Posts Tagged: "Antitrust"

On Monday, August 6th, Santa Clara, CA-based computer networking Arista Networks filed a Form 8-K with the U.S. Securities and Exchange Commission (SEC) announcing the firm had entered into an agreement with San Jose, CA-based networking rival Cisco Systems that dismisses all pending litigation between the two firms in both U.S. district courts and at the U.S. International Trade Commission (ITC). Under the terms of the agreement, Arista will pay Cisco $400 million this month in return for Cisco dropping all patent infringement claims which it has filed against Arista. In addition to Cisco dropping its patent infringement claims, Arista also agreed to drop all antitrust claims which it has filed against its rival.

Some of the questions the FTC is interested in investigating and discussing during this inquiry include whether changes in the economy and evolving businesses have created competition and consumer protection issues in communication and information technology networks, market power and entry barriers in markets featuring “platform” businesses, the role of intellectual property in competition, and a variety of issues surrounding the security and use of big data… With networks, market power, platforms, intellectual property and big data being the focal point of the FTC inquiry, there is little doubt that the big tech giants of Silicon Valley are the targets of this FTC competition review. For those in innovator community the feeling will no doubt be that such a government inquiry is long overdue.

It has been five years since FTC v. Actavis. In that landmark ruling, the Supreme Court held that settlements by which brand-name drug companies pay generics to settle patent litigation and delay entering the market could have “significant anticompetitive effects” and violate the antitrust laws. What has happened in these five years? For starters, the number of “pay for delay” settlements (involving payment and delayed entry) has declined.

Missing for a while at the U.S. competition agencies has been an appreciation for how competition works in the real world — in particular, discounting the vital part intellectual property plays in sparking new competition and growing the economic pie. It can be easy to lock in a static view of the economic world.  Or misdefine “competition,” as Robert Bork noted in The Antitrust Paradox.  Fortunately, things are looking up. The Department of Justice’s Antitrust Division is now led by someone steeped both in antitrust and innovation.  This breath of fresh air is supplied by U.S. Assistant Attorney General Makan Delrahim.

Increasingly, Delrahim’s speeches are moving past where he began in his USC speech in November 2017, discussing this being the appropriate time to now have a discussion about the proper role antitrust enforcement plays with respect to standard setting, to his LeadershIP April 2018 speech where he explained the Antitrust Division will not hesitate to enforce against collusive anticompetitive conduct detrimental to patent owners. Furthermore, Delrahim has now several times discussed his view that in a free market, competition based economy the remedy for patent owners violating obligations to SSOs is a contractual remedy, not an antitrust remedy.

Although it’s not illegal to earn a profit, unfair business practices in the pursuit of holding a monopoly over an entire industry led to the breakup of Standard Oil, especially the rebates from railroad companies for oil shipments which substantially lowered Standard Oil’s transportation costs relative to its much smaller competitors. Recent academic research has suggested that, while the U.S. government acted appropriately to stop the cartelization of an industry, Standard Oil was engaging in typical capitalist activity in securing better deals which optimized oil shipments. This would seem somewhat less nefarious than an outright copying technologies from smaller competitors in an effort to stave off competition.

Between 1882 and 1906, this market dominance reportedly brought Standard Oil a total of $838,783,800 in net income. On an annual basis, that would mean that Standard Oil earned nearly $35 million in net income each year, which equals approximately $969 million in 2017 dollars when adjusted for inflation… To some of the tech super giants of today, $1 billion in profits is nothing more than pocket change… If Standard Oil remains the benchmark for what it means to be a monopoly, which many believe it does, it is difficult to understand why U.S. Antitrust regulators are not at least asking very serious questions about the market dominance of the tech super giants and the associated suppression of smaller, truly innovative enterprises.

As judges, former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law, we write to express our support for your recent announcement that the Antitrust Division of the Department of Justice will adopt an evidence-based approach in applying antitrust law equally to both innovators who develop and implementers who use technological standards in the innovation industries. We disagree with the letter recently submitted to you on January 24, 2018 by other parties who expressed their misgivings with your announcement of your plan to return to this sound antitrust policy.

On November 10, 2017, the Department of Justice’s (DOJ’s) new top antitrust enforcer, Assistant Attorney General (AAG) Makan Delrahim, delivered a powerful speech on antitrust law and policy enforcement towards intellectual property rights (IPRs). Former USPTO Director David Kappos described it as “the most important DOJ antitrust speech on IP during my decades practicing law”. … The speech clarifies that the new AAG views “any policy proposals with one-sided focus on hold-up with great skepticism because they pose a serious threat on the innovating process,” and submits that antitrust law should not be misused to police the private commitments such as FRAND that IP holders make to SSOs. In this, the speech agrees with the view shared by several scholars that FRAND commitments are contracts and a potential breach of those commitments may not be best suited under the purview of antitrust law and that “there are perfectly adequate and more appropriate common law and statutory remedies available to the SSO or its members”.

Even at ground level, where American courts in San Diego and San Jose are now being called on to apply the law laid out in prior court decisions to the particular facts of the smartphone chip market, the multipronged attack on Qualcomm’s patent licensing practices offers an unusually rich platter of meaty issues to feast upon for those who advise patent licensors and licensees. Leaving aside the implications for the smartphone industry and the market for cellular baseband processors that Qualcomm now dominates, the new precedents that will be set in court—if the parties don’t settle or a Republican-controlled FTC doesn’t withdraw its case—will have broad and deep implications for patent owners and users—much as the US v. Microsoft case has had since it was decided almost two decades ago.

On Monday, September 4th, a South Korean court denied a request made by San Diego, CA-based semiconductor developer Qualcomm Inc. to rescind a fine levied last December by the Korea Fair Trade Commission (KFTC) over alleged unfair business activities in patent licensing and chip sales. According to reports, the South Korean court decision keeps in place a $912 million in the latest blow to Qualcomm’s corporate intellectual property strategy.

Vishal Amin was confirmed to be the IP enforcement coordinator at the White House and Peter Davidson was confirmed to be general counsel at the Commerce Department. Amin had been a lawyer for Congressman Lamar Smith (R-TX) working on the AIA and then for Congressman Bob Goodlatte (R-VA) working on the Innovation Act. Therefore, Amin has been in the middle of IP legislation since President Obama took office in January 2009. Before that he worked in the Bush White House and Commerce Department on patent reform and IP issues.  Amin generally favors the Patent Trial and Appeal Board (PTAB) and going after patent trolls.

Why does U.S. policy with respect to patent owners and patent licensing seem to be in direct opposition to U.S. antitrust policy relating to vertical mergers? If vertical mergers are anticompetitive and particularly bad when dealing with a monopolist then why are patent owners, who we are told over and over again are in possession of a limited monopoly, encouraged (if not demanded) to vertically integrate in order to escape characterization as a patent troll?

Like Lexmark, many technology companies rely on aftermarket revenue streams to fund ongoing investments in research and development needed to remain competitive in hotly contested technology markets. This model is prevalent in the software industry, where customers pay ongoing fees for software support, and in other industries in which manufacturers that sell durable goods offer aftermarket maintenance or service contracts… Without post-sale patent rights, Lexmark and others will need to alter their razors-and-razor-blades business models or adopt different strategies to safeguard the aftermarket revenue upon which they rely to remain competitive in fast-paced technology markets. Contract rights provide one avenue to protect aftermarket revenues, but companies that take this approach should proceed with caution to avoid antitrust liability.

Qualcomm accused Apple of engaging in tortious interference relating to Qualcomm’s licensing activities with Apple’s contract manufacturers. Specifically, Qualcomm asserts that Apple pressured contract manufacturers to withhold licensing payments they would normally have made to Qualcomm. Apple has allegedly also pressured contract manufacturers to refuse to comply with Qualcomm auditing procedures, leading to Qualcomm’s inability to verify the accuracy of royalty reports… Qualcomm also notes that its licensing activities with Apple’s contract manufacturers go back years before Apple sold its first cell phone in 2007, as early as February 2000 in the case of Taiwanese firm Compal Electronics. Qualcomm asserts that its licensing agreements with the contract manufacturers were consistent with policies set out by the European Telecommunications Standards Institute (ETSI).