Pharmaceutical patent holders beware: Over the past year, antitrust enforcers have taken a more aggressive approach challenging Orange Book listings as an anticompetitive practice. According to the Federal Trade Commission, improperly listing patents in the Orange Book constitutes an unfair method of competition, among other violations.
In this article, Elai Katz, Lisa Rumin and Betty Zhang discuss the recent heightened scrutiny of Orange Book listings and highlight risks brand manufacturers should be aware of with respect to their Orange Book listing practices. Going forward, brand manufacturers should think proactively and consider carefully documenting their evaluation process and reasoning for listing patents in the Orange Book to satisfy the statutory requirements.
The European Commission and national competition authorities (NCAs) are very actively fighting a number of anticompetitive practices in the pharmaceutical industry. Enforcing the prohibition against excessive pricing has become a particular area of focus for competition authorities in Europe.
The European approach to excessive pricing differs from that followed in the United States, where excessive pricing does not amount to a violation of antitrust laws.
In the European Union (and the United Kingdom, for now), dominant businesses are not allowed to directly nor indirectly impose unfair purchase or selling prices. The Court of Justice of the European Union (CJEU) has established a two-pronged test for use in investigating excessive pricing. It must be determined i) whether the difference between costs actually incurred and the price actually charged is excessive, and, if yes, ii) whether or not a price has been imposed that is either unfair in itself or when compared to competing products.
In practice, competition authorities have historically been wary of prosecuting excessive pricing, partly because they do not want to act like price regulators, and partly because it can be difficult for an authority to establish that a price is excessive. In the last couple of years, however, the Commission and several NCAs have overcome their reticence.
Click here to read the full article in our latest International News.
In testimony before the Senate Subcommittee on Antitrust, Assistant Attorney General Makan Delrahim from the US Department of Justice (DOJ) and Chairman Joseph Simons from the US Federal Trade Commission (FTC) staked out differing interpretations of when antitrust considerations are relevant in standard setting agreements restricted by fair, reasonable and non-discriminatory (FRAND) rates, a rare divergence of opinion between the two antitrust enforcement agencies.
WHAT HAPPENED:
Since AAG Delrahim took over as head of the DOJ Antitrust Division in September 2017 he has consistently hinted at a differing interpretation of antitrust law as it relates to standard essential patents and FRAND rates in the context of antitrust.
Standard essential patents (SEPs) are patents that have been incorporated into a standard by a standard setting organization and industry participants to facilitate interchangeability between products. Often, to be included in a standard, patent holders agree to license a patent essential to that standard at a FRAND rate.
With the proliferation of standards, more scrutiny has been devoted to SEPs and FRAND rates, and some companies have brought antitrust suits relating to “patent hold-up” or the refusal to license a patent on FRAND terms (typically seeking higher royalties or fees on patents for widely adopted standards).
In testimony on October 3, 2018, AAG Delrahim indicated his view was that a patent holder’s unilateral decision not to license a patent—even if that patent is part of a standard—is not conduct intended to be reached by the antitrust laws. AAG Delrahim indicated such a dispute would more appropriately be handled by contract law.
This position differs from that of the FTC, where Chairman Simons has indicated that antitrust law can be relevant in patent hold-up cases.
The FTC demonstrated its view in a recent complaint filed against Qualcomm, Inc. The complaint summarizes the patent hold-up concern:
Once a standard incorporating proprietary technology is adopted, the potential exists for opportunistic patent holders to insist on patent licensing terms that capture not just the value of the underlying technology, but also the value of standardization itself. To address this “hold-up” risk, [standard setting organizations] often require patent holders to disclose their patents and commit to license standard-essential patents (“SEPs”) on fair, reasonable, and non-discriminatory (“FRAND”) terms. Absent such requirements, a patent holder might be able to parlay the standardization of its technology into a monopoly in standard-compliant products.
WHAT THIS MEANS:
Going forward, US antitrust enforcement with respect to SEP issues may be limited to the FTC. AAG Delrahim’s speeches indicate that it will be the rare case that the Antitrust Division pursues such cases in the future.
This divergence between the two US agencies responsible for enforcing antitrust laws will create confusion for SEP holders and their licensees with respect to the risks of US government intervention. Companies dealing with SEPs and FRAND rates will want to be cognizant of which agency is reviewing, as approaches may [...]
In a decision written by Judge Marsha S. Berzon, a three-judge panel of the U.S. Court of Appels for the Ninth Circuit affirmed a first-of-its-kind district court judgment relating to royalty rates for standard-essential patents (SEP). As part of the standard setting process, many standards organizations require members who hold patents necessary to implement a given standard to commit to license those patents on reasonable and non-discriminatory terms (RAND). Because inclusion in a standard can increase the importance and value of a patent, parties often differ on what constitutes a reasonable royalty. In this case, district court Judge James Robarts of the U.S. District Court for the Western District of Washington established a multi-factor framework to determine the appropriate royalty rates and ranges for SEPs. Several other courts later employed similar approaches. Motorola’s appeal challenged the district court’s authority to determine the royalty rate at a bench trial. The company also contended that the district court mis-applied Federal Circuit precedent on patent damages. The Ninth Circuit rejected these arguments, finding that Motorola had consented to the bench trial and holding that Judge Robart’s “thoughtful and detailed analysis” was “consistent with the Federal Circuit’s recent approach.” Microsoft Corp. v, Motorola, Inc. et al; Case No 14-35393 (9th Cir, July 30, 2015) (Berzon, J.)
Procedural Background
The long-running patent dispute between Microsoft and Motorola spans several courts and countries. The crux of the conflict traces back to October 2010 when Microsoft sued Motorola for alleged infringement of certain smartphone patents. Thereafter, the parties explored a possible cross-licensing arrangement to resolve their dispute. Motorola sent letters proposing licenses for 802.11 and H.264 SEP portfolios, with a proposed royalty rate of 2.25 percent of the price of the end product, which Motorola represented was in keeping with its RAND commitments on the patents. Microsoft disagreed. Soon after, it filed suit in the Western District of Washington, alleging that Motorola had breached its RAND commitments to the Institute of Electrical and Electronic Engineers (IEEE) and the International Telecommunication Union (ITU), the standard-setting organizations that developed the 802.11 and H.264 standards. Motorola responded by filing suit in the U.S. District Court for the Western District of Wisconsin, seeking an injunction to prevent Microsoft from using its H.264 patents. The cases were consolidated before Judge Robart in the Western District of Washington. Motorola also brought patent-enforcement actions before the International Trade Commission and in Germany. Microsoft alleged in an amended complaint that the filing of these injunctive orders constituted a breach of contract on the grounds that a RAND commitment bars a patent holder from seeking injunctive relief.
The proceedings before Judge Robart slowly moved forward throughout 2011 and 2012. The district court held that the RAND commitment made by Motorola to the standard-setting organizations created an enforceable contract, which standard users like Microsoft are able to enforce as third-party beneficiaries. Judge Robart determined, however, that, in order for a jury to determine whether Motorola had breached its RAND commitment, it must first know what the [...]
In the long-running patent dispute between Microsoft and Motorola, a U.S. District Court jury in Seattle found that Motorola breached its commitment to license certain standard-essential patents on fair, reasonable and non-discriminatory (FRAND or RAND) terms. The jury awarded Microsoft damages of approximately $14.5 million.
The litigation has witnessed numerous legal firsts. In May, the district court became the first U.S. court to set FRAND royalty rates and ranges for standard-essential patents. The dispute between Microsoft and Motorola centered on patents that covered wireless and video technology used in the Xbox game console. Motorola sought a royalty calculated as a percentage of the net selling price of the product. Microsoft claimed this method would have required it to pay approximately $4 billion per year and argued that royalties should instead be modeled on much lower rates charged by related patent pools, which would have resulted in approximately $1 million in royalties. The court’s ruling established a broad, multi-factor analysis to be used to assess a reasonable rate range for standard-essential patents. Applying this test, the court found that the reasonable rate was much closer to the rate proposed by Microsoft than the rate initially demanded by Motorola.
Building upon the earlier decision, the district court jury considered whether Motorola’s initial royalty demands were so unreasonable that they constituted a breach of Motorola’s contractual commitment to offer the patents on RAND terms. Motorola argued its proposal was a first offer meant to be subject to additional negotiation; Microsoft countered that the initial offer was a sham designed to elicit Microsoft’s rejection. The jury unanimously found that Motorola’s actions breached the commitments made in two standards setting organizations.
In addition to legal costs, Microsoft sought $23 million in damages for the costs associated with relocating a distribution center to avoid the impact of a German injunction Motorola had obtained in related litigation. The jury only granted about half the damages that Microsoft sought, but the penalty imposed on Motorola was still substantial.
The jury verdict suggests patent holders should approach licensing negotiations for standard-essential patents with due care. While the facts in the case may present an extreme example, opening royalty rate offers that are viewed as unreasonable may nonetheless expose patent holder to claims of breach of the RAND obligation. More importantly, the case establishes that damages may extend beyond legal costs and can be substantial.
The Acting Assistant Attorney General Joseph Wayland delivered a speech on Friday regarding how antitrust enforcement agencies can “balance patent rights, competition and innovation in the information age.” Wayland covered familiar ground on topics ranging from the dangers of patent hold-up to the importance of patent holders’ commitments to license essential patents on F/RAND terms. He stressed that the enforcement agencies continue to closely monitor the competitive impact of patent portfolio acquisitions, particularly in the wireless industry. He also reiterated the agencies’ views about the appropriate standards for injunctive relief and the impact on competition of ITC exclusion orders to enforce standards essential patents. Wayland’s prepared remarks also offered some specific suggestions about possible additions to the intellectual property policies of standard setting organizations that would limit opportunities to exploit the ambiguities of a F/RAND licensing commitment. Suggestions included, for example, requiring patent holders’ make clear their F/RAND commitments bind both the current patent holder and subsequent purchasers of the patents. He also warned that even if patent holders are not enforcing standard-essential patents, efforts to force licensees to accept certain kinds of anti-competitive contract terms might nevertheless trigger antitrust scrutiny. Wayland said he has made it a priority to examine use or misuse of patents that goes beyond standard-essential patents.
Recent testimony from the U.S. Department of Justice’s Antitrust Division and the Federal Trade Commission (FTC) before the Senate Judiciary Committee focused on issues relating to standard-setting activities and competition policy. Antitrust Division Acting Assistant Attorney General Joseph Wayland and FTC Commissioner Edith Ramirez discussed the issue of injunctive relief to enforce standard-essential patents and emphasized the importance of pending actions before the International Trade Commission.
Yesterday, the U.S. Department of Justice announced that CPTN Holdings, LLC, a joint venture owned equally by Microsoft Corp., Apple, Inc. , Oracle Corp., and EMC Corp, has agreed to modify its agreement to acquire certain patents from Novell, Inc. in order to allay antitrust concerns raised by the transaction. The Department had expressed concerns that the original deal would threaten the ability of open source software to innovate and compete in critical software markets. The modifications to the deal will allow it to go forward, but the Department emphasized that it will continue to monitor distribution of the patents to ensure continued competition. The transaction also received antitrust clearance from Germany’s Federal Cartel Office. The German and American authorities cooperated closely on the matter, aided by waivers from the parties that allowed information sharing between the two agencies. Regulators are increasingly attuned to the effects of intellectual property transactions on competition.
For more information on the CPTN Holdings, LLC transaction, you may find the following links useful:
The DOJ and USDA just completed a series of five workshops on competition in the agriculture industry. The two agencies have a renewed their focus on competition in this industry and have promised more activity in this area. The highlights from each of the workshops is described below.
An overview of all five workshops: Issues of Concern to Farmers, March 12, 2010, Iowa
Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
There was discussion about concentration in the seed industry and lack of choice among seed trait companies. Also, farmers voiced concern about patents that nearing expiration where there are no generics yet in the pipeline. (Subsequent to this workshop Monsanto announced it would pay for all regulatory approvals of Round Up Ready soybean patent through 2021 even though the patent expires in 2014).
The discussion from pork and livestock farmers centered on fairness, transparency and increased enforcement of existing laws such as the Packers and Stockyards Act.
Poultry Industry, May 21, 2010, Alabama
Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
Mr. Holder announced the launch of the Agriculture Competition Joint Task Force, which is comprised of individuals from the DOJ and USDA.
There was discussion about the fairness of poultry contracts and transparency in the industry.
There were also comments on the lack of concentration of poultry processing companies, which reduces the choice farmers have.
Dairy Industry, June 25, 2010, Wisconsin
Opening statements and roundtable remarks by Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack. (AG Eric Holder did not attend).
There was discussion about the gap between the prices consumers pay (relatively high) and prices that dairy farmers are paid by processors (relatively low). The farmers are getting squeezed and having to sell below cost.
Consolidation in grocery retailing and the price pressure exerted by large retailers on dairy coops, as well as consolidation in dairy processors, were cited as a cause of low prices to farmers.
Livestock Industry, August 27, 2010, Colorado
Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
The workshop focused on issues regarding the ability of cattle and hog producers to earn sustainable returns.
There was discussion about whether reducing the market power of the packers and increasing bid competition for cattlemen’s animals would raise prices that cattlemen could obtain.
There was also discussion about how concentration of packers and concentration among retail grocers negatively affects prices producers can get for their livestock.
Margins, December 8, 2010, Washington, D.C.
Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
Subscribe
