Antitrust Alert: Department of Justice Issues First Patent-Pool Business Review Letter Since Issuing 2007 Antitrust & IP Report

This week, the Antitrust Division of the Department of Justice ("DOJ") issued a business review letter to the RFID Consortium stating that it has no present intention of challenging the formation of a patent pool to license patents essential to a radio-frequency ID standard. This is the first business review letter of a patent pool to be issued since the release of "Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition" (the "Antitrust and IP Report"), the joint report issued in April 2007 by the DOJ and the Federal Trade Commission regarding the interplay between intellectual property and the antitrust laws. This business review letter reinforces the view that, with appropriate safeguards, patent pools can be procompetitive and provides additional guidance to future patent pools.

The RFID Consortium was formed to jointly license patents, held by any interested entities or persons, that are essential to the implementation of a standard for radio-frequency ID labels and readers. Current members of the RFID Consortium include 3M Innovative Properties Co., France Telecom S.A., Hewlett-Packard Company, LG Electronics, Motorola, Inc., ThingMagic, Inc., and Zebra Technologies Corp.

Patent pools are created to help companies, especially in emerging industries, avoid high transaction costs, blocking patent positions and costly litigation, while providing licenses to patents that are essential to implementing the new technology on fair, reasonable and non-discriminatory terms. Without appropriate safeguards, however, a patent pool may create a risk of facilitating collusion among pool members or of excluding non-members. A patent pool may cause harm to competition either in a market for the licensing of technologies or in a downstream product market. In recent years, antitrust law has become much more receptive to patent pools as courts and the government agencies have developed a more sophisticated understanding of the potential procompetitive benefits. The Antitrust and IP Report, for example, recognized that joint licensing arrangements can serve as an effective way to cut through patent thickets and to help make available some or many of the patents necessary to comply with a standard. Nevertheless, antitrust risks remain.

The DOJ's business review procedure provides a means of reducing this risk. Pursuant to that procedure, a business or other organization may submit a proposed action and receive a statement as to whether the DOJ currently intends to challenge the action under the antitrust laws. For the RFID Consortium, receipt of this favorable business review letter is a crucial step forward because it permits the RFID Consortium to begin offering patent licenses to interested third parties with confidence that the arrangement is highly unlikely to be challenged by the government under the antitrust laws.

This favorable business review letter provides helpful guidance for future patent pools. The business review letter specifically notes several efficiencies expected to be realized by the patent pool, including limitation of the threats of hold-up and royalty stacking and reducing transaction costs. In concluding that the patent pool is unlikely to cause harm to competition, the business review letter identifies numerous safeguards included in the structure of the patent pool, including the limitation of the pool to patents determined by an independent expert to be essential; a method to remove patents found to be invalid, unenforceable or no longer essential; allocation of royalties in part based on the number of patents in the pool; the retention by pool members of the ability to license their patents independently; and the pool’s willingness to license all interested parties on a non-discriminatory basis. The business review letter also observes that grantback rights are limited to essential patents and provide for compensation on the same terms as for other pool members. Finally, the business review letter notes that the pool’s proposed engagement of an independent licensing administrator renders anticompetitive harm from collusion unlikely, but declines to state DOJ’s enforcement intentions if the RFID Consortium ultimately does not retain an independent licensing administrator.

The RFID Consortium was represented by Jones Day partners William F. Dolan and Geoffrey D. Oliver.

RFID Business Review Letter.pdf

Lawyer Contacts

This alert is intended to provide a brief synopsis of recent developments in the law and should not be construed as legal advice. For more information, please contact your principal Jones Day representative or one of the lawyers listed below.

William F. Dolan

Geoffrey D. Oliver