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Years of FTC reports and litigation have shaped patent law with and without Congress

By   /   March 7, 2017  /   No Comments

In the past two decades, the Federal Trade Commission has left its mark on the intellectual property landscape. The FTC’s tools have been both high-profile – a Supreme Court case, a billion-dollar settlement – and subtle.

But is the FTC suited to the task?

Photo credit: Center for the Protection of Intellectual Property

DISAPPOINTED: Adam Mossoff is worried that the FTC is threatening property rights.

“There has always been a tension between the antitrust laws and patent law,” Adam Mossoff, co-founder of the Center for the Protection of Intellectual Property and professor at Antonin Scalia Law School at George Mason University, told Watchdog.org. “[A]ntitrust authorities have historically been very skeptical [of innovative companies] and have tended to find so-called monopolization activities when in fact it’s just the evolution and development of a new market that never existed before.”

Mossoff and others worry that the commission has undermined property rights, threatening companies’ incentives to invest and innovate and encouraging foreign countries to disregard IP protections, all the while basing its enforcement actions on theoretical injury to consumers, rather than demonstrated harm.

“I think the treatment of intellectual property on the antitrust side at the FTC has been very disappointing,” said former FTC antitrust policy director Alden Abbott in a presentation last month.

Others, though, paint the FTC as a corrective force.

Georgetown University Law Center’s Jay Thomas told Watchdog.org that the FTC’s mere presence helps keep companies from colluding or filing sketchy patent lawsuits.

“[S]omeone’s going to preserve the competitive integrity of the U.S. economy, and deals are made and activities are committed with this in mind,” he said, comparing the FTC to highway cops. You never know where a patrol car might be waiting, he said, so everyone drives a little safer on the whole highway. Of course, that also has the effect of needlessly slowing down traffic at times.

Directly, the FTC has had a major impact in recent years through litigation.

In the pharmaceutical industry, the FTC spent years fighting reverse payment patent settlements, or pay-for-delay, “in every court they could find,” Thomas said.

Branded drug makers would basically buy off their generic competition, giving the generic companies cash to keep competing drugs off the market. Despite looking like the very definition of monopolistic collusion, the reverse settlements were essentially created by the 1984 Hatch-Waxman Act and so, Thomas said, the courts treated them as “per se legal.”

The FTC fought all the way to the Supreme Court, culminating in the 2013 FTC v. Actavis decision.

“That case is huge,” Thomas said. “It really changed the landscape for reverse-payment settlements.”

Actavis OK’d lawsuits against brand-name companies over their reverse-settlement arrangements. Reverse settlements started dropping off, according to the FTC, and two years later, the FTC settled its seven-year pay-for-delay legal battle with Cephalon. The drug company’s parent disgorged $1.2 billion.

‘Biggest single accomplishment’

On the tech side, the FTC has gotten involved with IP licensing issues, settling cases against companies from Bosch to Google.

Central to the FTC’s presentation of these cases are “standard-essential patents” (SEPs). In the FTC’s telling, companies that have agreed to license SEPs on RAND (reasonable and non-discriminatory) terms can’t turn around and seek, via injunction, to bar competitors from using the SEPs.

The FTC can come at these cases sidelong. In the case of Bosch, for instance, it wasn’t an IP issue that brought the FTC in, but a merger. And by treating injunctions with disfavor, courts and regulators could harm the value of patents and reduce incentives for innovators to create.

Outside the courtroom, the FTC can wield influence with its reports. The FTC surveyed the IP marketplace’s evolution, and through its studies and recommendations the Commission helped spur Congress to pass the America Invents Act (AIA) in 2011.

“[AIA] modernized the system, looked after abuses, and adopted international best practices,” Thomas said. Patenting was restricted, with companies no longer able to patent, for instance, their tax avoidance strategies.

“A lot of the impetus for [the AIA’s reform] was the FTC report,” Thomas said, adding that this successful push for patent reform is probably the FTC’s “biggest single accomplishment” in patent law over the past decade or so.

Last year, the FTC issued a report on “patent assertion entities” – derogatorily referred to as “patent trolls” – which Thomas predicted would be “influential.”

Thomas noted that the FTC’s 6(b) authority allows it to collect useful data on companies’ practices, making its studies uniquely valuable for lawmakers to assess marketplace conditions.

Mossoff, on the other hand, said the study lacked statistical rigor.

“Are there some bad actors in the patent system?” Mossoff said. “Of course. Just like there are landlords who engage in bad behavior.”

Mossoff wouldn’t necessarily base major policy decisions on the report’s survey of IP licensing companies. (He also wouldn’t call them ‘patent trolls.’)

“We don’t … say we need to make radical changes to the entire property system for all landlords and all car owners simply because there is a small segment of bad actors in the commercial economy who misuse and abuse their property rights in a particular way,” Mossoff said.

Clearer guidelines

Whether the issue is technological IP licensing or pharmaceutical reverse settlements, Mossoff said the FTC is on unsure footing.

Caught up in a “moral panic” over IP, the FTC is trying to remedy uncertain consumer “harms,” Mossoff said, while threatening innovative companies’ research-and-development-driving revenue streams. By calling the stability of intellectual property rights into question, the FTC could undermine the “web of commercial transactions, thousands of commercial transactions” that go into every smartphone, ever car, and many more products. Those commercial webs depend, he said, on companies knowing whose IP is what, and what it’s worth.

AP Photo/Susan Walsh

WANTS THE JOB: Acting FTC Chair Maureen Ohlhausen spoke at the Conservative Political Action Conference last month, and analysts say she is auditioning for the full-time post.

Georgetown’s Thomas acknowledged that criticisms of antitrust involvement in the IP space “at times is fair,” but said the FTC’s sophisticated public policy tools give it a valuable role to play in shaping patent law.

The tide at the FTC is likely shifting away from robust intervention in the IP space.

Maureen Olhausen was promoted from FTC commissioner to acting chair in January, and she seems eager to keep the job.

She has dissented sharply from her fellow commissioners, including in the recently filed case against Qualcomm and in the 2013 Bosch settlement. In the billion-dollar Cephalon settlement, Olhausen argued that the FTC should give companies clearer guidelines.

In February, Olhausen told a legal audience she favors a regulatory “balance” that emphasizes harder evidence of harm before taking enforcement actions, and that she’ll continue to support the rights of companies to license and sell IP.

“Asserting that right is crucial to allowing intellectual property to continue to drive innovation,” she said.

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John Bicknell is executive editor of Watchdog.org. He is a veteran editor and has worked in journalism for more than 30 years. He came to Washington in 1999 as an editor at Congressional Quarterly and held several positions at CQ and Roll Call. He is the author of "America 1844: Religious Fervor, Westward Expansion and the Presidential Election That Transformed the Nation." His next book, scheduled to be published in 2017, is on John C. Fremont's 1856 presidential campaign. John also served as senior editor of the 2016 edition of “The Almanac of American Politics.” He can be reached on Twitter @JohnBick1960 and by email at [email protected]