Federal Trade Commission's Statement of Public Interest

UNITED STATES INTERNATIONAL TRADE COMMISSION
Washington, D.C.
In the Matter of
CERTAIN MEMORY MODULES AND
COMPONENTS THEREOF
Inv. No. 337-TA-1089
THIRD PARTY UNITED STATES FEDERAL TRADE COMMISSION'S
STATEMENT ON THE PUBLIC INTEREST

The United States Federal Trade Commission submits this Statement in response
to the United States International Trade Commission's Notice of Request for Statements
on the Public Interest in Investigation No. 337-TA-1089. 1 The issue raised by the Initial
Decision (ID) concerning the enforceability of RAND licensing commitments to JED EC
has significant implications for the public interest.2 Consistent with the statutory
requirement that the ITC "shall consult with, and seek advice and information from ...
the Federal Trade Commission ... as it considers appropriate" on matters affecting the
public interest in ITC investigations, we submit this statement explaining the potential
anticompetitive effects of rendering such RAND commitments unenforceable.3
The ID stated, in dicta, that JED EC RAND commitments are unenforceable, even
though no party so argued, because the terms "reasonable" and "non-discriminatory"
1 The FTC takes no position on the facts of Investigation No. 337-TA-1089, or whether
Section 337 remedies should issue here. This Statement also does not address whether
seeking an exclusion order for RAND-encumbered SEPs would violate Section 5 of the
Federal Trade Commission Act, 15 U.S.C. § 45, or Sections 1 or 2 of the Sherman Act,
15 U.S.C. §§ 1-2.
2 A related Initial Decision previously took the same position, but because the ITC did
not find infringement, it did not address this issue. See Initial Determination, In the
Matter of Certain Memory Modules and Components Thereof, and Products
Containing Same, Inv. No. 337-TA-1023, 194-95 (Nov. 14, 2017) (suggesting RAND
commitments are unenforceable); Notice of a Commission Determination, 2 (Jan. 16,
2018) (declining to review the ID's discussion of the public interest, and affirming the
ID's finding of no violation).
3 See 19 U.S.C. § 1337(b)(2) (''During the course of each investigation under this section,
the Commission shall consult with, and seek advice and information from, the
Department of Health and Human Services, the Department of Justice, the Federal
Trade Commission, and such other departments and agencies as it considers
appropriate.").
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are not specifically defined by JED EC. ID at 176.4 If adopted, that dicta is likely to have
substantial negative effects on competition and innovation, reaching far beyond this
investigation. The ITC should take these negative effects into account if it considers
whether to adopt the ALl' s position.
As an initial matter, it is important to note that the ID's discussion of JEDEC's
RAND commitments could affect "competitive conditions in the United States
economy," 19 U.S.C. § 1337(d)(1), far beyond the scope of any exclusion order issued in
this investigation. JEDEC's licensing policy mirrors that of the American National
Standard Institute (ANSI),s an organization that accredits over 200 standards
development organizations in the United States. 6 Many of those organizations have, like
4 Because neither party argued the RAND commitments were unenforceable, the ID
separately concluded those commitments had not been breached even if they were
enforceable, rendering the unenforceability discussion dicta. See ID at 177-81.
s JEDEC's RAND commitments require that: "For any Essential Patent Claims held or
controlled by the entity, pending or anticipated to be filed, the entity states: ... (ii) A
license will be offered to applicants desiring to utilize the license for the purpose of
implementing the JED EC Standard under reasonable terms and conditions that
are demonstrably free of any unfair discrimination." See JED EC License
Assurance/Disclosure Form, available at
https: //www.jedec.org/sites/ default/files/License Assurance-
Disclosure 	Form 	20150710.pdf.
ANSI's policy provides: "The ASD shall receive from the patent holder ... (b) assurance
that a license to such essential patent claim(s) will be made available to applicants
desiring to utilize the license for the purpose of implementing the standard ... under
reasonable terms and conditions that are demonstrably free of any unfair
discrimination . ... " ANSI Patent Policy§ 3.1.1 (2016), available at
https://share.ansi.org/Shared%20Documents/Standards%20Activities/American%20N
ational %20Standards/Procedures, %20Guides, %2oand%20Forms/ANSI%20Patent%20
Policy%202016.pdf.
6 Introduction to ANSI, available at
https://www.ansi.org/about 	ansi/introduction/introduction?menuid=1 ("As of
January 2018, some 237 standards developers were accredited by ANSI; there were
more than 11,500 American National Standards.").
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JED EC, modeled their RAND licensing policies on ANSI's.7 Any suggestion that
JEDEC's (and therefore ANSI's) RAND commitments are unenforceable will affect
hundreds of SSOs and thousands of standards. The ITC should bear in mind the scope
of the impact not only of any exclusion order, but also of the rules it announces in its
analysis.
Ensuring that SSOs and their members have access to enforceable RAND
commitments (and therefore access to the option of making and requiring such
commitments) encourages procompetitive standard-setting. Interoperability standards
can provide significant value, because they create a common platform for industry
participants, which can increase competition, innovation, product quality, and choice.
They also play a key role in supporting and incentivizing innovation by patent-holders,
by promoting the adoption of valuable technologies in ways that benefit consumers as
well as market participants.8 However, private standard s involve an agreement on how
competition will function in an industry, and thus raise "serious potential for
anticompetitive harm," if not developed "through procedures that prevent the standard-
setting process from being biased by members with economic interests in stifling
7 See, e.g., Alliance for Telecommunications Industry Solutions Patent Holder
Statement, available at
https: //www.atis.org/ 01 	legal/ docs/ATIS%20Patent%20Assurance%20Form.pdf
(permitting licensing commitments "under reasonable terms and conditions that are
demonstrably free of any unfair discrimination"); Association for the Advancement of
Medical Instrumentation Patent Policy, available at http: //s3.amazonaws.com/rdcms-
aami/files/production/public/FileDownloads/Standards/AAMI ANSI 	Patent 	Policy.p
df, (same); North American Energy Standards Board, Intellectual Property Rights Policy
Concerning Patents, available at https://www.naesb.org/materials/gov.asp (same).
8 See, e.g., Prepared Statement of the Federal Trade Commission Before the United
States Senate Committee on the Judiciary, Subcommittee on Antitrust, Competition
Policy and Consumer Rights, Concerning "Standard Essential Patent Disputes and
Antitrust Law," pp. 3-8 (July 30, 2013), available at
https: / /vv,,vw.judiciacy.senate.gov limo /media/ doc/7-30-13M unckTestimonv.pdf.
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product competition." Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492,
500-01 (1988). Anticompetitive conduct of any kind may therefore be particularly
harmful in the SSO context.
Importantly, while the following discussion focuses on the value of RAND
commitments which are made by-and therefore impos e conditions on-SEP-holders,
we recognize that standardization may allow both innovators and implementers to
engage in opportunism.
SSOs commonly require RAND licensing commitments from owners of standard-
essential patents (SEPs) to limit the potential for competition-harming opportunism.9 If
the standard require s use of a particular patented technology, it elevates the importance
of that technology over the alternatives. After the SSO and implementers have invested
substantial resources into developing produ cts that implement the s tandard, it would be
very expensive to either revise the standard or switch to a new standard, and the
industry therefore becomes "locked-in." Many SSOs, such as JED EC, accordingly refuse
to standardize patented technologies without a RAND commitment. 10
Enforceable RAND commitments encourage participation in standard setting by
ensuring that SEP owners that have chosen to make such commitments as a condition of
9 See, e.g., Microsoft Corp. v. Motorola, Inc ., 795 F.3d 1024, 1030-31 (9th Cir. 2015)
(noting that "development of standards ... creates an opportunity for companies to
engage in anti-competitive behavior" such as hold-up, and that RAND commitments
"mitigate the risk that a SEP holder" will engage in such conduct); Broadcom Corp. v.
Qualcomm Inc., 501 F.3d 297, 314 (3d Cir. 2007) ("FRAND commitments become
important safeguards against monopoly power.").
10 See, e.g., JEDEC Manual of Organization and Procedure, JM21S, § 8.2.7 (if a patent
would be included but the owner is unwilling to make a RAND commitment, "the Board
shall not approve the issuance of the standard except as provided in 8.2-7''), available at
https: / /"'~,v.jedec.org/sites/ default/files/JM21S.pdf.
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having their technology incorporated into the standard cannot thereafter block use of
the standard. Once the industry is locked in to the standard, implementers (including
those who helped develop the standard) can no longer design around standardized
technologies: to remain in the market they need access to SEP licenses.11 Developing and
implementing a standard requires significant resources, and firms would be much less
likely to invest in either if there were a significant risk that other participants could
withhold those licenses to block them from commercializing standard-compliant
products. RAND licensing commitments provide assurance that SEP licenses will be
available.
Enforceable RAND commitments also encourage participation in standards by
ensuring that SEP owners that have chosen to make such commitments as a condition of
having their technology incorporated into the standard will not take advantage oflock-
in to "hold up" implementers for unreasonable royalties. 12 Hold-up can occur if a SEP
0'1\-ner us es the high cost of switching away from the standard to demand royalties
unrelated to the value of its invention-implementers might pay such royalties to avoid
those switching costs.13 RAND licensing commitments prevent hold-up by ensuring that
licensing terms are tied to the value of the SEP.
11 See, e.g., U.S. Department of Justice and Federal Trade Commission, Antitrust
Enforcement and Intellectual Property Rights: Promoting Innovation and Competition,
34 n. 8 (April 2007) (SEP owner "may have significant market power," if "it can enforce
its patent rights to prevent others from making products that conform to the standard").
12 Id. at 35 n.11 ("hold up may cause firms to sink less investment in developing and
implementing standards.")
13 Id. at 35 n. 11 ("In the standard-setting context, firms may make sunk investments in
developing and implementing a standard that are specific to particular intellectual
property. To the extent that these investments are not redeployable using other IP, those
developing and using the standard may be held up by the IP holders.").
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Of course, SSOs and their members are able to avail themselves of RAND
commitments only if those commitments are contractually enforceable. Unenforceable
statements provide no protection against opportunism. If the ITC were to adopt the
position that JEDEC's RAND commitments are unenforceable, it would significantly
undermine the procompetitive benefits of standard setting by weakening JEDEC's
ability to avoid opportunism in all forms, including opportunism that is anticompetitive.
Without a "meaningful safeguard" against such abuses of the standard setting process,
see Allied Tube, 486 U.S. at 501, participation in standard setting and use of standards
would likely decline, depriving consumers of competition and innovation.
The ID's statements regarding RAND licensing raise significant concerns for
competition across numerous industries that rely on standards. The ID suggests that the
terms "reasonable and non-discriminatory" are too vague to enforce because the JED EC
patent policy does not define them, and the respondents "never articulate any extrinsic
standard or agreed-upon methodology" that would govern their interpretation. ID at
175-77.
Contrary to the ID's suggestion, RAND royalties can be determined through
objective standards by courts, without any further expression by the parties.
"Reasonable royalties" are a fundamental concept in patent law, 15 U.S.C. § 284, and
courts have adapted the traditional analysis to the context of RAND-committed patents.
See, e.g., Ericsson, Inc. v. D-Link Systems, Inc., 773 F.3d 1201, 1231 (Fed. Cir. 2014)
(adjusting reasonable royalty analysis for infringement damages "for RAND-
encumbered patents"); In re Innovatio IP Ventures, LLC Patent Litig., No. 11 C 9308,
2013 WL 5593609, at* 4-12 (N.D. Ill. Oct. 3, 2013) (setting out a "[m]ethodology for
[d]etermining [a] RAND [r]ate" in patent infringement action). Courts interpreting
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reasonable royalties in the RAND contract setting have relied on patent law to provide
objective standards. See, e.g., Microsoft Corp. v. Motorola, Inc., 795 F.3d 1024, 1040-46
(9th Cir. 2015) (affirming RAND royalty determination in breach of contract action,
relying on patent damages law for "guidance").
Courts have likewise found the "non-discriminatory" prong of RAND
commitments to be enforceable. See, e.g., Microsoft Corp. v. Motorola, Inc., 696 F.3d
872, 884 (9th Cir. 2012); Microsoft Corp. v. Motorola, Inc., No. C10-1823JLR, 2013 WL
2111217, at *18 (W.D. Wash. Apr. 25, 2013); see also, e.g., Mondis Tech. Ltd. v. LG Elecs.
Inc., No. 2:07-CV-565, 2009 WL 901480, at *3 (E.D. Tex. Mar. 31, 2009).
Consistent with the foregoing, courts across the United States have repeatedly
concluded that RAND commitments are enforceable. E.g., Microsoft Corp. v. Motorola,
Inc., 864 F. Supp. 2d 1023, 1032 (W.D. Wash. 2012) (applying Washington law, holding
that "Motorola's statements to the IEEE and ITU constituted a binding agreement to
license its essential patents on RAND terms."); Apple, Inc. v. Motorola Mobility, Inc.,
886 F. Supp. 2d 1061, 1083, 1085 (W.D. Wis. 2012) (applying Wisconsin law, granting
summary judgment that "Motorola's assurances that it would license its essential
patents on fair, reasonable and nondiscriminatory terms constitute contractual
agreements"); id. at 1084 (collecting cases); see also Realtek Semiconductor Corp. v.
LSI Corp., 946 F. Supp. 2d 998, 1008 (N.D. Cal. 2013) (enforcing contractual RAND
commitments); In re Innovatio IP Ventures, LLC Patent Litigation, 956 F. Supp. 2d
925, 933 (N.D. Ill. 2013) (same).
The FTC respectfully urges the ITC, in its consideration of the public interest, to
take into account the foregoing when deciding how to treat the ID's dicta on the
enforceability of the JEDEC RAND commitment.
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By direction of the Commission.
April Tabor
Acting Secretary
Issued: December 11, 2019
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