How Could These Proposed Updates Change IP Licensing Guidelines?
The Department of Justice (DOJ) and Federal Trade Commission (FTC) are proposing amendments to Antitrust Guidelines for the licensing of intellectual property. According to the agencies, the IP Licensing Guidelines, which were issued in 1995, should be updated to reflect current statutory and case law.
The Underlying Enforcement Policy
The IP Licensing Guidelines outline the FTC and DOJ’s antitrust enforcement policy with respect to the licensing of intellectual property protected by patent, copyright, and trade secret law. As highlighted in the proposed updates, the agencies may “impose licensing requirements to remedy anticompetitive harm or, in the case of a merger, to prevent the substantial lessening of competition.”
The revised IP Licensing Guidelines also reconfirm that DOJ/FTC enforcement policy is guided by three basic principles:
The agencies apply the same antitrust analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right.
The agencies do not presume that intellectual property creates market power.
The agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally procompetitive.
Proposed Changes to the IP Licensing Guidelines
Many of the proposed updates reflect decisions of the U.S. Supreme Court. In light of the Court’s decision in Verizon Communications v. Trinko, 540 U.S. 398 (2004), the guidelines now state: “The antitrust laws generally do not impose liability upon a firm for a unilateral refusal to assist its competitors, in part because doing so may undermine incentives for investment and innovation.” At the same time, the agencies also advise that although market power does not obligate IP property owners to license their property, the agencies may still impose licensing requirements to remedy anticompetitive harm or to prevent the substantial lessening of competition as the result of a merger.
In accord with the Supreme Court’s decision in Leegin Creative Leather Products v. PSKS, 551 U.S. 877 (2007), the new guidelines state that “the Agencies will apply a rule of reason analysis to price maintenance in intellectual property licensing agreements.” While the updated IP Guidelines no longer presume that such vertical price restraints are per se anticompetitive, the agencies highlight that the per se rule may still apply to some horizontal pricing arrangements.
The updated guidelines also reflect regulatory changes. Keeping in line with the 2010 Horizontal Merger Guidelines, relevant market definition is no longer the mandatory first step in analyzing a license’s competitive impact. However, it is still considered a key factor.
The updated IP Licensing Guidelines have been amended to reflect the Defend Trade Secrets Act of 2016, which created a federal cause of action for trade secret misappropriation. The proposed changes also incorporate changes to the terms of both patent and copyrights, which occurred just after the guidelines were issued in 1995.
The Bottom Line
Finally, the proposed updates retain the concept of “innovation markets,” but gives them a new name. In a largely semantic change, the guidelines now refer to them as “Research and Development Markets” to more accurately reflect how these markets have been defined in enforcement actions.
As reflected above, the agencies’ updated guidance does not significantly alter their enforcement approach. Accordingly, the updated IP Licensing Guidelines fail to address several important (albeit controversial) issues, including patent infringement suits by non-practicing entities, violations of commitments to license standard-essential patents on fair, reasonable and non-discriminatory (FRAND) terms, and pay-for-delay patent settlements.
Do you have any questions? Would you like to discuss the matter further? If so, please contact me, Fred Zemel, at 201-806-3364.
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