[Federal Register Volume 78, Number 11 (Wednesday, January 16, 2013)]
[Notices]
[Pages 3427-3429]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-00837]
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FEDERAL TRADE COMMISSION
[File No. 121-0120]
Motorola Mobility LLC and Google Inc.; Analysis of Proposed
Consent Order To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement; correction.
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SUMMARY: The Federal Trade Commission published a document in the
Federal Register of January 11, 2013, requesting public comments on an
analysis of proposed consent order to aid public comment. The document
inadvertently did not include the Statement of the Commission. This
document contains the Statement of the Commission.
FOR FURTHER INFORMATION CONTACT: Richard Feinstein or Pete Levitas
(202-326-2555), FTC, Bureau of Competition, 600 Pennsylvania Avenue
NW., Washington, DC 20580.
Correction
In the Federal Register of January 11, 2013, in FR Doc. 2013-00465,
on page 2402, the third column, second paragraph (after ``Richard C.
Donohue, Acting Secretary,'' but before the ``Statement of Commissioner
Rosch,'') insert the following Statement of the Commission:
Statement of the Federal Trade Commission
The Federal Trade Commission has today voted to issue for public
comment a Complaint and Order against Google Inc. (``Google'') designed
to remedy Google's allegedly anticompetitive conduct resulting from
breaches by Google and its subsidiary Motorola Mobility, Inc.
(``Motorola'') of Motorola's commitments to license standard-essential
patents (``SEPs'') on terms that are fair, reasonable and non-
discriminatory (``FRAND'').\1\ The Complaint alleges that, before its
acquisition by Google, Motorola reneged on a licensing commitment made
to several standard-setting bodies to license its standard-essential
patents relating to smartphones, tablet computers, and video game
systems on FRAND terms by seeking injunctions against willing licensees
of those SEPs.\2\ This conduct tended to impair competition in the
market for these important electronic devices--products that over half
of Americans own and use daily, including iPhones, iPads and Xboxes.
After purchasing Motorola for $12.5 billion in June 2012, Google
continued Motorola's conduct. These actions constitute unfair methods
of competition, as well as unfair acts and practices, in violation of
Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45.
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\1\ The licensing obligation in this matter was a FRAND
obligation, although RAND (reasonable and non-discriminatory)
licensing obligations raise similar issues.
\2\ Commissioners Rosch and Ohlhausen do not join this Statement
(with Commissioner Ohlhausen voting against the consent agreement)
and have issued separate statements expressing their views.
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Google's settlement with the Commission requires Google to withdraw
its claims for injunctive relief on FRAND-encumbered SEPs around the
world, and to offer a FRAND license to any company that wants to
license Google's SEPs in the future. If accepted by the Commission, the
Proposed Order may set a template for the resolution of SEP licensing
disputes across many industries, and reduce the costly and inefficient
need for companies to amass patents for purely defensive purposes in
industries where standard-compliant products are the norm.
The Commission has a long history of using its enforcement
authority to safeguard the integrity of the standard-setting
process.\3\ Standard setting can deliver substantial benefits to
American consumers, promoting innovation, competition, and consumer
choice. But standard setting often supplants the competitive process
with the collective decision-making of competitors, requiring that we
be vigilant in protecting the integrity of the standard-setting
process.\4\ Today's Commission
[[Page 3428]]
action helps ensure consumers will continue to see the benefits of
competition and innovation in important technology markets.
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\3\ See In re Dell Computer Corp., 121 F.T.C. 616 (1996); In re
Union Oil Company of California, 2004 FTC LEXIS 115 (July 7, 2004);
In re Rambus, Inc., Dkt. No. 9302, 2006 FTC LEXIS 101 (Aug. 20,
2006), rev'd, Rambus Inc. v. F.T.C., 522 F.3d 456 (DC Cir. 2008); In
re Negotiated Data Solutions LLC, FTC File No. 051-0094, Decision
and Order (Jan. 23, 2008), available at http://www.ftc.gov/os/caselist/0510094/080122do.pdf; In re Robert Bosch GmbH, FTC File N.
121-0081, Decision and Order (Nov. 26, 2012), available at http://www.ftc.gov/os/caselist/1210081/121126boschdo.pdf.
\4\ See, e.g., Allied Tube & Conduit Corp. v. Indian Head, Inc.,
486 U.S. 492, 500-01 (1988) (noting that ``private standard-setting
associations have traditionally been objects of antitrust scrutiny''
because of their potential use as a means for anticompetitive
agreements among competitors).
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We previously explained in the Commission's unanimous filings
before the United States International Trade Commission in June 2012
that the threat of injunctive relief ``in matters involving RAND-
encumbered SEPs, where infringement is based on implementation of
standardized technology, has the potential to cause substantial harm to
U.S. competition, consumers and innovation.'' \5\ The threat of an
injunction allows a SEP holder to demand and realize royalty payments
reflecting the investments firms make to develop and implement the
standard, rather than the economic value of the technology itself.\6\
In addition to harming incentives for the development of standard-
compliant products, the threat of an injunction can also lead to
excessive royalties that may be passed along to consumers in the form
of higher prices. Alternatively, an injunction or exclusion order could
ban the sale of important consumer products entirely. This type of
``patent ambush'' harms competition and consumers and is rightly
condemned by the Commission.\7\
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\5\ Third Party United States Federal Trade Commission's
Statement on the Public Interest filed on June 6, 2012 in In re
Certain Wireless Communication Devices, Portable Music & Data
Processing Devices, Computers and Components Thereof, Inv. No. 337-
TA-745, available at www.ftc.gov/os/2012/06/1206ftcwirelesscom.pdf
and in In re Certain Gaming and Entertainment\ Consoles, Related
Software, and Components Thereof, Inv. No. 337-TA-752, available at
http://www.ftc.gov/os/2012/06/1206ftcgamingconsole.pdf.
\6\ Id. at 3-4 (``[A] royalty negotiation that occurs under
threat of an exclusion order may be weighted heavily in favor of the
patentee in a way that is in tension with the RAND commitment. High
switching costs combined with the threat of an exclusion order could
allow a patentee to obtain unreasonable licensing terms despite its
RAND commitment, not because its invention is valuable, but because
implementers are locked in to practicing the standard. The resulting
imbalance between the value of patented technology and the rewards
for innovation may be especially acute where the exclusion order is
based on a patent covering a small component of a complex
multicomponent product. In these ways, the threat of an exclusion
order may allow the holder of a RAND-encumbered SEP to realize
royalty rates that reflect patent hold-up, rather than the value of
the patent relative to alternatives, which could raise prices to
consumers while undermining the standard setting process.'').
\7\ A number of courts have recognized the tension between
Google's FRAND commitments and seeking injunctive relief. See, e.g.,
Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 885 (9th Cir. 2012)
(``Implicit in such a sweeping promise is, at least arguably, a
guarantee that the patent-holder will not take steps to keep would-
be users from using the patented material, such as seeking an
injunction, but will instead proffer licenses consistent with the
commitment made.''); Apple, Inc. v. Motorola, Inc., No. 1:11-cv-
08540, 2012 U.S. Dist. LEXIS 89960, at *45 (N.D. Ill. June 22, 2012)
(Posner, J., sitting by designation) (``I don't see how, given
FRAND, I would be justified in enjoining Apple from infringing the
'898 [patent] unless Apple refuses to pay a royalty that meets the
FRAND requirement. By committing to license its patents on FRAND
terms, Motorola committed to license the '898 to anyone willing to
pay a FRAND royalty and thus implicitly acknowledged that a royalty
is adequate compensation for a license to use that patent. How could
it do otherwise?'').
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We take this action pursuant to the Commission's authority under
Section 5 to prohibit unfair methods of competition, which both
Congress and the Supreme Court have expressly deemed to extend beyond
the Sherman Act.\8\ A stand-alone Section 5 unfair methods of
competition claim allows the Commission to protect consumers and the
standard-setting process while minimizing the often burdensome
combination of class actions and treble damages associated with private
antitrust enforcement. In a society that all of us recognize is overly
litigious, the judicious use of Section 5 is a sensible and practical
way for the Commission to bring problematic conduct to a halt. \9\
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\8\ See, e.g., F.T.C. v. R.F. Keppel & Bros., Inc., 291 U.S.
304, 310-313 (1934); F.T.C. v. Cement Inst., 333 U.S. 683, 693 & n.6
(1948); F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233, 241-244
(1972).
\9\ Chairman Leibowitz and Commissioner Brill support an unfair
acts claim as well as an unfair methods claim. They have a reason to
believe that seeking injunctions on FRAND-encumbered SEPs is likely
to cause substantial harm to end-use consumers and, because FRAND
commitments made to a standard-setting body often induce industry-
wide lock-in and eliminate alternative technologies, this harm may
not be reasonably avoided by consumers. Google's threat of
injunctions would likely increase costs to consumers because
manufacturers using Google's SEPs would be forced, by the threat of
an injunction, to pay higher royalty rates, which would be passed on
to consumers. There is nothing trivial or attenuated about these
injuries; they are not outweighed by any offsetting consumer or
competitive benefit; and they cannot be reasonably avoided by
consumers. See Compl. ] 32. Commissioners Ramirez and Ohlhausen
believe that these injuries are a significant departure from the
type of injury contemplated by the Commission's 1980 Unfairness
Policy Statement. Chairman Leibowitz and Commissioner Brill
disagree. These injuries to end-use consumers as a result of
Google's conduct are unique and particularly harmful, and use of the
Commission's unfairness authority in this instance is appropriate
and consistent with precedent. At this stage of the proceeding,
Chairman Leibowitz and Commissioner Brill have a reason to believe
that a violation has occurred based on these facts. If this matter
were not being resolved through a Proposed Order, Chairman Leibowitz
and Commissioner Brill would refrain from forming a final view on
whether this evidence supports an unfair acts claim until after an
administrative hearing, at which time the Commission would have the
benefit of a full evidentiary record developed at trial.
Commissioner Ramirez dissents from the Commission's decision to
use its unfair acts or practices authority to challenge Google's
alleged violation of its FRAND commitments. In her view, the conduct
and harm at issue fall squarely within Section 5's prohibition on
unfair methods of competition but are a significant departure from
the type of direct consumer transactions and immediate injury
contemplated by the Commission's 1980 Unfairness Policy Statement.
While there may be situations where it would be appropriate to
allege an unfairness claim to address harm to competition or the
competitive process, in this instance the claim neither reaches acts
or injury not already encompassed by unfair methods of competition
nor provides any additional relief. Under these circumstances,
Commissioner Ramirez believes the majority's application of the
Commission's unfairness authority is unwarranted.
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For these reasons, we respectfully disagree with the view of
Commissioners Rosch and Ohlhausen that the conduct we challenge here,
and the similar acts we challenged in Bosch, represent an undisciplined
or unwarranted application of our unfair methods of competition
authority. As we have previously explained, we believe that a breach of
a FRAND commitment in the context of standard setting poses serious
risks to the standard-setting process, competition, and consumers.\10\
Where opportunistic behavior of the sort involved here (and in Bosch)
harms, or threatens to harm, competition, the competitive process, and
consumers, Commission intervention is justified. Accordingly, our
colleagues' contention that we are applying our unfair methods of
competition authority without regard for limiting principles is simply
wrong. In fact, we note that our action is plainly consistent with
several principles identified by Commissioner Rosch as justifying
Commission action under Section 5.\11\
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\10\ See Robert Bosch, Statement of the Federal Trade
Commission, at 3 (``[Respondent]'s failure to abide by its
commitment took place in the standard-setting context. In that
setting, long an arena of concern to the Commission, a breach of
contract risks substantial consumer injury. The standard setting
context, together with the acknowledgment that a FRAND commitment
also depends on the presence of a willing licensee, appropriately
limit the Commission's enforcement policy and provide guidance to
standard-setting participants.''), available at http://www.ftc.gov/os/caselist/1210081/121126boschcommissionstatement.pdf; Negotiated
Data Solutions, Analysis of Proposed Consent Agreement to Facilitate
Public Comment, at 6 (``A mere departure from a previous licensing
commitment is unlikely to constitute an unfair method of competition
under Section 5. The commitment here was in the context of standard-
setting.''), available at http://www.ftc.gov/os/caselist/0510094/080122analysis.pdf.
\11\ Compare Commissioner J. Thomas Rosch, The FTC's Section 5
Hearings: New Standards for Unilateral Conduct? (Mar. 25, 2009), at
6 (identifying the context of standard setting as a limiting
principle for Section 5) with Complaint ]] 1-4 (describing the
effect of Google's alleged conduct on the standard setting process);
Commissioner J. Thomas Rosch, Wading Into Pandora's Box: Thoughts On
Unanswered Questions Concerning the Scope and Application of Section
2 & Some Further Observations on Section 5 (Oct. 3, 2009), at 20
(identifying monopoly power as a limiting principle for Section 5)
with Complaint ]]20-21 (alleging Google's monopoly power);
Commissioner J. Thomas Rosch, The Path You Need Not Travel:
Observations on Why Canada Can Do Without Section 5 (Feb. 4, 2010),
at 5 (identifying harm to competition as a limiting principle for
Section 5) with Complaint ] 28 (alleging harm to competition).
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[[Page 3429]]
We also disagree with Commissioner Ohlhausen's claim that the
proposed settlement with Google creates uncertainty for market
participants. In our view, it does just the opposite. By taking action
that may deter the owners of standard-essential patents from
unilaterally defining the terms of FRAND agreements through the
exercise of leverage acquired solely through the standard-setting
process, we protect the integrity of that process. Moreover, we believe
the procedures outlined in the proposed settlement will provide useful
guidance to market participants, including SSOs, in developing a
predictable approach to resolve licensing disputes involving standard-
essential patents. This will benefit all stakeholders, including
patentees, implementers, and consumers.
We also believe that Commissioner Ohlhausen is incorrect in her
claim that our allegations are in conflict with prior court rulings and
in particular with certain findings of the district court in Apple,
Inc. v. Motorola Mobility, Inc.\12\ The court's determination in that
case, made in connection with a decision on a motion in limine--not a
trial on the merits--concerned the application of Wisconsin contract
law. At most, the ruling suggests there is a question of fact as to
whether Motorola's injunctive relief claims violated its contract with
the SSOs.\13\ The evidence before us provides us with sufficient reason
to believe that a violation of Google and MMI's FRAND commitments
occurred.\14\
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\12\ 2012 U.S. Dist. LEXIS 181854, *35-46 (W.D. Wis. Oct. 29,
2012).
\13\ The court denied Motorola's motion seeking a ruling that as
a matter of law it could not have violated its FRAND commitments,
establishing the existence of a fact issue. Id. at *45-46.
\14\ We also disagree with our colleague as to the relevance of
Commonwealth Sci. & Indus. Research Organisation v. Buffalo Tech.
Inc., 492 F. Supp. 2d 600 (E.D. Tex. 2007) (``CISRO''), to the
Commission's action here. Commissioner Ohlhausen cites CISRO for the
proposition that ``it should have been a reasonable expectation
since that time [the decision of CISRO in 2007] to IEEE members
(including affected parties here) that an injunction could issue in
certain situations even on a RAND-encumbered SEP.'' See Dissenting
Statement at 5. We agree that injunctions may issue in certain
situations even when a RAND-encumbered SEP is involved, such as when
a licensee is unwilling to license on FRAND terms--and have embedded
this concept in the Proposed Decision and Order in both Bosch and
this case.
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Finally, we are not persuaded by Commissioner Ohlhausen's argument
that the conduct alleged in the Commission's complaint implicates the
First Amendment and the Noerr-Pennington doctrine. As noted above, we
have reason to believe that MMI willingly gave up its right to seek
injunctive relief when it made the FRAND commitments at issue in this
case.\15\ 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.'' \16\
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\15\ See, e.g., Powertech Technology, Inc. v. Tessera, Inc.,
2012 U.S. Dist. LEXIS 70630, *17-18 (N.D. Cal. May 21, 2012)
(holding that when the patent holder had contracted away its rights
to bring claims before the United States International Trade
Commission, a challenge to a breach of that commitment was not
barred by Noerr).
\16\ Cohen v. Cowles Media Co., 501 U.S. 663, 670-71 (1991).
By direction of the Commission, Commissioner Rosch and
Commissioner Ohlhausen abstaining.
Donald S. Clark,
Secretary.
[FR Doc. 2013-00837 Filed 1-15-13; 8:45 am]
BILLING CODE 6750-01-P