September 30, 2014
VIA
MESSENGER
The
Honorable William
J.
Baer
Assistant Attorney General
U.S. Department of Justice
950 Pennsylvania Avenue NW
Washington DC 20530
Re:
IEEE Request for Business Review Letter
Dear Mr. Baer:
The last several years have shown wide divergence between the owners
of
standards-essential patents (SEPs) and the implementers
of
standards,
particularly over the meaning
of "reasonable
rates" for potential SEP licenses.
Global antitrust enforcers have taken note, and they have invited standards
development organizations (SDOs) to clarify their patent policies to help address
this issue.
The Institute
of
Electrical
and
Electronics Engineers, Incorporated (IEEE)
and its Standards Association (IEEE-SA) are considering
an
update of the IEEE-
SA's Patent Policy to address issues where, based on institutional experience in
developing standards that include essential patents, greater clarity is warranted.
IEEE believes that this proposed patent policy complies with all applicable
antitrust and competition laws. IEEE respectfully requests a Business Review
Letter concerning the proposed IEEE-SA Patent Policy under 28 C.F.R.
§ 50.6.
Exhibit A contains the current policy. Exhibit B contains the proposed updated
policy. Exhibit C
is
a redline of Exhibits A and 8. This letter explains the specific
provisions
of
the proposed updated patent policy, the process used to develop
the policy, and the rationale for the policy. This letter also restates some
of
the
background that IEEE provided about itself and its standards development
activity
in
requesting the Business Review Letter that Assistant Attorney General
Thomas
O.
Barnett issued
on
April
30,
2007 regarding IEEE-SA's patent policy
that became effective on May
1,
2007.
I.
IEEE Background and Governance
IEEE is a New York not-for-profit organization as described in section
501(c)(3)
of
the Internal Revenue Code
of
1986, and it is the world's leading
professional organization engaged
in
the advancement
of
technology for
DORSEY & WHITNEY
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humanity. IEEE has well over 400,000 members
in
over 160 countries across
the globe. IEEE is governed by a President and a board
of
directors, most
of
whose 33 members are elected directly by IEEE members.
A. IEEE Standards Association
IEEE-SA is an operating unit
of
IEEE,
1
and it is a leading developer
of
global industry standards in a broad range
of
electro-technical subjects, including
power and energy, biomedical and healthcare, information technology,
telecommunications, transportation, nanotechnology, and information assurance.
For over a century,
2
IEEE-SA has offered an established standards development
program that permits interested parties to develop standards
in
accordance with
the principles
of
due process, openness, consensus, balance, and right of
appeal. IEEE-SA is accredited by the American National Standards Institute
(ANSI). IEEE-SA has regularly filed reports, under the National Cooperative
Research & Production
Act
(NCRPA), on the standards that it has under
development since the Standards Development Organization Advancement Act
(SDOAA)
of
2004 permitted SDOs to
do
so.
3
8.
IEEE-SA
Governance
IEEE-SA is governed by the IEEE-SA Board
of
Governors. The Board of
Governors establishes policy and provides financial oversight for
IEEE-SA
The
Board
of
Governors also has the authority to establish and appoint boards and
committees as needed to carry on the work
of
the
IEEE-SA
Each year, two
members
of
the
B.oard
of
Governors are elected by the individual members
of
IEEE-SA, and another two members are appointed by the existing Board of
Governors. These eight members serve two-year terms.
4
The IEEE-SA President serves as the chair
of
the Board
of
Governors and
is elected by the individual members
of
IEEE-SA (who are also members
of
the
IEEE) to a one-year term as president-elect, followed by a two-year term as
1
IEEE-SA as it now exists was formed circa 1998, but the standards activities that it
oversees have been conducted under IEEE auspices for many years. For convenience,
this letter will use "IEEE-SA" to refer to all IEEE standards activities.
2
A brief history
of
IEEE's standards development activity
is
available at
http://www.ieeeghn.org/wiki/index.
php/I
EEE Standards Association History.
3
Notice of IEEE's original report
is
available at 69 FR 64105 (Nov.
3,
2004).
Examples
of
notices of subsequent reports are available at 75 FR 8115 (Feb. 23, 2010)
and
79
FR 24450 (Apr. 30, 2014).
4
Further information about Board
of
Governors membership can be found
in
section
1-303.6
of
the IEEE Bylaws, available at
http://www.ieee.org/documents/ieee constitution and bylaws.pdf.
Hon.
William J. Baer
September
30, 2014
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William
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President. The IEEE-SA President also serves on the Board
of
Directors
of
IEEE
during his
or
her two-year term.
1.
Standards
Board
The Board
of
Governors has established the IEEE-SA Standards Board
(SASB), which is responsible for coordinating the development of IEEE
standards and for reviewing all proposed IEEE standards to determine whether
the proposed standards conform to IEEE-SA's requirements (including whether
consensus
for
approval
of
the standard has been achieved). The Standards
Board chair and the Standards Board members are appointed by the Board of
Governors
for
one-year terms. The Vice Chair is elected by the Standards
Board. Only individuals who are members
of
both IEEE and IEEE-SA can serve
as members
of
the Standards Board.
2.
PatCom
The Standards Board uses a committee structure to study issues and
make recommendations for Standards Board action. One
of
these committees is
the Patent Committee (PatCom), which is responsible for providing oversight
of
the use
of
patents
in
the development
of
IEEE standards. For example, PatCom
was responsible for the development
of
the patent policy that was reviewed
in
the
2007 Business Review Letter, and it was responsible for the development
of
the
proposed patent policy described
in
this letter.
5
PatCom consists
of
at least four
but not more than six voting members, including a chair. The PatCom chair and
other members are appointed by the Standards Board Chair for a term
of
one
year. PatCom members must be voting members of the IEEE-SA Standards
Board or the IEEE-SA Board
of
Governors.
Another Standards Board committee is the Procedures Committee
(ProCom), which is responsible for recommending improvements and changes
in
IEEE-SA's bylaws, procedures, and manuals to promote efficient discharge of
responsibilities by the IEEE-SA Standards Board and its committees.
6
IEEE's
bylaws provide that proposed modifications to the bylaws "may be submitted" to
ProCom but does not require that they be submitted to ProCom or that ProCom
5
Although PatCom developed the draft policy using the rigorous process described
later
in
this letter, PatCom does not determine the final policy.
6
IEEE-SA Standards Board Bylaws § 4.2.1.1 ("This committee shall be responsible
for recommending to the IEEE-SA Standards Board improvements and changes
in
its
bylaws, procedures, and manuals to promote efficient discharge
of
responsibilities
by
the
IEEE-SA Standards Board and its committees.").
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then consider the proposed modification.
7
As in 2007, the proposed patent policy
was developed
in
PatCom, with no ProCom involvement.
8
3.
Affiliations and Fiduciary Obligations
Only individuals (not companies or other entities) can serve
as
members
of
the Board
of
Governors, the Standards Board, and the Standards Board's
committees. These governance members are asked to
disclose
their
employers
or other affiliations (for transparency and for identification
of
potential conflicts
of
interest), but they serve in their individual capacities, and not as representatives
of
their employers or other companies with whom they may be affiliated.
Members
of
the Board
of
Governors, the Standards Board, and their
committees owe a fiduciary duty to IEEE
in
their exercise
of
governance
responsibilities, and these members are periodically provided with training on
their responsibilities. Throughout the development
of
the proposed patent policy,
members
were
reminded
of
their fiduciary responsibilities, including both the duty
of care and the duty
of
loyalty, i.e., to act
in
the best interest
of
IEEE.
II. Standards Development at IEEE-SA
IEEE-SA is a neutral forum for the development
of
standards, guides, and
recommended practices within the broad range of IEEE members' areas
of
expertise. From its Ethernet and wireless communications standards for
computers and smartphones to its recommended practices for electric power
distribution, IEEE-SA promotes innovation, enables the creation and expansion
of
international markets, and helps protect health and public safety. Collectively,
the work of IEEE-SA and its more than 20,000 standards-development
participants and members drives the functionality, capabilities, and
interoperability
of
a wide range
of
products and services that transform the way
people live, work, and communicate.
IEEE-SA develops standards under two basic types
of
standards-
development processes. First, IEEE-SA has traditionally operated
an
individual-
based process.
In
this program,
the
entire process is open to any individual who
wants to participate, and the process works on the principle
of
one-person I one-
vote. Second, for the last ten years IEEE-SA has also operated an entity-based
program. Standards development groups
in
this program operate
on
the
principle
of
one-entity I one-vote and are open to materially interested
7
IEEE-SA Standards Board
Bylaws§
8 ("Proposed modifications to these bylaws
may be submitted to the IEEE-SA Standards Board Procedures Committee (ProCom) for
its consideration.").
8
Although ProCom itself was not involved, the chair
of
ProCom
in
2013 also served
as a member of PatCom in both 2013 and 2014. These materials are discussed in
footnote 18 below.
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corporations and other entities, e.g., educational institutions and government
agencies.
9
IEEE standards follow a well-defined path from concept to completion,
guided by a set
of
five basic principles: due process, openness, consensus,
balance, and right
of
appeal.
10
The process is visually summarized
in
this chart:
A. Authorization
of
a Standard Development Project
Standards projects are commenced when there is a need for
an
idea
or
concept to be standardized. The idea or concept can be broad or very specific.
However, no standard
is
developed by one person alone; development
of
a
standard requires group collaboration and consensus, which
in
turn require a
process and neutral supervision.
Within the standards development work at IEEE, a sub-unit
of
IEEE
(known as a "Sponsor") assumes responsibility for a particular standards idea.
9
A given IEEE-SA standard will
be
developed under only one of these two
processes. For example, the 802.11 standard (indeed, the entire family of 802
standards) has been developed under the individual method. The 1901-2010 Standard
for
Broadband over Power Line Networks: Medium Access Control and Physical
Layer
Specifications was developed under the entity method.
10
Material
in
this section is largely drawn from IEEE Standards Ass'n, Develop
Standards,
IEEE.org,
available
at
http://standards.ieee.org/develop/index.html.
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The Sponsor provides technical oversight for the standard and determines the
scope and nature
of
the technical content. Sponsors for IEEE standards are
traditionally IEEE Societies and Committees, each
of
which specializes in a
specific technology, industry sector, or other related interest. Projects can also
be sponsored by Standards Coordinating Committees (SCCs, which are typically
created when more than one Society is interested
in
the subject matter)
or
the
IEEE-SA Corporate Advisory Group.
A standards project does not formally exist until the SASB approves a
Project Authorization Request (PAR). A PAR
is
a concise, structured, and highly
detailed document that essentially states the reason why the project exists and
what it intends to do. Often the members
of
a potential Working Group will have
gathered
to
work
on
a PAR and to gain the support
of
their potential Sponsor.
This type
of
gathering, known as a study group, can exist for
up
to six months
before a
PAR
needs to
be
submitted. (New PARs can also be developed by
existing Working Groups as additional projects.)
When presented with a PAR, the SASB determines whether the proposed
standard development project falls within the technical scope
of
IEEE and the
assigned Sponsor, whether the project appears to fulfill a technical and/or market
need, and whether the project is likely to attract enough volunteers to develop the
standard.
B. Working Group
With PAR approval, the study group or other proposer that requested the
project authorization forms a Working Group. Working Groups are open to
participation by anyone.
11
Overall, Working Groups strive for broad
representation
of
all interested parties and encourage global participation.
Working
Groups must operate in compliance with the IEEE-SA
requirements,
2
the Sponsor's Policy & Procedures (P&P), and the Working
Group's own P&P. Some Sponsors allow each Working Group to develop its
own P&P, which are subject to Sponsor review and approval and are subject to
audit by the SASB. Other Sponsors develop a single Working Group P&P for
each project type (individual
or
entity) that each Working Group of that type must
11
In standards projects based on the individual method, participation does not
require membership in IEEE or IEEE-SA. In entity-based projects, the entity participant
must be a member of
IEEE-SA.
12
These are generally set forth in the IEEE-SA Standards Board Bylaws, available
at
http://standards.ieee.org/develop/policies/bylaws/sb bylaws.pdf, and the IEEE-SA
Standards Board Operations Manual,
available at
http://standards.ieee.org/develop/policies/opman/sb om.pdf.-
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adopt and follow. The IEEE-SA provides baseline P&Ps for Sponsors and
Working Groups.
13
A Working Group usually has a hierarchy
of
officers (typically a chair, a
vice-chair, and a secretary) to ensure that the work proceeds smoothly. The
chair's role is to provide leadership and guidance during the standards
development process, helping move a draft standard toward completion. The
chair
will plan the meetings and organize the work. Agendas for Working Group
meetings are distributed beforehand, and the results
of
the group's deliberations
are publicly available, usually through meeting minutes.
The Working Group does the detailed work
of
writing the draft standard.
Typically, the group will identify the different sections that the draft standard will
require. First, a scope and purpose statement
is
prepared based
on
the PAR
information. Next, an outline is created. Often, this outline will serve as the
structure for the standard as well, with the subjects in the outline becoming the
clauses and subclauses
in
the document. Then the Working Group splits up the
drafting work among Working Group members. Draft sections are primarily
written outside the formal Working Group meetings and are then brought back to
the Working Group to resolve problematic areas. The Working Group will have a
technical editor who compiles the group's work into a single document.
Not everyone
in
a Working Group will agree on the best method for
accomplishing an objective within a standard. Sometimes Working Group
members will disagree on technical issues or on phrasing, but sometimes they
will disagree on fundamental technology approaches.
At
a minimum, consensus
in
a Working Group means that a majority
of
the voting members
of
the Working
Group must agree on an issue. The Working Group's and/or the Sponsor's P&P
will define the levels
of
approval (e.g., simple majority or super-majority) that are
required for approval of a draft standard.
A draft standard can go through multiple drafts within the Working Group
before it is ready to proceed to the next stage. With each draft, the Working
Group tries
to
narrow the differences among its members, through persuasion
and compromise. Voting can be conducted
at
meetings or through "Working
Group ballots" (not to be confused with the next step
in
the approval process,
which is the "Sponsor ballot," discussed
in
the next section).
In
a Working Group
ballot, Working Group members can vote
Approve, Do Not Approve, or Abstain.
Members can also offer comments on the draft and propose changes to address
13
See IEEE Standards Association, Audit Committee (Audcom) Baseline Operating
Procedures, available
at
http://standards.ieee.org/about/sasb/audcom/bops.html.
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their comments, indicating whether resolution
of
the comment is necessary to
change the member's vote.
14
C. Sponsor Balloting
Formal consensus balloting begins when the Sponsor decides that the
draft
of
the developing standard (written by the Working Group) is stable. The
Sponsor forms a balloting group of persons interested in the standard, and
participation is open to anyone (with no requirement
of
having participated in the
Working Group). While anyone can contribute comments, the only votes that
count toward approval are those
of
the eligible members
of
the balloting group.
IEEE-SA's rules require that a balloting group be balanced among interest
categories. Balloters usually fall into one of several interest categories (e.g.,
manufacturers, users, academic, government, or general interest). No interest
category can comprise over one-third
of
the balloting group.
15
A standard will not pass unless
at
least 75 percent
of
all ballots from a
balloting group are returned and at least 75 percent
of
the returned ballots
(excluding "Abstentions") bear
an
"Approve" vote. Reaching consensus also
includes receiving and resolving comments. A ballot resolution group prepares
responses to all comments received within the
balloting
period, whether
submitted from within or outside
of
the balloting group.
6
Changes to the
standard based on technical comments are recirculated to the Sponsor ballot
group.
17
D.
SASB Review
The SASB approves
or
disapproves standards based
on
the
recommendation
of
its Standards Review Committee (RevCom). This committee
14
Procedures can vary by Sponsor and by Working Group within a Sponsor.
15
See IEEE-SA Standards Board Operations
Manual §
5.4.1, available at
http://standards.ieee.org/develop/policies/opman/sect5.html#5.4.3.
16
The procedures for creation of a ballot resolution group vary from sponsor to
sponsor within IEEE. IEEE-SA has provided baseline procedures that (within certain
limits) sponsors can tailor to the needs of their standards development activity, but
creation
of
a ballot resolution group requires approval
of
the sponsor. See § 5.5
of
these
baseline procedures,
available
at
http://standards.ieee.org/about/sasb/audcom/bops.html. For an example of sponsor
procedures, see IEEE Communications Society Standards Development Board, Policies
and Procedures for Standards
Development §
5.5 (March
6,
2013), available at
http://standards.ieee.org/about/sasb/audcom/pnp/ComSoc.pdf; IEEE 802 LAN/MAN
Standards Committee (LMSC), Policies and
Procedures §
5.6 (Jun
12,
2014), available
at
http://standards.ieee.org/about/sasb/audcom/pnp/LMSC.pdf.
17
Editorial changes are not required to be recirculated, although they will often be
included in a draft that is otherwise being recirculated.
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September
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Page 9 of20
makes sure that Sponsors follow all procedures and guiding principles
in
drafting
and balloting a standard. As with PARs, completed draft standards come before
the SASB seven times a year. After approval, the standard is edited
(nonsubstantively) by an IEEE-SA staff editor, given a final review by the
members
of
the Working Group, and published.
Ill. IEEE-SA
and
Its Patent
Policy
IEEE-SA seeks to produce standards that any willing implementer can use
and that will become widely adopted. With the increasing prevalence and scope
of
patents and the potential for their inclusion
in
standards, a number of years
ago IEEE-SA modified its patent policy to explicitly permit the inclusion
of
patented technology
in
certain circumstances. IEEE-SA seeks to become aware
of
potentially essential patents through inquiry to all participants in its working
groups.
At
the beginning of each and every working group meeting, the chair
states IEEE-SA's patent policy,
18
and he or she invites every participant
to
identify or disclose the holders
of
patents that the Working Group participant
believes may be essential for the use
of
the standard under development. IEEE-
SA
expects that Working Group participants will act in good faith and disclose
any patents held by themselves and/or their affiliated entities that potentially
might prove essential or identify any other persons who might hold potentially
essential patents.
19
Once a Working Group participant discloses a potentially essential patent
or
identifies a possible holder
of
such patent, the Working Group chair will ask
the holder about the holder's intentions. IEEE-SA policy currently permits the
known use
of
essential patents (and patent applications), but only
if
IEEE
receives the patent holder's
or
applicant's assurance that either (a) the patent
holder
or
applicant will not enforce any
of
its present or future essential patent(s)
against any person complying with the standard; or (b) the patent holder
or
applicant will make available a license for such implementation without
compensation or under reasonable rates, with reasonable terms and conditions
that are demonstrably free
of
any unfair discrimination (RAND). This assurance is
irrevocable once submitted and accepted and shall apply,
at
a minimum, from the
date
of
the standard's approval to the date
of
the standard's withdrawal.
18
Exhibit D contains the current slide set that IEEE provides for this purpose. This
slide set also reminds participants that "All IEEE-SA standards meetings shall be
conducted in compliance with all applicable laws, including antitrust and competition
laws," provides further specific guidance, and directs participants to the additional
information in Promoting Competition and Innovation: What You Need to Know about the
IEEE Standards Association's Antitrust and Competition Policy,
available at
http:// standards. ieee.
org/develop/pol
icies/antitrust. pdf.
19
Participants can also ask a potential essential-patent holder to submit a Letter
of
Assurance to IEEE.
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Although IEEE-SA cannot compel a patent holder to provide an assurance (or
indeed even to respond to the request), the absence
of
an assurance is a factor
that IEEE-SA will take into account when considering whether to approve the
draft standard.
IV. Experience with the
2007 IEEE Patent Policy
In 2007, IEEE-SA adopted a patent policy that expressly permitted (but did
not require) a patent holder to disclose its proposed maximum rates and other
terms. As
IEEE explained
in
its 2006 business review letter request, IEEE
adopted this policy because:
The difficulty with the [pre-2007] policy is that a RAND commitment
is
inherently vague. It can lead to expensive litigation whose cost and
risk can impede the adoption
of
a socially valuable standard. Even
where a license negotiation does not result
in
litigation, the ex post
negotiation
of
license terms (that
is,
negotiations occurring after a
technology's inclusion
in
a standard has increased the patent-holder's
market power, potentially to the point of
monopoly)
can lead to higher
royalty payments and ultimately higher prices to consumers.
20
The 2007 patent policy was intended to provide a mechanism for reducing the
inherent vagueness
of
a RAND commitment, including the meaning of
"reasonable rate."
Practical experience with the 2007 policy has taught that, though useful,
the 2007 policy is insufficient to deal with the broad problem
of
uncertainty over
the meaning of "reasonable rates" for SEPs. IEEE-SA has received
approximately 40 Letters
of
Assurance that disclose proposed license terms, but
only two that disclose maximum rates. (To be clear, the availability
of
this
voluntary process for disclosure
of
maximum rates may still be useful
in
certain
cases, e.g.,
in
breaking logjams between directly competing technologies.)
Since 2007, implementers and patent holders have continued to take
widely divergent positions on the meaning of "reasonable rates"
for
SEPs relating
to IEEE standards. For example,
in
two cases relating to IEEE's 802.11
standard, the patent holder and the implementer were several orders
of
magnitude apart
in
their respective valuations of the reasonable rate for essential
patent claims for which the patent holders (or their predecessors) had provided
Letters
of
Assurance to IEEE.
21
The breadth of these differing valuations
20
IEEE Request for Business Review Letter (November 29, 2006) (footnote omitted),
available at http://www.justice.gov/atr/public/busreview/reguest-letters/302148.pdf.
21
In re lnnovatio
IP
Ventures, LLC
Patent
Litig., No. 11-C-9308, 2013
WL
5593609,
at *12 (N.D. Ill. Oct.
3,
2013) (patent holder's proposed valuation would have resulted
in
royalties
on
average
of
approximately $3.39 per access point, $4. 72
per
laptop, up to
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suggests that IEEE-SA has not provided sufficient clarity
in
its
policy-
regardless
of
which party's valuation is in fact closer to a reasonable rate.
22
The burden
of
disputes over SEPs is borrie not just by implementers and
SEP owners, but by consumers and other users
of
products that implement IEEE
standards. For example, the National Retail Federation stated
in
a comment
submitted to the Standards Board:
[S]ome
of
our retail members have recently become involved
in
disputes concerning
the
licensing
of
patents that are claimed to be
required to implement IEEE standards. Our members' networks are
important parts
of
their business infrastructures, so the issuance
of
an
injunction or exclusion order that limits their use
of
their networks
would have a serious impact on our members' businesses.
We
also welcome the effort to further define what licensing terms are
consistent with the requirement that owners
of
patents required to
implement IEEE standards grant licenses
on
reasonable and non-
discriminatory terms. Some
of
our members have received grossly
excessive licensing demands from patent trolls that have acquired
patents that they claim our members infringe by implementing IEEE
standards. The proposed revisions closely track the reasoning
of
judges in recent court cases and will help our members and their
suppliers
in
licensing negotiations by clarifying what RAND means.
$16.17 per tablet, and up to $36.90 per bar code scanner
or
other inventory tracking
device; implementer's valuation would have resulted
in
royalties of between . 72 cents
and 3.09 cents per chip); Microsoft Corp.
v.
Motorola, Inc., No. C10-1823, 2013
WL
2111217, at *87, *99 (W.D. Wash. April 25, 2013) (patent holder's proposed valuation
would have resulted
in
royalties
of
between $6.00 and $8.00 per unit; implementer's
valuation would have resulted in royalties of between 3 cents and 6.5 cents per unit);
see also Ericsson Inc.
v.
D-Link Sys., Inc., No. 6:10-CV-473, 2013
WL
4046225, at *18
(E.D. Tex. Aug. 6, 2013) (patent holder proposed a $0.50 per unit royalty; implementer
argued that a proper RAND rate would be "pennies
or
fractions thereof' per unit (citation
omitted) (internal quotation marks omitted)); Apple Inc.
v.
Motorola Mobility, Inc., No. 11-
CV-178-bbc, 2012
WL
7989412, at *2 (W.D. Wis. Nov.
8,
2012) (patent holder proposed
a royalty rate of 2.25% per unit; implementer responded that it would be willing to pay a
rate of no more than
$1
for each Apple device).
22
See, e.g., Ericsson, 2013
WL
4046225, at *25 ("The paradox of RAND licensing is
that it requires a patent holder to offer licenses
on
reasonable terms, but it offers no
guidance over what is reasonable."); Microsoft Corp., 2013
WL
2111217, at *10 (noting
that IEEE's 2007 patent policy does not clarify "what constitutes a reasonable royalty
rate or what other terms and conditions are reasonable or nondiscriminatory for any
license between interested parties").
DORSEY & WHITNEY LLP
Hon.
William
J.
Baer
September
30,
2014
Page 12 of 20
(
The process (described below)
that
IEEE-SA used
to
develop the
proposed patent policy confirmed
the
need for policy clarification. In addition to
expressing differing views on how
the
policy should define "reasonable rate,"
commenters on the draft policy expressed a range
of
views on whether anyone
other
than the maker
of
an end-use product
is
entitled to a license and whether
an
essential-patent holder can seek an injunction or exclusion order (and use the
possibility
of
such an order in negotiations over reasonable rates). Finally,
antitrust enforcers have also commented on the uncertainties in current SDO
policies. For example:
In October 2012, Deputy Assistant Attorney General Renata Hesse·
delivered a speech entitled
Six "Small" Proposals for SSOs Before
Lunch
("Six Proposals"), suggesting that SDOs consider taking steps
to "eliminate some
of
the ambiguity that requires difficult
ex
post
deciphering
of
the scope
of
a F/RAND commitment."
23
This echoed
other commentary that Antitrust Division representatives have offered
over
the years.
24
The
Federal Trade Commission has also called
for
greater clarity. For
example,
just
this month, FTC Chair Edith Ramirez stated that
"additional clarity on a framework for determining FRAND royalties
would benefit industry stakeholders and consumers alike
....
Greater
clarity
on
the
terms
of
a FRAND license is likely
to
facilitate private
negotiations and limit the need to seek a third-party determination
of
a
FRAND rate."
25
Joaquin Almunia (Vice President for Competition Policy, European
Commission) noted that "there is a growing consensus on both sides
of
the
Atlantic on the damage that the misuse
of
standard-essential
patents can do to competition" and that the European Commission's
23
The speech
is
available at http://www.justice.gov/atr/public/speeches/287855.pdf.
24
See, e.g., Christine
A.
Varney, Assistant Att'y
Gen.,
Antitrust
Div.,
U.S.
Dep't of
Justice, "Promoting Innovation Through Patent
and
Antitrust
Law
and
Policy," Remarks
as Prepared for
the
Joint Workshop of the
U.S.
Patent
and
Trademark
Office,
the
Federal Trade Comm'n,
and
the Dep't of Justice
on
the Intersection of Patent Policy and
Competition Policy: Implications for Promoting Innovation 8 (May
26,
2010),
available
at
http://www.justice.gov/atr/public/speeches/260101.htm ("Clarity alone
does
not
eliminate
the possibility of hold-up
...
but
it
is
a step in the right direction.").
25
"Standard-Essential Patents
and
Licensing:
An
Antitrust Enforcement
Perspective," 8th Annual Global Antitrust Enforcement Symposium, Georgetown
University Law Center, Washington,
DC
(Sept.
10,
2014) ("SEPs & Licensing"), available
at
http://www.ftc.gov/system/files/documents/public statements/582451/140915georgetow
nlaw.pdf.
DORSEY & WHITNEY
LLI,
Hon. William
J.
Baer
September
30,
2014
Page 13
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receipt
of
"many complaints related to standards-essential patents
also shows that there
is
a great need for guidance."
26
V. Process for Developing Proposed 2014 Patent Policy
IEEE-SA's consideration
of
an update to its patent policy began
in
early
2013.
At
its regular March 2013 meeting, the IEEE-SA PatCom discussed the
six suggestions made
in
the Six Proposals speech.
The
PatCom chair appointed
an Ad Hoc committee (Ad Hoc)
27
and asked it to review the six suggestions and
to provide recommendations to PatCom. The Ad Hoc reported back at PatCom's
regularly scheduled June 2013 meeting. The Ad Hoc recommended that some
updates to the patent policy would be appropriate
in
light
of
the Six Proposals.
The
Ad
Hoc also noted that some
of
the suggestions (such
as
mandatory
arbitration as a mechanism
of
dispute resolution managed or recommended by a
standards development organization) were not appropriate for IEEE.
In
addition
to hearing the Ad Hoc committee's report, members
of
PatCom and the
Standards Board also participated in an IEEE-SA Patent Forum, which included
remarks from representatives
of
the European Patent Office and several
multinational corporations.
28
The PatCom chair re-chartered the Ad Hoc for
further work.
Over the course
of
the following
15
months, the Ad Hoc proceeded to
develop a draft policy update.
29
The Ad Hoc used a drafting subcommittee to
26
"Competition Enforcement in the Knowledge Economy," Fordham University/ New
York City, 20 September 2012, available at http://europa.eu/rapid/press-
release
SPEECH-12-629
en.htm.
See
also
Thomas Kramler (Deputy Head of Unit,
DG
Competition, European Commission), "FRAND Commitments and EU Competition Law,"
Remarks at ITU Patent Roundtable, October 2012 ("By threatening to use injunctions,
holders
of
standard-essential patents could make demands that their commercial
partners would not accept under normal circumstances."), available at
https://www.google.com/url?sa=t&rct=j&q=&esrc=s&frm= 1 &source=web&cd=5&ved=OC
DoQFjAE&url=https%3A %2F%2Fwww. itu. int%2Fdms pub%2Fitu-
t%2Foth%2F06%2F5B%2FT065B0000360016PPTE. ppt&ei=tNkiVl6LJsmbyA TVg4G4D
Q&usg=AFQjCNGUaLDRzQeHrSwOXOjk04Sy2GE4wQ&bvm=bv.75775273,d.aWw.
27
The members consisted
of
all the members of the 2013 PatCom, along with a
former PatCom chair who was a member of the 2013 Board
of
Governors and who had
served on PatCom during the 2007 policy update (as chair
in
2005 and 2006, and as
member in 2007).
28
Presentations from this meeting are available at http://grouper.ieee.org/groups/pp-
dialog/patent forum/index. html.
29
Membership on the Standards Board and its standing committees
is
for renewable
one-year terms, and the Standards Board Chair reviews all committee memberships,
including PatCom membership, at the end of each year. As a result
of
this review
in
late
2013, three 2013 members rotated off PatCom, and three new members rotated on, but
the PatCom chair remained the same. After these PatCom membership changes, the
DORSEY & WHITNEY LLP
Hon.
William
J.
Baer
September
30,
2014
Page
14
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20
(
prepare drafts for review and revision by the full Ad Hoc. Early
in
the process,
IEEE-SA created a public website where drafts were published for public review
and comment, once the Ad Hoc was satisfied with a draft. The Ad Hoc released
a total
of
four
public review drafts. Interested parties were asked to make
comments using a comment tool, which permitted the Ad Hoc to review, sort,
process,
and
act
on
comments more efficiently. (The Ad Hoc received and
reviewed 680 comments and prepared written responses to 547
of
them.
30
)
IEEE-SA also re-opened the Patent Policy Dialog (PP-Dialog) email reflector to
enable public dialog during the process.
31
In
addition, PatCom invited comments
on each
of
the four public review drafts at its public meetings held over the 15-
month period.
On 10 June 2014, PatCom approved a revised version of the fourth public
draft and forwarded this draft to the Standards Board for consideration.
32
At
its
June meeting, the Standards Board decided to defer consideration
of
the policy
until its next regularly scheduled meeting in order to allow Standards Board
members
Sufficient
time to review and consider the proposed policy.
On
20-21August2014,
the Standards Board held an open session to hear
a presentation on the patent policy and to receive additional and direct public
input. Fourteen members
of
the public spoke at the meeting,
in
addition to the
15 written comments that the Standards Board had received from 23 companies
or individuals. The Standards Board discussed the proposed policy, both in open
session and
in
executive session. The Standards Board then voted by paper
ballot
in
open session
on
a resolution to accept the PatCom report (from June
2014), to approve the proposed policy
as
received from PatCom, and to
PatCom chair reconstituted the
Ad
Hoc membership, which was now identical to the
PatCom membership. (The 2013 Ad Hoc member who had not been on PatCom was
one
of
the three who rotated onto PatCom.)
30
The majority of comments on the fourth public review draft were repetitive
of
comments on the previous drafts, and the Ad Hoc decided not to expend the substantial
effort of preparing written comment responses. Members
of
the Ad Hoc did review all
fourth-round comments, however, and considered additional changes to the draft policy
update as a result.
31
The PP-Dialog reflector had been used during the 2007 patent policy update, but
the listing
was
five or more years out
of
date. IEEE-SA staff sent a notice
to
the reflector
inviting "subscribers" to "re-subscribe" to the reflector, because "PatCom intends to
utilize this list again, now
in
2013." (Although the process is called a "subscription, there
was no charge and no membership requirement to "subscribe" to the reflector.) The
2007 reflector subscription list was then discarded
in
favor
of
the new subscription list.
The reflector subscription list had reached a total of 50 by December 2013 and ultimately
included more than 60 individuals from more than 30 companies and four government
agencies on three continents.
32
PatCom decisions are made by simple majority. The vote on the motion to forward
the draft to the Standards Board was 3-2, with the chair not voting.
DORSEY & WHITNEY
LLP
Hon.
William J. Baer
September
30,
2014
Page
15
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(
»>
DORSEY
recommend that the Board
of
Governors approve the policy, with such
modifications as the Board
of
Governors deemed necessary, advisable, and/or
appropriate, and subject to the receipt
of
a favorable Business Review
Letter
from the United States Department
of
Justice. The motion required a vote
of
two-thirds
of
the voting members present and not recused. The motion carried
on a vote
of
14-5.
The Board
of
Governors will consider the proposed patent policy at its
December 2014 meeting. If the policy is approved at that meeting, then under
the current timetable the policy would go into effect on January
1,
2015.
VI. Substance
of
Proposed Patent Policy
The purpose of the policy revision is to provide greater clarity on issues
that have divided SEP owners and standards implementers
in
recent years. As
Deputy Assistant Attorney General Hesse stated
in
Six Proposals, "It would seem
to be
in
the interests
of
all for firms that benefit from standards to seize the
opportunity to eliminate some
of
the ambiguity that requires difficult ex post
deciphering
of
the scope of a F/RAND commitment. Clarifying or modifying
existing intellectual property policies increases the likelihood that the standards
you set will continue
to
promote incentives to innovate."
33
The proposed policy includes four key elements, which are discussed
below.
A. Greater Clarity
of
Meaning
on
"Reasonable" Rate
In the last several years, SEP owners and standards implementers have
litigated over patent demands that were several orders
of
magnitude apart. The
fact that parties can be that far apart
in
their views
of
reasonable rates suggests
that the IEEE-SA patent policy may not provide sufficient clarity. The proposed
policy therefore provides, for Essential Patent Claims for which IEEE has an
Accepted Letter
of
Assurance, a definition
of
"Reasonable Rate" as "appropriate
compensation to the patent holder for the practice
of
an Essential Patent Claim
excluding the value, if any, resulting from the inclusion
of
that Essential Patent
Claim's technology
in
the IEEE Standard."
In
addition, the policy provides three
factors that should be considered (among others that the parties may choose to
consider)
in
determining a reasonable rate:
The value that the functionality
of
the claimed invention or inventive
feature within the Essential Patent Claim contributes to the value
of
33
IEEE has publicly stated that it does not seek to amend retroactively the terms
of
any previously submitted Letter
of
Assurance, and that in adopting the policy IEEE-SA
expresses no view as to whether any specific provision
in
the draft policy does, or does
not, represent a substantive change from the current policy.
DORSEY & WHITNEY
LLP
Hon. William
J.
Baer
September
30,
2014
Page 16
of
20
(
the relevant functionality
of
the smallest saleable Compliant
Implementation that practices the Essential Patent Claim.
The value that the Essential Patent Claim contributes to the smallest
saleable Compliant Implementation that practices that claim, in light of
the value contributed by all Essential Patent Claims for
the
same IEEE
Standard practiced in that Compliant Implementation.
Existing licenses covering use
of
the Essential Patent Claim, where
such licenses were not obtained under the explicit
or
implicit threat of
a Prohibitive Order, and where the circumstances and resulting
licenses are otherwise sufficiently comparable to the circumstances of
the contemplated. license.
IEEE has not attempted to determine the royalty rate that any Essential
Patent Claim should receive - that is rightly left to the
parties' negotiations.
Instead, the definition and factors provide a framework that IEEE
believes will
better enable parties to reach agreement on Reasonable Rates (or, failing
agreement, better enable courts to make that determination).
B. Greater Clarity on Nondiscrimination (Through Definition
of
"Compliant Implementation")
Some implementers
of
IEEE standards make an end-use product, while
other implementers make components or sub-assemblies that are incorporated
into an end-use product. Each of these is an implementation
of
an IEEE
standard .
The
proposed policy makes clear that each of these implementers
can
invoke the benefits
of
an applicable Letter
of
Assurance. The proposed policy
does this by introducing a definition
of
"Compliant Implementation" as "any
product (e.g., component, sub-assembly, or end-product) or service that
conforms to any mandatory or optional portion
of
a normative clause of an IEEE
Standard" and providing that the requested licensing assurance shall extend to
"any Compliant Implementation that practices the Essential Patent Claims for use
in
conforming with the IEEE Standard."
34
c.
Greater Clarity
of
Availability
of
"Prohibitive Orders"
SEP owners and standards implementers have also litigated over the
availability of injunctions and exclusion orders, which the proposed policy
includes under the defined term "Prohibitive Order." When a SEP owner can
seek a Prohibitive Order without any limitation, the negotiation can become a
negotiation over the cost to the implementer of being excluded from
implementing the standard, rather than the value that the particular SEP
34
Exhibit A at lines 92-93 and 98-99.
DORSEY & WHITNEY
LLP
Hon. William J. Baer
September 30, 2014
Page
17
of
20
(
contributes to the implementation. The proposed draft reflects the belief that
negotiations between a voluntary submitter
of
a patent letter
of
assurance to the
IEEE and a potential licensee should attempt to value the contribution
of
the
Essential Patent Claim without considering
the
possibility
of
a Prohibitive Order.
35
Consequently, the proposed policy provides that the submitter (or its successor)
of
a Letter
of
Assurance
is
not permitted to seek a Prohibitive Order unless the
implementer "fails to participate in, or to comply with the outcome of, an
adjudication, including an affirming first-level appellate review,
if
sought by any
party within applicable deadlines,
in
that jurisdiction by one or more courts that
have the authority to: determine Reasonable Rates and other reasonable terms
and conditions; adjudicate patent validity, enforceability, essentiality, and
infringement; award monetary damages; and resolve any defenses and
counterclaims."
D.
Greater Clarity
on
Permissible Demands for Reciprocal Licenses
SEP holders sometimes seek to negotiate a cross-license with a potential
licensee. The proposed policy makes clear that, where a Submitter's Accepted
Letter
of
Assurance has indicated "reciprocity," a potential licensee cannot both
receive the benefit
of
the Submitter's Letter
of
Assurance and refuse to license to
that Submitter the licensee's own Essential Patent Claims on the same
standard.
36
Moreover, although a Submitter cannot insist upon receiving a cross-
license to non-essential patents, the parties are free to negotiate any kind
of
cross-license or portfolio licenses that they wish to negotiate.
VII. Analysis
IEEE believes that its proposed policy fully complies with all applicable
antitrust and competition laws. Nevertheless, some
of
the comments that
IEEE-SA received during the policy development process have voiced either
vague or specific antitrust concerns about the proposed policy. Moreover, some
stakeholders have requested that IEEE seek a Business Review Letter. IEEE
determined that it would be appropriate to do so.
35
See Ramirez, SEPs & Licensing ("But a dispute with a willing licensee over royalty
terms that does not take place under the threat
of
an injunction is not likely to create the
undue leverage that is the source of the competitive problem in the standard-setting
context.").
36
If both parties' patents for Essential Patent Claims on a standard are covered by
Accepted LOAs
for
that standard, then this is a non-issue. The issue arises only if a
potential licensee holds Essential Patent Claims that are not subject
to
an Accepted
LOA. Where a Submitter has excluded any of its affiliates (who are otherwise bound by
the LOA), the Submitter cannot simultaneously require reciprocity while excluding
affiliates.
See Exhibit A at lines 106-109.
DORSEY & WHITNEY LLP
The only specific antitrust theory that has been articulated
in
the
comments is that the attempt to provide greater clarity to the term "reasonable
rate" (and otherwise provide clear answers to the questions that courts must
confront today) could amount to "buyer-side price-fixing."
37
IEEE certainly acknowledges that the antitrust laws apply to buyers as
well as to sellers
38
(although IEEE is not itself either a buyer or a seller).
Nevertheless, the claim
of
"buyer-side
price-fixing"
is
simply wrong.
1.
The proposed policy does not set a maximum royalty, either
for
a
specific patent or for a group
of
all patents essential to a particular
standard. It generally defines the term "reasonable rate" and
recommends (but does not require) additional factors for
consideration
in
determining an appropriate rate. The proposed
policy does not prevent parties from discussing any other factors
that they believe appropriate.
2. The proposed policy recommends that where either party believes
licensing is appropriate, SEP owners and standards-implementers
should engage
in
good-faith negotiations and should do so without
unreasonable delay. IEEE believes that the proposed policy's
greater clarity will foster more efficient negotiations and reduce the
incidence and scope
of
litigation over patents essential to IEEE
standards - and thus facilitate the adoption of those standards.
3.
The negotiations should be based on the value
of
the patent, not the
value
of
excluding
an
implementer from implementing the standard.
IEEE expects that the proposed policy's description
of
the
circumstances in which a submitter
of
a Letter
of
Assurance agrees
that it will not seek a Prohibitive Order will also facilitate good-faith
negotiations over a Reasonable Rate. Nevertheless, the policy does
not preclude either party from beginning litigation if it
is
dissatisfied
with the other party's timing or reasonableness.
4. This clarity
is
precisely what antitrust and competition enforcers
in
the United States and Europe have been encouraging. The specific
37
See, e.g., Comments 2/42 (Kallay/Ericsson),
2/51
(Kallay/Ericsson), 2/102
(Frohlich/BlackBerry), This shorthand reference provides
the
"round" number and
comment number. (For example, "Comment 2/42" refers to comment 42
in
the second
round
of
comments.) For convenience, we have also identified the individual submitter
and his or her affiliated company. All comments submitted during the four rounds
of
public review were posted and remain available at http://grouper.ieee.org/groups/pp-
dialog/drafts comments/index. html.
38
See, e.g., Amended Complaint, United States
v.
eBay, Inc., File
No. No.
12-CV-
05869 (N.D. Cal. June
4,
2013).
Hon.
William
J.
Baer
September
30,
2014
Page 18
of 20
(
DORSEY & WHITNEY
LLP
Hon. William
J.
Baer
September
30,
2014
Page 19
of
20
(
proposals for providing clarity are within the boundaries
of
what
regulators have discussed. ff litigation becomes necessary, then the
proposed policy should assist courts
in
conducting the litigation
more efficiently.
5.
Submission
of
Letters
of
Assurance is entirely voluntary. The
proposed policy will continue to provide that "IEEE shall request this
assurance without coercion."
6.
The proposed policy does not retroactively amend previously
Accepted Letters of Assurance.
39
Patent owners who do not wish
to
submit a Letter
of
Assurance under the proposed policy are free not
to do so.
7.
The proposed policy will apply to all Submitters
of
Letters
of
Assurance, regardless of whether the Submitter
is
also
an
implementer. The policy does not single out non-implementers (that
is,
patent holders who do not produce compliant implementations
of
the relevant standard) for different treatment.
8.
The policy applies only to Essential Patent Claims. A Submitter's
other patents are not affected by the proposed policy.
9.
The process by which the policy has been developed has been
transparent, as well as consistent with the established role that IEEE
has fulfilled
in
the global standards development process. The
opportunity to review and comment on the proposed policy was
open to all stakeholders, and the proposed policy updates were
significantly modified
in
light
of
the comments.
VIII.
Conclusion
IEEE believes that its proposed policy is certainly within the range
of
lawful conduct for a standards development organization. IEEE respectfully
requests a Business Review Letter confirming that the Justice Department would
not bring action against IEEE under any antitrust theory based on IEEE's
adoption and implementation
of
the proposed patent policy. We will
be
happy to
39
Even some of the commenters who voiced the "buyer-side
price-fixing"
concern
appear to acknowledge that the absence
of
retroactive amendment of Accepted Letters
of
Assurance eliminates this concern.
See,
e.g.,
Comment 2/38 (Kallay/Ericsson).
DORSEY & WHITNEY LLP
Hon. William J. Baer
September
30,
2014
Page
20of20
provide any further information that you might find useful, and we look forward to
your statement
of
the Justice Department's enforcement intentions.
Very truly yours,
Michael
A.
Lindsay
Enclosures (Exhibits A through
D)
DORSEY & WHITNEY LLP
