At a time when innovative American companies are moving technology forward at often dizzying rates, today’s Federal Trade Commission (FTC) seems to be bent on thwarting that innovation by taking a giant leap backwards by pitting antitrust against patents – a stance that has not been seen decades.
In the 1970s, the relationship between antitrust and patents was viewed as a conflict. Patents, by their nature, create a limited monopoly. This limited monopoly, during which the patentee may be able to exclusively sell their product or license their technology to other companies, provides the patentee the potential to recoup the investments made in research and development. This income, in turn, allows the patentee to take up new avenues of invention and innovation. Antitrust, on the other hand, is intended to prevent or minimize the impact of monopolies. The basic idea is that competition amongst companies in any given market produces benefits for consumers.
While at first blush, the conflicted relationship between antitrust and patent makes perfect sense, these two areas of law actually have a common goal – increased innovation. Patents provide a limited monopoly in exchange for innovation; antitrust incentivizes innovation as one of the axes of competition in which companies can compete for consumers. Although each of these areas of law may approach the encouragement of innovation in a different way, they are both have innovation as an end goal.
Consumers benefit from innovation, and the state of technology is advanced by innovation. Importantly, the economy is also driven by innovation. Yet, for innovation to occur, companies must be motivated to devote extensive amounts of resources, both in terms of money and human capital, into research and development. This motivation, in part, is provided by the ability of companies to license their patented technology.
While in the 1970s many aspects of patent licensing were believed to be anticompetitive, the modern understanding of patents and antitrust recognized that innovation was enhanced when patent licensing was permitted. In this modern era, we have witnessed extraordinary technological innovation while, at the same time, benefiting from robust competition. Examples of this include smart phones, personal computers, and consumer electronics. The technology available to consumers in these areas is constantly improving, and yet the prices for this improved technology are, in many situations, decreasing. This is innovation, and competition, at its best. Patent licensing has made this possible.
The FTC, as one of America’s agencies responsible for enforcing antitrust laws, is charged with encouraging competition and innovation. In recent years, however, the FTC has used antitrust laws as a means to hinder patent licensing, in ways that will undoubtedly lead to decreased innovation and, ultimately, economic harms. The latest example of this is the FTC’s continued, almost dogged, pursuit of antitrust claims against Qualcomm.
Rather that recognizing the competitive and innovative benefits inherent in Qualcomm’s ability to license its patents consistent with its FRAND commitments, the FTC has repeatedly sided with the companies who want to use Qualcomm’s innovative technology and who do not want to pay for it. The FTC’s perspective is that the royalties Qualcomm has sought for use of its patents are “naked taxes” on phone manufacturers, rather than patent licensing fees. Pointing to the district court judge’s findings, the FTC contends that the royalties are attributable, not to the strength of the technology covered by Qualcomm’s patents, but rather due to the company’s position in the market. This view pits antitrust law against patent law, by ignoring the innovative technology made possible by Qualcomm’s investment in research and development, as well as their strong leadership as part of 4G and 5G standards development bodies, and instead insists that the company is seeking outsized license fees simply because they have market power.
Not only is the FTC pressing a seriously outdated understanding of antitrust and patent law, the agency is doing so despite repeated indications that it is wrong. While the FTC prevailed in front of Judge Koh at the district court, this win was nearly immediately called into question by a panel of the Ninth Circuit that questioned the legal wisdom of Judge Koh’s opinion. A separate panel of the Ninth Circuit recently ruled 3-0 against the FTC. In the midst of these hearings, the Department of Justice and other administrative agencies weighed in, all siding with Qualcomm and against the positions taken by the FTC. The errors of the FTC’s position seem so clear to so many, and yet the agency persists – and has filed a petition for en banc review at the Ninth Circuit.
Moreover, in continuing to challenge Qualcomm’s licensing program, the FTC is complicating the ability of any innovative company to license their patents, devaluing the patents at issue, and discouraging these companies from continuing to engage in expensive research and development. It is almost as if the FTC is seeking a return to the 1970s.
Rather than continuing along this current path, the FTC should change course and adopt a modern view where antitrust and patent law are not at odds, but are instead complementary systems that drive innovation. Rather than siding with companies who are fighting tooth and nail to avoid paying a fair price to use another company’s technology, the FTC should recognize the benefits that patent licensing provides for both current, and importantly future, innovation. Rather than persistently interfering with innovative companies, the FTC should remember that protecting innovation is an important aspect of competition. Rather than tilting at windmills already lost, it is time for the FTC to move forward and set their focus on real impediments to innovation and competition.