Commission’s authority to sanction companies based on the lawsuits they file.

Although the Supreme Court has usually discussed the Noerr-Pennington doctrine in the context of Sherman Act claims, in none of those cases did the Court indicate that its analysis was unique to the Sherman Act context and inapplicable to other antitrust claims. See, e.g., Pennington, 381 U.S. at 370 (stating that “[j]oint efforts to influence public officials do not violate the antitrust laws even though intended to eliminate competition”) (emphasis added). In at least once instance, the Court discussed the doctrine’s applicability in the context of an FTC

Federal Trade Commission
February 22, 2013
Page 8

lawsuit filed under Section 5 of the FTC Act. See, FTC v. Superior Court Trial Lawyers Ass’n, 483 U.S. 411 (1990). Although the Court concluded in that case that the defendants’ allegedly unfair acts or practices were not immunized from antitrust scrutiny by Noerr-Pennington, it gave no indication that it deemed the doctrine inapplicable to Section 5 claims. Id. at 424-25.

More importantly, the doctrine’s First Amendment foundation is powerful evidence that the FTC is not entitled to exempt itself from the doctrine. As explained above, the Supreme Court recognized the doctrine in light of the First Amendment’s grant of a right to petition the government “for a redress of grievances.” Filing Section 5 enforcement actions against companies because they file non-sham federal court lawsuits would interfere with the right to petition for a redress of grievances just as assuredly as actions filed under the Sherman Act. Although Congress delegated broad enforcement powers to the Commission when it adopted the FTC Act, the Supreme Court has been loathe to “impute to Congress an intent to invade the First Amendment right to petition” when adopting the antitrust laws. Professional Real Estate Investors, 508 U.S. at 1926. As an arm of the federal government, the FTC is fully bound by First Amendment restrictions; accordingly, it has no authority to exempt itself from those restrictions by deeming the Noerr-Pennington doctrine inapplicable to Section 5 enforcement actions.

V. Motorola and Google Have Not Waived Their First Amendment Rights

Commissioner Maureen K. Ohlhausen dissented from the FTC’s action in this matter, in part “because the Noerr-Pennington doctrine precludes Section 5 liability for conduct grounded in the legitimate pursuit of an injunction or any threats incidental to it.” Dissenting Statement of

Federal Trade Commission
February 22, 2013
Page 9

Commissioner Maureen K. Ohlhausen at 1. In response, the Commission stated:

We are not persuaded by Commissioner Ohlhausen’s argument that the conduct alleged in the Commission’s complaint implicates the First Amendment and the Noerr-Pennington doctrine. As noted above, we have reason to believe that [Motorola] willingly gave up its right to seek an injunction when it made the FRAND commitments at issue in this case. We do not believe that imposing Section 5 liability where a SEP holder violates its FRAND commitment offends the First Amendment because doing so in such circumstances “simply requires those making promises to keep them.”
Statement of the Federal Trade Commission, In the Matter of Google, Inc. (Jan. 3, 2013) at 4-5 (quoting Cohen v. Cowles Media Co., 501 U.S. 663, 670-71 (1991).1

WLF notes that the Commission is hedging its bets here; it does not commit itself to an assertion that Motorola and Google waived their rights to seek injunctive relief, only that “we have reason to believe” that a waiver took place. WLF can understand the Commission’s desire to use equivocating language, because there is not a shred of evidence that any rights were waived, and the Commission has pointed to none. The Commission states that Motorola and Google promised to offer licenses on FRAND terms to willing licensees. It asserts that they breached that contractual commitment by failing to offer licenses on FRAND terms to Apple and Microsoft, whom the FTC asserts were willing licensees. WLF is not fully familiar with the record and thus takes no position regarding those assertions. But a promise to offer licenses on FRAND terms is not the issue. Rather, the issue is whether Motorola or Google ever promised not to seek injunctive relief. The FTC has produced no evidence of such a promise. Indeed, the

Federal Trade Commission
February 22, 2013
Page 10

Consent Agreement acknowledges that there exist certain circumstances under which it would be appropriate for Motorola and Google to seek injunctive relief against alleged infringers of its SEPs, so even the FTC acknowledges that they made no contractual commitment never to seek injunctive relief.

The Commission apparently takes the position that one can infer that Motorola and Google waived their litigation rights from the fact of their FRAND commitment. Any such inference cuts against well established principals of constitutional law. As noted above, the First Amendment protects the right to petition the government for redress of grievances, including the right to file non-sham litigation. The Supreme Court has held repeatedly that constitutional rights are not deemed waived unless the alleged waiver is set forth explicitly. See, e.g., College Savings Bk. v. Florida Prepaid Postsecondary Educ. Expense Bd., 527 U.S. 666, 682 (1999) (“Courts indulge every reasonable presumption against waiver of fundamental constitutional rights”); Carnley v. Cochran, 369 U.S. 506, 514 (1962); Johnson v. Zerbst, 304 U.S. 458, 464 (1938). In the absence of any language in Motorola’s contractual undertakings that references the First Amendment, or even that references the right to seek injunctive relief, any suggestion that Motorola and Google knowingly waived their constitutional rights to petition the government borders on the frivolous.

Of course, the fact that Motorola and Google have a constitutional right to seek injunctive relief says nothing about whether they are entitled to obtain such relief. The Supreme Court has made clear that injunctive relief is never granted as a matter of course to prevailing plaintiffs in patent infringement litigation. Instead, the Court has held that normal rules of equity practice

Federal Trade Commission
February 22, 2013
Page 11

apply “with equal force” to patent infringement lawsuits and that the prevailing plaintiffs in such suits must satisfy the rigorous “four-factor test before a court may grant [injunctive] relief.” eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388, 391 (2006). The facts underlying the patent infringement litigation filed by Motorola – in particular, its agreement to license its SEPs on FRAND terms – might well cause a court to conclude that Motorola could not meet the four- factor test and thus is not entitled to injunctive relief. After all, a company that makes a FRAND commitment might well have difficulty demonstrating that an award of damages (in the form of a retroactive licensing fee) could not adequately compensate it for its injuries (one of the showings required under the four-factor test). But a finding that Motorola and Google are not entitled to injunctive relief is a far cry from a finding that they have waived their constitutional rights to petition the courts for such relief.

None of the cases cited by the Commission support its position. Its citation to Cohen v. Cowles Media Co. is particularly inapt. That decision had nothing to do with waiver of constitutional rights. It held merely that newspapers are subject to generally applicable contract laws and could be sued for damages arising for breach of a contract. Cohen, 501 U.S. at 670-71. Similarly, if Motorola or Google breached a contract by filing an infringement lawsuit seeking injunctive relief, they too are subject to a suit for damages incurred by any intended beneficiary of the contract. But that issue is irrelevant to the issue here: whether they have knowingly waived their Noerr-Pennington immunity from antitrust claims arising from their exercise of their First Amendment petitioning rights.

Similarly unavailing are the two decisions cited in Footnote 7 of the Statement of the

Federal Trade Commission
February 22, 2013
Page 12

Commission. Microsoft Corp. v. Motorola, Inc., 696 F.3d 872 (9th Cir. 2012), involved a lawsuit filed by Microsoft for the purpose of preventing enforcement of a German court’s injunction that barred Microsoft from using one of Motorola’s SEPs. The suit made no claim that Motorola had waived any constitutional rights; rather, it asserted merely that the RAND commitment that Motorola had made to an SSO precluded it from obtaining injunctive relief. The Ninth Circuit did not discuss waiver of constitutional rights, and did not even decide whether the German injunction against Microsoft was unwarranted. Rather, it merely affirmed the district court’s grant of a preliminary injunction against enforcement of the German injunction, based in part on the following rationale:

We conclude that the district court did not abuse its discretion in determining that Microsoft’s contract based claims, including its claim that the RAND commitment precludes injunctive relief, would, if decided in favor of Microsoft, determine the propriety of the enforcement by Motorola of the injunctive relief obtained in Germany.
696 F.3d at 885. The Ninth Circuit could not have been clearer that it viewed the issue as one that turned on whether Motorola could establish the prerequisites for obtaining a permanent injunction against the use of its SEPs, not whether it had waived its constitutional rights.2

The other cited decision – Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901 (N.D. Ill. 2012) (Posner, J., sitting by designation) – cuts strongly against the Commission’s position. In

Federal Trade Commission
February 22, 2013
Page 13

that decision, Judge Posner dismissed the claims for injunctive relief filed against one another by Apple and Motorola in connection with their long-running patent disputes. In dismissing Motorola’s claims for injunctive relief with respect to its SEPs, Judge Posner’s analysis mirrored precisely the analysis described above by WLF, not the waiver-of-rights analysis espoused by the Commission. Id. at 913-15. The language cited by the Commission (at Footnote 7 of its Statement) makes our point precisely. According to Judge Posner, what is “implicit” in Motorola’s FRAND commitment is an “acknowledg[ment] that a royalty is adequate compensation for a license to use that patent,” 869 F. Supp. 2d at 914, not (as the Commission would have it) a waiver of the constitutional right to petition the government.3

In sum, there is no evidentiary support for the Commission’s assertion that Motorola and Google have waived their First Amendment rights to petition the government to enjoin other companies from using their SEPs. In the absence of a waiver, the Commission is acting in excess of its Section 5 powers in bringing an enforcement action based on the decisions of

Federal Trade Commission
February 22, 2013
Page 14

Motorola and Google to pursue injunctive relief claims in the federal courts. Accordingly, WLF urges the FTC to withdraw its Complaint and not to enter into the proposed Consent Agreement.

WLF nonetheless agrees with the FTC that there has been far too much litigation over the licensing of SEPs, and that such litigation could adversely affect competition. Accordingly, WLF has no objection to FTC efforts to propose standard procedures for resolving licensing disputes. The mandatory arbitration procedures set forth in the Consent Agreement strike WLF as a step in the right direction. Perhaps the FTC can work with SSOs to encourage them, before designating any SEPs, to require the SEP holders to commit to such procedures.

VI. The Relief Ordered by the Commission Is Particularly Inappropriate Because the
Problems Identified by the Commission Appear to Be Self-Correcting

If, as the FTC believes, the FRAND commitment bars Motorola and Google from obtaining injunctive relief against alleged infringers, then one can expect federal courts and the International Trade Commission to arrive at the same conclusion after reviewing the same contractual material. Indeed, the evidence indicates that federal courts are quite reluctant to grant injunctive relief to SEP holders that have made FRAND commitments.

Perhaps the best example is Judge Posner’s decision, cited above, from June 2012. Apple Inc. v. Motorola, Inc., 869 F. Supp. 2d 901 (N.D. Ill. 2012). Judge Posner explained at length why SEP holders are unlikely to be able to establish the irreparable harm necessary to obtain injunctive relief. Id. at 913-915. An increasing awareness among defendants that courts are highly unlikely to grant injunctive relief will make them increasingly less likely to sign settlement agreements calling fo unreasonably high royalties. It is the FTC’s fear of such “hold-

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February 22, 2013
Page 15

up” settlements (which may result in unreasonably high prices being passed along to consumers) that the FTC has cited in support of its recent intervention into SEP patent litigation. But the FTC to date has cited no evidence of any actual consumer injury. Moreover, now that defendants’ fears of injunctions has diminished considerably, the likelihood of future consumer injury is rapidly diminishing.

In WLF’s view, the real problem is that the value of SEP licenses has been notoriously difficult to quantify. Not surprisingly, SEP holders tend to believe that their patents are extremely value (separate and apart from the increased value caused by the patents being designated as the industry standards by SSOs), while competitors who have few realistic alternatives to continuing to use the patents tend to have quite different appraisals of the patents’ value. The wide divergence of opinion regarding what constitutes a reasonable SEP royalty has inevitably led to very high levels of litigation.

By bringing enforcement actions against SEP holders, the FTC appears to be taking the side of defendants in these royalty lawsuits. WLF questions whether that is an appropriate position for the FTC to be taking. Making patent enforcement more difficult for SEP holders will likely lead to a decrease in royalty payments and may even lead to a decrease in consumer prices. But it should not be the role of the FTC to fight against enforcement of patent rights. The patent system was adopted for the purpose of encouraging increased research and development expenditures – in the hope that such expenditures will lead to the development of new and useful products. WLF respectfully suggests that the FTC lacks the technical expertise to know when royalty being demanded by SEP holders are unreasonable and when it is the users

Federal Trade Commission
February 22, 2013
Page 16

of the SEPs who are being unreasonable in refusing royalty demands.

WLF encourages the FTC to devote its energies in this area to finding ways to encourage low-cost methods of settling royalty disputes. All can agree that the current high level of litigation creates inefficiencies. WLF applauds the FTC’s encouragement of mandatory arbitration regimes. WLF also applauds the FTC’s conclusion that if a user seeks a determination of a fair royalty, it must provide the SEP holder with a commitment to abide by the court’s (or arbitrator’s) determination regarding what constitutes a fair royalty.

Finally, WLF urges the FTC to trust the ability of courts and the International Trade Commission to reach appropriate resolution of SEP royalty disputes. They too have been assigned a role in resolving such disputes. WLF deems it inappropriate for the FTC to issue decisions whose effect is to make it the sole arbiter of those disputes.

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February 22, 2013
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CONCLUSION

WLF respectfully requests that the FTC withdraw its complaint and not enter into the proposed Consent Agreement. It further requests that the Commission: (1) explicitly acknowledge that its Section 5 enforcement authority is subject to the Noerr-Pennington doctrine; and (2) announce that it will not take enforcement action against a SEP holder for petitioning the courts for injunctive relief, in the absence of evidence that the SEP holder has explicitly waived its constitutional rights to engage in such activity.

Sincerely,

/s/ Richard A. Samp
Richard A. Samp
Chief Counsel

/s/ Cory L. Andrews
Cory L. Andrews
Senior Litigation Counsel

___________
1 The Commission’s phrase, “[a]s noted above,” apparently refers to Footnote 7 of its Statement. The footnote states, “A number of courts have recognized the tension between Google’s FRAND commitments and seeking injunctive relief.” Statement at 2 n.7.

2 The Ninth Circuit confined to a single sentence (the one cited in the Commission’s Statement) any discussion of whether Motorola might have made a contractual commitment not to seek injunctive relief. In that sentence, the court raised the possibility (without deciding) that such a commitment could “arguably” be “implicit” in Motorola’s RAND commitment to the SSO. 696 F.3d at 884. Other than that passing observation, the court focused solely on the appropriateness of injunctive relief, not on the appropriateness of seeking such relief.

3 Judge Posner relied on Motorola’s acknowledgment of the adequacy of a royalty (as compensation for its injuries) as the basis for dismissing Motorola’s claim for injunctive relief. He explained:

[T]he Supreme Court has held that the standard for deciding whether to grant [injunctive] relief in patent cases is the normal equity standard. And that means, with immaterial exceptions, that the alternative of monetary relief must be inadequate. A FRAND royalty would provide all the relief to which Motorola would be entitled if its proved infringement of the ’898 patent, and thus it is not entitled to an injunction.
Id. 915 (citations omitted). At no point did Judge Posner suggest that Motorola had made a contractual commitment not to seek injunctive relief in lawsuits for infringement of its SEPs, let alone a commitment to waive its constitutional rights to petition the government for such relief.

And here's Qualcomm's comment [PDF] in full:

UNITED STATES FEDERAL TRADE COMMISSION
WASHINGTON, D.C.

In the Matter of

Motorola Mobility LLC and Google Inc.

File No. 121-0120

QUALCOMM INC.’S RESPONSE TO THE COMMISSION’S REQUEST FOR
COMMENTS ON THE PROPOSED AGREEMENT CONTAINING CONSENT ORDER

(78 Fed. Reg. 2398 (Jan. 11, 2013))

___________________________

Roger G. Brooks
CRAVATH, SWAINE & MOORE LLP
[address, phone]

Counsel for Qualcomm Inc.

Dated: February 22, 2013

QUALCOMM Incorporated (“Qualcomm”) respectfully submits these comments in response to the request of the Federal Trade Commission (“Commission”) for public comment on the January 3, 2013 Decision and Order (“D&O”) issued in the above-captioned proceeding. Qualcomm understands that the D&O is a result of allegations and discussions particular to, and the consent of, the Respondent. Qualcomm nonetheless is concerned that the D&O gives insufficient weight to the fact that an injunction for infringement of a standards-essential patent (“SEP”) will not be entered by a U.S. court unless and until any “failure to offer FRAND terms” defense has been adjudicated against the infringer, and instead imposes a lengthy and detailed procedure before injunctive relief can be sought. Qualcomm respectfully suggests that certain aspects of the D&O would, if non-consensual and applied more broadly than in this matter, result in more litigation rather than less, by undermining the incentives of infringers to negotiate and enter into license agreements for SEPs on FRAND terms.

I. STATEMENT OF INTEREST

Qualcomm is one of the world’s leading communications technology development and licensing companies. Understanding that research and development (“R&D”) is the lifeblood of innovation, Qualcomm invests enormous amounts in developing a variety of new, enabling technologies, in particular cellular communications and other advanced communications technologies: $3 billion in 2011, rising from $2.5 billion the year before. Qualcomm also holds a significant patent portfolio covering its inventions, containing over 33,000 patents, which it has licensed to more than 200 licensees, and Qualcomm has over 77,000 patent applications pending worldwide. In addition, Qualcomm is a leading supplier of chipsets for wireless devices. Qualcomm also licenses intellectual property from third parties in connection with its chipset and other businesses. Because industry standards play an important role for cellular devices and infrastructure equipment, as well as for other communications

products, Qualcomm is an active and longstanding participant in numerous standards-setting organizations (“SSOs”), including the European Telecommunication Standards Institute (“ETSI”), the Institute of Electrical and Electronics Engineers (“IEEE”), the Telecommunications Industry Association (“TIA”), the Alliance for Telecommunications Industry Solutions (“ATIS”), and others. Qualcomm has actively participated over the years in multiple deliberations within these and other SSOs concerning policies regarding FRAND commitments and licensing of SEPs.

Qualcomm’s business model situates it at the intersection of the licensor/implementer tension. Because Qualcomm is both a technology licensor and a supplier of chipsets for incorporation into equipment that implements standardized technologies, Qualcomm’s business success depends both on access to others’ patents and on the ability to monetize its patented inventions and, if necessary, to enforce its own patents covering those inventions—including SEPs and other, non-standards-essential patents.

Qualcomm is therefore particularly well placed to comment on the Commission’s contemplated enforcement actions, and their impact on SSOs, patentees, and implementers. Qualcomm appreciates the Commission’s consideration of these comments.

II. IMPOSING REQUIREMENTS FOR SEEKING INJUNCTIVE RELIEF IS
UNNECESSARY

The D&O provides that “Respondents shall not file a claim seeking, or otherwise obtain or enforce” injunctive relief without first following lengthy and detailed procedures.1

3

Elsewhere the Commission states its concern that “seeking” injunctions may “impair competition”.2

We believe that the Commission is correct, as a matter of contract interpretation and the law of estoppel, that where an infringer asserts, in good faith, a defense based on an SEP-holder’s alleged failure to offer FRAND terms to an infringer, no injunction against the infringer should be entered and enforced unless and until that FRAND defense has been adjudicated.

We are unclear, however, as to the nature of the Commission’s concern regarding “seeking” injunctions (or equivalents, such as an exclusion order) apart from actual entry and enforcement. On the one hand, the Commission rightly does not rule out injunctions based on SEPs in all contexts; it appears to recognize that in the case of an “obstinate infringer”—an infringer that is not in fact willing to take a license on FRAND terms—an injunction is appropriate and indeed necessary.3 Any other rule would create strong incentives for intransigence by infringers in negotiation, an incentive that both undercuts the legitimate functions served by SSOs and is contrary to the public policy of encouraging private dispute resolution. On the other hand, the direction clearly being taken by courts is that an injunction will not be entered on SEPs that are subject to a FRAND commitment unless and until any defense based on a patentee’s FRAND commitment has been adjudicated against the infringer. Indeed, a U.S. district and appellate court have recently been willing to enjoin the enforcement abroad of an injunction obtained in a foreign jurisdiction, until a related dispute regarding a

4

FRAND commitment can be adjudicated.4 Negotiators are likely well aware of these widely publicized facts, removing any credible threat that a quick, “pre-FRAND adjudication” injunction will disrupt the infringer’s business.

Given this reality, Qualcomm does not understand why the Commission accords substantive significance to merely “seeking” an injunction, if this is understood to include a request for injunctive relief in a patent infringement complaint or counterclaim. To illustrate Qualcomm’s concern, one can imagine an SEP-holder seeking injunctive relief on a conditional basis, noting from the outset that it is only seeking an injunction “if it is determined that the potential licensee has refused an offer of a license on FRAND terms”. We do not understand how such a request could be viewed as either raising an improper threat against the infringer or bestowing inappropriate negotiating power on the SEP-holder. And indeed, Qualcomm believes that as a practical matter any request for injunctive or exclusionary relief based on an SEP is already impliedly subject to this important condition.

The D&O is of course specific to the party which has agreed to it and to the facts that gave rise to that agreement, and the Commission has not suggested that the lengthy process spelled out by the D&O before an injunction can be included in a “request for relief” can or should be treated as a generally applicable model. Nor should it. Qualcomm is very concerned that this process—if applied more broadly by the Commission or foreign governmental entities— would inefficiently delay and fragment licensing disputes. The ordinary procedure of requesting injunctive relief as part of the prayer for relief in a patent infringement suit—with an injunction being awarded only after an adjudication of FRAND defenses—permits the efficient resolution of all issues in logical sequence in a single forum, likely providing the fastest way to a final

5

decision on all issues, and in due course precipitating final negotiation of license terms. By contrast, the process set out in the D&O would give obstinate infringers (or those infringers determined to delay taking a license as long as possible) numerous additional procedural barriers to place between themselves and any meaningful resolution or sanction for their unreasonable or bad-faith conduct. First is the multi-month process of negotiation, followed by offers of a license and arbitration,5 during all of which the infringer need not engage the SEP-holder in any way. This, in turn, is followed by either arbitration (assuming the infringer agrees to arbitrate) or litigation initiated by the infringer for the purpose of seeking a FRAND determination if the infringer refuses arbitration.6 An infringer could then keep the scales tilted in its favor by pursuing the litigation in the hopes of a positive outcome, and only if there is a finding that a FRAND offer was made and rejected would the SEP holder at last be permitted to go to court and request an injunction.7 Only at the end of this long chain will the infringer be put at some risk and forced to make a decision with real consequences: either begin—at long last—to engage in good-faith negotiations, or to put the SEP-holder to the expense and trouble of filing that new action to seek an injunction.8 This new proceeding to establish infringement and entitlement to

6

an injunction would then likely go on for multiple additional years. The longer the delay the greater the pressure will become on the SEP-holder to accept something less than fair terms for a license to the patents, and the longer the infringer’s competitors who have done the right thing in the first instance and entered into licenses with the SEP-holder will be placed at a competitive disadvantage. If broadly applied outside the facts, allegations, and findings of the current D&O, the net result of these opportunities for delay and obstruction will be to multiply litigated (or arbitrated) disputes rather than to facilitate timely negotiated solutions.9

Certainly, there are complex issues involved here. More than a century ago, in a context also dealing with recovery of value for patent rights, the Supreme Court cautioned that “The vast pecuniary results involved in such cases, as well as the public interest, admonish us to proceed with care . . . .”10 In this regard, we note that vast numbers of licenses to SEPs have been negotiated without litigation in the cellular industry (as well as innumerable other standardized industries), and also without even a single instance in recent years of an SEP-based injunction being enforced—prior to the adjudication of a FRAND defense—against any infringer that could credibly be called a “willing licensee”. This strong record counsels against large or abrupt changes to the surrounding legal context.

7

When it comes to “proceed[ing] with care”, we are also obliged to point out the absence of any economic or market crisis that could compel or justify an abrupt change to the legal and regulatory environment in which SEP licenses have been negotiated up to the present.11 While concern about “hold-up” has been expressed by the Commission and a number of academic commentators, it is notable that, under cross-examination recently, even the respected economic experts sponsored by Microsoft (which was advancing a “hold-up” theory) were unable to identify any instance in which hold-up had distorted the terms of a license agreement.12 The currently front-page “smartphone wars” are sometimes pointed at as “proof” of “a problem”, but we believe that Professor Farrell was correct when he stated during the Commission’s workshop on patents and standards in 2011 (a time when he was serving as the FTC’s Director of the Bureau of Economics) that:
Just because there’s a dispute doesn’t mean that there is a breakdown of the system. Somebody might be being unreasonable, and certainly, if you had that as a rule of general inference or procedure, it would give whacko incentives to people to dispute perfectly reasonable offers, okay? So, we can’t assume that the presence of a dispute means the presence of a problem.13
Instead, given the vast size of the affected industry, the extraordinary changes in technology, and rapidly shifting market positions of the industry participants (including the entry of new

8

suppliers that are profiting greatly from their participation), an outbreak of legal wrangling over intellectual property rights was almost inevitable. Following litigation, negotiated private resolutions and license agreements have been reached between Nokia and Apple, Apple and HTC, and Nokia and RIM. License agreements have also been reached between industry giants Microsoft and Samsung, in 2011, and between Microsoft and HTC, in 2010, without any litigation or regulatory intervention at all. These are globally significant agreements between major companies, and there is no reason to believe that other litigants in this industry will not likewise be able to reach negotiated solutions within a reasonable time frame, consistent with the intent underlying SSO FRAND policies.

Meanwhile, the objective criteria indicate that the cellular industry is extraordinarily healthy and competitive, successfully creating and passing through to consumers massive “surplus”. Consumer uptake continues to increase rapidly: global cellular subscriptions have risen from approximately 738 million in 2000 to almost 6 billion today.14 The UK’s competition regulator, OfCom, has recently stated that there is $31 billion in “economic surplus” to consumers in the UK alone from 4G LTE;15 if correct, the corresponding cumulative figure for U.S. consumers must be far larger. Furthermore, the industry is also characterized by transformation rather than stasis, with the respective shares of global smartphone shipments of leading smartphone companies shifting dramatically over recent years. For example, Apple and HTC are highly successful “late-comer” entrants into the handset business, while Nokia, Motorola, and RIM have seen their shares of smartphone shipments drop significantly over the

9

last few years. As an empirical matter, it is indisputable that existing SEP licensing practices are not preventing newcomers from competing effectively against incumbents.

Global Shares of Leading Smartphone
Industry Participants and Global Cellular Subscribers
16

In sum, while we will not comment on the particular conduct of the Respondent that may have prompted the terms agreed to in this D&O, we do respectfully submit that a general policy against including requests for injunctive relief in patent infringement suits based on SEPs, or against actions in the ITC for exclusion orders, is not justified as a matter of logic or empirical economics.

10

Qualcomm has other serious concerns, which we have raised in previous comments in other proceedings.17 In the interest of space we will cross-reference them here and ask that the Commission take careful note of them. First, a general rule against “seeking” injunctions would not be well-founded as a matter of contract law.18 Second, the Commission’s primary concern appears to be one of excessive pricing in royalty rates, but, wholly apart from the absence of empirical support for any systemic problem of excessive rates, this does not appear to be a proper basis for the exercise of the Commission’s jurisdiction under Section 5.19 Finally, we believe that any categorical threat to pursue regulatory sanctions against SEP-holders for the simple act of “seeking” an injunction would violate the Noerr-Pennington doctrine.20 We encourage the Commission to proceed carefully, on a fact-specific and case-by-case basis, to guard against genuine and demonstrated abuses, rather than attempting to rely on a regulatory construct that will for a time confuse the industry, and that will face serious judicial challenge.

11

III. WHAT CONSTITUTES A “WILLING LICENSEE” MUST BE DETERMINED ON A
CASE-BY-CASE BASIS

We believe that the Commission is most urgently concerned about the potential for enforcement of an injunction against a genuinely “willing licensee[]”21 that is operating reasonably and negotiating in good faith. This is understandable, and stated in general terms it seems unarguable that a genuinely “willing licensee” should not suffer injunction or exclusion, nor should it be at risk of an injunction if the SEP-owner behaves unreasonably or in bad faith. Above, we have mentioned the judicial safeguards currently in place that already prevent this from happening. Here, however, we wish to note that the concept of the “willing licensee” is by no means a simple or self-evident one, and that overly generous or naive definitions of the “willing licensee” will create perverse incentives for infringers to act in ways that are obstinate, non-cooperative, and outside the scope of anything that an SSO FRAND commitment can plausibly have been meant to protect.

Interpretation of the meaning of a FRAND commitment must not lose track of the importance of preserving adequate incentives for investing in R&D. The ETSI IPR Policy, for example, seeks to strike a “balance between the needs of standardization for public use . . . and the rights of the owners of IPRs”.22 In line with this, its primary “Policy Objectives” are to: (1) standardize “solutions which best meet . . . technical objectives”; (2) avoid IPR essential to a standard “being unavailable”; and (3) ensure that ETSI members and third parties are “adequately and fairly rewarded for the use of their IPRs”.23 The only one of these that speaks directly to the allocation of value between patentee and implementer seeks to ensure that the

12

patentee is “adequately and fairly rewarded”; the Policy provides no support at all for the notion that SEPs should be available to implementers “on the cheap” or at below-market rates. And it is with this “balance” in mind that the definition of a “willing licensee” should be considered.

Any infringer would be “willing” to take a license if it could apply the Priceline “Name Your Own Price” principle. At the other extreme, the vast majority of implementers in the cellular industry have proven willing to obtain needed licenses to SEPs at prices set entirely through private negotiation, without the intervention of courts or regulators. There is a continuum of possibilities between these two extremes. Some may be willing to agree ex ante to take a license on terms to be arbitrated by an impartial tribunal, along the lines of the procedure set out in Section III of the D&O. Others may be “willing” to commit to take a license on independently adjudicated terms only if those terms fit within unilaterally announced parameters; otherwise, they are “unwilling” and prefer to litigate. Some implementers may have little choice but to take a license once FRAND issues have been decided. Other potential market entrants may take the going royalty rates into account when deciding whether or not this industry is an attractive opportunity given that company’s particular cost structure. An infringer may be “unwilling” to take a license, because it insists on a substantial discount over accepted market prices or compared to its competitors, attempting to use licensing negotiation (and/or litigation) to obtain a competitive advantage. And of course, if the “willing licensee” is seen as a class that enjoys the special protection of the Commission or courts, even the infringer that is actually intent on avoiding all payment for absolutely as long as possible will stoutly maintain that it is “willing” to take a license . . . if only the SEP-owner would agree to “reasonable” terms.

13

What we believe is clear is that “willing” cannot be defined or proven by the mere “say-so” of the unlicensed infringer. And, to be fair, an infringer or potential implementer may not actually know whether it is “willing” to take a license until it knows what the terms are. Thus, objective rules and judicial discretion need to be applied so as to protect an infringer from fear of a “death penalty by injunction” if the infringer negotiates in good faith, fails to reach agreement, litigates its FRAND defense, but loses. Conversely, objective rules and judicial discretion need to be applied so as to protect innovators and SEP-owners from opportunistic behavior by ostensibly “willing licensees” that always claim to be willing, but instead of negotiating in good faith to an agreement, force the SEP-owner to pursue them through endless procedural twists and turns, hoping to avoid payment indefinitely and, if push comes to shove, to demand at the end—after putting the patentee to vast expense and risk—the identical terms that they should have agreed to years earlier, prior to litigation.

IV. ARBITRATION VS. LITIGATION

Based perhaps on considerations particular to Google and its alleged conduct, the Commission and Google have agreed on a structure for disputes over SEP licensing terms that requires Google to offer to resolve such disputes by binding arbitration.24 We will not presume to second-guess that particular agreement. We are, however, concerned that this D&O may incorrectly be viewed by some—including by foreign regulators—as a template or guideline of general applicability. We do not believe that this could be correct.

Undoubtedly, a FRAND licensing commitment to ETSI (or to other SSOs relevant to the cellular industry) does not contain any agreement to arbitrate future disputes, or any waiver of the fundamental and statutory right of recourse to courts of law. And Qualcomm

14

does not believe that the FTC has any intention of attempting to read consent to arbitration into FRAND commitments retroactively. But we suggest that there are also strong incentive-related reasons why an arbitration requirement should not be made a routine component of remedies— even when other conduct of an SEP-holder leads to an enforcement action or negotiated consent order.

First, giving infringers a right to arbitrate will radically change incentives during any attempt at private negotiation. In an ordinary negotiation, the parties (more or less) look for ways to “bridge the gap”, so as to avoid the cost and risk of litigation or arbitration. However, a common perception of the dynamics in arbitration is that it tends to result in “split the baby” outcomes in an effort to find the middle ground, rather than make sharper decisions clearly favoring the position of one side over the other, even if that may be the right result. Given that rather common perception, an infringer could negotiate the best deal it can, all the while knowing that it can and will then use arbitration to try to obtain even “better” terms. Further, if arbitration looms over a negotiation, then both parties have a perverse incentive to exaggerate their demands, to increase the gap, in the hopes that by asking for a high-ball (or low-ball) result, the final “middle ground” ruling from the arbitrator will be at an attractive point. Of course, this posturing will decrease the likelihood of reaching agreement through negotiation, and increase the likelihood that arbitration will be necessary. Qualcomm does not believe that the Commission intends or would favor such an incentive.

Second, the D&O’s provision that an infringer may “accept” selected terms from a SEP holder’s offer, and then arbitrate only the “unagreed” terms, is clearly a well meant attempt to narrow issues in dispute, but in fact this misapprehends the dynamics of the good faith and constructive negotiation of license agreements, and is instead likely to give infringers undue

15

leverage to extract additional and unjustified value out of any arbitration. A license agreement, like any contract, must be construed as a whole, with no term decided or interpreted in isolation. That is especially true in the case of portfolio license agreements in a high-tech industry, which are often quite complex, containing multiple “value items”, including not only simple one-time payments or royalty rates, but also cross-licenses, royalty minimums or caps, definition of royalty base, and cooperation opportunities, such as joint development terms, engineering support, and more. In a truly private negotiation, a party that wishes to secure agreement will put together a carefully balanced compromise package that includes some “gives” and some “takes”. Subsequent negotiations will therefore involve proposed changes to both the “gives” and the “takes”. But if the other party can lock in all the “gives” while demanding arbitration of all the “takes”, then “package” offers become impossible.

Picture, for example, a licensing negotiation in which the prospective licensee has indicated that it would be willing to bear unusual risk in the form of a large, one-time, up-front payment if by doing so it could enjoy a lower running royalty rate. Responding in good faith, the SEP-holder makes a good faith offer including the requested low running royalty rate and a large, one-time, up-front fee. Under the process laid out in the D&O, upon receipt of a licensing offer from the SEP-holder, the licensee could seek arbitration of the up-front fee alone, thereby locking in the running royalty rate, as well as any or all of the other terms of the agreement—the very terms through which compromises are often reached in a private negotiation. The result is that arbitration would become a tool that infringers could use to seek better terms, without any risk of having to compromise on other terms. And with that, no licensee would ever have a reason not to use the arbitration procedure to try to obtain lower rates. Qualcomm is concerned that this inevitably will make the private negotiation of license agreements more difficult,

16

shifting the dynamic in the negotiating room from real efforts to “get to yes” to posturing for the inevitable arbitration. Building in incentives for parties not to reach agreement in licensing negotiations is a consequence that everyone should want to avoid.

Third, a right to force a “selective arbitration” may disrupt private negotiation and increase litigation for another reason. Already, the large majority of patents being asserted in the so-called “cell phone wars” are patents that are not even claimed to be essential. To some extent, this problem has been limited by the common industry practice of negotiating whole-portfolio cross-licenses, rather than SEP-only licenses, but the D&O specifically excludes whole-portfolio cross-licenses from being part of the value exchanged in an Offer to License.25 As a result, if SEPs generally were to become subject to restrictions like those set out in the D&O, holders of significant numbers of non-essential patents may choose to change strategy and refuse to negotiate whole-portfolio licenses, opting instead for an opportunistic four-step strategy to extract licenses to even major SEP portfolios at unfairly reduced cost:

Step 1: Bargain for an SEP-only license on the best terms obtainable through negotiation;

Step 2: Demand arbitration of only the price term of the SEP-only license, locking in all other terms;

Step 3: After concluding the SEP license, assert non-essential patents against the SEP-licensor in patent litigation or ITC actions, seeking injunctions against the licensor’s products; and

Step 4: Use the leverage gained from actual or threatened non- essential-patent-based injunctions to force a renegotiation of the SEP-only license at even lower rates.

17

Again, Qualcomm does not believe that the Commission intends this result, but it would be all too probable should the “selective arbitration” provision of the Google D&O and the limitation on exchanging cross-licensing value through non-essential patents become templates for future enforcement actions by the Commission or foreign agencies.

Fourth, it is worth noting that arbitration is not an inherently superior dispute-resolution mechanism compared to litigation. Experience teaches that it is not always faster, and not always cheaper. Often, the primary benefit that drives parties to choose arbitration is confidentiality—a benefit that does not appear to be pertinent to the Commission’s concerns. The D&O structure, of course, does not mandate arbitration; it merely requires Google to offer binding arbitration. But where arbitration is likely to be the more efficient route and both parties are acting in good faith, SEP owners and implementers will always be free to elect arbitration, so the efficiencies of arbitration, if any, are always within reach.

Fifth and finally, pressure to arbitrate may have the effect of shifting away from the regular, private negotiation of SEP royalty rates to a rate-regulation regime. Ordinarily, when a dispute about compliance with a FRAND commitment arises, a court will decide validity, infringement, past damages, and the FRAND-compliance of past offers. When such a court finds that the patent is valid and infringed, that a FRAND-compliant offer was made, and that the licensee nonetheless did not enter into a license on those terms, the court’s final step would be to consider granting an injunction. At this point, the most likely final move will be a license negotiated between the private parties, who best know their industry and can best identify opportunities for cooperation to maximize value. By contrast, in the arbitration regime contemplated by Section IV of the D&O, rates and other terms will, in the last instance, be decided by an arbitrator. This arbitrator cannot understand the business of either party as well as

18

the parties understand their own businesses, and the arbitrator is very unlikely to understand the economics of the industry as well as the parties. In any event, to push SEP licensing toward a “rate regulation” model, with license terms set by third-parties rather than private negotiation, would be a radical change indeed, and in our view far outside anything contemplated by the patent law or any statutory authority. At the very least, it would ignore the cautionary warning of Adams v. Burke to “proceed with care” in matters of wide commercial importance.

* * *

We believe that the Commission is in fact sensitive to all of these concerns and has no desire to precipitate a major shift away from the current environment in which the overwhelming number of SEP licenses are privately negotiated. We are concerned, however, that certain statements of the Commission and the present D&O may be “overinterpreted” by some foreign regulatory authorities to move more strongly in that direction, intentionally or unintentionally favoring manufacturers over innovators. This would be quite harmful to U.S. interests, given the relatively strong investments of U.S. companies in R&D and resulting patent positions, while foreign companies dominate actual manufacture of high-tech electronic components.

Conclusion

Qualcomm assumes that the Decision and Order proposed in the matter of Motorola Mobility LLC and Google Inc., and commentary in associated documents, relate to the particular circumstances of that Complaint and that Respondent. Qualcomm respectfully submits, however, that broader application of certain of the provisions contemplated in the D&O would be unjustified as a matter of law and would carry with it the potential for unintended—but

19

disruptive—consequences in what is currently a robustly competitive and highly innovative industry.

February 22, 2013

Respectfully submitted,

CRAVATH, SWAINE & MOORE LLP

______________
Roger G. Brooks
[address, phone, fax]
Counsel for Qualcomm Inc.

___________
1 See Decision & Order, In the Matter of Motorola Mobility LLC and Google Inc., File No. 121-0120, at § IV (FTC Jan. 3, 2013) [hereinafter “Decision & Order”], available at
www.ftc.gov/os/caselist/1210120/130103googlemotorolado.pdf.

2 Statement of the Fed. Trade Comm’n, In the Matter of Motorola Mobility LLC and Google Inc., File No. 121- 0120, at 1 (FTC Jan. 3. 2013) [hereinafter “FTC Statement”], available at
www ftc.gov/os/caselist/1210120/130103googlemotorolastmtofcomm.pdf.

3 See, e.g., Decision & Order at § II.E.2-3; FTC Statement at 4 n.14 (“We agree that injunctions may issue in certain situations even when a RAND-encumbered SEP is involved, such as when a licensee is unwilling to license on FRAND terms.”).

4 See Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 888-89 (9th Cir. 2012).

5 See Decision & Order at § IV.B.

6 Id.at §§ IV.B-C.

7 Id.at § IV.C.

8 With respect to damages, Qualcomm notes that the standard practice is to award damages from the time infringement began. See, e.g., Transocean Offshore Deepwater Drilling, Inc. v. Maersk Drilling USA, Inc., 699 F.3d 1340, 1357 (Fed. Cir. 2012) (noting in the damages award context that “[t]he hypothetical negotiation seeks to determine the terms of the license agreement the parties would have reached had they negotiated at arms length when infringement began”). Yet the D&O excludes from recovery past damages from the period between when infringement began and when either arbitration or a FRAND determination suit began. See Decision & Order at § IV.B.2(c) (stating that upon the commencement of arbitration the licensee must agree to pay royalties in the resulting license going back to the time arbitration began, but not before); id. at Ex. A (stating the same with respect to requests for a FRAND determination in court). This provides infringers with an additional incentive to delay any progress toward a meaningful resolution. The savvy infringer would therefore recognize that every day and every week that passes without progress truly is a “free ride”. This should not be permitted.

9 See U.S. Dep’t of Justice & U.S. Patent & Trademark Office, Policy Statement on Remedies for Standards- Essential Patents Subject to Voluntary F/RAND Commitments, at 7 n.15 (Jan. 8, 2013) (“We recognize that the risk of a refusal to license decreases where the putative licensee perceives a cost associated with delay and increases where the putative licensee believes its worst-case outcome after litigation is to pay the same amount it would have paid earlier for a license.”), available at www.justice.gov/atr/public/guidelines/290994.pdf.

10 Adams v. Burke, 84 U.S. (17 Wall.) 453, 455 (1873).

11 The D&O seemingly acknowledges this fact by expressly stating that the recited procedures do not apply to existing license agreements. See Decision & Order at § IV.E.2-3 (“Notwithstanding any other provision of this Order, nothing herein shall . . . prevent or restrict Respondents from enforcing any License Agreement entered into prior to the effective date of this Order; [or] . . . as to a Potential Licensee, apply to Respondents’ FRAND Patents to the extent already licensed to such Potential Licensee”.).

12 See, e.g., Nov. 13, 2012 Hr’g Tr. at 180:7-9, Microsoft Corp. v. Motorola, Inc., No. 10-cv-1823 (W.D. Wash.) (Testimony of Kevin Murphy) (acknowledging that the existence of hold-up “is an open question”); Nov. 16, 2012 Hr’g Tr. at 67:4-10, Microsoft Corp. v. Motorola, Inc., No. 10-cv-1823 (W.D. Wash.) (Testimony of Timothy Simcoe) (acknowledging that he has “no evidence that the dispute between Motorola and Microsoft in this case is in fact based on hold-up” and that he “can’t nail down any particular license from any company as an example of hold- up”); id.at 135:25-136:1 (Testimony of Matthew Lynde) (acknowledging that he has “no basis from economic evidence to conclude whether or not patent hold-up is a real problem”).

13 Joseph Farrell, Director of Bureau of Economics, Fed. Trade Comm’n, Closing Remarks at FTC Workshop: Tools to Prevent Patent “Hold-Up” at 239:9-15 (June 21, 2011).

14 See Int’l Telecomm. Union, The World in 2011: ICT Facts and Figures, at 2, available at www.itu.int/ITU-D/ict/facts/2011/material/ ICTFactsFigures2011.pdf; Int’l Telecomm. Union, Mobile-cellular subscriptions, available at www.itu.int/ict/statistics.

15 See Daniel Thomas, Superfast internet benefit put at £20bn, Fin. Times (January 23, 2013),
www.ft.com/intl/cms/s/0/d6f4e592-6572-11e2-a3db-00144feab49a html#axzz2LZ5Z0Yti (subscription required).

16 Recently released figures from industry researcher International Data Corp. indicate that Chinese newcomer Huawei has risen to the number three position in global smartphone shipments, while Nokia, HTC, and RIM have all fallen out of the top five. Anton Troianovski, Huawei’s Smartphone Sales Eclipse Nokia, RIM, Wall St. J. (Jan. 27, 2013), online.wsj.com/article/SB10001424127887323854904578264234043436260.html (subscription required).

17 See Response of Qualcomm Incorporated to the Commission’s Request for Comments on the Proposed Agreement Containing Consent Orders, In the Matter of Robert Bosch GmbH, FTC No. 121-0081 (Jan. 9, 2013) [hereinafter “Qualcomm’s Bosch Comments”]; see also Submission of Qualcomm Incorporated in Response to the Commission’s Request for Written Submissions in Certain Wireless Commc’n Devices, Portable Music and Data Processing Devices, Computers, and Components Thereof, ITC Inv. No. 337-TA-745 (July 9, 2012); Reply Comments of Qualcomm Incorporated, ITC Inv. No. 337-TA-745 (July 16, 2012); Comments of Qualcomm Incorporated, Certain Elec. Devices, Including Wireless Commc’n Devices, Portable Music and Data Processing Devices, and Tablet Computers, ITC Inv. No. 337-TA-794 (Dec. 3, 2012).

18 Qualcomm’s Bosch Comments at 5-10.

19 Qualcomm’s Bosch Comments at 13-15.

20 Qualcomm’s Bosch Comments at 10-13. While the Commission states that it has “reason to believe that MMI willingly gave up its right to seek injunctive relief when it made the FRAND commitments at issue”, FTC Statement at 4-5, and that it is “simply requir[ing] those making promises to keep them”, id. at 5, the Commission also rightly recognizes that the extent of any waiver of injunctive relief is a disputed and undecided question of contract interpretation: there may be “a question of fact as to whether Motorola’s injunctive relief claims violated its contract with the SSOs”, FTC Statement at 3-4. See also Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv-178, 2012 WL 5416941, at *15 (W.D. Wis. Oct. 29, 2012) (“There is no language in either the ETSI or IEEE contracts suggesting that Motorola and the standards-setting organizations intended or agreed to prohibit Motorola from seeking injunctive relief.”). Google and all other FRAND obligees are entitled to have that issue adjudicated in a court of law.

21 FTC Statement at 1.

22 ETSI Rules of Procedure, 30 November 2011, Annex 6, § 3.1, www.etsi.org/images/etsi_ipr-policy.pdf.

23 Id.at §§ 3.1-3.2.

24 Decision & Order at § III.

25 See Decision & Order at § IV.B.1.

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