Motorola Mobility LLC and Google Inc.; Analysis of Proposed Consent Order to Aid Public Comment, 2398-2406 [2013-00465]

Agencies

• FEDERAL TRADE COMMISSION

[Federal Register Volume 78, Number 8 (Friday, January 11, 2013)]
[Notices]
[Pages 2398-2406]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-00465]


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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;

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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 of 
Proposed Consent Order 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 February 4, 2013.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Request for Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``Motorola/Google, File 
No. 121-0120'' on your comment, and file your comment online at https://ftcpublic.commentworks.com/ftc/motorolagoogleconsent, 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 Commission, Office of the Secretary, Room H-113 (Annex 
D), 600 Pennsylvania Avenue NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Richard Feinstein or Pete Levitas 
(202-326-2555), FTC, Bureau of Competition, 600 Pennsylvania Avenue 
NW., Washington, DC 20580.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal 
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46(f), and Sec.  2.34 the 
Commission Rules of Practice, 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 of Proposed Consent 
Order 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 January 3, 2013), 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 February 4, 
2013. Write ``Motorola/Google, File No. 121-0120'' 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 obtained from any person and which is privileged or 
confidential,'' as provided 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

[[Page 2399]]

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/motorolagoogleconsent by following the instructions on the web-
based form. If this Notice appears at https://regulations.gov#!home, you 
also may file a comment through that Web site.
    If you file your comment on paper, write ``Motorola/Google, File 
No. 121-0120'' 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 February 4, 2013. 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 Proposed Consent Order To Aid Public Comment

    The Federal Trade Commission (``Commission'') has accepted, subject 
to final approval, an Agreement Containing Consent Order 
(``Agreement'') with Motorola Mobility LLC (formerly Motorola Mobility, 
Inc. (``Motorola''), a wholly-owned subsidiary of Respondent Google 
Inc.), and Google Inc. (``Google''), which is designed to settle 
allegations that Motorola and Google violated Section 5 of the Federal 
Trade Commission Act, 15 U.S.C. 45, by engaging in unfair methods of 
competition and unfair acts or practices relating to the licensing of 
standard essential patents (``SEPs'') for cellular, video codec, and 
wireless LAN standards. The Complaint alleges that, after committing to 
license the SEPs on fair, reasonable, and non-discriminatory 
(``FRAND'') terms Motorola sought injunctions and exclusion orders 
against willing licensees, undermining the procompetitive standard-
setting process. After purchasing Motorola for $12.5 billion in June 
2012, Google continued Motorola's anticompetitive behavior.
    The Proposed Consent Order has been placed on the public record for 
thirty (30) days for comments by interested persons. Comments received 
during this period will become part of the public record. After thirty 
(30) days, the Commission will again review the Agreement and the 
comments received and will decide whether it should withdraw from the 
Agreement or make final the Agreement's Proposed Consent Order.
    The purpose of this analysis is to facilitate comments on the 
Proposed Consent Order. This analysis does not constitute an official 
interpretation of the Proposed Consent Order, and does not modify its 
terms in any way. The Agreement has been entered into for settlement 
purposes only and does not constitute an admission by Motorola or 
Google that the law has been violated as alleged or that the facts 
alleged, other than jurisdictional facts, are true.

Background

    American consumers rely on standardized technology for the 
interoperability of consumer electronics and other products. 
Manufacturers of these products participate in standard-setting 
organizations (``SSOs'') such as the European Telecommunications 
Standards Institute (``ETSI''), the Institute of Electrical and 
Electronics Engineers (``IEEE''), and the International 
Telecommunication Union (``ITU'') that agree upon and develop standards 
based on shared technologies that incorporate patents. SSOs and the 
standards they promulgate have procompetitive benefits; they encourage 
common technological platforms that many different manufacturers 
ultimately incorporate into their respective products.\2\ Standards 
foster competition among these manufacturers' products and facilitate 
the entry of related products. Overall, standards benefit the market by 
encouraging compatibility among all products, promoting 
interoperability of competing devices, and lowering the costs of 
products for consumers.
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    \2\ As the Supreme Court has recognized, when properly 
formulated standards ``can have significant procompetitive 
advantages.'' Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 
U.S. 492, 501 (1988).
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    Many SSOs require that a firm make a licensing commitment, such as 
a FRAND commitment, in order for its patented technology to be included 
in a standard. SSOs have this policy because the incorporation of 
patented technology into a standard induces market reliance on that 
patent and increases its value. After manufacturers implement a 
standard, they can become ``locked-in'' to the standard and face 
substantial switching costs if they must abandon initial designs and 
substitute different technologies. This allows SEP holders to demand 
terms that reflect not only ``the value conferred by the patent 
itself,'' but also ``the additional value--the hold-up value--conferred 
by the patent's being designated as standard-essential.'' \3\ The FRAND 
commitment is a promise intended to mitigate the potential for patent 
hold-up.\4\ In other words, it restrains the exercise of market power 
gained by a firm when its patent is included in a standard and the 
standard is widely adopted in the market.\5\
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    \3\ Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 913 
(N.D. Ill. 2012) (Posner, J., sitting by designation).
    \4\ As the Commission explained in its unanimous filing before 
the United States International Trade Commission (``ITC''), 
incorporating patented technologies into standards without 
safeguards risks distorting competition because it enables SEP 
owners to negotiate high royalty rates and other favorable terms, 
after a standard is adopted, that they could not credibly demand 
beforehand. The exercise of this leverage is known as patent hold-
up. See 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; 
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.
    \5\ As the Ninth Circuit recently stated, a FRAND commitment is 
``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.'' Microsoft Corp. v. Motorola, Inc., 696 F.3d 872, 
884 (9th Cir. 2012) (citing Apple, 869 F. Supp. 2d at 914).
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    Despite the significant procompetitive benefits of standard 
setting, particularly the interoperability of technology that arises 
from efficient and effective standards, standard setting is a 
collaborative process among competitors that often displaces free 
market competition in technology platforms. FRAND commitments by SSO 
members are critical to offsetting the potential anticompetitive 
effects of such agreements while preserving the procompetitive aspects 
of standard setting.
    Seeking and threatening injunctions against willing licensees of 
FRAND-encumbered SEPs undermines the integrity and efficiency of the 
standard-setting process and decreases the incentives to participate in 
the process and implement published standards. Such conduct reduces the 
value of standard setting, as firms will be less likely to rely on the 
standard-setting process. Implementers wary of the risk of patent hold-
up may diminish or abandon entirely their participation in the 
standard-setting process and their

[[Page 2400]]

reliance on standards. If firms forego participation in the standard-
setting process, consumers will no longer enjoy the benefits of 
interoperability that arise from standard setting, manufacturers have 
less incentive to innovate and differentiate product offerings, and new 
manufacturers will be deterred from entering the market.

The Proposed Complaint

    Motorola sought to exploit the market power that it acquired 
through the standard-setting process by breaching its promises to 
license its SEPs on FRAND terms. ETSI, ITU, and IEEE require that firms 
disclose whether they will commit to license their SEPs on FRAND terms 
in order for the SSO to decide if the patents should be included in the 
relevant cellular, video codec, or wireless LAN standards. Motorola 
promised to license its patents essential to these standards on FRAND 
terms, inducing ETSI, ITU, and IEEE to include its patents in cellular, 
video codec, and wireless LAN standards. These commitments created 
express and implied contracts with the SSOs and their members. In 
acquiring Motorola and its patent portfolio, Google affirmatively 
declared that it would honor Motorola's FRAND commitments.\6\
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    \6\ See Letter from Allen Lo, Deputy General Counsel, Google, to 
Luis Jorge Romero Saro, Director-General, ETSI (Feb. 8, 2012); 
Letter from Allen Lo, Deputy General Counsel, Google, to Gordon Day, 
President, IEEE (Feb. 8, 2012) available at https://static.googleusercontent.com/external_content/untrusted_dlcp/www.google.com/en/us/press/motorola/pdf/sso-letter.pdf; Letter from 
Allen Lo, Deputy General Counsel, Google, to Hamadoun Toure, 
Secretary-General, ITU (Feb. 8, 2012).
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    Relying on Motorola's promise to license its SEPs on FRAND terms, 
electronic device manufacturers implemented the relevant standards and 
were locked-in to using Motorola's patents. Motorola then violated the 
FRAND commitments made to ETSI, ITU, and IEEE by seeking, or 
threatening, to enjoin certain competitors from marketing and selling 
products compliant with the relevant standards, like the iPhone and the 
Xbox, from the market unless the competitor paid higher royalty rates 
or made other concessions. At all times relevant to the allegations in 
the Proposed Complaint, these competitors--Microsoft and Apple--were 
willing to license Motorola's SEPs on FRAND terms.
    Specifically, Motorola threatened exclusion orders and injunctions 
in various forums against these willing licensees. Motorola filed 
patent infringement claims at the ITC where the only remedy for patent 
infringement is an exclusion order. Because of the ITC's remedial 
structure, filing for an exclusion order before the ITC on a FRAND-
encumbered SEP significantly raises the risk of patent hold-up in 
concurrent licensing negotiations because an exclusion order may be 
entered by the ITC before a FRAND rate is reached. Motorola also filed 
for injunctive relief in various federal district courts, which also 
raises the risk of patent hold-up.
    Had Google been successful in obtaining either an injunction or 
exclusion order against its competitors' products, it could have 
imposed a wide variety of costs to consumers and competition. These 
products could have been kept off the market entirely, diminishing 
competition and denying consumers access to products they wish to 
purchase, such as the iPhone and Xbox. Alternatively, Google's conduct 
might have increased prices because manufacturers, when faced with the 
threat of an injunction, are likely to surrender to higher royalty 
rates for SEPs. Other manufacturers, deterred by increased licensing 
fees, might exit the market altogether, or limit their product lines. 
In the end, prices would likely rise both because of higher royalties 
and because of less product-market competition. Ultimately, end 
consumers may bear some share of these higher costs, either in the form 
of higher prices or lower quality products.
    Consumers would also suffer to the extent that Google's conduct 
impaired the efficacy of the standard-setting process or diminished the 
willingness of firms to participate in standard- setting processes. 
Relatedly, such FRAND violations may diminish the interest of SSOs in 
using new patented technologies--a step that could reduce the technical 
merit of those standards as well as their ultimate value to consumers. 
This could result in increased costs or inferior standards. Innovation 
by implementers would suffer and consumers would lose the benefits of 
lower costs, interoperability, and rapid technological development that 
efficient standard-setting enables.
    The Proposed Complaint alleges that Motorola and Google's conduct 
violates Section 5 of the FTC Act, both as an unfair method of 
competition and an unfair act or practice.

1. Unfair Method of Competition

    Google and Motorola's conduct constitute an unfair method of 
competition and harms competition by threatening to undermine the 
integrity and efficiency of the standard-setting process. FRAND 
commitments help ensure the efficacy of the standard-setting process 
and that the outcome of that process is procompetitive. Conversely, 
that process is undermined when those promises are reneged. Motorola's 
conduct threatens to increase prices and reduce the quality of products 
on the market and to deter firms from entering the market. Moreover, 
Motorola's conduct threatens to deny consumers the many procompetitive 
benefits that standard setting makes possible. Motorola's conduct may 
deter manufacturers from participating in the standard setting process 
and relying on standards, and SSOs from adopting standards that 
incorporate patented technologies.
    Consistent with these principles, courts have found that patent 
holders may injure competition by breaching FRAND commitments they made 
to induce SSOs to standardize their patented technologies.\7\ Each of 
these cases, brought under Section 2 of the Sherman Act, involved 
allegations of bad faith or deceptive conduct by the patent holder 
before the standard was adopted. However, under its stand-alone Section 
5 authority, the Commission can reach opportunistic conduct that takes 
place after a standard is adopted that tends to harm consumers and 
undermine the standard-setting process.'' \8\ For example, in 
Negotiated Data Solutions, LLC (``N-Data''),\9\ the Commission 
condemned similar conduct as ``inherently `coercive' and `oppressive.' 
'' \10\ The respondent, N-Data, acquired SEPs from a patent holder that 
had committed to license them to any requesting party for a one-time 
flat fee of $1,000. After it acquired these SEPs, N-Data reneged on 
this licensing commitment. ``Instead, N-Data threatened to initiate, 
and in some cases prosecuted, legal actions against companies refusing 
to pay its royalty demands, which [were] far in excess of [the $1,000 
one-time flat fee].'' \11\ The Commission found that N-Data's ``efforts

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to exploit the power it enjoy[ed] over those practicing the [relevant] 
standard and lacking any practical alternatives'' were inherently 
``coercive'' and ``oppressive'' as these firms were, ``as a practical 
matter, locked into [the] standard.'' \12\ As here, the Commission 
found that N-Data's opportunistic breach of its licensing commitment 
had the tendency of leading to higher prices for consumers and 
undermining the standard-setting process.
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    \7\ See Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297, 313-15 
(3d Cir. 2007); In re Rambus, Inc., No. 9302, 2006 WL 2330117 
(F.T.C. Aug. 2, 2006), available at https://www.ftc.gov/os/adjpro/d9302/060802commissionopinion.pdf, rev'd on other grounds Rambus v. 
F.T.C., 522 F.3d 456 (D.C. Cir. 2008); Research in Motion, Ltd. v. 
Motorola, Inc., 644 F. Supp. 2d 788, 796-97 (N.D. Tex. 2008); Apple 
Inc. v. Samsung Elecs. Co., No. 11-CV-01846, 2012 U.S. Dist. LEXIS 
67102, at *27-28 (N.D. Cal. May 14, 2012).
    \8\ The Commission's investigation did not give it reason to 
believe that Motorola acted with bad faith or an intent to deceive 
at the time it first made these FRAND commitments to IEEE, ETSI, and 
ITU.
    \9\ In re Negotiated Data Solutions LLC (N-Data), File No. 051-
0094, 2008 WL 258308 (FTC Jan. 22, 2008).
    \10\ N-Data, 2008 WL 258308, at *37 (analysis to aid public 
comment).
    \11\ Id. at *34-36.
    \12\ Id. at *37. Both Section 5 and common law precedents 
support the conclusion that parties engage in coercive and 
oppressive conduct when they breach commitments after those 
commitments have induced others to make relationship-specific 
investments and forego otherwise available alternatives. In Holland 
Furnace Co. v. FTC, 295 F.2d 302 (7th Cir. 1961), the Commission 
found a Section 5 violation when furnace salesmen dismantled 
furnaces for cleaning and inspection and refused to reassemble them 
until customers agreed to buy additional parts or services. Id. at 
305. In Alaska Packers' Ass'n v. Domenico, 117 F. 99 (9th Cir. 
1902), the Ninth Circuit likewise found that seamen acted coercively 
by threatening to strike unless the owners of a fishing vessel 
agreed to pay them wages higher than those they had negotiated 
before the vessel set sail. Id. at 102-03. In each case, the victims 
could have turned to alternatives ex ante (before their furnaces had 
been dismantled or their vessel had set sail for remote waters), but 
were ``locked in,'' and therefore vulnerable to exploitation, ex 
post. Id. at 102 (explaining that, ``at a time when it was 
impossible for the [vessel owners] to secure other men in their 
places,'' the seamen ``refused to continue the services they were 
under contract to perform unless the [owners] would consent to pay 
them more money''); Neil W. Averitt, The Meaning of ``Unfair Acts or 
Practices'' in Section 5 of the Federal Trade Commission Act, 70 
Geo. L.J. 225, 253 (1981) (observing that the consumers in Holland 
Furnace, because they ``could not escape the need to restore their 
units to service, * * * willingly or not, * * * often had to 
purchase replacements from the respondent'').
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    Google and MMI's opportunistic violations of their FRAND 
commitments have the potential to harm consumers by excluding products 
from the market as a result of an injunction or by leading to higher 
prices because manufacturers are forced, by the threat of an 
injunction, to pay higher royalty rates. As explained in N-Data, courts 
have traditionally viewed opportunistic breaches as conduct devoid of 
countervailing benefits.\13\ As Judge Posner has explained, when a 
promisor breaches opportunistically, ``we might as well throw the book 
at the promisor. * * * Such conduct has no economic justification and 
ought simply to be deterred.'' \14\ As in N-Data, ``the context here is 
in standard-setting,'' and ``[a] mere departure from a previous 
licensing commitment is unlikely to constitute an unfair method of 
competition under Section 5.'' \15\
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    \13\ N-Data, 2008 WL 258308, at *38 (Analysis to Aid Public 
Comment).
    \14\ Richard A. Posner, Economic Analysis of Law 130 (5th ed. 
1998).
    \15\ N-Data, 2008 WL 258308, at *37 (Analysis to Aid Public 
Comment).
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2. Unfair Act or Practice

    Google and Motorola's violations of their FRAND commitments also 
constitute unfair acts or practices under Section 5 because they are 
``likely to cause substantial injury to consumers which is not 
reasonably avoidable by consumers themselves and not outweighed by 
countervailing benefits to consumers or to competition.'' \16\ If these 
practices continue, consumers will likely pay higher prices because 
many consumer electronics manufacturers will pass on some portion of 
unreasonable or discriminatory royalties they agree to pay to avoid an 
injunction or exclusion order. Consumers will not be able to avoid this 
injury, due to the industry-wide lock-in induced by Motorola's FRAND 
commitments. Moreover, this practice has no apparent ``countervailing 
benefits,'' either to those upon whom demands have been made, or to 
ultimate consumers, or to competition.\17\
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    \16\ 15 U.S.C. 45(n) (1992). Section 45(n) codified limiting 
principles set forth in the 1980 FTC Policy Statement on Unfairness. 
See Letter from Federal Trade Commission to Senators Ford and 
Danforth (Dec. 17, 1980), reprinted in H.R. Rep. No. 156, Pt. 1, 
98th Cong., 1st Sess. 33-40 (1983), available at https://www.ftc.gov/bcp/policystmt/ad-unfair.htm, appended to the Commission's decision 
in International Harvester, 104 F.T.C. at 949, 1061 (1984).
    \17\ N-Data, 2008 WL 258308, at *38 (Analysis to Aid Public 
Comment).
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The Proposed Consent

    The Proposed Consent Order is tailored to prevent Google--through 
its wholly owned subsidiary, Motorola--from using injunctions or 
threats of injunctions against current or future potential licensees 
who are willing to accept a license on FRAND terms. Under this Order, 
before seeking an injunction on FRAND-encumbered SEPs, Google must: (1) 
Provide a potential licensee with a written offer containing all of the 
material license terms necessary to license its SEPs, and (2) provide a 
potential licensee with an offer of binding arbitration to determine 
the terms of a license that are not agreed upon. Furthermore, if a 
potential licensee seeks judicial relief for a FRAND determination, 
Google must not seek an injunction during the pendency of the 
proceeding, including appeals. Nothing in the Order limits Google or a 
potential licensee from challenging the validity, essentiality, claim 
of infringement or value of the patents at issue, and either party may 
object to a court action on jurisdictional or justiciability grounds, 
or on the ground that an alternative forum would be more appropriate. 
The Proposed Consent Order also does not prevent Google from pursuing 
legal claims regarding its FRAND-encumbered SEPs other than a claim for 
injunctive relief, such as an action seeking damages for patent 
infringement. The Order does not define FRAND but requires Google to 
offer, and follow, specific procedures that will lead to that 
determination.
    The Proposed Consent Order prohibits Google from revoking or 
rescinding any FRAND commitment that it has made or assumed unless the 
relevant standard no longer exists, Google no longer owns the SEPs 
encumbered by the FRAND commitment, or such SEPs are no longer 
enforceable. Motorola made FRAND commitments on the understanding that 
they were irrevocable, and Google, in acquiring Motorola's FRAND-
encumbered SEPs, must continue to honor those agreements.
    The Proposed Consent Order further prohibits Google and Motorola 
from continuing or enforcing existing claims for injunctive relief 
based on FRAND-encumbered SEPs. Google and Motorola are similarly 
prohibited from bringing future claims for injunctive relief based on 
FRAND-encumbered SEPs. For both current and future claims for 
injunctive relief, Google and Motorola must follow specific negotiation 
procedures, described below, that are intended to protect the interests 
of potential willing licensees while allowing Google and Motorola to 
seek injunctions only after the licensee refuses to engage in the 
negotiation process. However, if a potential licensee indisputably 
demonstrates that it is not willing to pay Google a reasonable fee for 
use of Google's FRAND-encumbered SEPs, Google is permitted by this 
Order to seek injunctive relief.
    Outside the processes outlined in the Order, Google is permitted to 
seek injunctive relief only in the following four narrowly-defined 
circumstances: (1) The potential licensee is not subject to United 
States jurisdiction; (2) the potential licensee has stated in writing 
or in sworn testimony that it will not accept a license for Google's 
FRAND-encumbered SEPs on any terms; (3) the potential licensee refuses 
to enter a license agreement for Google's FRAND-encumbered SEPs on 
terms set for the parties by a court or through binding arbitration; or 
(4) the potential licensee fails to assure Google that it is willing to 
accept a license on FRAND terms. The Proposed Consent Order provides

[[Page 2402]]

Google with a form letter, attached to the Proposed Consent Order as 
Exhibit B, for requesting a potential licensee to affirm that it is 
willing to pay a FRAND rate for Google's FRAND-encumbered SEPs, and 
Google must provide a copy of the Proposed Consent Order along with the 
form letter. Google may not, however, seek an injunction simply because 
the potential licensee challenges the validity, value, infringement or 
essentiality of Google's FRAND-encumbered patents.
    The Proposed Consent Order provides potential licensees with two 
avenues for resolving licensing disputes that involve Google's FRAND-
encumbered SEPs. The first is a framework for resolution that a 
potential licensee may voluntarily elect. Under this path, Google and 
the potential licensee agree to negotiate the terms of the license for 
at least six (6) months (unless a license agreement is reached sooner); 
after the negotiation period concludes, Google may offer a license 
agreement, or, if the potential licensee requests a license after this 
negotiation period, Google must provide a proposed license within two 
months of the request. Google's proposed license agreement must be a 
binding, written offer that contains all material terms and 
limitations. Under this procedure, the potential licensee either 
accepts the proposed license or informs Google of the terms that it 
accept and the terms that it believes are inconsistent with Google's 
FRAND commitments; for each term that it disagrees with, the potential 
licensee must provide an alternative term that it believes is 
consistent with Google's FRAND commitment. The potential licensee may 
then go to court for a FRAND determination or propose binding 
arbitration to resolve the disputed provisions of Google's proposed 
license agreement. If a court decides that it cannot resolve the 
disputed terms, the parties are to go to binding arbitration to 
finalize the terms of the license agreement.
    In the event that the potential licensee does not choose to pursue 
the path set forth above for resolving the licensing dispute, Google is 
nevertheless prohibited from seeking injunctive relief unless it takes 
the following steps. At least six months before seeking an injunction, 
Google must provide the potential licensee with the Proposed Consent 
Order and an offer to license Google's FRAND-encumbered patents 
containing all material terms; Google's offer may require that the 
potential licensee in turn offer Google a license for the potential 
licensee's FRAND-encumbered SEPs within the same standard. If no 
agreement is reached, at least sixty days before initiating a claim for 
injunctive relief, Google must offer the potential licensee the option 
to enter binding arbitration to determine the terms of a license 
agreement between the parties. The Proposed Consent Order describes the 
terms and conditions that Google must follow should the potential 
licensee accept the offer for binding arbitration, although the parties 
are free to agree to their own terms. Google's license offers will be 
irrevocable until it makes the offer to arbitrate, and Google's offers 
to arbitrate will be irrevocable until thirty (30) days after Google 
files for injunctive relief.
    Under these provisions, if the potential licensee seeks a court's 
determination of a FRAND-license-rate between the parties instead of 
accepting Google's offer to arbitrate, Google may not file for 
injunctive relief as long as the potential licensee goes to court 
within seven (7) months of Google providing a license offer, or within 
three months of Google's offer to arbitrate. But the potential licensee 
must, in connection with its court action, provide Google with 
assurances that it will abide by the license terms set by the court and 
pay royalties based on a final court determination or Google will be 
free to seek injunctive relief. The Proposed Consent Order provides 
Google with a form letter, attached as Exhibit A, for requesting that 
the potential licensee agree to be bound by the court's FRAND 
determination.
    Under the terms of the Proposed Consent Order, Google retains the 
option to file for injunctive relief against a potential licensee that 
itself files a claim for injunctive relief against Google based on the 
potential licensee's FRAND-encumbered SEPs, unless that potential 
licensee has followed the procedures similar to those set out by the 
Proposed Consent Order for Google.
    Finally, the Proposed Consent Order prohibits Google from selling 
or assigning its FRAND-encumbered SEPs to third parties unless those 
parties agree to assume Google's FRAND commitments, abide by the terms 
of the Proposed Consent Order, and condition any further sale or 
assignment of Google's FRAND-encumbered SEPs on the same.
    In sum, the Proposed Consent Order improves upon the commitments 
made by Google in February 2012 to ETSI, IEEE, and ITU to honor 
Motorola's prior FRAND assurances and limit its pursuit of injunctive 
relief in connection with Motorola's SEPs by providing clear mechanisms 
for Google to do so. The Order also clarifies and defines Google's 
FRAND commitments by prohibiting Google from seeking injunctive relief 
against implementers who are willing to license Google's SEPs. The 
Proposed Consent Order also contains standard reporting, notification, 
and access provisions designed to allow the Commission to monitor 
compliance. It terminates ten (10) years after the date the Order 
becomes final.

    By direction of the Commission, Commissioner Ohlhausen 
dissenting.
Richard C. Donohue,
Acting Secretary.

Statement of Commissioner Rosch

    A majority of the Commission has voted today to issue a Complaint 
and Order against Google Inc. (``Google'') to remedy Google's breaking 
the commitments of Motorola Mobility, Inc. (``MMI'') to license 
standard-essential patents (``SEPs'') on terms that are fair, 
reasonable and non-discriminatory (``FRAND''). Google succeeded to 
MMI's FRAND commitments when it acquired MMI. Google has agreed in a 
consent decree not to seek an injunction against infringement of those 
SEPs and instead to license the SEPs on the FRAND terms to which MMI 
agreed. I concur in the Commission's decision to issue the Complaint 
and Order against Google. I issue this Separate Statement for four 
reasons.\18\
---------------------------------------------------------------------------

    \18\ I am also troubled by Section IV.F of the Proposed Order, 
which provides for a limited ``defensive use'' exception to Google's 
commitment not to seek injunctive relief on its FRAND-encumbered 
SEPs. That is, under certain circumstances, Google may seek 
injunctive relief against a firm that itself files a claim for 
injunctive relief against Google based on the firm's FRAND-
encumbered SEPs. However, my concerns in this regard are tempered by 
the Commission's ability to reconsider this aspect of the Proposed 
Order based on submissions received during the public comment 
period.
---------------------------------------------------------------------------

    First, I do not agree with the Complaint's allegation or the 
majority's assertion that an injunction enforcing SEPs would constitute 
``patent hold-up.'' (Compl. ]] 2, 13-14, 19; Commission Statement at 2-
3.) That allegation is superfluous. It does not add anything to the 
Commission's competition mission or jurisprudence. To the contrary, 
proof of such an allegation would only burden the staff, adding an 
element that the staff need not prove. There is increasing judicial 
recognition, coinciding with my own view, that a seeking an injunction 
is inherently antithetical to a commitment instead to license patents 
on fair, reasonable, and non-discriminatory terms.\19\ Indeed, the 
Complaint itself

[[Page 2403]]

describes Google's conduct at issue as being simply a breach of a 
commitment to license its SEPs on FRAND terms. (Compl. ] 1, 25-27.) In 
other words, the concept of ``patent hold up'' has nothing to do with 
Google's conduct. It is a construct that applies as a matter of theory.
---------------------------------------------------------------------------

    \19\ See, e.g., eBay, Inc. v. MercExchange, LLC, 547 U.S. 388 
(2006). The majority expressly acknowledges that in Microsoft Corp. 
v. Motorola, Inc., 696 F.3d 872, 884 (9th Cir. 2012), the Ninth 
Circuit stated that ``[i]mplicit 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.'' And in Apple, Inc. v. 
Motorola, Inc., No. 1:11-cv-08540, 2012 U.S. Dist. LEXIS 89960, at 
*45 (N.D. Ill. June 22, 2012), Judge Posner, sitting by designation 
as a district court judge, stated that ``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?''
---------------------------------------------------------------------------

    Second, while the majority correctly asserts that the proposed 
Complaint in this matter alleges that Google's practices in seeking an 
injunction ``constitute unfair methods of competition and unfair acts 
or practices, in violation of Section 5'' of the FTC Act, the lion's 
share of the Commission's Statement, as well as the Complaint, is 
devoted to analysis of Google's conduct as a ``standalone'' unfair 
method of competition claim under Section 5. (Commission Statement at 
1-3.) I would have given equal prominence to the unfair acts and 
practices claim.
    ``Unfair acts or practices'' claims based on alleged breaches of 
contract have repeatedly been made by the Commission. Orkin 
Exterminating Co., 108 F.T.C. 263 (1986), aff'd, Orkin Exterminating 
Co. v. FTC, 849 F.2d 1354 (11th Cir. 1988); Negotiated Data Solutions 
LLC (N-Data), 73 Fed. Reg. 5,846 (FTC 2008) (aid to public comment); 
see also C&D Electronics, Inc., 109 F.T.C. 72 (1987).
    Moreover, the Commission has brought a number of consumer 
protection cases involving petitioning activity. See, e.g., Spiegel, 
Inc. v. FTC, 540 F.2d 287 (7th Cir. 1976) (upholding the Commission's 
finding that the filing of lawsuits in distant locations was an unfair 
act); J.C. Penny Co., 109 F.T.C. 54 (1987) (consent decree resolving 
similar concerns). Noerr was neither raised nor held to apply in these 
cases.
    There is reason to believe that seeking an injunction on a SEP 
would be a breach of contract actionable as an unfair act or 
practice.\20\ More specifically, when there is a SEP, a FRAND 
commitment is given by the owner of the SEP in exchange for inclusion 
of the SEP in the standard, and seeking an injunction instead of a 
license if there is infringement of the SEP is a breach of that FRAND 
commitment.
---------------------------------------------------------------------------

    \20\ As I have stated in the past, injunctive relief should be 
prohibited only when the potential licensee is a ``willing 
licensee'' under FRAND terms. See also Commission Statement at 1-2. 
That is not what the consent decree provides. Nor is it the relief I 
would agree to. The only exception to this is when a federal court 
or some other neutral arbitrator has defined those terms. Cf. 
Opinion of the Commission on Remedy at 8, Evanston Northwestern 
Healthcare Corp., Docket No. 9315 (Apr. 28, 2008) (requiring 
disputes to be resolved through final offer arbitration, sometimes 
referred to as ``baseball style arbitration''). In the event that a 
licensee refuses to comply with a federal court order or another 
neutral arbitrator's order defining those terms, I think it is 
appropriate to enforce the court's order against the licensee. 
(Compl. ] 16.)
---------------------------------------------------------------------------

    That conclusion is not contrary to the Supreme Court's decision in 
eBay, Inc. v. MercExchange LLC, 547 U.S. 388 (2006). To be sure, a 
majority of the Supreme Court declined to rule in that case that 
injunctions were never permitted as a matter of law. See id. at 393-94. 
But a SEP was not involved in that case.
    The lack of any allegations in the Complaint of injury to consumers 
to date does not undercut the ``unfair acts or practices'' claim. 
(Compl. ]] 4, 30.) Both Section 5(n) of the FTC Act and our Unfairness 
Policy Statement treat as an ``unfair act or practice'' any practice 
that not only actually harms consumers but also any practice that is 
``likely'' to do so. 15 U.S.C. 45(n); Int'l Harvester Co., 104 F.T.C. 
949, 1070 (1984). Here, there is ``reason to believe'' that an 
injunction would ``likely'' harm consumers in the fashion described in 
C&D Electronics even if it did not actually do so. 109 F.T.C. at 80 
(separate statement of Chairman Daniel Oliver: ``[T]he activity here 
may provide disincentives that will result in services not being 
available to consumers at all.''). The Complaint alleges, for example, 
that Google's conduct has a tendency to exclude products from the 
market, to cause higher consumer prices, and to diminish innovation. 
(Compl. ]] 3, 28.)
    If seeking injunctive relief were not challenged under the ``unfair 
acts or practices'' prong of Section 5, that would leave the ``unfair 
methods of competition'' prong as the only basis of liability. As 
discussed below, my colleagues and I disagree on which, if any, 
principles ought to limit liability based on that theory. My dissent to 
the consent decree in the Bosch case \21\ was mainly based on that 
decree's treatment of ``unfair methods of competition'' as the sole 
basis of liability and the mischief that might cause.
---------------------------------------------------------------------------

    \21\ Robert Bosch GmbH, Docket No. C-4377, FTC File No. 121 
0081, available at https://www.ftc.gov/os/caselist/1210081/index.shtm.
---------------------------------------------------------------------------

    Third, I do not agree to invoke a standalone unfair methods of 
competition claim under Section 5 because it is not clear what the 
``limiting principles'' of such a claim would be. I joined Chairman 
Leibowitz in pleading a similarly unlimited claim in the Intel case. 
See Statement of Chairman Leibowitz and Commissioner Rosch, Intel 
Corporation, Docket No. 9341 (Dec. 16, 2009). But, at the time, I 
identified several ``limiting principles'' on our Section 5 authority. 
See Concurring and Dissenting Statement of Commissioner J. Thomas 
Rosch, Intel Corporation, Docket No. 9341 (Dec. 16, 2009); see also 
Boise Cascade v. FTC, 637 F.2d 573 (9th Cir. 1980); Official Airline 
Guides v. FTC, 630 F.2d 920 (2d Cir. 1980); E.I. duPont de Nemours & 
Co. v. FTC, 729 F.2d 128 (2d Cir. 1984).
    Since that time, I have described several other ``limiting 
principles'' that should be considered.\22\ For example, the 
requirement that a respondent have monopoly or near-monopoly power 
provides a limiting principle for the standalone use of Section 5 
unfair methods of competition claims that the Commission could defend 
in an appellate court; it would also not unsettle ``settled principles 
of Section 2 law'' as defined by the Supreme Court case law under 
Section 2, see, e.g., Verizon Commc'ns Inc. v. Law Offices of Curtis V. 
Trinko, LLP, 540 U.S. 398, 407 (2004); Spectrum Sports, Inc. v. 
McQuillan, 506 U.S. 447, 458-59 (1993), as well as the language of 
Section 2 itself. Absent those limiting principles, which are not 
identified in the Complaint, I think Section 5 is not properly 
circumscribed.
---------------------------------------------------------------------------

    \22\ See J. Thomas Rosch, The Great Doctrinal Debate: Under What 
Circumstances is Section 5 Superior to Section 2?, Remarks Before 
the New York State Bar Association (Jan. 27, 2011), available at 
https://www.ftc.gov/speeches/rosch/110127barspeech.pdf; J. Thomas 
Rosch, Promoting Innovation: Just How ``Dynamic'' Should Antitrust 
Law Be?, Remarks Before USC Gould School of Law (Mar. 23, 2010), 
available at https://www.ftc.gov/speeches/rosch/100323uscremarks.pdf.
---------------------------------------------------------------------------

    To be sure, the potential anticompetitive harm that is threatened 
when injunctive relief is sought for alleged infringement of an SEP may 
be especially pernicious: a false FRAND commitment not only may cripple 
competition for inclusion in the standard (so-called ``ex ante 
competition''); it may also cripple competition among those using the 
standard (so-called ``ex post'' competition). See Broadcom Corp. v. 
Qualcom, Inc., 501 F.3d 297 (3d Cir. 2007). This may be a limiting 
principle. But the Complaint does not allege that

[[Page 2404]]

standalone Section 5 actions are limited to especially pernicious 
practices, let alone the practices at issue here.
    Beyond that, the Commission, with its expertise in identifying 
deception, brings something to the analysis that others cannot bring. 
As Commissioner and former Chairman Bill Kovacic observed, the FTC is a 
better competition agency because of its consumer protection 
mission.\23\ The fact that the Commission has a comparative advantage 
in identifying deception might also be a second ``limiting principle.'' 
But the Complaint does not allege that either.
---------------------------------------------------------------------------

    \23\ See William E. Kovacic, Competition Policy, Consumer 
Protection, and Economic Disadvantage, 25 J. L. & Pol'y 101, 114 
(2007) (observing that ``consumer protection laws are important 
complements to competition policy''); see also Opinion of the 
Commission on Liability, Rambus Inc., FTC Docket No. 9302 (2006), 
available at https://www.ftc.gov/os/adjpro/d9302/060802commissionopinion.pdf.
---------------------------------------------------------------------------

    The Complaint does allege that Google has monopoly power. (Compl. ] 
21.) But the Complaint does not allege monopoly power as a limitation 
on the Commission's use of a standalone Section 5 unfair methods of 
competition claim. See Concurring and Dissenting Statement of 
Commissioner Rosch, Intel Corp., FTC Docket No. 9341 (Dec. 16, 2009), 
available at https://www.ftc.gov/os/adjpro/d9341/091216intelstatement.pdf. This might be understandable if Google faced 
treble damage liability in a private action under Section 5 as long as 
there was any chance that Google would face an unlimited standalone 
Section 5 unfair competition claim. But Section 5 belongs to the 
Commission and the Commission alone, and even the Commission cannot 
seek treble damages for a standalone Section 5 unfair methods of 
competition violation.\24\
---------------------------------------------------------------------------

    \24\ See Rosch, The Great Doctrinal Debate, supra note 5, at 8-
10. Commissioner Kovacic expressed concern in his dissent from the 
N-Data settlement that such liability might lie under ``little FTC 
Acts'' at the state level. See Dissenting Statement of Commissioner 
William E. Kovacic, In re Negotiated Data Solutions, File No. 051-
0094 (Jan. 23, 2008), available at https://www.ftc.gov/os/caselist/0510094/080122kovacic.pdf. However, an exhaustive study of state 
``little FTC Acts'' had found that most of those statutes have such 
significant limitations that there is little likelihood of follow-on 
litigation. See Rosch, The Great Doctrinal Debate, supra note 5, at 
12 n.27.
---------------------------------------------------------------------------

    Fourth, I object to language in the Agreement Containing Consent 
Order that is tantamount to a denial of liability. Specifically, Google 
has refused to admit any facts other than jurisdictional facts and has 
refused to admit that a violation of the law has occurred. (ACCO ]] 2, 
4.) As I have previously explained,\25\ the Commission should require 
respondents either to admit or to ``neither admit nor deny'' liability 
in Commission consent decrees, and this change should be reflected in 
the Commission's Rules of Practice. See Rule 2.32, 16 CFR 2.32.
---------------------------------------------------------------------------

    \25\ See Dissenting Statement of Commissioner J. Thomas Rosch, 
In the Matter of Facebook, Inc., File No. 092 3184, Docket No. C-
4365 (Aug. 10, 2012), available at https://www.ftc.gov/speeches/rosch/120810facebookstatement.pdf.
---------------------------------------------------------------------------

Dissenting Statement of Commissioner Maureen K. Ohlhausen

    I voted against this consent agreement and dissent from imposing 
liability on an owner of a standard essential patent (``SEP'') merely 
for petitioning the courts or the International Trade Commission 
(``ITC''). The Commission announced this enforcement policy in In re 
Robert Bosch GmbH, stating that in ``appropriate circumstances'' it 
will sue patent holders for seeking injunctive relief against ``willing 
licensees'' of a SEP.\26\ I dissented then in large part because I 
question whether such conduct, standing alone, violates Section 5 \27\ 
and because the Noerr-Pennington doctrine \28\ precludes Section 5 
liability for conduct grounded in the legitimate pursuit of an 
injunction \29\ or any threats incidental to it,\30\ outside of a 
handful of well-established exceptions not alleged there. Not only does 
today's decision raise many of the same concerns for me as did 
Bosch,\31\ the Commission is now expanding its new policy to impose 
both competition and consumer protection liability on Google for the 
same type of conduct alleged in Bosch.\32\
---------------------------------------------------------------------------

    \26\ In re Robert Bosch GmbH, FTC File No. 121-0081, Statement 
of the Commission, at 2 & n.7 (Nov. 26, 2012), available at https://www.ftc.gov/os/caselist/1210081/121126boschcommissionstatement.pdf.
    \27\ See In re Robert Bosch GmbH, FTC File No. 121-0081, 
Statement of Commissioner Ohlhausen (Nov. 26, 2012), available at 
https://www.ftc.gov/os/caselist/1210081/121126boschohlhausenstatement.pdf. The Commission has historically 
required evidence of deception or other similar conduct harming the 
standard-setting process before taking action. 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 (D.C. 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).
    \28\ 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).
    \29\ See, e.g., California Motor Transp. Co. v. Trucking 
Unlimited, 404 U.S. 508 (1972) (applying Noerr-Pennington doctrine 
to petitioning of judicial branch).
    \30\ See, e.g., ABA Section of Antitrust Law, Monograph 25, The 
Noerr-Pennington Doctrine 60-65 (2009) (collecting cases regarding 
protection of conduct incidental to petitioning).
    \31\ A federal court has addressed this issue on the same 
nucleus of facts and held that Noerr immunizes Google's predecessor-
in-interest, Motorola, from competition claims based on its 
litigation against Apple. 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). I disagree with the majority's interpretation 
of the cases it relies on to preclude Noerr's application here. 
``The Noerr-Pennington doctrine derives from the Petition Clause of 
the First Amendment and provides that `those who petition any 
department of government for redress are generally immune from 
statutory liability for their petitioning conduct.''' Kearney v. 
Foley & Lardner, LLP, 590 F.3d 638, 643-44 (9th Cir. 2009) (quoting 
Sosa v. DIRECTV, Inc., 437 F.3d 923, 929 (9th Cir. 2006)) (emphasis 
added). The Commission today is not pursuing a private breach of 
contract claim against Google but seeking to impose statutory 
liability under Section 5 on Google (and presumably other SEP-
holders) merely for petitioning the government.
    \32\ See Complaint ]] 31-32.
---------------------------------------------------------------------------

    Because I fear the legacy of our actions in this area will be 
greater uncertainty for patent holders about their contractual 
obligations, intellectual property protections, and Constitutional 
rights, as well as conflict between the Commission and other 
institutions with authority in these matters, I decline to join in 
another undisciplined expansion of Section 5. I outline my chief 
concerns below.
    First, the Commission is offering ambiguous guidance to market 
participants.\33\ Although I believe strongly the courts and other 
stakeholders are generally better suited to define the use and 
treatment of SEPs,\34\ if the Commission insists on

[[Page 2405]]

interposing itself here it should at least offer a clear position. 
However, the majority says little about what ``appropriate 
circumstances'' may trigger an FTC lawsuit other than to say that a 
fair, reasonable, and non-discriminatory (``FRAND'') commitment 
generally prohibits seeking an injunction.\35\ By articulating only 
narrow circumstances when the Commission deems a licensee unwilling 
(limitations added since Bosch),\36\ and not addressing the ambiguity 
in the market about what constitutes a FRAND commitment, the Commission 
will leave patent owners to guess in most circumstances whether they 
can safely seek an injunction on a SEP. Moreover, the Commission gives 
no principled basis for expanding liability beyond an unfair method of 
competition to include an ``unfair act or practice'' on what is 
essentially the same conduct here as in Bosch. This expansion of 
liability sows additional seeds of confusion as to what can create 
liability and even the statutory basis of that liability.\37\
---------------------------------------------------------------------------

    \33\ A brief mention of potentially relevant factors in a 
consent complaint or order is in my opinion not enough to 
meaningfully and comprehensively outline the Commission's philosophy 
on enforcing pure Section 5 claims. The scope of Section 5 warrants 
more serious reflection and inquiry before being applied to the 
conduct of market participants. See 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.'').
    \34\ Federal courts and the ITC rarely award injunctive relief 
on FRAND-encumbered patents, and any decision they make must follow 
sober, careful, and informed analysis. See eBay v. MercExchange, 547 
U.S. 388, 391 (2006) (requiring plaintiff seeking an injunction to 
demonstrate (1) irreparable injury, (2) inadequacy of remedies at 
law, (3) that the balance of hardships weighs in favor of the 
plaintiff, and (4) that the public interest would not be disserved 
by a permanent injunction). The only potentially relevant case that 
has come to our attention relates to an injunction on use of a 
patent covered by certain wireless local area network standards. The 
court did not make it clear whether the patents at issue were 
declared ``essential,'' but from the opinion they are described as 
part of the core technology embodied in the standards. It also 
appears from the court's opinion that the defendant would have been 
satisfied with a license for the patented technology. See 
Commonwealth Scientific and Indus. Research Org. v. Buffalo Tech. 
Inc., 492 F. Supp. 2d 600 (E.D. Tex. 2007) (applying eBay factors 
and holding that permanent injunction warranted for infringement of 
technology embodied in the 802.11a and 802.11g standards adopted by 
the Institute of Electrical and Electronics Engineers, despite 
arguments by the defendant that a compulsory license would be 
sufficient).
    \35\ References to FRAND here encompass ``RAND'' or ``reasonable 
and non-discriminatory'' terms as well.
    \36\ These limitations include when the potential licensee (a) 
is outside the jurisdiction of the United States; (b) has stated in 
writing or sworn testimony that it will not license the SEP on any 
terms; (c) refuses to enter a license agreement on terms set in a 
final ruling of a court--which includes any appeals--or binding 
arbitration; or (d) fails to provide written confirmation to a SEP 
owner after receipt of a terms letter in the form specified by the 
Commission. See Decision and Order at 7-8 (hereinafter ``Order''). 
They also include certain instances when a potential licensee has 
brought its own action seeking injunctive relief on its FRAND-
encumbered SEPs. See Order at 11-12.
    \37\ Former Commissioner Kovacic dissented similarly from the N-
Data consent in 2008, objecting to, among other things, the lack of 
clarity provided by the Commission as to the basis of liability, 
given the simultaneous use of unfair method of competition and 
unfairness claims in that consent. In re Negotiated Data Solutions 
LLC, FTC File No. 051-0094, Dissenting Statement of Commissioner 
William E. Kovacic, at 2-3 (Jan. 23, 2008), available at https://www.ftc.gov/os/caselist/0510094/080122kovacic.pdf.
---------------------------------------------------------------------------

    Second, the consent agreement creates doctrinal confusion. The 
Order contradicts the decisions of federal courts, standard-setting 
organizations (``SSOs''), and other stakeholders about the availability 
of injunctive relief on SEPs and the meaning of concepts like willing 
licensee and FRAND. For example, the Complaint alleges that Google 
breached its SSO commitments by seeking injunctive relief on its 
SEPs.\38\ However, a federal judge in the Western District of Wisconsin 
held Motorola did not breach its contract with two of the relevant 
SSOs:
---------------------------------------------------------------------------

    \38\ See Complaint ] 1. Notably, Research in Motion Corp., whom 
Motorola sought to enjoin from using SEPs and with whom Motorola 
settled its litigation, recently explained to the ITC that ``[t]he 
FRAND concept, which dates back to the development of the GSM 
wireless networks roughly 20 years ago, was never understood among 
industry participants to preclude a patent holder from seeking 
injunctions in appropriate situations.'' Submission of Research in 
Motion Corporation, In re Certain Wireless Communications Devices, 
Portable Music and Data Processing Devices, Computers and Components 
Thereof, Inv. No. 337-TA-745, at 4 (Int'l Trade Comm'n July 9, 
2012).
---------------------------------------------------------------------------

    There is no language in either the ETSI or IEEE contracts 
suggesting that Motorola and the standards-setting organizations 
intended or agreed to prohibit Motorola from seeking injunctive relief. 
In fact, both policies are silent on the question of injunctive relief. 
Moreover, in light of the fact that patent owners generally have the 
right to seek injunctive relief both in district courts, 35 U.S.C. 283, 
and in the International Trade Commission, 19 U.S.C. 1337(d), I 
conclude that any contract purportedly depriving a patent owner of that 
right should clearly do so. The contracts at issue are not clear. 
Therefore, I conclude that Motorola did not breach its contracts simply 
by requesting an injunction and exclusionary order in its patent 
infringement actions.\39\
---------------------------------------------------------------------------

    \39\ Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv-178-bbc, 
slip op. at 29 (W.D. Wis. Oct. 29, 2012).
---------------------------------------------------------------------------

    The Commission also treats Apple as a willing licensee, 
disregarding a federal judge's decision that Apple revealed itself as 
unwilling on the eve of trial.\40\ As the judge wrote: ``[Apple's 
intentions] became clear only when Apple informed the court * * * that 
it did not intend to be bound by any rate that the court determined.'' 
\41\ The judge further concluded Apple was trying to use the FRAND rate 
litigation simply to determine ``a ceiling on the potential license 
rate that it could use for negotiating purposes * * * .'' \42\
---------------------------------------------------------------------------

    \40\ Compare Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv-
178-bbc, slip op. at 5 (W.D. Wis. Nov. 8, 2012) (dismissing matter 
after finding Apple was not willing to accept court's FRAND rate) 
with Complaint ]] 25-27 (identifying Apple and Microsoft as willing 
licensees).
    \41\ Motorola, No. 11-cv-178-bbc, slip op. at 5 (W.D. Wis. Nov. 
8, 2012).
    \42\ Id. These events highlight another issue that the 
Commission does not address: the possibility that companies who need 
to license SEPs can engage in opportunistic conduct by delaying 
paying a license fee to a SEP holder for many years or by colluding 
to pay the SEP holder a low rate. See, e.g., Sony Elecs. v. 
Soundview Techs., 157 F. Supp. 2d 180 (D. Conn. 2001) (denying 
motion to dismiss where plaintiff alleged conspiracy by potential 
licensees to fix price of patent license); Golden Bridge Tech. v. 
Nokia Inc., 416 F. Supp. 2d 525 (E.D. Tex. 2006) (denying motion to 
dismiss where plaintiff alleged per se violation of Sherman Act 
arising from a boycott ousting a patented technology from an 
industry standard); U.S. Dep't of Justice & Fed. Trade Comm'n, 
Antitrust Enforcement and Intellectual Property Rights: Promoting 
Innovation and Competition 50-55 (2007), available at https://www.ftc.gov/reports/innovation/P040101PromotingInnovationandCompetitionrpt0704.pdf.
---------------------------------------------------------------------------

    In light of this decision, the majority is walking a fine line to 
claim Google should not be able to seek injunctive relief on these 
facts. The Order allows Google to seek injunctive relief if a party 
``has stated in writing or in sworn testimony that it will not license 
the FRAND Patent on any terms''--as Apple did in federal district 
court.\43\ But the Complaint attempts to skirt this issue by vaguely 
claiming that ``[a]t all times relevant to this Complaint, these 
implementers [including Apple] were willing licensees * * * .'' \44\ I 
believe it is quite ``relevant'' that Apple told a federal judge after 
years of negotiation and litigation with Motorola that it would only 
abide by the court-determined royalty rates to the extent it saw 
fit.\45\ I cannot endorse characterizing this conduct as that of a 
willing licensee and in so doing contradict the finding of a federal 
judge and create further confusion about the meaning of the term.
---------------------------------------------------------------------------

    \43\ Order at 7.
    \44\ Complaint ] 25 (emphasis added).
    \45\ Apple, Inc. v. Motorola Mobility, Inc., No. 11-cv-178-bbc, 
slip op. at 2 (W.D. Wis. Nov. 2, 2012) (stating ``[i]n its response 
to Motorola's motion for clarification on the specific performance 
issue, Apple states that it will not commit to be bound by any FRAND 
rate determined by the court and will not agree to accept any 
license from Motorola unless the court sets a rate of $1 or less for 
each Apple phone. Apple's Resp. Br., dkt. 448 at 8. In 
other words, if Apple is unsatisfied with the rate chosen by the 
court, it `reserves the right to refuse and proceed to further 
infringement litigation.' Id. at 2.'').
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    Third, the allegations in the complaint that Google and Motorola's 
conduct constitutes an ``unfair act or practice'' fail this agency's 
unfairness standard. To show an unfair act or practice, the Commission 
must prove that the challenged conduct ``causes or is likely to cause 
substantial injury to consumers which is not reasonably avoidable by 
consumers themselves and not outweighed by countervailing benefits to 
consumers or to competition.'' \46\ In this matter, we are essentially 
treating sophisticated technology companies, rather than end-users, as 
``consumers'' under our consumer protection authority. That runs 
counter to the historical, and in my view correct, approach that we 
have taken in pursuing our consumer protection mission, which is to 
protect

[[Page 2406]]

end users of products or services. Departing from this approach makes 
the FTC into a general overseer of all business disputes simply on the 
conjecture that a dispute between two large businesses may affect 
consumer prices, which is a great expansion of our role and is far 
afield from our mission of protecting consumers. Further, the 
unfairness count in the complaint alleges merely speculative consumer 
harm, at best, and thus fails to comply with the Commission's 
Unfairness Statement.\47\
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    \46\ 15 U.S.C. 45(n).
    \47\ See FTC Policy Statement on Unfairness, Appended to Int'l. 
Harvester Co., 104 F.T.C. 949, 1070 (1984) (``First of all, the 
injury must be substantial. The Commission is not concerned with 
trivial or merely speculative harms.''). As an initial matter, 
consumers do not have a right to purchase a good that a court or the 
ITC has found to infringe a patent. Thus, the only possible 
cognizable harm is the risk that the threat of an injunction may 
raise prices or reduce innovation through deterring the adoption of 
beneficial technologies. There is no compelling evidence that either 
type of harm exists in this matter, and it is far from certain that 
such harm is likely to occur in the future, particularly because it 
is so rare for the courts or the ITC to issue injunctions or 
exclusion orders for SEP-encumbered technologies.
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    Fourth, even taking the much-criticized N-Data consent decree as a 
starting point, it is unclear whether this case meets the requirements 
identified by the Commission in that matter. In N-Data, the Commission 
alleged that there was a clear promise to license by N-Data's 
predecessor-in-interest, which N-Data subsequently broke.\48\ The 
evidence presented to me in the instant matter does not reveal a clear 
promise by Motorola not to seek an injunction on the SEPs at issue and 
at least one court has found there was no such promise. Nor does there 
appear to have been any reasonable expectation on the part of members 
of the relevant SSOs--the Institute of Electrical and Electronics 
Engineers (``IEEE''), the European Telecommunications Standards 
Institute (``ETSI''), and the International Telecommunications Union 
(``ITU'')--that SEP holders, including Google and Motorola, had waived 
their right to seek injunctions on their SEPs. At least one of the SSOs 
at issue in this matter, ETSI, went so far as to explicitly reject an 
outright ban on injunctions.\49\ And the one federal court that has 
issued an injunction against what appears to have been a willing 
licensee on a RAND-encumbered patent (not identified expressly as a SEP 
but a core technology embodied in the standards) did so five years ago 
on the 802.11a and 802.11g IEEE-adopted wireless local area network 
standards.\50\ Thus, it should have been a reasonable expectation since 
that time to IEEE members (including the affected parties here) that an 
injunction could issue in certain situations even on a RAND-encumbered 
SEP against a potentially-willing licensee.
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    \48\ In re Negotiated Data Solutions LLC, FTC File No. 051-0094, 
Complaint (Jan. 23, 2008), available at https://www.ftc.gov/os/caselist/0510094/080923ndscomplaint.pdf.
    \49\ See, e.g., Submission of Qualcomm Incorporated in Response 
to the Commission's Request for Written Submissions, In re Certain 
Wireless Communications Devices, Portable Music and Data Processing 
Devices, Computers and Components Thereof, Inv. No. 337-TA-745, at 5 
(Int'l Trade Comm'n July 9, 2012) (``Language whereby a patentee 
making a FRAND commitment would have waived all right to injunction 
was debated and briefly included in an [intellectual property 
rights] policy adopted in 1993. However, when the current policy was 
adopted in 1994, that provision was removed. The only permissible 
inference from this sequence is that the ETSI membership turned 
their minds to the question of waiver of injunction and 
affirmatively decided to exclude any such waiver from the content of 
the FRAND commitment.'') (footnotes omitted).
    \50\ See Commonwealth, 492 F. Supp. 2d at 602 (applying eBay 
factors and holding that permanent injunction warranted for 
infringement of technology that was ``core technology'' for the 
802.11a standard and ``embodie[d]'' in the 802.11g standard).
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    In sum, I disagree with my colleagues about whether the alleged 
conduct violates Section 5 but, more importantly, believe the 
Commission's actions fail to provide meaningful limiting principles 
regarding what is a Section 5 violation in the standard-setting 
context, as evidenced by its shifting positions in N-Data, Bosch, and 
this matter. Because I cannot ignore the jurisdictional conflicts and 
doctrinal contradictions that we are inviting with this policy and its 
inconsistent application, I dissent.

[FR Doc. 2013-00465 Filed 1-10-13; 8:45 am]
BILLING CODE 6750-01-P