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AAG Delrahim on the Intersection of Antitrust and Intellectual Property Law: Strong Patent Rights Spur – Not Suppress – Competition

On March 16, 2018, Assistant Attorney General for the Antitrust Division Makan Delrahim gave a speech at the University of Pennsylvania Law School titled “The ‘New Madison’ Approach to Antitrust and Intellectual Property Law.”  The speech provided insight concerning his views on the role of antitrust law in the field of intellectual property, and the Antitrust Division’s priorities under his leadership.  AAG Delrahim explained four basic premises that govern how he believes antitrust enforcement should impact intellectual property law; in short, his view is that patent rights are a boon to consumers and competition and antitrust law should not stand in the way of patent-holders exercising their rights.

In the speech, AAG Delrahim described what he termed the “New Madison” approach to the application of antitrust law to intellectual property rights.  The approach has four basic premises.  The first is that patent hold-up—when a patent owner requires the payment of more than reasonable and non-discriminatory fees—“is fundamentally not an antitrust problem, and therefore antitrust law should not be used as a tool to police FRAND [fair, reasonable, and non-discriminatory] commitments that patent-holders make to standard setting organizations.”  In Delrahim’s view, if a FRAND agreement is violated, the aggrieved party should turn to contract law, not antitrust law.  AAG Delrahim expressed that patent-hold ups do not result in “actual harm to the competitive process that warrants intervention” and that the fact “that a patent holder can derive higher licensing fees through hold-up simply reflects basic commercial reality.”

The second premise is that standard setting organizations (“SSOs”) “should not become vehicles for concerted actions by market participants to skew conditions for patented technologies’ incorporation into a standard because this can reduce incentives to innovate and encourage patent hold-out.”  The DOJ will examine the process by which SSO patent policies are promulgated, scrutinizing whether the committees that form these policies are comprised of both implementers and innovators and whether the policies “are the product of a consensus” between the two rather than the product of concerted action by one side or the other.

“Third, because a key feature of patent rights is the right to exclude, standard setting organizations and courts should have a very high burden before they adopt rules that severely restrict that right or—even worse—amount to a de facto compulsory licensing scheme,” AAG Delrahim explained. 

AAG Delrahim’s fourth premise is that “from the perspective of the antitrust laws, a unilateral and unconditional refusal to license a patent should be considered per se legal.  A refusal to license should not be a source for a competitor or customer to seek treble damages under the Sherman Act.” 

AAG Delrahim’s views are similar to the ones expressed by Federal Trade Commission Acting Chairman Maureen K. Ohlhausen in January 2017 in connection with the agency’s decision to file a complaint in FTC v. Qualcomm.  In that action, the FTC alleges that Qualcomm engaged in “unfair methods of competition” in violation of Section 5 of the FTC Act.  More specifically, the FTC alleges that Qualcomm engaged in exclusionary conduct when it declined to license standard-essential patents to all applicants on FRAND terms, and acted in a way that “bolster[ed] its ability to maintain elevated royalties and other unreasonable license terms.”  Commissioner Olhausen issued a dissenting statement after the FTC voted to authorize litigation, explaining that she believed the FTC’s enforcement action in Qualcomm was “based on a flawed legal theory . . . that lacks economic and evidentiary support” and “undermine[s] U.S. intellectual property rights in Asia and worldwide.”  Commissioner Olhausen expressed that the Qualcomm complaint “overlooks the fact that reasonable royalties are not an exclusionary tax” and that she was “presented with no robust economic evidence of exclusion and anticompetitive effects.” 

Together, AAG Delrahim and Commissioner Olhausen’s similar views provide insights about the Government’s current views and enforcement objectives in connection with the role antitrust law should play in matters related to intellectual property rights.