At Georgetown Law’s 6th Annual Global Antitrust Enforcement Symposium on September 19, 2012, FTC Chairman Jon Leibowitz raised critical concerns about the recent anti-competitive practices of firms regarding the use of technology and IP patents.
In particular, he denounced the growing use of International Trade Commission (“ITC”) exclusion orders as a threat by patent holders to assert standard essential patents (“SEP”s) and leverage higher royalty payments from alleged infringers and potentially even bar competitors from the market. In essence, an SEP is a patent for any intellectual property that is deemed essential to a product in order for it to meet industry standards.
For a firm to produce a product containing an element covered by an SEP, that company must first license the patent from the patent-holder and thereby obtain permission to incorporate the element in question within the new product. This creates a rather imposing barrier to entry for many firms who must license numerous patents to be able to put a product into production. Nowhere is this more prevalent than the consumer technology market wherein even the smallest parts and components can be and are protected by SEPs.
The issue that FTC Chairman Leibowitz is taking with today’s big firms, and ultimately what he sees as anti-competitive, is their ever increasing use of SEP conduct to try to force other firms out of the market and limit new entry. As companies in all fields are adding new patents to the standards that retroactively apply to existing products, the competition must license these new patents as well to remain in the market. Those who do not are faced with the threat of being excluded from their respective markets when patent-holders file for an exclusion order from the ITC. Ultimately, patent-holders can use this threat as leverage to acquire higher royalty fees from non-licensees.