Regulators at FTC, DOJ caution against misuse of patents

Federal regulators on Wednesday cautioned against the misuse of standards-essential patents to block new gadgets from entering the United States.

Standards-essential patents have been at the center of some large patent wars among mobile companies. Companies that hold standards-essential patents commit to licensing them to others on reasonable and anti-discriminatory terms.

But rather than licensing the patents to rival companies for a reasonable fee, some companies have sought to secure an exclusion order from the International Trade Commission that would bar an allegedly infringing product from being imported into the United States. 

Testifying before the Senate Judiciary Committee, regulators from the Federal Trade Commission and Justice Department said the exclusion orders should only be granted when appropriate, but that those cases are rare.

“An exclusion order could affect a wide, wide range of consumers who are buying a cellphone or a tablet,” said Joseph Wayland, assistant acting attorney general for the Justice Department.

“We think the promise made by the holder of the patent to license on [fair, reasonable, and non-discriminatory] terms really tips the balance in favor of seriously questioning why an exclusion order would be appropriate in any circumstance,” Wayland later added.

FTC Commissioner Edith Ramirez said the agency is also concerned that patent holders could use exclusion orders “to demand higher royalties or other more costly licensing terms” after an industry standard is implemented. 

The FTC is investigating whether Google-owned Motorola is using standards-essential patents to block its rivals' access to smartphone technology. 

Ramirez said the ITC has an obligation to consider whether issuing an order goes against the public interest. But Ramirez noted in her opening testimony that the trade commission has rarely used this provision to deny granting an order. 

Senate Judiciary Committee Chairman Patrick Leahy (D-Vt.) said exclusion orders could be misused to prevent new technology from entering the market, posing a threat to competition and innovation.

“When inventors and developers are willing to license their technologies to one another at reasonable rates, the cross-fertilization of ideas benefits us all,” Leahy said at the opening of the hearing. “But I am concerned that the recent trend of seeking exclusion orders from the International Trade Commission, rather than negotiating and seeking license fees, may have the opposite effect.”