Within the last month, the Federal Trade Commission, along with a joint effort of the U.S. Department of Justice and the U.S. Patent and Trademark Office, have brought to the fore the issues of patent enforcement and appropriate patent licensing schemes. While many thought the FTC's review of Google's practices would focus primarily on search, its focus was on the company's management of the "standard essential patents" that it owns.
The timing of the DOJ/USPTO's joint Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments was certainly interesting, being issued within days of the Federal Trade Commission's order to Google to license its standard essential patents. Much of the discussion from all three entities centered on the fact that interoperability of devices and technology requires that certain standards be met. The components of technologies that technology companies use everyday are derived from what is known as "standard essential patents." Both the joint statement of the DOJ and USPTO and the FTC's Google determination focus on the fact that the licensing fees for companies to use such standard essential patents need to be "fair, reasonable and non-discriminatory" (known as FRAND terms).
This remains an issue due to the incentives lacking in the market to keep these licensing costs "fair, reasonable and non-discriminatory." While industry players who create new technology may find reason to play "nice" with one another and come to fair terms as to licensing fees, market and legal conditions may not create the appropriate incentives, particularly with companies who just manage and enforce patent portfolios and nothing else, such as patent pools.
While these government agencies took care to highlight the negative and anti-competitive circumstances that may exist, there is a failure to recognize the antitrust issues at play. If companies are allowed to hold other companies effectively hostage by not allowing their products to enter the market by virtue of seeking an injunction to keep a product from entering the market or are charging a high toll through exorbitant licensing fees, these products will be kept off of the market regardless. By creating such costly barriers of entry, it ceases healthy competition.
FTC Chairman Joe Leibowitz expressed that he hoped the FTC decision would stop companies from obtaining patents for the purpose of using them defensively, but it does not seem the FTC will engage in efforts to actively curb this type of behavior any time soon. Patent pools that have slowly deviated from their initial intended purpose of providing streamlined licensing vehicles for companies are of particular concern to startup companies and large industry players alike.
The issue of patent trolling itself has been addressed in Congress with the introduction of HR 2645, the Saving High-tech Innovators from Egregious Legal Disputes (SHIELD) Act by Peter DeFazio (D-OR), who recently discussed the bill at the Consumer Electronics Show. The bill has yet to gain traction, but some proponents are hopeful it could bring to table what many believe is sorely needed damages reform in patent cases amongst other changes. Part of the incentives for patent pools that use aggressive litigation tactics is the large potential damages awards at the end of protracted litigation.
The issue of defensive patent enforcement is starting to move beyond consumer technology products. Even the banking industry is facing the onslaught of the patent trolls with litigation emerging around online and mobile banking applications that allow for check imaging and secure transaction processes through smartphones. The problem is shifting from the cost of litigation affecting consumers in their pocketbook to their ability to use technology to manage that pocketbook as well.