The Way FRAND Concepts are Applied in Other Sectors Illustrates the U.S. Government’s Orwellian View of Patent Rights

A while back, we set up an email alert to advise us of any legal developments involving fair, reasonable and non-discriminatory (FRAND) licensing. Somewhat to our surprise, the notion of requiring FRAND terms and conditions for obtaining access to the otherwise exclusive property rights of others is not limited to patents essential to industry standards. Rather, FRAND licensing concepts, or minor variations thereof (e.g. “just, reasonable and nondiscriminatory”), appear in government regulation of stockyards (see 7 USC §208), vehicular air pollution information (see California’s Health and Safety Code §43105.5 (7)), and airports (see La. R.S. §1:135.1), to name a few. As explained in Roy Goldberg’s 2007 article “Airline Challenges to Airport Abuses of Economic Power”, such regulations are a result of economic power “…that either constitutes or closely resembles monopoly power – that is, the power to impose economic rents and conditions without the check of true competition.” In a first section titled “The Prohibitions Against Unjust Discrimination by Airports,” Goldberg expands on this point as follows:

Although airports in the United States generally are authorized to impose rates and charges for use of runways, terminal buildings, and other airport facilities (either by lease agreements, ordinance, or otherwise), and to impose other conditions of use of the airport, they do not have carte blanche authority to act like private, commercial landlords. Because airports are essential facilities for airlines (and their passengers), federal laws place important limits on the exercise of an airport’s rate-setting and other functions. A paramount limitation is the law against unjust discrimination among similarly situated airlines.

Such economic power similarly explains the regulation of stockyards and access to vehicular data information.

More closely related to the issue of standards essential patents, FRAND licensing requirements also appear in the Federal government’s regulation of other aspects of the telecommunication industry, including: (1) the placement, construction, and modification of personal wireless service facilities, (2) pole attachments, and (3) interconnection with local exchange carrier networks. In this article, we contrast the Federal government’s approach to balancing property rights in these areas with its (prior) views regarding standards essential patents. Spoiler alert: they are not the same.

Before analyzing these other FRAND regimes, recall that many implementers wish to require patent owners to prove the need for licenses, and that any terms offered are in fact FRAND, but without having to make any commitment to accept FRAND licenses or suffering any penalty for not doing so (or as we like to say: have their FRAND cake and eat it too). The now withdrawn 2021 Draft Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued by the U.S. Patent and Trademark Office (USPTO), the National Institute of Standard and Technology (NIST), and the U.S. Department of Justice, Antitrust Division (DOJ) (the 2021 Draft Policy Statement) and 2013 Policy Statement, both seem to buy into this notion. For, instead of requiring action on the part of implementers to obtain licenses before using the patented technology of others, setting forth any penalties for not doing so, or providing mechanisms by which patent owners could seek redress for unlicensed use of their technology, these policy statements focus on limiting remedies available to patent owners who sue for infringement.

Please Keep Off The Grass!

Among other things, 47 USC §332 and 41 CFR §§ 102-79 regulate the siting of antennas and other network equipment on Federal property. 41 CFR § 102-79.85 (“What policy must Executive agencies follow concerning the placement of commercial antennas on Federal property?”), in particular, states that “[e]xecutive agencies will make antenna sites available on a fair, reasonable, and nondiscriminatory basis…”. Among the criteria to be considered by Executive agencies when evaluating such siting requests, 41 CFR § 102-79.90 sets forth the following (emphasis added):

Compliance with the appropriate level of review and documentation as necessary under the National Environmental Policy Act of 1969, as amended, and implementing regulations of each Federal department and agency responsible for the antenna siting project, and the Federal Aviation Administration, the National Telecommunications and Information Administration, and other relevant departments and agencies.

For example, if one wants to place an antenna on public lands, compliance with Title 43 of the United States Code is required. In particular, 43 USC § 961 governs rights-of-way for power and communications facilities, while 43 USC § 1733 (“Enforcement authority”) sets forth penalties for noncompliance. Specifically, paragraph (a) of 43 USC § 1733 states that “[a]ny person who knowingly and willfully violates any such regulation which is lawfully issued pursuant to this Act shall be fined no more than $1,000 or imprisoned no more than twelve months, or both”, while paragraph (b) sets forth the Secretary of the Interior’s right to seek an injunction:

(b) Civil actions by Attorney General for violations of regulations; nature of relief; jurisdiction

At the request of the Secretary, the Attorney General may institute a civil action in any United States district court for an injunction or other appropriate order to prevent any person from utilizing public lands in violation of regulations issued by the Secretary under this Act.

Contrasting the Federal government’s approach to regulating use of public lands for telecommunications purposes with its views regarding use of patented technology essential to industry standards, we can’t help but ask why wireless service providers aren’t allowed to erect communications towers on public lands, without permits, and require the government to prove that the towers negatively impact the environment or aviation, and that the government has the authority to regulate such matters, before paying no more than the original license fee? And where is the Federal government’s concern for potential hold-up (i.e. ensuring service providers are not unfairly enjoined from using any illegally placed towers)?

With respect to property owned by a State or local government or instrumentality thereof, 47 USC §332(c)(7)(B) provides that such entities shall not “unreasonably discriminate among providers of functionally equivalent services” and “shall not prohibit or have the effect of prohibiting the provision of personal wireless services” in the “regulation of the placement, construction, and modification of personal wireless service facilities”. Most notable for our purposes is that 47 USC §332(c)(7)(B) does not permit a service provider to proceed with a tower if a State or local government acts in contravention of these limitations. Rather, the statute sets forth the right of the adversely affected person to file an action or petition the FCC (emphasis added):

Any person adversely affected by any final action or failure to act by a State or local government or any instrumentality thereof that is inconsistent with this subparagraph may, within 30 days after such action or failure to act, commence an action in any court of competent jurisdiction. The court shall hear and decide such action on an expedited basis.

Any person adversely affected by an act or failure to act by a State or local government or any instrumentality thereof that is inconsistent with clause (iv) may petition the Commission for relief.

Of course, it is hard to imagine government owned property being managed any other way (i.e. other than requiring compliance with all licensing requirements before making use of such property). So, why didn’t the USPTO, NIST and DOJ see this as the case for standards essential patents? Why shouldn’t implementers be obligated to commence an action to obtain FRAND licenses if they believe they are being denied access to the same, before using the patented technology of others? If anything, the fact that intellectual property in the form of patented inventions is so easily taken by others (in contrast to real property where physical barriers and/or security guards can be used as an alternative to taking legal action) should warrant stricter requirements being placed on those wanting access to such technology, not on those having to enforce their rights against unlicensed actors.

Open the Pod Bay Doors, Hal

Another area in which the Federal government imposes a FRAND licensing regime is with respect to “pole attachments”, which are defined as “any attachment by a cable television system or provider of telecommunications service to a pole, duct, conduit, or right-of-way owned or controlled by a utility”. A “utility”, in turn, is defined as “any person who is a local exchange carrier or an electric, gas, water, steam, or other public utility, and who owns or controls poles, ducts, conduits, or rights-of-way used, in whole or in part, for any wire communications. Such term does not include any railroad, any person who is cooperatively organized, or any person owned by the Federal government or any State.”  See 47 USC §224.

Specifically, section 224(e) “Regulations governing charges; apportionment of costs of providing space”, provides as following (emphasis added):

(1) The Commission shall, no later than 2 years after February 8, 1996, prescribe regulations in accordance with this subsection to govern the charges for pole attachments used by telecommunications carriers to provide telecommunications services, when the parties fail to resolve a dispute over such charges. Such regulations shall ensure that a utility charges just, reasonable, and nondiscriminatory rates for pole attachments.

Further, section 224(f) provides for “Nondiscriminatory access” to utility poles… (emphasis added):

(1) A utility shall provide a cable television system or any telecommunications carrier with nondiscriminatory access to any pole, duct, conduit, or right-of-way owned or controlled by it.

Like airports, the justification for applying FRAND licensing principles to pole attachments is due to the economic power held by formerly government-controlled entities, such as “Ma Bell”, with respect to telecommunications infrastructure.

Most interesting to those of us in the field of licensing standards related patents is that the statute foresees disputes arising and requires the adoption of procedures to resolve them. See 47 USC §224(b) “Authority of Commission to regulate rates, terms and conditions; enforcement power; promulgation of regulations” which provides as follows (emphasis added):

(1) Subject to the provisions of subsection (c) of this section, the Commission shall regulate the rates, terms, and conditions for pole attachments to provide that such rates, terms, and conditions are just and reasonable, and shall adopt procedures necessary and appropriate to hear and resolve complaints concerning such rates, terms, and conditions. For purposes of enforcing any determinations resulting from complaint procedures established pursuant to this subsection, the Commission shall take such action as it deems appropriate and necessary, including issuing cease and desist orders, as authorized by section 312(b) of this title.

(2) The Commission shall prescribe by rule regulations to carry out the provisions of this section.

The specific regulations adopted by the Federal government with respect to pole attachments are set forth in 47 CFR 1.1401 to 1.1415. Sections 1.1404 to 1.1407, in particular, establish pole attachment complaint proceedings, and set forth rules governing the treatment of such complaints by the FCC, as well as the remedies available to successful complainants. Notably, in contrast to the views of certain implementers of standards related patents, section 1.1406 states that the complainant (i.e. the person seeking to use the property of another) “shall have the burden of establishing a prima facie case that the rate, term, or condition is not just and reasonable or that the denial of access violates 47 U.S.C. 224(f)”, not the property owner. In fairness to those seeking access to such property of others, section 1.1414 states that “[e]xcept in extraordinary circumstances, final action on a complaint… should be expected no later than 180 days from the date the complaint is filed with the Commission…”, while section 1.1411(i) sets forth a “Self-help remedy”. Unlike the situation with patents essential to industry standards, however, this self-help remedy is subject to many other conditions being met on the part of the person seeking to make the attachment (including having to have applied to the property owner for a license) and is only available after a utility has failed to respond in a timely manner. Additional information regarding the resolution of such disputes can be found on the FCC’s site here.

Stepping back, what the regulation of pole attachments tells us is that the Federal government is quite adept at balancing property rights to ensure access on the one hand, and fair, reasonable and non-discriminatory compensation on the other, when it wants to be. So why the dissimilar treatment for patents essential to industry standards? Why didn’t the USPTO, NIST and DOJ propose adopting procedures necessary and appropriate to hear and resolve complaints concerning patent licenses, instead of bending over backwards to protect those who use the property of others without making any attempt to pay for the same and, worse yet, actively fight against the need to do so?

The United States Code also recognizes states’ rights to regulate the rates, terms and conditions regarding pole attachments (see 47 U.S.C. 224(c)). An example of such regulations is the Dover, Delaware Code of Ordinances Sec. 110-32 (DCO). Interestingly, the DCO sets forth penalties for “unauthorized occupancy or access” adding that “[i]n the event a licensee fails to pay such fee within 30 calendar days of receiving notification thereof, [Dover’s Electric Department] has the right to remove such attachments at licensee’s expense…” (see DCO Sec. 110-32(16)). So not only is the City of Dover not concerned with the possibility of hold-up but has expressly set forth its right to enjoin unauthorized use of its property. Similarly, see the FCC’s power to issue cease and desist orders set out in 47 USC §224(b)(1).

Hey, You, Get Off of My Cloud!

The Federal government also utilizes FRAND licensing concepts to balance property rights issues arising with respect to “interconnection” with a local exchange carrier’s network (see 47 USC §251).  Like access to poles…, this is due to the economic power held by such former government entities. Specifically, 47 USC §251(c)(2) (“Interconnection”) places the following duty on incumbent local exchange carriers (emphasis added):

The duty to provide, for the facilities and equipment of any requesting telecommunications carrier, interconnection with the local exchange carrier’s network-

(A) for the transmission and routing of telephone exchange service and exchange access;

(B) at any technically feasible point within the carrier’s network;

(C) that is at least equal in quality to that provided by the local exchange carrier to itself or to any subsidiary, affiliate, or any other party to which the carrier provides interconnection; and

(D) on rates, terms, and conditions that are just, reasonable, and nondiscriminatory, in accordance with the terms and conditions of the agreement and the requirements of this section and section 252 of this title.

Further, 47 USC §251(c)(1) imposes a duty to negotiate in good faith, which duty is also imposed on the requesting telecommunications carrier seeking access to the network.

Showing a nuanced understanding of the potential issues that might arise when seeking interconnection, 47 USC §251(c)(3) also places a duty on incumbent local exchange carriers to provide “unbundled” access to its network elements on a just, reasonable, and nondiscriminatory basis (emphasis added):

The duty to provide, to any requesting telecommunications carrier for the provision of a telecommunications service, nondiscriminatory access to network elements on an unbundled basis at any technically feasible point on rates, terms, and conditions that are just, reasonable, and nondiscriminatory in accordance with the terms and conditions of the agreement and the requirements of this section and section 252 of this title. An incumbent local exchange carrier shall provide such unbundled network elements in a manner that allows requesting carriers to combine such elements in order to provide such telecommunications service.

Turning back to the issue of patents essential to industry standards (and as we previously wrote about in relation to the 2021 Draft Policy Statement), to the extent the USPTO, NIST, and DOJ are concerned that an injunction obtained with respect to one patent might be used to unfairly leverage a bundled portfolio license (when they refer to the potential for “hold-up”), the agencies should address that specific issue instead of depriving all essential patent holders of injunctive relief even in situations where there is no possibility of hold-up (such as when enforcing a single patent). While perhaps not a perfect solution, placing a duty on patent holders to provide unbundled access to patents essential to industry standards, in situations where an injunction is being sought, would certainly be less restrictive and more narrowly tailored than a blanket prohibition on injunctions for essential patents in all situations.

Finally, and notably, 47 USC §252 allows either party to the negotiation to “petition a State commission to arbitrate any open issues” regarding interconnection.

The absence of similar duties and mechanisms for resolving disputes relating to the licensing of patents essential to industry standards facilitates hold-out. Having the USPTO, NIST and DOJ make statements about limiting remedies available to patent owners who sue for infringement (i.e. their only recourse for seeking redress from unlicensed actors) encourages hold-out that much more.

All Animals are Equal, But Some Animals are More Equal Than Others

There is an old joke about Communism: The comrade was willing to share his goat, chicken and apple orchard, but not his tractor… but that was only because the comrade didn’t own a goat, chicken or apple orchard. Much like the comrade, governments and incumbents in the telecommunications industry appear quite happy to share the property of those who develop technology essential to industry standards, without any obligation to pay or meet other licensing requirements, but not when it comes to their own land, infrastructure, and networks. And there does not seem to be any concern for holding-up those who use their property without authorization.

Once again, given how easily such patented technology can be taken without authorization, and the already very limited options available to patent owners for seeking redress for unlicensed use of their technology, the Federal government should be that much more concerned with such property and, at a minimum, seek to treat it with at least the same amount of care that it does its own property.

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Author: claudiodivizia
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