FTC Testifies Before Congress on Standard Essential Patents and How Patent "Hold-Up" Affects Competition

The Federal Trade Commission testified before a Senate subcommittee today on the topic of “patent hold-up” and explained how competition is affected when the owners of critical, standard-essential technology patents engage in this practice.  It also described the steps it has taken to ensure that U.S. consumers, product innovation, and the standard setting process are not harmed by patent hold-up.

Suzanne Munck, the agency’s Chief Counsel for Intellectual Property, testified on behalf of the FTC before the Subcommittee on Antitrust, Competition Policy and Consumer Rights.  She explained that patent hold-up occurs when the holder of a standard essential patent (SEP), which has previously committed to license that SEP on reasonable and non-discriminatory (RAND) terms, then violates its RAND commitment and uses the leverage of the standard setting process to negotiate higher royalties than it could have before the patent was incorporated into the standard.

The testimony outlines the FTC’s most recent work to mitigate the potential for such hold-up.  The agency has “advocated for remedies in district courts and at the International Trade Commission (ITC) to mitigate the potential for patent hold-up,” according to the testimony, and has submitted statements to the ITC and the Federal Circuit outlining its concerns.  It also details the FTC’s enforcement actions to address the threat of patent hold-up, including the recent case involving Google and Motorola Mobility (MMI), which led to a final order that will ensure Google lives up to its RAND commitments regarding the SEPs it acquired when it bought MMI.

The testimony concludes that the Commission, “believes that competition and intellectual property laws work well together.  Voluntary consensus based standard setting facilitates this purpose; however, including patented technology in a standard creates the potential for patent hold-up.”  The RAND commitment is meant to avoid this problem; failing to live up to a RAND commitment, the testimony states, can lead to “patent hold-up.”

The Commission vote approving the testimony and its inclusion in the formal record was 4-0.

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