Historical Background
The First Forty Years: Patents Ascendant
United States patent law and antitrust law have coexisted uneasily since the enactment of the Sherman Antitrust Act in 1890. Until 1930, patent rights, property interests recognized by the Constitution and embedded in federal statutory law since 1790, generally “trumped” antitrust considerations in federal judicial decisions.
The Next Fifty Years: Patents Under Antitrust Siege
Beginning in 1930, however, and lasting until the early 1980s, courts and public officials changed their tune, characterizing patents as potentially dangerous “monopolies” that should be curbed.
Concerns that restrictive licenses could enable patent holders illegitimately to enhance their market power eventually led the DOJ Antitrust Division to promulgate a list of “Nine No-No’s”—licensing arrangements that it would view as per se unlawful. “[M]ost of the Nine No-No’s involve[d] attempts by patent holders to extend their patent monopolies to unpatented supplies, to gain control over improvements of their innovations, to determine prices for resale of their patented products, or to engage in market allocations.” Licensing practices not specifically within the Nine No-No’s also could attract government antitrust scrutiny, under the rule of reason.
The Pendulum Swings Back: The Pro-Patent Reagan, Bush I (1989-1993), and Clinton Period
Things changed dramatically with the arrival of the Reagan Administration in 1981. Patents were seen as important property rights, rather than problematic monopolies. New Antitrust Division leadership rejected the Nine No-No’s, taking the position that patent licensing practices typically promote the efficient dissemination of technology and economically beneficial innovation. By the late 1980s, the DOJ and the FTC had adopted a rather permissive antitrust rule of reason approach to patent licensing, which recognized the right of the patent holder to maximize the returns to its intellectual property.
The Clinton Administration essentially ratified the Reagan and Bush position on patents and antitrust. In 1995, the DOJ and the FTC issued “Guidelines for the Licensing of Intellectual Property” (IP), encompassing patents, copyrights, trade secrets, and know-how. The 1995 Guidelines stressed the importance of strong IP laws, stating that “[t]he intellectual property laws and the antitrust laws share the common purpose of promoting innovation and enhancing consumer welfare.”
Bush II (2001-2009)—DOJ-FTC Tensions Emerge
While the 2017 Guidelines established a detailed DOJ-FTC framework for the antitrust analysis of patent licensing, they did not harmonize all aspects of federal IP-antitrust enforcement.
Most significantly, during the George W. Bush Administration (2001-2009), the FTC, but not DOJ, pursued a significant number of “reverse payment” cases. These involved payments made by a brand name drug patent holder to a generic manufacturer who allegedly agreed to delay market entry, in connection with the settlement of a patent infringement suit.
The FTC viewed the payments as facially anticompetitive agreements to extend a monopoly and to allocate the market. Initial antitrust challenges led to inconsistent holdings. The Second, Eleventh, and Federal Circuit view was that “so long as the settlement did not restrict the generic’s ability to compete beyond the restrictions already provided for by the patent rights (such as by precluding the generic from launching non-infringing products or blocking the generic from entering after patent expiration), there was no antitrust violation.” In contrast, the Third Circuit held that “reverse payment settlements were presumptively invalid under a ‘quick look’ standard.”
In 2006, the DOJ opposed the FTC’s request that the Supreme Court grant the FTC’s petition for certiorari, following the 11th Circuit’s rejection of the FTC’s reverse payment prosecution against Schering-Plough. Although the DOJ’s brief did not comment on the merits, it was viewed by many at the time as reflecting a skeptical DOJ view of the FTC’s reverse payment prosecutions.
Under the Obama Administration, however, the DOJ came to support the FTC’s position that reverse payments were presumptively illegal. In 2013, the Supreme Court adopted instead a “middle ground” view, holding in FTC v. Actavis, Inc. that a reverse payment should be subject to an antitrust rule of reason analysis, to be developed by the lower courts. The payment could be held unlawful if was found to be “large” and “unexplained” and yielded an anticompetitive delay in generic entry. The FTC read this holding very broadly, advancing aggressive interpretations of what constitutes reverse payments in a series of cases. Today, more than a decade of case law and settlements have failed to clarify the exact scope of reverse payment liability, spawning continued business uncertainty in this area.
More broadly, the Bush II Administration also featured 2001-2003 FTC-DOJ public hearings on patent-antitrust policy (the brainchild of new FTC Chairman Timothy Muris), that generated a 2003 FTC Report. The report stressed the importance of achieving a “proper balance” between patent and antitrust law. In so doing, it raised questions about competitive harm due to supposedly lax evidentiary standards and excessive infringement penalties that allegedly promoted the proliferation of “bad patents.” It recommended statutory constructions that would make it more difficult to obtain patents, called for strengthened “prior user rights,” and urged that Congress authorize a new Patent and Trademark Office administrative procedure for review of patent grants. The report also stressed that the FTC would be active in filing amicus briefs in the patent-antitrust field and would ask the U.S. Patent and Trademark Office (PTO) Director to reexamine “questionable” patents that raised competitive concerns.
In short, the 2003 FTC Report in large part uncritically accepted an anti-patent narrative advanced by various patent skeptics during the hearings. The DOJ neither joined in the report nor commented on it. In private, senior Antitrust Division officials expressed serious concerns about the breadth and positions taken in the report. Thus the foundations for a future FTC-DOJ split on patent-antitrust policy had been established.
Obama (2009-2017)—FTC and DOJ Both Adopt a Less Pro-Patent Philosophy
New DOJ political leadership in the Obama Administration joined the FTC in moving toward a more critical view of patents in antitrust analysis. This was in line with a broad Obama Administration position of concern about patent abuses.
The DOJ and the FTC devoted particular attention to potential abuses associated with standard essential patents (SEPs), which cover technologies incorporated into important technical standards widely used by competitors in an industry, such as smartphones. As I explained in a 2017 commentary:
The FTC entered into settlements with firms that capped the price of their SEP licenses at very low rates . . .
The DOJ commented favorably on proposed standard-setting rules designed to sharply constrain SEP holders’ licensing flexibility; and
Antitrust officials made public statements suggesting possible antitrust investigations of SEP licensing.
Obama antitrust enforcers argued that standards artificially bestowed “unearned” market power on SEPs that did not exist prior to standardization. This allegedly fueled SEP holders’ efforts to extract “anticompetitively high” royalties or other onerous terms in patent licensing negotiations—commonly referred to as “hold-up.” To avoid such an “unfair” exercise of market power, the enforcers argued that SEPs should be licensed to all comers at “Fair, Reasonable, and Non-Discriminatory” (FRAND) rates, that tended to be quite low. The DOJ’s and the FTC’s actions effectively treated SEPs as “second class” patents and inserted government officials into standard-setting policies that traditionally had been private sector-driven.
Furthermore, in 2013, the PTO and the DOJ jointly issued a “weak patent” policy statement related to remedies for infringement of standards-essential patents subject to voluntary FRAND commitments. That statement noted that while in some circumstances an exclusionary remedy for infringement of a standards-essential patent subject to a FRAND commitment may be inconsistent with the public interest for those patents, an exclusionary remedy may be appropriate in other circumstances, such as when the potential licensee constructively refuses to engage in a negotiation to determine FRAND terms. The primary focus of the 2013 Policy Statement was on exclusion orders issued against patent-infringing imports by the U.S. International Trade Commission (“ITC”) pursuant to 19 U.S.C. § 1337. The 2013 Policy Statement shed a rather negative light on the issuance of those orders, even though they are a core statutory protection for U.S. patent holders.
The one notable exception to the more critical view of patents under the Obama Administration is the issuance of new joint DOJ-FTC IP Licensing Guidelines in January 2017, immediately prior to the beginning of the Trump Administration. The 2017 Guidelines updated the 1995 Guidelines by adding material drawn from post-1995 Supreme Court decisions and from a special 2007 DOJ-FTC report on antitrust and IP rights. The 2017 Guidelines are notable as embodying essentially “pro patent rights” positions that echoed the philosophy of the previous Reagan, Bush I, and Clinton Administrations. Significantly, the 2017 Guidelines do not address SEP-related licenses.
Most significantly, the 2017 Guidelines retained three key general principles found in the 1995 version:
“(a) for the purpose of antitrust analysis, the Agencies [the DOJ and the FTC] apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right;
(b) the Agencies do not presume that intellectual property creates market power in the antitrust context; and
(c) the Agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally procompetitive.”
The 2017 Guidelines emphasize the rights of patentees, grounded in property law, to defend their patents from infringement and to control access to their patents. In particular, they explain that “[a]n intellectual property owner’s rights to exclude are similar to the rights enjoyed by owners of other forms of private property. The antitrust laws generally do not impose liability upon a firm for a unilateral refusal to assist its competitors, in part because doing so may undermine incentives for investment and innovation.”
The 2017 Guidelines present a predominantly favorable antitrust enforcement view of IP (and thus patent) licensing. They deem “licensing arrangements a[s] typically welfare-enhancing and procompetitive[.]” Even those IP rights that confer market power impose no duty on the IP owner to license the use of its property to others. The 2017 Guidelines set forth a rule of reason framework for antitrust analysis of IP licensing, which takes into account both the substantial procompetitive efficiencies as well as the potential anticompetitive effects of particular licensing arrangements. They also also establish an antitrust “safety zone,” under which they vow not to prosecute (“absent extraordinary circumstances”) a restrictive licensing restraint that faces effective actual or potential competition as defined in the guidelines. In characterizing the nature of licensing restraints, the 2017 Guidelines “emphasize that licensing arrangements are not anticompetitive merely because they do not fall within the scope of the safety zone. Indeed, it is likely that the great majority of licenses falling outside the safety zone are lawful and procompetitive.”
Trump I—The Antitrust Enforcers Split on Patent Policy
New Antitrust Division leadership appointed by President Trump following his 2016 election shifted policy in a dramatically pro-patent rights direction. The FTC, however, failed to follow suit, creating an embarrassing split.
DOJ Assistant Attorney General for Antitrust Makan Delrahim fully rejected the Obama Administration’s antitrust policies on patents and SEPs. In a 2018 speech, he announced a “New Madison Approach” (NMA) to patent licensing featuring four core principles:
First, hold-up is fundamentally not an antitrust problem, and therefore antitrust law should not be used as a tool to police FRAND commitments that patent-holders make to standard setting organizations.
Second, standard setting organizations should not become vehicles for concerted actions by market participants to skew conditions for patented technologies’ incorporation into a standard in favor of implementers because this can reduce incentives to innovate and encourage patent hold-out.
Third, because a key feature of patent rights is the right to exclude, standard setting organizations and courts should have a very high burden before they adopt rules that severely restrict that right or—even worse—amount to a de facto compulsory licensing scheme.
Fourth, consistent with the fundamental right to exclude, from the perspective of the antitrust laws, a unilateral and unconditional refusal to license a patent should be considered per se legal.
Consistent with these remarks, the Trump DOJ avoided bringing antitrust patent licensing cases. It also rescinded Obama Administration “anti-SEP” guidance to a standard setting body (IEEE) and prompted another standard setting organization (GSMA) to redraft its rules to avoid discouraging new disruptive technologies. Notably, the New Madison Approach comports fully with the philosophy of the 2017 Guidelines, while providing new guidance on SEP licensing, standard-setting, and the scope of the patent property right.
What’s more, in December 2019, the DOJ Antitrust Division, the PTO, and the National Institute for Standards & Technology issued a new “pro-SEP” policy statement that rejected the Obama Administration’s SEP skepticism. The 2019 statement rescinded the 2013 Policy Statement. As it noted:
[T]he agencies have heard concerns that the 2013 policy statement has been misinterpreted to suggest that a unique set of legal rules should be applied in disputes concerning patents subject to a F/RAND commitment that are essential to standards (as distinct from patents that are not essential), and that injunctions and other exclusionary remedies should not be available in actions for infringement of standards-essential patents. Such an approach would be detrimental to a carefully balanced patent system, ultimately resulting in harm to innovation and dynamic competition. Accordingly, the USPTO and the DOJ withdraw the 2013 policy statement, and together with NIST [National Institute of Standards and Technology] issue the present statement to clarify that, in their view, a patent owner’s F/RAND commitment is a relevant factor in determining appropriate remedies, but need not act as a bar to any particular remedy.
The FTC, however, failed to endorse or even the DOJ’s NMA. What’s more, the Commission continued to prosecute a major patent licensing case against Qualcomm that was at odds with the NMA philosophy. Moreover, leadership at both DOJ and FTC clearly perceived that their respective IP-antitrust policies were at odds.
Three days before the end of the Obama Administration, the FTC voted 2-1 along partisan lines to sue Qualcomm for monopolization in federal district court. According to the FTC:
Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition.
In her dissent, Commissioner Ohlhausen (who served as Acting Chairman from January 20, 2017 through April 30, 2018) rejected the majority’s theory, stating:
If Qualcomm charges reasonable royalties for its patents, then there is no anticompetitive “tax”—the complaint’s nomenclature for a price squeeze—but only the procompetitive monetization of legitimate patent rights. Importantly, there is no suggestion that Qualcomm charges higher royalties to OEMs that buy non-Qualcomm chipsets.
Following a change in Administration, the FTC’s Qualcomm prosecution continued, despite the fact that (due to recusals and open commission seats) the case never gained the support of more than two commissioners on the five-member FTC. A federal district judge held in May 2019 that Qualcomm was an illegal monopolist and determined that the company’s licensing contracts should be renegotiated. The Ninth Circuit Court of Appeals, however, reversed the district court decision, holding among other things that Qualcomm had no antitrust duty to license its competitors; that any remedy for possible Qualcomm FRAND breaches lay in contract or tort law, not antitrust law; and that Qualcomm’s licensing contracts did not impose an “anticompetitive surcharge” and did not undermine competition.
Significantly, the Trump DOJ had directly opposed the FTC and supported Qualcomm in a July 2019 “statement of interest” filed before the Ninth Circuit. The DOJ’s brief specifically argued that Qualcomm’s conduct was not anticompetitive, that the company had no antitrust duty to deal with its competitors, and that it was not required to license on FRAND terms. This filing laid bare a fundamental difference on patent-antitrust philosophy between the DOJ and FTC, which could not be papered over or distinguished away. As it was, the Ninth Circuit for all intents and purposes strongly sided with the DOJ’s position.
Biden—The Pendulum Swings Back in an Anti-Patent Direction
The Biden Administration marked a return to interagency patent-antitrust harmony, based on the new DOJ’s firm dramatic rejection of the NMA and the Administration’s general adoption of an anti-patent stance. The FTC also weighed in as a critic of strong patent rights.
President Biden’s July 2021 Executive Order on Competition promoted a “whole of government approach” to competition. It implicitly criticized strong patent rights, stating that patent laws had been “misused” to inhibit or delay lower-cost drugs. It also directed the DOJ and the Commerce Department (which oversees the PTO and NIST) “to consider whether to revise their position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the [2019] Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments…”
Responding to the Executive Order, in December 2021, the PTO, NIST, and the DOJ issued a new draft policy statement on seps subject to voluntary F/RAND commitments. The 2021 Draft Statement suggested a detailed framework for SEP licensing negotiations that arguably smacked of micromanagement. It also rejected the NMA approach to SEP remedies, stating that “[w]here a SEP holder has made a voluntary F/RAND commitment, . . . irreparable harm analysis, balance of harms, and the public interest generally militate against an injunction.” Various patent community experts sharply criticized the 2021 Draft Statement as one-sidedly anti-SEP. In June 2022, the Biden Administration withdrew both the 2021 Draft Statement and the 2019 Policy Statement, leaving SEP licensing controversies to case-by-case review.
The Biden FTC took patent-critical stances in the pharmaceutical area. In October 2023, it issued a policy statement, supported by the U.S. Food and Drug Administration (FDA), warning pharmaceutical companies that make and sell brand-name drugs that they could face legal action if they improperly list patents in the FDA’s catalog of “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the “Orange Book.” It investigated alleged “improper” patent listings by pharmaceutical firms on the Orange Book and sent letters to those companies requesting that they delist allegedly problematic patents. Moreover, the FTC challenged Teva’s inhaler patents via the FDA’s Orange Book dispute process, as well as hundreds of other similar device patent listings by major drug makers. In addition, the Commission filed amicus briefs urging the delisting of Teva’s patents because it claimed that they were improperly listed in the Orange Book. Also, in February 2024, the FTC issued a public comment opining that high price is an appropriate basis for federal government exercise of “march-in” rights under the Bayh-Dole Act. The FTC’s focus was on justifying compulsory licensing of drugs that had received some government funding. To top it off, the FTC issued a comment supporting a proposed PTO rule requiring the broader disclosure of patent settlement agreements.
Finally, while the Biden FTC’s primary focus was on drug patents, it weighed in on other patent-IP issues as well. For example, a May 2022 public interest statement by Chair Lina Khan and Commissioner Rebecca Slaughter filed with the ITC largely opposed the issuance of import exclusion orders against a willing licensee involving FRAND-committed SEPs.
Reflections on Future Patent-Antitrust Policy
The new leadership at the FTC and the DOJ does not yet have a track record on patent-antitrust issues, but at the very least one may hope that a harmonious approach to these questions will be adopted. Policy harmonization should help reduce wasteful costs and disincentives to invest arising from business uncertainty.
Regarding policy specifics, the author hopes that the new Trump Administration will revert to a largely pro-strong patent position, consistent with the NMA. Economic analysis supports the proposition that patent licensing promotes the dynamic and efficient dissemination of new technologies throughout the economy which, in turn, promotes innovation and increased overall economic welfare (consumers’ plus producers’ surplus). Particularly in a period of increased dynamic international competition between the U.S. and China, with patents playing a key role, bureaucratic U.S. antitrust micromanagement of patent rights could seriously compromise American economic growth. This should be kept in mind by the Trump Administration, as it develops its own new “whole of government approach” to promote global American economic competitiveness.
