[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