The American Intellectual Property Law Association (AIPLA) is a national bar association of more than 10,000 intellectual property attorneys. Its members include attorneys employed in private practice and by corporations, universities and government. Unlike in many other areas of practice which include separate plaintiffs’ and defendants’ bars, AIPLA members represent both plaintiffs and defendants. Therefore, AIPLA offers a balanced perspective on issues of intellectual property enforcement.
Improper exploitation of the standard-setting process through undisclosed patents is rare. Indeed, the FTC’s proposed consent order in In re Dell Computer Corporation appears to be the first of its kind. Most patent disputes relating to negotiated industry standards are resolved through the respective standard-setting organization’s patent policy. The remaining disputes have been resolved through the courts.
AIPLA possesses insufficient knowledge of the facts surrounding the Dell matter to comment on whether the extraordinary intervention by the FTC and the resolution is appropriate under the circumstances. AIPLA is concerned, however, that, unless expressly limited to facts evidencing a disregard of the accepted norms of standard setting practices, the Dell consent order will discourage industry cooperation in standard setting.
Although standard setting is pro-competitive, it requires industry participation. Industry participation will be encouraged only if the members are relatively free to establish their own terms and conditions for participation. The FTC should be wary of intervening in matters related to standard setting because intervention would very likely discourage industry members from participating in standard setting. Where participants overstep the bounds of standard setting conduct, private action should be the first, and preferred, course.
Standard setting organizations have traditionally been able to establish patent policies that are acceptable to members and that are consistent with antitrust and fair trade practice legal principles. The American National Standards Institute (ANSI), for example, has a patent policy that has worked effectively for many years. Under the ANSI policy, which was drafted and voluntarily accepted by participant members of that organization representing a broad cross-section of United States industry’s developers and adopters of technology, the patent holder must apply ANSI with either:
?“assurance in the form of a general disclaimer to the effect that the patentee does not hold and does not anticipate holding any invention whose use would be required for compliance with the proposed (standard) or assurance that:
(1) A license will be made available without compensation to applicants desiring to utilize the license for the purpose of implementing the standard, or
(2) A license will be made available to applicants under reasonable terms and conditions that are demonstrably free of any unfair discrimination.”(1)
This policy appropriately balances the rights of patent holders with an industry’s interest in directing standards to the best available technology, and helps ensure that patented technology will continue to be offered for incorporation into proposed standards.
Private action has proven to be effective and is preferable to avoid a chilling effect on needed participation by private industry in standard setting. Where a standard setting organization does not have a patent policy, a resulting patent infringement dispute may usually be resolved in the courts through private enforcement efforts. Several courts have addressed patent enforcement issues where a patentee has participated in standard-setting without disclosing the existence of the patent, (2)and the results in those cases appear to have been satisfactory. Because patent enforcement and remedies are highly dependent on the specific facts surrounding the conduct between the patentee, the standard-setting organization, and the alleged infringer, it is better for the courts to fashion a remedy on a case-by-case basis than for the FTC to take broad administrative action. The FTC should not, therefore, consider administrative action unless private litigation is shown to be incapable of satisfactorily resolving the matter and the FTC is satisfied that a genuine public interest is at stake.
Regardless of an intention to the contrary, the FTC’s analysis in its proposed consent order, because of its source and high profile, will undoubtedly lead some to conclude that the order creates a legal duty for patent holders that are members of an independent standard setting agency to examine their patent portfolios and report any areas of likely infringement on pain of essentially losing their patent rights. While an independent standards setting agency may choose to require such a disclosure, at least by those members that are directly involved in drafting or adopting a standard, there is no reason for the FTC to elevate such a voluntary requirement to the status of a legal duty that may give rise to administrative action under Section 5 of the FTC Act. This is particularly true where there is no evidence that the patent owner intended to mislead other members of the standard setting organization.
The extraordinary remedy in Dell must clearly be perceived by the public as appropriate in order to avoid international treaty consequences and unintended chilling on needed participation by private industry in standard setting. The remedy agreed to in Dell, which can be characterized as a forfeiture of patent rights or a form of compulsory licensing with respect to certain technology involved in a standard, may be too drastic and thus inappropriate in many fact situations. Many remedies exist that do not require the forfeiture of the patent right. Unless the Dell consent order is thoroughly and convincingly explained, a substantial risk exists that private industry will perceive that its patent estate may be lost through inadvertent action in participating in standard setting efforts. More appropriate remedies could be fashioned in private litigation by addressing the individual facts and circumstances affecting each party and transaction.
The appearance of a United States government agency imposing a compulsory patent license, especially a royalty-free compulsory license, must be avoided except in response to egegious conduct. Other countries could cite such an action as the basis for imposing broad and onerous compulsory licensing requirements upon United States patentees abroad.
For these reasons, AIPLA urges the FTC to act with caution in this case. The FTC should explicitly state in the order that it is not intending that this remedy or this action be the standard response in a patent enforcement action involving industry standards.
ENDNOTES:
(1) ANSI’s Patent Policy, ANSI Procedures, Appendix I, section 12.
(2) Wang Laboratories, Inc. V. Mitsubishi Electronics America, Inc. 1241, 1247-52 (C.D. Calif. 1993) (denying summary judgment of infringement based on issues raised by equitable estoppel defense); Stambler v. Diebold, Inc., 11 U.S.P.Q.2d 1709, 1714-15 (E.D.N.Y. 1988), aff’d, 11 U.S.P.Q.2d 1715 (Fed. Cir. 1993) (unpublished opinion affirming summary judgment for defendant based on equitable estoppel); Potter Instrument Co. V. Storage Technology Corp. 211 U.S.Q.P. 493, 494-95 (4th Cir. 1981) (reversing holding of equitable estoppel in order to permit hearing on merits in co-pending suit, although stating an inclination to affirm on equitable estoppel grounds), aff’ng in part, 207 U.S.P.Q. 763 (E.D. Vir. 1980).