Big Tech and China, Inc. Rejoice in DOJ Draft SEP Policy Statement and FTC Speech

Last summer, I lamented how the Department of Justice – Antitrust Division (DOJ), without Senate confirmed leadership, was hastily pushing through policies that augmented the already-enormous power of Big Tech and benefitted China’s interests.

Similarly, I uncovered how the App Association, a Big Tech-funded advocacy organization masquerading as a group of small app developers, was able to trick the Federal Trade Commission (FTC) into inviting it to speak at its July 2021 Commission meeting alongside legitimate small businesses. This is the same association that supported Apple in its litigation against (real) app developers, issued a June 2021 press release against the House bills aimed at regulating Big Tech, and misses no opportunity to support Big Tech interests. I suggested this group be investigated for deceptive acts and practices by the FTC, and would be more aptly named as the App(le) Association. My findings were confirmed by an August 2021 New York Times article on the settlement of the Apple litigation. After explaining that the settlement was a “minor change to a set of rules that are at the center of complaints about how Apple controls its App Store,” the Times commented:

The biggest praise [for the settlement] came from the App Association, an organization that claims to give ‘a voice to small technology companies’ but is funded by big technology companies, including Apple.

After the App Association’s true funding and identity were widely revealed, you might think that Big Tech would have felt a bit of shame, if not remorse. Not so. In October 2021, Big Tech launched yet another well-funded coalition, ironically called “Save Our Standards.” The irony is in the word Our: Big Tech generally does not contribute to open standards, preferring proprietary and closed ecosystems. The sole purpose of the new front group is to devalue standard-essential patents, i.e. patents that are important to innovators but anathema to Big Tech. The membership of “Save Our Standards,” not surprisingly, includes Big Tech companies and their associations, such as Apple, Amazon, Cisco, Google, Intel, the App Association, the Computer and Communications Industry Association (CCIA) CCIA, Engine, the High-Tech Inventors Alliance (HTIA), and the Software & Information Industry Association (SIIA).

Was an FTC Commissioner Tricked by Big Tech Advocacy?

In October 2021, FTC Commissioner Rebecca Kelly Slaughter delivered a speech on standard-essential patents. In her speech, Commissioner Slaughter took a strong position on whether a company with standard-essential patents could legitimately seek an injunction against infringers and hinted that the FTC might consider using Section 5 of the FTC Act as a basis for enforcement in this area.

The speech cites to advocacy pieces by the App Association and its senior counsel Brian Scarpelli in three footnotes (notes 5, 6 and 14).

In addition, the speech refers to a recent call for comments by the IEEE on which supposedly “[d]ozens of small businesses weighed in.”

But it does not take Sherlock Holmes to find evidence of who is behind many of these “small businesses.” Indeed, an individual named Mike Sax submitted seven (!) identical submissions to the IEEE, each on behalf of himself and eight of his “friends,” for a total of 63 comments. Many of the signatory businesses do not seem to exist and none of them are potential SEP-licensees. More significantly, the App Association’s website lists Mr. Sax as its “founder and chairperson” and his LinkedIn page shows that he regularly promotes and participates in App Association events. So much for “small businesses.”

The speech misses that, as part of that same public comment period, Amazon, Apple, Google, Intel, Microsoft, Verizon and their funded groups such as the App Association, CCIA, the Fair Standards Alliance (FSA), and HTIA all cheered and supported the IEEE (and potentially FTC) no-inunctions policy, as did Asian giants such as Lenovo, Oppo, Vivo and Samsung. Indeed, Amazon, Apple, Google, Intel, et al. were so pleased with Commissioner Slaughter’s speech that they proudly advertise it on their association’s website. Furthermore, on the same day that long speech was delivered, the App(le) association was able to expeditiously digest it and post a statement supporting it among its other Big Tech statements (The App Association Supports New Direction on U.S. Standard-Essential Patent Policy, 10/29/2021). Such speed often indicates receipt of an advance embargoed copy.

Was Commissioner Slaughter tricked? Was she misled about the real interests of the App(le) Association and its connection with manipulating the IEEE comments? In some ways, I hope so, because the alternative is worse. Let’s hope that the connection between Big Tech and the FTC is not more direct.

DOJ Issues December 2021 Draft Policy Statement Re: Standard Essential Patents

In June 2021, a coalition of Big Tech groups including the App Association, CCIA, FSA, HTIA, SIIA and two groups identified by the Tech Transparency Project as funded by Big Tech (The Niskanen Center, funded by Google & Facebook; and Public Knowledge, funded by Amazon, Google & Facebook) sent a letter to Attorney General Garland. In their letter they asked him to update or withdraw the 2019 Policy Statement on Remedies for Standards-Essential Patents and commended the DOJ for its reclassification of the 2020 Business Review Letter to IEEE. That letter was accompanied by a Big Tech memo to the administration making similar requests. In Washington, endless resources can buy lots of advocacy.

On December 6, 2021, Big Tech’s request was tentatively granted when a DOJ press release announced a new draft policy statement on licensing negotiations and remedies for standards-essential patents subject to F/RAND commitments (Draft Statement). While attempting to take a balanced approach, e.g., through belated recognition that opportunistic conduct can be undertaken by both licensees and licensors, at its core the Draft Statement sides with Big Tech infringers.

For example, the Draft Statement cites nearly verbatim a paragraph from a 2012 FTC amicus brief that supported Apple in its litigation against Motorola (two months after Apple was found “unwilling” by the Wisconsin district court) (see AIPLA submission to DOJ, note 8). The Draft fails to mention that the Federal Circuit explicitly rejected the position taken in that pro-Apple brief. And, regrettably, the Draft Statement goes on to completely misrepresent the Federal Circuit’s decision in Apple v. Motorola as if it created a general rule that monetary remedies will usually be adequate to fully compensate a SEP holder for infringement. This is just plain wrong (see joint academics’ submission page 3).

Big Tech and China, Inc. Have Reason to Rejoice in DOJ’s Draft Statement

So, who stands to benefit? In January 2022, 28 property rights advocacy groups wrote to U.S. AG Merrick Garland and AAG for Antitrust Jonathan Kanter raising concerns that the Draft Statement “effectively turns a FRAND commitment into a compulsory licensing clause” and weakens IP rights in favor of Big Tech implementers and Chinese manufacturers infringing on IP rights.

When the public comment period closed earlier this month, it became clear that these concerns are entirely well founded. Amazon, Apple, Cisco, Verizon and Big Tech associations such as the App(le) Association, BSA, CCIA, Engine, HTIA, and “Save Our Standards” all expressed strong support for the DOJ Draft Statement. (Interestingly, unlike the aforementioned IEEE comment exercise, Google and Intel had the political savvy to hide behind their associations this time around and did not comment directly. Maybe some companies do learn something sometimes).

Big Tech’s enthusiasm with the Draft Statement was echoed by China, Inc. The Patent Protection Association of China (PPAC), whose members include Chinese behemoths such as Meizhu, Xiaomi, Haier, Tencent, Meituan, Midea, Didi, the Guanzho Automotive Association and many others, was also highly supportive of the Draft Statement. The Chinese submission compliments the Draft for “fully embod[ying] the purpose stemming from the patent system with regard to innovation stimulation, competition promotion and benefits accomplishment” and prefers it over the 2019 statement. PPAC members no doubt love “benefits,” particularly the benefits the Draft Statement offers to large Chinese firms. UC Berkley Law Professor Mark Cohen, whose distinguished government service includes serving as the USPTO representative in China, submitted a thoughtful comment explaining how the Draft Statement plays into China’s industrial and strategic interests.

It is easy to understand why Big Tech and China, Inc. rejoice in a Draft Statement that devalues emerging technologies such as 5G and facilitates holdout by patent infringers. They’d prefer to free ride on cutting edge technology that drives their products and avoid paying adequate remuneration for the use of others’ technology. Indeed, as noted in my submission to DOJ (pages 4-6), a similar 2013 policy statement is widely known to have been a giveaway to Apple and Google. Furthermore, and with characteristic arrogance, Apple has already cited the new Draft Statement in an ITC submission asking the ITC to decline to even institute an investigation into its infringing practices, perhaps remembering the ITC’s prior findings regarding Apple’s abusive hold-out practices (see Vary Submission, page 5; my submission, page 5).

It is easy to see what is in this for Big Tech. However, it is more difficult to fathom what’s in it for the United States or U.S. consumers. There is broad bipartisan recognition that Big Tech’s market power and abusive practices need to be curbed, not amplified. And a recent bipartisan Bill explicitly recognized the importance of injunctive relief as a necessary survival tool against Big Tech (see page 9).

With respect to China, the 2021 National Security Commission on Artificial Intelligence Report found that “China is both leveraging and exploiting intellectual property (IP) policies as a critical tool within its national strategies for emerging technologies” while the United States “has failed to similarly recognize the importance of IP.” It therefore recommended that the United States “[d]evelop and implement national IP policies to incentivize, expand, and protect emerging technologies.” The Draft Statement does the opposite. Issued by just one agency rather than through a holistic inter-agency process, it would weaken 5G and 6G patent protection in the United States.

It is noteworthy that a bipartisan group of prior leaders of the DOJ, USPTO and NIST has blasted the DOJ Draft Statement. At a recent Appropriations Committee Hearing Senator Chris Coons (D-DE) and Secretary of Commerce Gina Raimondo expressed similar concerns (listen around 1:12:15 time mark). Six additional submissions from prior ITC Commissioners, DOJ and FTC heads, and Senators on both side of the aisle, have similarly warned against adoption of the Draft Statement. I hope AAG Kanter will be listening to these experienced bipartisan voices rather than to Big Tech, Big Tech advocacy groups masquerading as small businesses, and China, Inc. One hopes that Kanter, who has supported the real app developers against Apple and NY State against Facebook, will recognize a Big Tech astroturfing operation when he sees one.