Mossoff-Barnett’s comment on European Commission’s call for SEP evidence highlights misconceptions about FRAND bonds

“It is imperative that any informed application of competition law consider the full body of published empirical evidence, rather than relying on theoretical models that may not keep up with real-world markets, flawed working papers which are compromised by fundamental methodological errors or incomplete documents. and misleading characterizations of scholarly literature. – Commentary by Mossoff-Barnett

May 9, a comment signed by a coalition of 25 law professors, economists, and former U.S. government officials, and co-authored by Adam Mossoff, law professor at George Mason University’s Antonin Scalia School of Law, and Jonathan Barnett, law professor Torrey H. Webb at the University of Southern California’s Gould School of Law, was submitted to the European Commission in response to the EU governing body’s call for evidence on standard-essential patents. Like another recent response to the European Commission by a group of scholars from the International Center for Law and Economics (ICLE), Mossoff-Barnett’s comment attempts to dispel several misconceptions about the impact of SEP on the commercialization of new technologies, in particular major technologies. communications technologies like 4G/LTE and Wi-Fi that have been widely commercialized to benefit the vast majority of global consumers, largely thanks to patent rights that help structure commercialization efforts.

Mossoff and Barnett: Patent heist theories distort real-world licensing practices

Like ICLE’s response to the European Commission, Mossoff-Barnett’s comment points out that the vast majority of research on the market power of SEP owners provides absolutely no support for the idea that the heist of patents or the accumulation of royalties creates negative impacts on the commercialization of technological standards. Indeed, the comment cites several studies showing that the royalty burden on handset makers related to SEP licensing is in the single digits and has remained consistently low for years.

The commentary notes that patent heist theories have been largely informed by defendants’ arguments in SEP infringement lawsuits filed in US district courts. The authors also pushed back on claims made in a 2019 article published by the European Parliament’s Citizens’ Rights and Constitutional Affairs Policy Department, which they claim misinterpreted the available scientific literature by pointing to the possibility that there is has had actual cases of patent hold-ups. .

It is imperative that any informed application of competition law consider the full body of published empirical evidence, rather than relying on theoretical models that may not keep up with real-world markets, flawed working papers that are compromised by fundamental methodological errors or incomplete documents and misleading descriptions of the scholarly literature.

One of the many flawed assumptions supporting patent heist theories is the idea that SEP owners possess the kind of market power that allows them to dictate licensing terms to standard implementers. As Mossoff-Barnett’s comment points out, SEP owners have an incentive to ensure that their SEP licensing prices are competitive, as manufacturers often have other standards available to them. Many SEP owners are also involved in multiple iterations of a technology standard, such as telecommunications R&D companies that have contributed to every mobile network standard since 2G. These R&D companies have an added incentive to ensure the goodwill of manufacturers implementing these standards over multiple generations, which runs counter to claims that SEP owners subject standards implementers to exorbitant license rates once they are “locked in” to a chosen standard.

FRAND bonds do not require a component-level SEP license

Although SEP owners are generally subject to fair, reasonable, and non-discriminatory (FRAND) licensing obligations, Mossoff-Barnett’s comment also pushes back against the idea that FRAND obligations could prevent injunctive relief for SEP owners claiming patent rights against infringing standards implementers. The authors note that the highest courts in the European Union and the United Kingdom, and even the United States Court of Appeals for the Federal Circuit, have each rejected the argument that FRAND bonds should eliminate the prospect of an injunction. “This near uniformity of judicial opinion in multiple jurisdictions reflects common sense,” Mossoff-Barnett’s commentary read. “If SEP owners were categorically barred from seeking injunctions, then violators would have no reason to accept or negotiate a license in good faith with an SEP owner.”

Without facing the prospect of an injunction, the worst-case scenario for many infringing enforcers would be reasonable monetary damages that are typically calculated based on a hypothetical negotiation process designed to mimic what the infringer would have paid in as a consenting licensee. Further, Mossoff-Barnett’s comment notes that eliminating the injunction produces a domino effect on all SEP licensing negotiations, giving the majority of bargaining power to standards implementers and undervaluing the contributions of innovating companies. to technological standards.

Another misconception about FRAND bonds rejected by the commentators is that these bonds require component-level licensing, or what is often referred to as the “smallest salable practicing patent unit” (SSPPU). Mossoff and Barnett point out that no particular level of license is prescribed by the FRAND obligations and that the companies involved in SEP licensing, both SEP owners and standard implementers, are sufficiently sophisticated in terms of patent licenses to be able to determine reasonable royalties for SEP portfolios covering a range of technological inputs. Additionally, it is sometimes more efficient for SEP owners and implementers to license at the device level rather than at the component level, so a rigid application of FRAND that requires licensing at the of the SSPPU would inject a great deal of inefficiency into the negotiation process which could impact consumer prices and licensing revenues for innovators.

Commentators who argue that device-level licensing is not FRAND-compliant overlook many of the benefits of device-level licensing, Mossoff-Barnett’s commentary states. Device-level licensing allows parties to assess royalties for an SEP portfolio at the point closest to consumer demand, increasing the accuracy of assessing a technology’s value by compared to the norm. In addition, revenue is one of the most objective measures to fairly determine license rates for standardized technologies. While some academics decrying the licensing behaviors of SEP owners have advanced the idea that US courts require analysis of SSPPU or component level to determine reasonable royalties, Mossoff and Barnett point out that the federal circuit specifically rejected any requirement to adopt the calculations of the SSPPU in multi-component products in cases like Commonwealth Scientific and Industrial Research Organization v Cisco Systems (2015), who reaffirmed that “more than one reliable method for estimating a reasonable royalty” can be applied and dismissed the “abstract narratives of royalty stacking theory” as insufficiently reliable.

Current SEP licensing markets have enabled widespread commercialization of wireless standards

Although Mossoff-Barnett’s commentary acknowledges that difficulties in obtaining licenses for SEP-protected technologies represent an important policy concern, current SEP licensing markets include many mechanisms designed to overcome barriers to SEP licensing. and maximize the adoption of their technologies by implementers.

This result should come as no surprise: a patented technology is a depreciating asset that typically faces actual or potential competition from substitute technologies, providing a strong incentive for the patent holder (or third parties who administer patent pools ) to minimize any potential barriers related to transaction costs for the maximum adoption of the relevant technology.

Furthermore, theoretical SEP licensing models that assume that patentees will withhold their technologies to demand the highest possible licensing rates are undermined by concrete evidence of non-exclusive licensing practices among many SEP owners. Mossoff-Barnett’s commentary concludes that the global wireless communications technology market has flourished over the past three decades because the legal infrastructure, including the prospect of injunction against violators, has enabled innovative companies to recoup research and development costs and invest in more innovation by allowing them to engage in arm’s length negotiations with potential licensees on a more level playing field.

Along with Mossoff and Barnett, the commentary signers are impressive. They include: Alden Abbot, senior fellow at the Mercatus Center and former general counsel for the US Federal Trade Commission; Robert A. Cass, former Vice Chairman and Commissioner of the United States International Trade Commission and Dean Emeritus of Boston University School of Law; Douglas H. Ginsburg, Senior Circuit Judge for the United States Court of Appeals for the District of Columbia Circuit and Professor of Law at George Mason University’s Antonin Scalia School of Law; Andrei Iancu and David J. Kappos, former Undersecretaries of Commerce for Intellectual Property and Directors of the United States Patent and Trademark Office; Paul Michel and Randall R. Rader, Chief Justices (Retired) of the Federal Circuit; and Kristen Osenga, Austin E. Owen Research Fellow and Professor of Law at the University of Richmond Law School.

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Aurora J. William