FTC Settles with Google on Standard-Essential Patents

On January 3, 2013, the FTC announced the settlement of its long-standing investigation of Google's business practices related to search algorithms, search advertising, and the assertion of standard-essential patents ("SEPs") encumbered by commitments to license on fair, reasonable, and nondiscriminatory ("FRAND") terms. This update focuses on the portion of the settlement that relates to Google's SEPs.

In a 4-1 vote (with Commissioner Ohlhausen dissenting), the Commission imposed an order that requires Google to cease and desist from seeking injunctive relief based on infringement of the FRAND-encumbered SEPs that Google acquired through its purchase of Motorola Mobility LLC, unless one of several conditions is met. 

• First, the order permits Google to seek injunctive relief against parties outside the jurisdiction of the United States. 
• Second, Google is permitted to seek injunctive relief if the potential licensee has stated "in writing or in sworn testimony" that it will not license the patent on any terms. With respect to this second condition, the FTC closed an important loophole by clarifying that a potential licensee's challenge to validity, value, infringement or essentiality does not constitute a statement that the potential licensee is unwilling to license. 
• Finally, Google may seek an injunction if the potential licensee refuses to take a license comprised of terms that result from specific processes that are described in the FTC's order.

The bulk of the FTC's order is devoted to outlining certain steps that Google and the potential licensee must take to negotiate a FRAND license. For example, the order requires the parties to exchange detailed descriptions of material licensing terms – including royalties, other financial terms, defensive suspension and termination provisions, and field-of-use restrictions – within a specified period of time. 

Where the parties disagree on certain terms, the order provides that the parties may file in U.S. district court a "request for a FRAND determination" regarding those particular terms. The parties are then obliged to accept a license that includes any terms that were mutually agreed, in addition to any terms that were established as FRAND by the court. Only after the parties have engaged in this process, and a potential licensee has refused to take a license, may Google seek injunctive relief. 

Some critics say that the FTC order is not as robust as it could be, and might allow Google to exploit loopholes to continue threatening injunctions against implementers of Motorola Mobility's standard-essential technology. On the other hand, if barriers to injunctive relief are set too high they could lead important patent holders to opt out of participating in standard-setting organizations ("SSOs"), thereby undermining the efficiency gains that come from standardization. 

In any event, the FTC's order does "move the ball" on a handful of important issues. For example, industry participants have long wondered how to define "willing licensee" in the context of the FTC's admonishments against seeking injunctions against such an implementer; the procedures required by the order demonstrate how far a licensee must go to be considered "unwilling" from the FTC's perspective. The order also requires that licensing negotiations between the parties be limited to SEPs. By unhinging the SEP negotiation (whether it is one-way or reciprocal) from negotiations over other, non-essential patents, the FTC may be acknowledging that coupling those negotiations may result in the exertion of unfair leverage and obfuscation of the meaning of FRAND. Finally, the order requires Google to ensure that any FRAND encumbrances pass to new owners in the event that Google sells its patents to third parties. This is a requirement that both the FTC and DOJ have suggested should be included in the rules of SSOs.

The Google settlement does not venture to define any standard for determining what SEP licensing rates and other terms are FRAND. So far, the "law" in this area is being developed mostly through speeches, policy statements, and settlements; the FTC and the DOJ have not had to litigate the policy positions that they are staking out. Meanwhile, the industry awaits a district judge's opinion on this issue, which Microsoft and Motorola tried before the judge late last year. That will likely be the next step in defining the "rules of the road" for licensing SEPs.

The FTC's order and related materials can be viewed here.