AIPLA TESTIMONY BEFORE
FEDERAL TRADE COMMISSION
ON ANTITRUST AND INTELLECTUAL PROPERTY
On behalf of the American Intellectual Property Law Association, we welcome this opportunity to provide our association's views on antitrust and intellectual property protection in promoting innovation and competition. Initially, let me give you a little background on our organization so that you can better understand the basis for our comments today. The AIPLA is a cross-section of the intellectual property bar in the United States. Our membership consists of attorneys, both in-house and private, who represent a wide range of clients involved in all aspects of intellectual property licensing and protection. Our members, who number over 10,000, regularly work with a full range of issues involving patents, copyrights, trademarks, maskworks, and trade secrets. They advise large corporations, small companies, and individuals. They represent intellectual property owners seeking to enforce their intellectual property rights, as well as companies sued for infringing intellectual property rights. And they represent parties that allege antitrust violations and misuse of intellectual property, as well as those who defend against those charges.
As a result, we believe that we have a balanced view of the role of intellectual property protection in the innovation and competition processes. We also believe that this balanced view extends to the respective roles of intellectual property and antitrust enforcement.
Our clients are among the most innovative companies in the world. They are vitally interested in continuing to promote innovation in the United States and increasing new United States jobs based on new technologies without violating our antitrust laws. They have learned that business competition spurs innovation, and they seek to preserve it. But, they do not want to stifle innovation by making it harder or less rewarding to innovate or compete in the United States. We believe that intellectual property protection is essential to promoting innovation and investment in new technologies, and that licensing this property is procompetitive.
The fundamental purpose for these hearings, we understand, is to consider whether there have been any broad-based changes in the competitive environment that would require adjustments in federal antitrust enforcement to keep pace with those changes. Our view, as it relates to intellectual property and the climate for innovation, is that no substantial adjustments are needed. We believe that federal antitrust enforcement concerning intellectual property should continue to serve as an enforcement tool when private lawsuits -- and the threat of those private suits -- which assert antitrust violations or intellectual property misuse charges are not adequate to preserve competition. However, the level of private enforcement appears to be quite adequate, and we believe that current antitrust enforcement -- combined federal and private -- adequately addresses the competitive issues involving intellectual property.
The federal antitrust agencies performed a very important role in stimulating the public's, and more specifically our clients', thinking about antitrust and intellectual property issues through the recently issued Antitrust Guidelines for the Licensing of Intellectual Property. The draft and then final Guidelines acted as a catalyst for debate and reflection among our members and their clients, and for reconsideration of license provisions. The Guidelines are an excellent example of the federal antitrust agencies increasing licensors' and licensees' understanding of antitrust issues in the licensing of intellectual property.
Federal enforcement policy is expressed in the Guidelines and is demonstrated in the three cases that the agencies have recently brought challenging intellectual property licensing. The antitrust analysis in the Guidelines focuses on economic effects rather than merely patterns of conduct or specific licensing provisions in the abstract, with the result that the agencies appear to view licensing of intellectual property as generally procompetitive -- a view in which we concur wholeheartedly. In this regard, we also concur with the basic principles of the Guidelines: focusing on the procompetitive effects of intellectual property licensing, using standard antitrust analysis for intellectual property, not presuming that intellectual property confers market power in a relevant market, and generally employing a rule of reason approach.
Since the late 1970's, the federal government has generally relied upon private litigation to enforce the antitrust laws with respect to intellectual property. The federal agencies have instituted only a few cases in the past 15 years. In contrast, in private litigation, claims of antitrust violations and intellectual property misuse have continued unabated. Since 1990, approximately 200 reported cases have involved antitrust or misuse charges with patents or copyrights. While we are not aware of statistics for the larger number of filed private cases which include intellectual property antitrust or misuse claims but which do not result in reported decisions, as practitioners in this field we can assure you that we see those claims very frequently.
Intellectual property rights give rise to a substantial number of commercial disputes where active licensing is present, and infringement litigations where attempts are made to enforce these rights. As a result, the intellectual property area is particularly amenable to control of anticompetitive abuses through private litigation.
The active and meaningful threat of private enforcement, with its potential treble damages, award of attorneys fees, and unenforceability of important intellectual property rights in which companies have invested heavily, should continue to play a predominant role in the overall enforcement scheme against anticompetitive misuse of intellectual property rights. Together with policy-generating activities of the agencies, private enforcement has cautioned companies not to include overly restrictive or anticompetitive provisions in licenses. And that motivation continues today unabated.
Moreover, while federal antitrust enforcement has served as a complement to private enforcement during this time period, the overall development of the case law has continued to focus on a "rule of reason" analysis for intellectual property licensing. That is essentially the same result that the agencies' Guidelines adopt.
Thus, we see no changes in the competitive environment that would warrant changing the federal antitrust agencies' enforcement role for intellectual property licensing. That does not mean that we believe that the federal antitrust agencies should simply disappear insofar as intellectual property licensing is involved. Rather, we view the agencies' proper role as standing ready to enter in special situations that may arise where private litigation, for some reason, cannot or does not take care of the problem.
Perhaps most importantly, increasing federal government enforcement efforts in the intellectual property area, unless it is warranted, can have negative effects.
The intrinsic value of intellectual property is in its limited right to exclude others from limited and carefully circumscribed areas. Intellectual property rights protect investments for only limited periods of time, and often are licensed to others. In this way, intellectual property protection encourages investment in innovation and disclosure of developments. Moreover, by affording protection, intellectual property laws spur competitors to innovate around the protected property and to make advances in alternative and often superior technologies.
The federal agencies could undercut that value by significantly increasing antitrust enforcement beyond the current level that private litigation already provides. A significantly lowered trigger-point for enforcement investigation and litigation by the federal agencies, and the associated costs, might simply diminish the value of intellectual property to a degree that it would not encourage needed investment in innovation. Moreover, it could either dissuade potentially willing licensors from licensing altogether, or influence licensors to employ licensing provisions that are less efficient and perhaps ultimately provide less value from their intellectual property investments.
One of the areas in which the FTC appears to have some interest in these hearings is industry technical standards, and specifically intellectual property rights which may protect technology that is the subject of a standard. We do not believe that such rights are a special situation warranting increased federal enforcement. Since the nature of a standard is that it is widely used, owners of those intellectual property rights have a strong incentive to license them broadly so that they may reap royalties whenever that technology is used. Similarly, failure to provide licenses can ultimately destroy the value of the technology because, by definition, it is only a standard for the limited portion of the industry that is licensed under it and, thus, can adopt it.
Moreover, intellectual property covering much "standard" technology spurs others to invent around that technology with improvements, often resulting in new and superior standard technology. And where standards are adopted by standards-setting organizations, those organizations can implement measures to ensure that, as a condition to adopting particular standardized technology, any intellectual property rights covering that technology will be nondiscriminatively licensed.
For example, the American National Standards Institute, ANSI, sets a variety of standards in various industries. ANSI has a formal Patent Policy and implementation guidelines for determining whether to approve or withdraw approval of an ANSI standard. If a trade association proposing a standard learns that the proposed standard may require use of a patented invention, ANSI requires, before approval of the standard, either:
(1) a disclaimer from the patent owner that it does not hold or anticipate holding rights in any invention the use of which would be required for compliance with the proposed standard;
(2) an assurance of compensation-free licenses for all applicants desiring to use the license to implement the standard; or
(3) an assurance that a license will be made available to all applicants under reasonable terms and conditions demonstrably free from any unfair discrimination.
However, if all this fails to provide adequate competition in special situations where any excessive foreclosure or misuse may result, private litigation against the intellectual property owner or the standards-setting association usually can address any marketplace needs. If not, then the federal agencies should provide the backup.
Thus, technological standards are not a special situation warranting increased federal antitrust attention. We also see no need for the agencies to target particular licensing restrictions and then to find cases to challenge those restrictions. An intellectual property licensing provision can be evaluated as one of the many market conditions, just as obstacles to entry, market growth, or market shares are evaluated.
Another factor counsels against commencing an era of increased federal antitrust enforcement in the intellectual property area. Creators of innovative technologies need and deserve a sustained period of stability regarding antitrust enforcement. Stability encourages confidence and thus investment in innovation activities. And as discussed before, increased risks of federal enforcement actions, with their costs and follow-on private suits for treble damages, call into question and diminish the value of intellectual property, and as a result can discourage investment in innovation. Moreover, increased enforcement efforts could conceivably cast doubt upon agreements that have been in place for years, creating uncertainty and giving private parties incentives to renegotiate contractual terms that had been fairly agreed upon. All this can adversely effect the competitiveness of United States businesses, both domestically and internationally.
Thus, even if the agencies believe that they must supplement the marketplace level of antitrust enforcement involving intellectual property in a particular area, this need for stability should counsel against any significant shifts in enforcement efforts from administration to administration. Nonetheless, if the agencies still believe that they must focus on a particular intellectual property licensing practice, that focus should occur only after public notice and an opportunity for the affected industries to comment.
In conclusion, to answer the fundamental question for these hearings, the AIPLA does not believe that any changes have occurred in the competitive environment that require any adjustments in antitrust enforcement with regard to intellectual property and innovation. The marketplace and private enforcement litigation, with its treble-damages, attorney fees, and unenforceability of intellectual property penalties, are effective and efficient tools to ensure that licenses are within competitively justifiable bounds, and if not, to challenge them. As a result, we see no need warranting increased federal enforcement efforts in the intellectual property licensing area.