FTC Highlights SEP Antitrust Abuses

The recent remarks of FTC Commissioner Rebecca Kelly Slaughter on standards essential patents (“SEPs”) are commendable, as is her emphasis on the role antitrust law plays in curtailing anticompetitive abuses of them. The abuses Slaughter highlights mostly impact small- and medium-sized businesses, “the ‘little engines that could’ of our economy,” who lack the resources to navigate complex legal issues and are “more likely to cave to supra-FRAND rates out of fear of exclusion.” Patents do not grant companies a free pass to abuse their dominant market positions through anticompetitive means.

Commissioner Slaughter emphasized that patents are not—and cannot become—an absolute shield for anti-competitive conduct by SEP holders: “When patent holders obtain market power by virtue of being included in standards, the way they exercise that market power is not immunized from the antitrust laws merely because patents are involved.” Specifically, owners of SEPs are obligated to license their patents to willing licensees on fair, reasonable, and non-discriminatory (“FRAND”) terms, and U.S. antitrust policy plays an important role in policing those matters.

Clear antitrust policies are imperative to ensure sincere FRAND licensing practices. Without definite antitrust policies, SEPs can skirt FRAND requirements, leading to “holdup,” or the practice of prohibiting businesses from implementing technologies that implement standards unless they agree to higher royalties and more unfavorable licensing terms than the SEP owner could have obtained before the standard was set, when alternative technologies were available.

Commissioner Slaughter identified three examples of holdup evincing anticompetitive conduct: (1) refusing to license a SEP to any willing licensee in violation of a FRAND  commitment, (2) conditioning an SEP license on taking or giving a cross-license to non-essential patents or that are SEPs of unrelated standards (i.e., bundling), and (3) requiring a license to a portfolio where some or all of the patents are not even identified, let alone provided with the relevant information needed by a potential licensee to assess whether the patents under negotiation are valid, enforceable, and essential to the standard’s implementation, or offered on non-discriminatory terms.

This disproportionately affects small businesses, who lack the bargaining power to negotiate with SEP owners and the resources to defend against SEP assertions. Theoretically, federal judges occasionally enforce FRAND terms in patent cases, but as Commissioner Slaughter pointed out, that case needs to first get to court and continue on to a point to reach such a decision, and “if small and medium entities are agreeing to supra-FRAND terms because they are afraid of the threat of exclusion after litigation, there necessarily will not be a high volume of cases challenging licensing demands.”

Commissioner Slaughter also underscored the role that standards-developing organizations, or SDOs, have in setting policies that would facilitate licensing and prevent inefficient litigation. SDOs can institute policies that mitigate the harms of holdup by mandating commitments from participants to disclose and/or license standard-essential patents on FRAND terms. SDO policies can also clarify how a reasonable rate may be determined. For example, SDOs may specify a narrow set of circumstances in which injunctive or other exclusionary relief may be an appropriate remedy for “holdout,” i.e., when a potential licensee unilaterally refuses to take a license or unreasonably delays in  doing so.[1]

Commissioner Slaughter’s message that “antitrust laws have an important role to play in the standard-setting context, including conduct related to the use or abuse of SEPs” is laudable. The application of antitrust law in congruence with sound SDO policies to promote “widespread and efficient licensing” at “actual FRAND rates” can reward genuine innovation while also preventing abuses by SEP holders, including assertion of poor-quality, SEP-questionable patents.

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[1] As Commissioner Slaughter pointed out, absent collusion, holdout does not pose the same concerns from an antitrust standpoint as holdup, which has the potential to exclude firms from implementing a standard and hurting customer choice among competitors. While competition and consumers are harmed indefinitely when market power is exploited to engage in holdup, there are remedies for holdout.

Access Advance, Who is Checking Essentiality? -- An HEVC Case Study

Some patent holders and pools designate their patents as relevant or essential to a standard without proper scrutiny or analysis. As part of an ongoing series examining this dubious practice, we highlight U.S. Patent 9,838,714. The ‘714 patent is owned by the Electronics and Telecommunications Research Institute (ETRI), is purportedly essential to the H.265 (HEVC) standard as part of the Access Advance Patent Pool, and is part of a family of at least 29 applications globally. It should not be considered essential.   

The ‘714 patent is directed to the prediction phase of video coding, specifically, how to scan the decoded signals during intra-prediction. In this process, there is a specific order in which the values of a block (e.g., a 4x4 or 8x8 transform block) are processed. The ‘714 patent requires that the first row or column is scanned first, before any other column or row. See, e.g., claim 1 (“scanning entropy-decoded signals of a first row with priority so that all of the entropy-decoded signals of the first row are scanned prior to scanning entropy-decoded signals of any other row”). 

In contrast, the HEVC standard does the opposite. As illustrated below, the HEVC standard requires scanning in “reverse order,” meaning that the last row is scanned first (from right to left) or the last column is scanned first (from bottom to top). See HEVC, § 7.3.8.11. 

See T.Nguyen, “Transform coding techniques in HEVC,” IEEE Journal of Selected Topics in Signal Processing, vol. 7, no. 6, 978-989, Dec. 2013. The HEVC standard can scan in the diagonal (§ 6.5.3), horizontal (§ 6.5.4), or vertical (§ 6.5.5) directions for intra-mode prediction, but again, it does so in the “reverse order” direction, not the direction claimed by the ’714 patent.  

​​Thus, the ‘714 patent does not appear to be essential to the HEVC standard even though it has been declared essential and actively licensed as being so. The public would benefit from appropriate scrutiny of such large patent pools that allegedly cover critical technical standards.

Comprehensive Empirical Study on Multiple SSO IPR Policy Revisions Shows No Effect On Participation

In a new study by Boston University’s Timothy Simcoe and Qing Zhang from Charles River Associates (using support from Unified’s OPEN platform and Edge / Patent Quality Initiative), the pair researched the impact of changes to Standard Setting Organization (SSO) intellectual property rights (IPR) policies on participation, standardization, and innovation for two well-known IPR policy revisions: a 2003 World Wide Web Consortium (W3C) switch from Fair Reasonable and Non-Discriminatory (FRAND) to Royalty-Free licensing and a 2015 Institute of Electrical and Electronics Engineers (IEEE) IPR policy revision. The study found these changes resulted in little or no measurable decline in participation or innovation in patent-intensive parts of either SSO. The results held for both the W3C and IEEE across numerous measures and “treatment” vs “control” group comparisons. These quantitative findings appear to contradict the theory that revisions to licensing policy alter participation in any meaningful way.

To download the entire article, visit SSRN HERE.

HEVC Royalty Stacking and Uncertainty Threaten VVC Adoption

IPWatchdog today published an article on the independent economic study that Unified Patents conducted with Charles River Associates on the economic value of the newly released Versatile Video Coding standard. The study points out that “[f]or VVC to capture market share among cellular device manufacturers, [its] royalty rates will have to be very attractive compared to the rates for AVC and AV1.” VVC is entering a fragmented, multi-codec market and its adoption is uncertain in the face of competitive video solutions that are subject to lower or no royalties. Much of this is due to the excessive royalties and licensing uncertainties that continue to plague VVC’s predecessor, HEVC.

Click HERE to read the full article.

Express Mobile Patent Narrowed After Ex Parte Reexamination

At the end of 2020, Unified filed two ex parte reexamination (Reexam) requests against patents owned by Express Mobile Inc., a prolific patent troll that has sued over eighty different companies for website development features. In early August 2021, the Reexam of U.S. Patent 7,594,168 concluded with a “Notice of intent to issue a Reexamination Certificate” that likely impacts Express Mobile’s infringement theories and still leaves open future questions about validity. The examiner narrowed claims that Express Mobile has argued repeatedly in court were much broader. For the first time, you can view every ex parte filing since 2000 on Unified’s Portal here. 

This reaffirms the Northern District of California’s and the Middle District of Florida’s stays of their cases involving the challenged patents. As the notice of intent comes less than one year after the filing of a request, patentees will be hard-pressed to argue that the ex parte reexamination process is too long to wait for a streamlining of their myriad infringement claims—if the patent is valid, it should be more likely that the reexamination will end quickly, and very little burden would be faced by the applicant due to a delay. On the other hand, if the challenged claims are invalid or substantially narrowed past the point of reasonable infringement, it would be a waste of resources to litigate. Additionally, in Express Mobile’s case, had the courts proceeded while the reexamination was still pending, the claim construction briefing would not have had the benefit of Express Mobile’s affirmative, binding disavowal of scope, and the examiner’s basis for allowance, itself probative for claim construction. See, e.g., Salazar v. Procter & Gamble Co., 414 F. 3d 1342, 1347-48 (Fed. Cir. 2005). That is particularly true here, where the examiner concluded that Express Mobile’s references to the specification amounted to a definition, i.e., lexicography. Notice of Intent, pp.7-8.

And the Office went further.  For example, the examiner observed that if any non-object oriented formatting or styles are used in the building of a web page, it would not infringe the ’168 Patent. Id., p.4. Express Mobile disagreed with the Examiner for construing “entirely” as “only” in Claim 1, but its arguments beg the question of what “entirely” does mean, if not “only,” and whether Express Mobile has a viable infringement case based on the proper construction of this term.

Additionally, it will not be enough for Express Mobile to argue vague notions of what a timeline or transformation of a style is anymore: the transformation of an image object is limited to the description at (c), the transformation of a button object is limited to the description at (g) the timeline of both image and button objects is limited to examples at (d), and the claims specify that these settings are required for an image or button object for “each” web page on the site.  Id., 5-6; see also ’168 Patent, 30:32-33:46. It is unclear whether any of the pending product accusations meet these requirements.

And while Express Mobile filed a nonbinding statement disagreeing with the examiner’s characterizations, such post hoc self-serving statements are entitled to little weight, although they keep the interpretation open for an invalidity litigant or IPR petitioner construing the claims as broadly as Express Mobile. For example, Express Mobile disagreed with the examiner that the statements regarding image and button objects are definitional, citing the specification’s use of “can” instead of “must.” ’168 Patent, 30:32-33:46. This does not respond to the examiner’s point; “can” is not necessarily synonymous with “may,” and it should indicate limitation if the list refers to the only settings the user could employ. Here, Express Mobile’s points to no language that indicates that the “can” is exemplary and not limiting, as the examiner concluded.

The certificate also does not absolve Express Mobile of the need to address invalidity in its pending cases. The Notice made it clear that if a reference was not cited in its actions, then it was only given a cursory review, and no references other than the art submitted with the request appear to have been addressed by the examiner. Notice of Intent, 3.

Reexaminations are a valuable tool, particularly with Fintiv lingering. The Reexamination Unit has recently been processing requests much faster than the past, making their use to obtain stays a prudent option.  Reexaminations are also a less expensive option (and sometimes faster way) to extract claim scope disavowals and highlight infringement theory weaknesses even though there is little control over what the examiner considers.