Google Settles with FTC Over SEPs; FTC Votes to Close Investigation Into Google s Search-Related Practices

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1 December 24, January 4, 2013 THIS WEEK S CONTRIBUTING AUTHOR IS FLAVIA FORTES EDITED BY KOREN W. WONG-ERVIN PATENTS Google Settles with FTC Over SEPs; FTC Votes to Close Investigation Into Google s Search-Related Practices On January 3, the FTC voted 4-1 to accept a consent agreement package under which Google has agreed not to seek injunctive relief based on infringement of a FRAND-encumbered standard essential patent (SEP) unless certain conditions are met or except under limited exceptions. The Commission also voted 5-0 to close the investigation related to Google s search-related practices, concluding that the evidence did not demonstrate that Google s actions in this area violate U.S. antitrust law. With respect to SEPs, the Commission voted to issue for public comment a Complaint and Order against Google. The Complaint alleges that Google, and its predecessor in interest, Motorola Mobility, engaged in unfair methods of competition and unfair acts or practices by breaching its commitments to standard-setting organizations (SSOs) to license its SEPs on FRAND terms. Google violated its FRAND commitments by seeking to enjoin and exclude willing licensees of its FRAND-encumbered SEPs. (Compl. 1.) According to the FTC s Analysis of Proposed Consent Order to Aid Public Comment, the Proposed Consent Order is tailored to prevent Google from using injunctions against willing licensees. (Analysis at 6.) Under the Proposed Order, prior to seeking injunctive relief, Google must: (1) at least six months prior to pursuing injunctive relief, make a binding written offer to license that contains a full description of all material commercial terms proposed; (2) at least 60 days prior to pursuing injunctive relief, make a binding written offer to use binding arbitration to establish a licensing agreement; and (3) negotiate with the potential licensee for at least 6 months. Furthermore, if a potential licensee seeks judicial relief for a FRAND determination, Google must not seek an injunction during the pendency of the proceeding, including appeals. All licensees, whether they choose arbitration or litigation, must commit to honoring the independently determined royalty rate. Google may condition the offer to license on reciprocity (i.e., conditioning an offer to -1-

2 license on receiving a cross-license to the licensee s FRAND-encumbered SEPs to the same standard), but may not require the potential licensee to license any patent claim not essential to a standard practiced by the potential licensee or to license any other patents or intellectual property. Section II.E. of the Proposed Order provides that [n]othing in this Order shall prohibit Google from seeking injunctive relief for alleged infringement of a FRAND-encumbered SEP against a potential licensee who: (1) is outside the jurisdiction of the U.S. District Courts, (2) has stated in writing or sworn testimony that it will not license the SEP on any terms, (3) refuses to enter a license agreement covering the SEP on terms that have been set in the final ruling of a court or through binding arbitration, or (4) fails to provide the written confirmation as requested by Google in a FRAND Terms Letter (a binding irrevocable commitment to cross-license FRAND Patents on FRAND terms) within thirty days of receiving the letter. (Decision and Order at 7.) Section IV.F. further provides that Google shall be permitted to file a claim seeking injunctive relief against a potential licensee if the Potential Licensee is seeking or has sought on or after the date of this Order, injunctive relief against Google based on infringement of the potential licensee s FRAND-encumbered SEP. (Id. at ) The Commission voted to issue a Statement, with Commissioners J. Thomas Rosch and Ohlhausen abstaining. The Commission Statement contends that, if accepted, the Proposed Order may set a template for the resolution of SEP licensing disputes across many industries. (Commission Stmt. at 1.) Commissioner Rosch issued a Separate Statement criticizing the majority s decision to invoke a standalone unfair method of competition claim under Section 5 on the grounds that it is not clear what the limiting principles of such a claim would be. (Id. at 3.) Commissioner Rosch also noted that he was: troubled by Section IV.F. of the Proposed Order, which provides for a limited defensive use exception to Google s commitment not to seek injunctive relief on its FRAND-encumbered SEPs. That is, under certain circumstances, Google may seek injunctive relief against a firm that itself files a claim for injunctive relief against Google based on the firm s FRAND-encumbered SEPs. (Commissioner Rosch Separate Stmt. at 1 n.1.) According to Commissioner Rosch, injunctive relief should be prohibited only when the potential licensee is a willing licensee under FRAND terms. That is not what the consent decree provides. Nor is it the relief I would agree to. The only exception to this is when a federal court or some other neutral arbitrator has defined those terms. (Id. at 2 n.3 (internal citations omitted).) Commissioner Ohlhausen issued a dissenting statement voting against the consent agreement and dissenting from imposing liability on an owner of a SEP merely for petitioning the courts or the International Trade Commission. I dissent then in large part because I question whether such conduct, standing alone, violates Section 5 and because the Noerr-Pennington doctrine precludes Section 5 liability for conduct grounded in the legitimate pursuit of -2-

3 an injunction or any threats incidental to it, outside of a handful of wellestablished exceptions not alleged here. (Commissioner Ohlhausen Dissenting Stmt. at 1.) (Id. at 5.) [M]ore importantly, I believe the Commission s actions fail to provide meaningful limiting principles regarding what is a Section 5 violation in the standard-setting context, as evidenced by its shifting position in N-Data, Bosch, and this matter. Commissioner Ohlhausen noted that, even taking the much-criticized N-Data consent decree as a starting point, it is unclear whether this case meets the requirements identified by the Commission in that matter. (Id. at 5.) In N-Data, the Commission alleged that there was a clear promise to license by N-Data s predecessor-in-interest, which N-Data subsequently broke. The evidence presented to me in the instant matter does not reveal a clear promise by Motorola not to seek an injunction on the SEPs at issue and at least one court has found there was no such promise. (Id.) Commissioner Ohlhausen also criticized the Commission for failing to provide any principled basis for expanding liability beyond an unfair method of competition to include an unfair act or practice on what is essentially the same conduct here as in Bosch. (Id. at 2.) The majority responded by stating that it disagreed that it was applying its unfair methods of competition authority without regard to limiting principles, stating, our action is plainly consistent with several principles identified by Commissioner Rosch as justifying Commission action under Section 5, and citing the context of standard-setting, the existence of monopoly power, and harm to competition as limiting principles for Section 5. (Commission Stmt. at 3-4.) The majority further responded that, with respect to the Noerr-Pennington doctrine, we have reason to believe that MMI [Motorola] willingly gave up its right to seek injunctive relief when it made the FRAND commitments at issue in this case. We do not believe that imposing Section 5 liability where a SEP holder violates its FRAND commitments offends the First Amendment because doing so in such circumstances simply requires those making promises to keep them. (Id. at 4-5 (quoting Cohen v. Cowles Media Co., 501 U.S. 663, (1991).) The FTC will publish a description of the consent agreement package in the Federal Register. The agreement will be subject to public comment until February 4, The Order would be in effect for 10 years and Google would be required to submit annual compliance reports. The FTC also unanimously voted to close its investigation into allegations of search bias. The FTC concluded that, the evidence presented at this time does not support the allegations that Google s display of its own vertical content at or near the top of its search results page was a product design change undertaken without a legitimate business justification. (Commission Stmt. Regarding Google s Search Practices at 3.) Similarly, we have not found sufficient evidence that Google manipulates its search algorithms to unfairly disadvantage vertical websites that compete with Google-owned vertical properties. (Id.) In a letter of commitment, Google agreed to (1) make available a web-based notice form that provides website owners with the option to opt out from display on Google s Covered Webpages of content from their website that has been crawled by Google, and (2) remove from its AdWords API Terms and Conditions the -3-

4 AdWords API Input and Copying Restrictions. The changes Google has agreed to make will ensure that consumers continue to reap the benefits of competition in the online marketplace and the market for innovative wireless devices they enjoy, said FTC Chairman Jon Leibowitz. Sources: FTC press release, available at Opening remarks of FTC Chairman Jon Leibowitz, available at Decision and Order, available at Analysis of Proposed Consent Order to Aid Public Comment, available at Agreement Containing Consent Order, available at Complaint, available at Statement of the Commission, available at Separate Statement of Commissioner J. Thomas Rosch, available at Dissenting Statement of Commissioner Ohlhausen, available at Statement of the Commission Regarding Google s Search Practices, available at Concurring and Dissenting Statement of Commissioner Rosch Regarding Google s Search Practices, available at Statement of Commissioner Ohlhausen Regarding Google s Search Practices, available at Closing letter to Counsel for Google Inc., available at Commitment Letter from Google, Inc. to Chairman Leibowitz, available at -4-

5 USPTO Announces the Software Partnership to Enhance the Quality of Software-Related Patents In a notice published in the Federal Register on January 3, the USPTO announced that it is seeking to form a partnership with the software community to explore ways to enhance the quality of software-related patents. Members of the public are invited to participate. To commence the Software Partnership, the USPTO is sponsoring two roundtable events with identical agendas, one in Silicon Valley on February 12 from 9 a.m.-noon PST and the other in New York on February 27 from 9 a.m.-noon EST. Both programs will be webcast. The notice sets forth several topics for discussion. The first topic relates to how to improve clarity of claim boundaries that define the scope of patent protection for claims that use functional language. The second topic requests that the public identify additional topics for future discussion by the Partnership. The third topic relates to a forthcoming Request for Comments on Preparation of Patent Applications and offers an opportunity for oral presentations on the Request for Comments at the roundtable events. Registration for both roundtable events is requested by February 4. Source: Federal Register Notice, available at Nokia and RIM Enter Into New Patent License Agreement On December 21, Nokia and RIM announced that the two companies entered into a new patent license agreement that will result in settlement of all existing patent litigation between the companies and withdrawal of pending actions in the U.S., U.K., and Canada related to a recent arbitration tribunal decision finding that RIM was in breach of a long-standing license agreement for Nokia s standard-essential cellular patents. The arbitration tribunal found that RIM was not entitled to manufacture or sell wireless local area network products under the existing agreement. Nokia then filed actions in the U.S., U.K., and Canada to enforce the ruling. The financial structure of the agreement includes a one-time payment and on-going payments from RIM to Nokia. The specific terms of the agreement are confidential. Sources: Nokia Press Release, available at Bill Donahue, RIM Will License WLAN Patents To End Nokia Suits, MLex (Dec. 21, 2012), available at gy (subscription required). -5-

6 TRADE SECRETS Theft of Trade Secrets Clarification Act Expands Coverage to Trade Secrets Related to Services Used Internally But Not Sold On December 28, President Obama signed into law the Theft of Trade Secrets Clarification Act of The bill clarifies that the act covers trade secrets related to services as well as products and applies to services and product used internally as well as services and products sold. Specifically, the Act was amended by striking the language or included in a product that is produced for or placed in and inserting a product or service used in or intended for use in interstate commerce. The new legislation is a response to the Second Circuit s recent decision in United States v. Aleynikov, in which the court reversed the conviction of former Goldman Sachs Group Inc. programmer Sergey Aleynikov for stealing and transferring proprietary computer source code of his employer s high frequency trading system. The court held that the Economic Espionage Act applied only to trade secrets related to products a company sells. Sources: Bill, available at Ryan Davis, Trade Secrets Cases May Spike After US Strengthens Law, Law360 (Jan.2, 2013), available at gy (subscription required). Upcoming Programs How Far Can Patent Holders Go? January 15, :00-1:15 Eastern In this second program of a series of joint programs hosted by the Intellectual Property and International Committees, panelists will explore the question of how far patent holders can go in exercising their intellectual property rights, and how those limits change depending on jurisdiction. Panelists from the DOJ and private practice, including former enforcers from the KFTC and MOFCOM, will discuss issues such as refusals to license, field of use and territorial restrictions, extending the patent through post-expiration royalties, and the scope of the patent misuse doctrine under the laws of the United States, Japan, and Korea. Location: Arnold & Porter LLP 555 Twelfth St. N.W. Room 220 Washington, D.C To attend in-person, please RSVP to Deborah.Morman@aporter.com -6-

7 To participate via teleconference, please register at A special thanks to Debbie Bellinger and Ian Horkley for their weekly contributions to tidbits. -7-