Technology Licensing: Evolving Antitrust Standards in the Smartphone and Other Sectors?

Paul Lugard, Apr 30, 2012

Antitrust review of business transactions involving intellectual property has never been entirely undisputed. On the one hand, there is a general belief that antitrust intervention in R&D-, intellectual property-, and innovation-intense industries should be centered on the preservation of innovation incentives. On the other hand, day-to-day practice demonstrates that even in sectors where the intellectual property landscape is relatively easily accessible, but where innovation is nonetheless important, the proper application of antitrust law is highly fact-specific and complex.

For instance, intuition tells us that grant-back clauses in technology licensing agreements may decrease licensees’ incentives to innovate unless they are properly compensated for their innovative efforts. But it also obvious that appropriate compensation schemes for future innovations may be impossible to set up, and that some licensors may not be willing to license their technology, without grant-back clauses, as a result of which the positive welfare effects associated with technology licensing may not materialize to start with. How does one distinguish the good and the bad cases?

And, to add a particularly topical example, how should one ensure that-given evidence of the ability and incentive to foreclose rivals-the acquisition of a portfolio of hundreds of Standard Essential Patents (“SEPs”) relevant to wireless devices by Apple, Microsoft, or Google will not result in post-merger exclusionary conduct as a result of those companies repudiating prior fair, reasonable, and non-discriminatory (“FRAND”) commitments, or a failure to adhere to those commitments in a meaningful manner as the prior owners would have done?

Faced with fast-moving, innovative industries, antitrust enforcement agencies are up against difficult tasks. Indeed, they need to have a well-informed opinion on the nature and drivers of innovation and the durability of market power, as well as the potential of the industry at hand to correct itself, especially in light of dominance. In these settings, over-enforcement resulting in the loss of valuable dynamic efficiencies is often a real risk, while devising and implementing adequate remedies is difficult and takes time. This certainly applies to the one sector that takes a prominent place in this issue of the CPI Antitrust Chronicle, the sector of mobile devices.

This issue comes at a critical time. Only a few weeks ago, on February 13, 2012, the Department of Justice (“DOJ”) issued its closing statement following its investigations into three cases: Google’s acquisition of Motorola Mobility, a manufacturer of smartphones and computer tables and the holder of a portfolio of approximately 17,000 issued patents and 6,800 applications; the acquisition by Rockstar Bidco (a partnership including, among others, Apple, Microsoft, and Research in Motion (“RIM”)) of approximately 6,000 Nortel patents; and the acquisition by Apple of a portfolio of Novell patents. Each of these three acquisitions involved a large number of SEPs relevant to wireless devices, many of which the pre-existing owners had committed to license through their participation in Standard Setting Organizations (“SSOs”) on FRAND terms.

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