By Norma Cerros, Attorney at law
On February 13, 2012, the Department of Justice’s Antitrust Division (the Division) announced its decision to close its investigations in connection with:
1. Google Inc.’s (Google) acquisition of 17,000 patents and 6,800 applications (including hundreds of standard essential patents (SEPs) relevant to wireless devices) from Motorola Mobility Holdings Inc. (Motorola);
2. the acquisitions by Apple Inc., Microsoft Corp. and Research in Motion Ltd. (RIM) of approximately 6,000 patents and patent applications including many SEPs relevant to wireless devices from Nortel Networks Corporation (Nortel); and
3. the acquisition by Apple of certain Novell Inc. patents.
As the Division has stated, “all three of the transactions highlight the complex intersection of intellectual property rights and antitrust law and the need to determine the correct balance between the rightful exercise of patent rights and a patent holder’s incentive and ability to harm competition through the anticompetitive use of those rights”.
The clearance by the government was based on the core conclusion that each of these acquisitions was unlikely to substantially lessen competition.
The government reached this conclusion after analyzing the potential ability and incentives of the acquiring firms to use the SEPs that Motorola and Nortel had committed to license on F/RAND terms to industry participants through their participation in standard-setting organizations (SSOs), to prevent or inhibit competition.
Potential anticompetitive risks identified in this case included: 1) demanding supracompetitive licensing rates from competitors, 2) compelling prospective licensees to grant the SEP holder the right to use the licensee’s differentiating intellectual property, 3) charging licensees the entire portfolio royalty rate when licensing only a small subset of the patent holder’s SEPs in its portfolio, or 4) seeking to prevent or exclude products practicing those SEPs from the market altogether.
After reviewing the commitments of each of the parties involved in the transactions at issue, the Division concluded that these transactions were “not likely to significantly change existing market dynamics”. However, as per Google’s statement to the IEEE on February 08, 2012, it can be said that the scope of Google’s commitments did not provide the government with the certainty they were expecting. This is mainly because of the conditions Google is imposing in order to agree to grant under RAND terms the patents it acquired from Motorola and to fulfill its commitment not to pursue any injunctive relief in connection with the SEPs it grants, which conditions include, among others:
a. only in cases of disputes involving future license revenues, and
b. only in the event the counterparty forgoes certain defenses such as:
i. challenging the validity of the patent;
ii. pays the full disputed amount into escrow; and
iii. agrees to a reciprocal process regarding injunctions and
iv. agrees to reciprocal grant-back licenses for Google’s products to the licensee’s Essential Patent Claims for the same standards.
On the other side of the Atlantic, the European Commission (EC) shared this concern when it issued its decision to clear Google’s acquisition of Motorola’s patent pool on February 13, 2012. EU Commission concluded that “the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it”. The EC made public its concern by narrowing its decision and saying that, notwithstanding the unlikeliness for Google to restrict the use of Android solely to Motorola, which is considered a minor competitor in the EEA, such decision had been reached “without prejudice to potential antitrust problems related to the use of standard essential patents in the market in general”, a concern that undoubtedly motivates the EC to closely follow the strategies of competitors and how they make use of standard essential patents in this market.
Considering Apple’s and Microsoft’s recent actions on both sides of the Atlantic, it can be said that both authorities’ concerns derived from the lack of clarity of Google’s commitments or, put differently, the imposition of several requirements as conditio sine qua non for such commitments, was not far from reality at all.
a. On February 10, 2012, Apple filed a complaint for declaratory and injunctive relief before the United States District Court in the State of California (and a similar complaint before the EC) alleging that, by suing Apple in Germany, Motorola has breached its obligation to license its cellular standard essential patents on F/RAND terms as per the Patent Licensing Agreement between Motorola and Qualcomm, from which contract Apple is a third party beneficiary;
b. Despite of Microsoft’s commitment not to seek injunctions against other firms’ products on the basis of standard essential patents, on February 22, 2012 it filed a complaint before the EC against Motorola and Google, alleging Motorola’s attempt to block sales of Windows PCs, Xbox game console and other products, infringing its commitment to license SEPs under F/RAND terms.
It will be interesting to see whether Google, as the new holder of Motorola’s SEPs, will in fact carry out Motorola’s previous commitments and its own commitments after the acquisition, regarding the licensing of such SEPs under F/RAND terms. This question will certainly be answered in the months to come.