Robert Bosch GmbH; Analysis of Agreement Containing Consent Orders To Aid Public Comment, 71593-71599 [2012-29031]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 77, Number 232 (Monday, December 3, 2012)]
[Notices]
[Pages 71593-71599]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29031]


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FEDERAL TRADE COMMISSION

[File No. 121 0081]


Robert Bosch GmbH; Analysis of Agreement Containing Consent 
Orders To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis to 
Aid Public Comment describes both the allegations in the draft 
complaint and the terms of the consent order--embodied in the consent 
agreement--that would settle these allegations.

DATES: Comments must be received on or before December 26, 2012.

ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/boschspxconsent online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Bosch, File No. 121 
0081'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/boschspxconsent by following the 
instructions on the web-based form. If you prefer to file your comment 
on paper, mail or deliver your comment to the following address: 
Federal Trade

[[Page 71594]]

Commission, Office of the Secretary, Room H-113 (Annex D), 600 
Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Jacqueline K. Mendel (202-326-2603), 
FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC 
20580.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal 
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34, 
notice is hereby given that the above-captioned consent agreement 
containing a consent order to cease and desist, having been filed with 
and accepted, subject to final approval, by the Commission, has been 
placed on the public record for a period of thirty (30) days. The 
following Analysis to Aid Public Comment describes the terms of the 
consent agreement, and the allegations in the complaint. An electronic 
copy of the full text of the consent agreement package can be obtained 
from the FTC Home Page (for November 26, 2012), on the World Wide Web, 
at https://www.ftc.gov/os/actions.shtm. A paper copy can be obtained 
from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue 
NW., Washington, DC 20580, either in person or by calling (202) 326-
2222.
    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before December 26, 
2012. Write ``Bosch, File No. 121 0081'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the public Commission Web site, at https://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to 
remove individuals' home contact information from comments before 
placing them on the Commission Web site.
    Because your comment will be made public, you are solely 
responsible for making sure that your comment does not include any 
sensitive personal information, like anyone's Social Security number, 
date of birth, driver's license number or other state identification 
number or foreign country equivalent, passport number, financial 
account number, or credit or debit card number. You are also solely 
responsible for making sure that your comment does not include any 
sensitive health information, like medical records or other 
individually identifiable health information. In addition, do not 
include any ``[t]rade secret or any commercial or financial information 
which * * * is privileged or confidential,'' as discussed in Section 
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 
4.10(a)(2). In particular, do not include competitively sensitive 
information such as costs, sales statistics, inventories, formulas, 
patterns, devices, manufacturing processes, or customer names.
    If you want the Commission to give your comment confidential 
treatment, you must file it in paper form, with a request for 
confidential treatment, and you have to follow the procedure explained 
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept 
confidential only if the FTC General Counsel, in his or her sole 
discretion, grants your request in accordance with the law and the 
public interest.
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    \1\ In particular, the written request for confidential 
treatment that accompanies the comment must include the factual and 
legal basis for the request, and must identify the specific portions 
of the comment to be withheld from the public record. See FTC Rule 
4.9(c), 16 CFR 4.9(c).
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    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/boschspxconsent by following the instructions on the web-based 
form. If this Notice appears at https://www.regulations.gov/#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ``Bosch, File No. 121 
0081'' on your comment and on the envelope, and mail or deliver it to 
the following address: Federal Trade Commission, Office of the 
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW., 
Washington, DC 20580. If possible, submit your paper comment to the 
Commission by courier or overnight service.
    Visit the Commission Web site at https://www.ftc.gov to read this 
Notice and the news release describing it. The FTC Act and other laws 
that the Commission administers permit the collection of public 
comments to consider and use in this proceeding as appropriate. The 
Commission will consider all timely and responsive public comments that 
it receives on or before December 26, 2012. You can find more 
information, including routine uses permitted by the Privacy Act, in 
the Commission's privacy policy, at https://www.ftc.gov/ftc/privacy.htm.

Analysis of Agreement Containing Consent Order To Aid Public Comment

I. Introduction

    The Federal Trade Commission (``Commission'') has accepted from 
Robert Bosch GmbH (``Bosch''), subject to final approval, an Agreement 
Containing Consent Orders (``Consent Agreement''), which is designed to 
remedy the anticompetitive effects resulting from Bosch's acquisition 
of SPX Service Solutions U.S. LLC (``SPX Service Solutions'') from SPX 
Corporation (``SPX'') and to remedy anticompetitive conduct by SPX in 
violation of Section 5 of the FTC Act.
    Under the terms of the Consent Agreement, Bosch is required to (1) 
divest its air conditioning recycling, recovery, and recharge 
(``ACRRR'') business, including RTI Technologies, Inc. (``RTI''), to 
Mahle Clevite, Inc. (``Mahle'') by December 31, 2012; (2) terminate 
agreements with any persons that limit the ability of SPX's 
competitors, including Bosch, from advertising, servicing, 
distributing, or selling any ACRRR product in the U.S. market; and (3) 
make available for licensing certain patents which may be used in the 
implementation of two industry standards established by SAE 
International, an industry association responsible for setting 
standards for products so that they comply with regulations of the U.S. 
Environmental Agency (``EPA''). The Consent Agreement has been placed 
on the public record for 30 days to solicit comments from interested 
persons. Comments received during this period will become part of the 
public record. After 30 days, the Commission will again review the 
Consent Agreement and the comments received, and will decide whether it 
should withdraw from the Consent Agreement, modify it, or make it 
final.
    On January 23, 2012, Bosch entered into an agreement to acquire the 
SPX Service Solutions business from SPX. The Commission's complaint 
alleges the facts described below and that the proposed acquisition, if 
consummated, would violate Section 7 of the Clayton Act, as amended, 15 
U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 45, by 
lessening competition in the market for ACRRR devices.

II. The Parties

    Bosch, headquartered in Stuttgart, Germany and with U.S. operations 
based in Broadview, Illinois, is a global supplier of automotive and 
industrial technology, consumer goods, and building technology. North 
American sales represent 18% of Bosch's

[[Page 71595]]

revenues, and Automotive Technology is Bosch's largest business sector 
in North America. Bosch is the second leading U.S. supplier of ACRRR 
equipment. It acquired RTI in 2010, and sells ACRRR equipment under 
both the Bosch and RTI brand, which account for approximately 10% of 
the U.S. ACRRR market.
    Headquartered in Warren, Michigan, SPX is a diversified global 
supplier of highly engineered products for the following industries: 
power and energy, food and beverage, vehicle and transit, 
infrastructure and industrial processes. SPX's Service Solutions 
business is a global supplier of automotive tools, equipment and 
services, for both original equipment manufacturers (``OEMs'') and 
aftermarket repair shops and technicians. SPX's Robinair brand is the 
leading supplier of ACRRR equipment in the United States, accounting 
for over 80% of sales in that market.

III. The Product and Structure of the Market

    Bosch's proposed acquisition of SPX Service Solutions would create 
a virtual monopoly in the ACRRR market. ACRRR devices are stand-alone 
pieces of equipment used by automotive technicians to remove 
refrigerant from a vehicle's on-board air conditioning system, store 
the refrigerant while the air conditioning system is being serviced, 
and recycle the refrigerant back into the system, adding more as 
necessary. These tools are required to repair or service motor vehicle 
air conditioning systems because no other equipment performs the 
removal, recycling, and recharging functions while staying compliant 
with EPA regulations prohibiting refrigerant from escaping into the 
atmosphere. Devices that only extract refrigerant from air conditioning 
systems but do not recycle or recharge them are not cost-effective 
alternatives because they do not store or dispose of extracted 
refrigerant as required. As a result, if the price of ACRRR equipment 
were to increase 5-10%, customers would not switch to extraction-only 
equipment or to equipment that flushes other fluids from vehicles, 
which cannot be used in its place.
    The relevant geographic area in which to evaluate the market for 
ACRRR equipment is the United States. Environmental regulations vary by 
country, so ACRRR machines designed to adhere to the regulations of one 
country are not necessarily compatible with those of other countries. 
In addition, differing electrical power specifications across the world 
necessitate that the internal pumps and motors vary to meet differing 
specification. As a result, purchasers in the United States could not 
turn to suppliers in other countries for ACRRR equipment.
    SPX's Robinair brand holds a dominant position in the ACRRR market, 
with a share of over 80%. Bosch's RTI and Bosch brands comprise 
approximately 10% of the market and are Robinair's most significant 
competition. Four other firms selling ACRRR equipment in the U.S. 
together account for the balance of ACRRR sales. Thus, the combination 
of Bosch and SPX would confer a virtual monopoly position on Bosch. The 
elimination of the direct competition between Robinair and Bosch would 
allow the combined entity to exercise market power by unilaterally 
increasing price, slowing innovation, or lowering its levels of 
service.

IV. Entry

    Entry into the ACRRR market sufficient to deter the anticompetitive 
effects of this transaction is unlikely to occur in the next two years. 
While designing and engineering a system to work effectively and meet 
industry standards may be possible within a relatively short time 
frame, other barriers, including the challenges of obtaining effective 
distribution and developing a service network, make successful entry 
very difficult. Advertising through leading automotive wholesale 
distributors is the most effective means of promoting ACRRR to 
independent auto repair shops and rapid-turnaround repair of ACRRR 
equipment is critical because repair shops cannot provide air 
conditioning service without this equipment. Obtaining effective 
distribution and service networks has been especially challenging for 
competitors of SPX because of limitations SPX puts on distributors and 
service centers that sell and service Robinair-brand ACRRR. Another 
factor affecting the likelihood of significant new entry or expansion 
is the costs associated with meeting industry standards, which are 
established by SAE International, formerly the Society of Automotive 
Engineers.

IV. Effects of the Acquisition

    The proposed acquisition would cause significant anticompetitive 
harm to consumers in the U.S. ACRRR device market. The transaction 
would combine SPX's Robinair brand ACRRR, that already commands over 
80% of the market with its leading competitor, Bosch, with its Bosch- 
and RTI ACRRR brands, with approximately 10% of the market, creating a 
near-monopolist with a share of over 90%. The impact of eliminating the 
competition between Bosch and SPX in the ACRRR market is highly likely 
to result in consumers, who are automotive repair shops and 
technicians, paying higher prices for ACRRR devices.

V. The Consent Agreement

A. The Merger Remedy

    The proposed Consent Agreement eliminates the competitive concerns 
raised by Bosch's proposed acquisition of SPX Service Solutions by 
requiring the divestiture of Bosch's assets relating to the manufacture 
and sale of ACRRR devices in the United States, including the RTI 
business. Bosch and SPX have agreed to sell the U.S. ACRRR assets to 
Mahle Clevite, Inc. (``Mahle'') before December 31, 2012.
    Mahle possesses the resources, industry experience, and financial 
viability to successfully purchase and manage the divestiture assets 
and continue as an effective competitor in the ACRRR market. Mahle, 
headquartered in Stuttgart, Germany with U.S. operations based in 
Farmington, Michigan, is a supplier and development partner to the 
automotive and engine industry. Mahle's diverse product lines include 
aftermarket parts and automotive equipment sold a similar customer base 
as RTI. Mahle's significant size and global presence will allow it to 
quickly support additional expansion in the ACRRR market and replace 
the loss of competition presented by Bosch's acquisition of SPX SS.
    Pursuant to the Consent Agreement, Mahle would receive all the 
assets necessary to operate Bosch's current U.S. ACRRR business, 
including RTI's operations in York, Pennsylvania which include the RTI 
manufacturing plant, current inventory, and relevant intellectual 
property. In addition to ensuring that current RTI employees will 
continue their employment with Mahle, the Consent Agreement requires 
Bosch to provide access to certain key employees who may be necessary 
to help facilitate the transition and fully establish the Bosch ACRRR 
business within Mahle. The Consent Agreement also requires Bosch to 
transfer all relevant intellectual property and all contracts and 
confidential business information associated with the ACRRR business. 
In addition, the Consent Agreement requires Bosch to license, royalty-
free, certain SPX patents that may be essential to the practice of two 
industry standards to Mahle.

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B. The Conduct Remedy

    In addition, the Consent Agreement includes a provision that 
requires Bosch to make certain patents available to its competitors in 
the ACRRR market. During its merger investigation, the Commission 
uncovered evidence that SPX holds certain potentially standard-
essential patents necessary for implementing two SAE International 
ACRRR industry standards, J-2788 and J-2843, which govern the operation 
of ACRRR machines that handle the two most common types of air 
conditioning refrigerant in vehicles today. SAE International adopted 
J-2788 and J-2843 while SPX was a member of the SAE Interior Climate 
Control Committee, the committee responsible for developing the 
standards. SAE International's rules include an obligation by working 
group members to disclose any patents or patent applications that would 
be essential to the practice of a standard being developed, and to 
offer a license to such patents on either royalty-free or fair, 
reasonable, and non-discriminatory (``FRAND'') terms. After the 
standards were adopted, SPX issued a letter of assurance to SAE 
International acknowledging that it held patents that were potentially 
essential to both standards and committing to license them under FRAND 
terms. Following this letter of assurance, however, SPX continued to 
seek previously initiated injunction actions against competitors using 
those patents to implement the SAE International standards.
    SPX's suit for injunctive relief against implementers of its 
standard essential patents constitutes a failure to license its 
standard-essential patents under the FRAND terms it agreed to while 
participating in the standard setting process, and is an unfair method 
of competition actionable under Section 5 of the FTC Act. Standard 
setting is ``widely acknowledged to be one of the engines driving the 
modern economy.'' Participants in the standard setting process rely on 
the licensing commitments made by patent holders during the standard 
setting process to protect them against patent hold-up. Patent hold-up 
can occur when, after an entire industry has become ``locked in'' to 
practicing a standard, a patent holder reneges on a licensing 
obligation and seeks to exercise the market power that accrues to a 
patent by virtue of being incorporated in the standard. FRAND 
commitments and licensing obligations, such as those at issue here, are 
an important way to mitigate the risk of patent hold-up, and are common 
in the standard setting process. Seeking injunctions against willing 
licensees of FRAND-encumbered standard essential patents, as SPX is 
alleged to have done here, is a form of FRAND evasion and can reinstate 
the risk of patent hold-up that FRAND commitments are intended to 
ameliorate. As the Commission has previously explained, ``negotiation 
that occurs under threat of an [injunction] may be weighted heavily in 
favor of the patentee in a way that is in tension with the [F]RAND 
commitment. High switching costs combined with the threat of an 
[injunction] could allow a patentee to obtain unreasonable licensing 
terms despite its [F]RAND commitment, not because its invention is 
valuable, but because implementers are locked in to practicing the 
standard.''
    Bosch has agreed in the Consent Order to resolve the violations 
committed by SPX. The Consent Order requires Bosch to offer a royalty-
free license to all potential implementers for certain enumerated 
patents for the purpose of manufacturing ACRRR devices in the United 
States. While a royalty-free license may not be an appropriate remedy 
in every case involving evasion of a FRAND commitment, in this matter 
Bosch has chosen to license these patents to the buyer of its ACRRR 
business, Mahle, royalty-free, and a license to other market place 
participants on the same terms is necessary to ensure that the merger 
remedy is not inequitable in application. The Consent Order further 
requires Bosch to deliver to the SAE a letter of assurance that makes a 
binding, irrevocable commitment to license any additional patents that 
Bosch may acquire in the future that are essential to practicing the J-
2788 or J-2843 standards on FRAND terms to any third party that wishes 
to use such patents to produce an ACRRR device for sale in the United 
States. Pursuant to its FRAND obligations, Bosch has agreed not seek 
injunctive relief against such third parties, unless the third party 
refuses in writing to license the patent consistent with the letter of 
assurance, or otherwise refuses to license the patent on terms that 
comply with the letter of assurance as determined by a process agreed 
upon by both parties (e.g., arbitration) or a court.
    The Consent Agreement also requires that Bosch discontinue its 
restrictive arrangements with wholesale distributors and independent 
service technicians. Bosch will be prevented from enforcing any 
agreement that restricts a distributor or repair service provider from 
advertising, servicing, distributing, or selling any ACRRR product from 
any third party in the United States. Bosch will be prevented from 
entering into such agreements for ten years after the date of the 
Order. This provision allows entry by other competitors, and will allow 
the existing competitors in the ACRRR market, including Mahle, to more 
easily have access to leading wholesale distributors and service 
providers to assemble repair networks to which customers can turn after 
they have purchased ACRRRs.
    The purpose of this analysis is to facilitate public comment on the 
Consent Agreement, and it is not intended to constitute an official 
interpretation of the proposed Decision and Order or to modify its 
terms in any way.

Statement of the Federal Trade Commission

    The Federal Trade Commission (``Commission'') has voted to issue 
for public comment a Complaint and Order against Robert Bosch GmbH 
(``Bosch'') designed to remedy the allegedly anticompetitive effects of 
Bosch's acquisition of SPX Services (``SPX''), a division of SPX 
Corporation. The Commission has reason to believe that the proposed 
acquisition would cause significant anticompetitive harm to consumers 
by creating a virtual monopoly in the market for automobile air 
conditioning servicing equipment known as ``air conditioning recycling, 
recovery, and recharge devices'' or ``ACRRRs.'' The proposed Order 
eliminates the anticompetitive concerns raised by the proposed 
acquisition by requiring the divestiture of Bosch's assets relating to 
the manufacture and sale of ACRRRs to Mahle Clevite, Inc. The proposed 
Order further requires Bosch to discontinue restrictive arrangements 
SPX maintained with wholesale distributors and independent service 
technicians.
    The Complaint also alleges that, before its acquisition by Bosch, 
SPX reneged on a licensing commitment made to two standard-setting 
bodies to license its standards-essential patents (``SEPs'') relating 
to ACRRRs on fair, reasonable and non-discriminatory terms (``FRAND'') 
by seeking injunctions against willing licensees of those SEPs.\2\ We 
have reason to believe this conduct tended to impair competition in the 
market for these important automobile air conditioning servicing 
devices. To its credit, Bosch has abandoned these claims for

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injunctive relief and agreed to license the SEPs at issue.
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    \2\ The licensing obligation in this matter was a FRAND 
obligation, although RAND (reasonable and non-discriminatory) 
licensing obligations raise similar issues.
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    This case is another chapter in the Commission's longstanding 
commitment 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 also risks harm to consumers. Because 
standard setting often displaces the normal competitive process with 
the collective decision-making of competitors, preserving the integrity 
of the standard-setting process is central to ensuring standard setting 
works to the benefit of, rather than against, consumers.\4\ The 
Commission's action today does just that.
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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 (D.C. Cir. 2008); 
In re Negotiated Data Solutions LLC, FTC File No. 051-0094, Decision 
and Order (Jan. 23, 2008), available at https://www.ftc.gov/os/caselist/0510094/080122do.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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    As explained in the Commission's unanimous filings before the 
United States International Trade Commission in June 2012, 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\ By threatening to exclude standard-compliant 
products from the marketplace, a SEP holder can demand and realize 
royalty payments that reflect the investments firms make to develop and 
implement the standard, rather than the economic value of the 
technology itself.\6\ This can harm incentives to develop standard-
compliant products. The threat of an injunction can also lead to 
excessive royalties that can be passed along to consumers in the form 
of higher prices.
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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 
https://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.'').
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    There is increasing judicial recognition, coinciding with the view 
of the Commission, of the tension between offering a FRAND commitment 
and seeking injunctive relief.\7\ Patent holders that seek injunctive 
relief against willing licensees of their FRAND-encumbered SEPs should 
understand that in appropriate cases the Commission can and will 
challenge this conduct as an unfair method of competition under Section 
5 of the FTC Act.\8\ Importantly, stopping this conduct using a stand-
alone Section 5 unfair methods of competition claim, rather than one 
based on the Sherman Act, minimizes the possibility of follow-on treble 
damages claims. Violations of Section 5 that are not also violations of 
the antitrust laws do not support valid federal antitrust claims for 
treble damages. There is also no private right of action under Section 
5, and a Section 5 action has no preclusive effect in subsequent 
federal court cases.
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    \7\ 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?'').
    \8\ We have no reason to believe that, in this case, a 
monopolization count under the Sherman Act was appropriate. However, 
the Commission has reserved for another day the question whether, 
and under what circumstances, similar conduct might also be 
challenged as an unfair act or practice, or as monopolization.
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    In her dissent, Commissioner Ohlhausen claims that today's decision 
imposes liability on protected petitioning activity and effectively 
undermines the role of federal courts and the ITC in the adjudication 
of SEP-related disputes. We respectfully disagree. As alleged in the 
Complaint, SPX committed to license its SEPs on FRAND terms. In doing 
so, we have reason to believe SPX voluntarily gave up the right to seek 
an injunction against a willing licensee. Moreover, the fact that both 
the federal courts and the ITC have the authority to deny injunctive 
relief where the SEP holder has broken its FRAND commitment does not 
mean that this conduct is not itself a violation of Section 5 or within 
our reach.
    We also take issue with Commissioner Ohlhausen's suggestion that 
the Commission's action ``appears to lack regulatory humility.'' The 
Commission is first and foremost a law enforcement agency, and this 
consent decree, like all of our unfair methods of competition 
enforcement actions, is a fact-specific response to a very real problem 
that threatens competition and consumer welfare.
    Indeed, we view this action as well within our Section 5 authority. 
The plain language of Section 5, the relevant legislative history, and 
a long line of Supreme Court cases all affirm that Section 5 extends 
beyond the Sherman Act.\9\ Moreover, this is not a circumstance where, 
as Commissioner Ohlhausen contends, there are no discernible limiting 
principles. SPX'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.
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    \9\ 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).
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    For these reasons, we find Commissioner Ohlhausen's analogy of 
SPX's conduct to a ``garden variety breach-of-contract'' to be 
unpersuasive. While not every breach of a FRAND licensing obligation 
will give rise to Section 5 concerns, when such a breach tends to 
undermine the standard-setting process and risks harming American 
consumers, the public interest demands action rather than inaction from 
the Commission.


[[Page 71598]]


    By direction of the Commission, Commissioner Rosch and 
Commissioner Ohlhausen dissenting.
Donald S. Clark,
Secretary.

Statement of Commissioner Maureen K. Ohlhausen

    I voted against accepting the proposed consent agreement in this 
matter because I strongly dissent from those portions of the consent 
that relate to alleged conduct by the respondent involving standard-
essential patents, or SEPs.\10\ Even if all of the SEP-related 
allegations in the complaint were proved--including the allegation that 
the patents at issue are standard-essential--I would not view such 
conduct as violating Section 5 of the FTC Act.\11\ Simply seeking 
injunctive relief on a patent subject to a fair, reasonable, and non-
discriminatory (``FRAND'') license, without more,\12\ even if seeking 
such relief could be construed as a breach of a licensing commitment, 
should not be deemed either an unfair method of competition or an 
unfair act or practice under Section 5. The enforcement policy on the 
seeking of injunctive relief on FRAND-encumbered SEPs that the 
Commission has announced today suffers from several critical defects.
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    \10\ I concur with the consent agreement reached in this matter 
insofar as it requires the divestiture of certain assets to remedy 
the Clayton Act Section 7 violation that likely would have resulted 
from the proposed transaction. I do have strong reservations, 
however, about the relatively broad fencing-in relief included in 
the proposed Decision and Order that requires the respondent to 
cancel the exclusivity provisions in its contracts with various 
distributors and equipment servicers. See Decision and Order ] III. 
Fencing-in relief that modifies contracts entered into by 
participants across an industry raises concerns for me about whether 
such relief goes beyond that which is necessary to protect the 
viability of the divestiture buyer and thus effectuate the 
legitimately pursued remedy in this matter.
    \11\ See Complaint ]] 11-20, 23. See also Decision and Order ] 
IV; Analysis of Agreement Containing Consent Order to Aid Public 
Comment Sec.  V.B.
    \12\ See, e.g., In re Rambus, Inc., Dkt. No. 9302 (FTC Aug. 2, 
2006) (Commission opinion) (finding deception that undermined the 
standard-setting process), rev'd, Rambus Inc. v. FTC, 522 F.3d 456 
(DC Cir. 2008); In re Union Oil Co. of Cal., 138 F.T.C. 1 (2003) 
(Commission opinion) (same); In re Dell Computer Corp., 121 F.T.C. 
616 (1996) (consent order) (alleging same).
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    First, this enforcement policy raises significant issues of 
jurisdictional and institutional conflict. It is simply not in the 
public interest to effectively oust other institutions, including the 
federal courts and the International Trade Commission (``ITC'') from 
the important and complex area of SEPs through the use of our Section 5 
authority. By imposing Section 5 liability on a firm that seeks 
injunctive relief on its SEPs, the Commission is doing exactly that. 
The FTC is not, nor should it be, the only institution acting in the 
SEPs space. Moreover, it is unclear how the seeking of injunctive 
relief, in either the courts or the ITC, on a patent--even a FRAND-
encumbered SEP--would not be considered protected petitioning of the 
government under the Noerr-Pennington doctrine.\13\ In fact, a court 
recently dismissed Sherman Act and state unfair competition claims 
grounded on the seeking of injunctive relief in the courts and the ITC 
on FRAND-encumbered SEPs, holding that such conduct was protected by 
Noerr.\14\
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    \13\ See Eastern R.R. Presidents Conference v. Noerr Motor 
Freight, 365 U.S. 127 (1961); United Mine Workers of Am. v. 
Pennington, 381 U.S. 657 (1965); California Motor Transp. Co. v. 
Trucking Unlimited, 404 U.S. 508 (1972) (applying Noerr-Pennington 
doctrine to petitioning of judicial branch).
    \14\ See Apple, Inc. v. Motorola Mobility, Inc., No. 3:11-cv-
00178-BBC, 2012 WL 3289835, at *12-14 (W.D. Wis. Aug. 10, 2012) 
(dismissing Apple's Sherman Act and state unfair competition claims 
and holding that Motorola's filing of litigation in the federal 
courts and ITC on its FRAND-encumbered SEPs was immune under Noerr).
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    Second, this enforcement policy appears to lack regulatory 
humility. The policy implies that our judgment on the availability of 
injunctive relief on FRAND-encumbered SEPs is superior to that of these 
other institutions. I agree that the FTC is well positioned to offer 
its views and to advocate on the important issue of patent hold-up 
using its policy tools. For that reason, I supported the Commission's 
June 2012 filing with the ITC.\15\ However, as the Commission testified 
to Congress shortly after filing its statement with the ITC, ``Federal 
district courts have the tools to address this issue [hold-up], by 
balancing equitable factors or awarding money damages, and the FTC 
believes that the ITC likewise has the authority under its public 
interest obligations to address this concern and limit the potential 
for hold-up.'' \16\ I see no reason why this unanimous statement no 
longer holds.\17\
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    \15\ Third Party United States Federal Trade Commission's 
Statement on the Public Interest, In re Certain Wireless 
Communications Devices, Portable Music and Data Processing Devices, 
Computers and Components Thereof, Inv. No. 337-TA-745 (Int'l Trade 
Comm'n June 6, 2012), available at https://www.ftc.gov/os/2012/06/1206ftcwirelesscom.pdf.
    \16\ Oversight of the Impact on Competition of Exclusion Orders 
to Enforce Standard-Essential Patents: Hearing Before the S. Comm. 
on the Judiciary, 112th Cong. 1-2 (2012) (statement of the Federal 
Trade Commission), available at https://www.ftc.gov/os/testimony/120711standardpatents.pdf.
    \17\ The cases cited in the Commission's statement for the 
proposition that there is an ``increasing judicial recognition'' on 
the tension between FRAND commitments and injunctive relief, to the 
extent that they reveal anything, show that the courts are not 
freely issuing injunctions against willing licensees of FRAND-
encumbered SEPs. See Statement of the Commission, at 2 n.6. Thus, 
far from supporting the position that the FTC should block access to 
other institutions, these cases clearly demonstrate that the courts 
are well equipped to address issues involving injunctions on FRAND-
encumbered SEPs.
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    Third, to the extent that the SEP allegations in the complaint 
aspire to the consent agreement reached in the Commission's N-Data \18\ 
matter, I would submit that that consent is an ill-advised guidepost 
for this agency to use in its enforcement of Section 5 for several 
reasons. Most importantly, the N-Data consent fails to identify 
meaningful limiting principles that would govern the Commission's use 
of its Section 5 authority.\19\ As former Chairman Majoras explained in 
her dissent, the N-Data consent was a material departure from the prior 
line of standard-setting organization (``SSO'') cases brought by the 
Commission, which were grounded in deceptive conduct in the standard-
setting context that led to, or was likely to lead to, anticompetitive 
effects.\20\ Then-Commissioner Kovacic also dissented, objecting to, 
among other things, the majority's assumption that a Section 5 action 
would have no spillover effects in terms of follow-on private 
litigation.\21\
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    \18\ In re Negotiated Data Solutions LLC, FTC File No. 051-0094, 
Decision and Order (Jan. 23, 2008), available at https://www.ftc.gov/os/caselist/0510094/080923ndsdo.pdf.
    \19\ See, e.g., E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d 
128, 139 (2d Cir. 1984) (``Ethyl''); (``[T]he Commission owes a duty 
to define the conditions under which conduct * * * would be unfair 
so that business will have an inkling as to what they can lawfully 
do rather than be left in a state of complete unpredictability.''); 
FTC v. Abbott Labs., 853 F. Supp. 526, 535-36 (D.D.C. 1994) (``The 
Second Circuit stated emphatically that some workable standard must 
exist for what is or is not to be considered an unfair method of 
competition under Sec.  5. Otherwise, companies subject to FTC 
prosecution would be the victims of `uncertain guesswork rather than 
workable rules of law.''') (quoting Ethyl, 729 F.2d at 139); ABA 
Section of Antitrust Law, Antitrust Law Developments 661 (7th ed. 
2012) (``FTC decisions have been overturned despite proof of 
anticompetitive effect where the courts have concluded that the 
agency's legal standard did not draw a sound distinction between 
conduct that should be proscribed and conduct that should not.'').
    \20\ See In re Negotiated Data Solutions LLC, FTC File No. 051-
0094, Dissenting Statement of Chairman Majoras, at 1-2 (Jan. 23, 
2008), available at https://www.ftc.gov/os/caselist/0510094/080122majoras.pdf.
    \21\ See id., Dissenting Statement of Commissioner William E. 
Kovacic, at 1-2, available at https://www.ftc.gov/os/caselist/0510094/080122kovacic.pdf.
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    The SEP allegations and consent in the instant matter suffer from 
many of the same deficiencies as the N-Data consent. I simply do not 
see any meaningful limiting principles in the enforcement policy laid 
out in these cases. The Commission statement

[[Page 71599]]

emphasizes the context here (i.e. standard setting); however, it is not 
clear why the type of conduct that is targeted here (i.e. a breach of 
an allegedly implied contract term with no allegation of deception) 
would not be targeted by the Commission in any other context where the 
Commission believes consumer harm may result. If the Commission 
continues on the path begun in N-Data and extended here, we will be 
policing garden variety breach-of-contract and other business disputes 
between private parties. Mere breaches of FRAND commitments, including 
potentially the seeking of injunctions if proscribed by SSO rules,\22\ 
are better addressed by the relevant SSOs or by the affected parties 
via contract and/or patent claims resolved by the courts or through 
arbitration.
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    \22\ The instant matter also raises concerns about the 
Commission imposing requirements on the respondent that go beyond 
those it agreed to as part of the SSO at issue here, which does not 
appear to ban the seeking of injunctions on SEPs included in its 
standards. See SAE International, Technical Standards Board 
Governance Policy Sec.  1.14 (Nov. 2008), available at https://www.sae.org/standardsdev/tsb/tsbpolicy.pdf. Even more troublesome, 
it is an open question whether the patents at issue are even 
standard-essential. See, e.g., Complaint ] 16 (``After the adoption 
of SAE J-2788, SPX Corporation sued certain competitors, including 
Bosch, for infringing patents that may be essential to the practice 
of SAE J-2788.'').
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    It is important that government strive for transparency and 
predictability. Before invoking Section 5 to address business conduct 
not already covered by the antitrust laws (other than perhaps 
invitations to collude), the Commission should fully articulate its 
views about what constitutes an unfair method of competition, including 
the general parameters of unfair conduct and where Section 5 overlaps 
and does not overlap with the antitrust laws, and how the Commission 
will exercise its enforcement discretion under Section 5. Otherwise, 
the Commission runs a serious risk of failure in the courts \23\ and a 
possible hostile legislative reaction,\24\ both of which have 
accompanied previous FTC attempts to use Section 5 more expansively.
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    \23\ See Ethyl, 729 F.2d 128; Official Airline Guides, Inc. v. 
FTC, 630 F.2d 920 (2d Cir. 1980); Boise Cascade Corp. v. FTC, 637 
F.2d 573 (9th Cir. 1980); Abbott Labs., 853 F. Supp. 526.
    \24\ See William E. Kovacic & Marc Winerman, Competition Policy 
and the Application of Section 5 of the Federal Trade Commission 
Act, 76 Antitrust L.J. 929, 943 (2010) (``In the 1950s and the 
1970s, Commission efforts to use Section 5 litigation to reach 
beyond prevailing interpretations of Sections 1 and 2 of the Sherman 
Act elicited strong political backlash from the Congress.'').
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    This consent does nothing either to legitimize the creative, yet 
questionable application of Section 5 to these types of cases or to 
provide guidance to standard-setting participants or the business 
community at large as to what does and does not constitute a Section 5 
violation. Rather, it raises more questions about what limits the 
majority of the Commission would place on its expansive use of Section 
5 authority.

[FR Doc. 2012-29031 Filed 11-30-12; 8:45 am]
BILLING CODE 6750-01-P