Google's FTC deal could have huge impact on patent wars

Patents deal could be used as template to simplify patent disputes

7 Jan 2013

The patents deal between US regulators and Google last week might have been overshadowed by rivals' disappointment over search neutrality, but could have a much bigger impact in the long term.

Under the deal, which ended an antitrust investigation by the FTC and disappointed many critics, Google will make only minor changes to its search business.

But under the agreement Google is now limited as to when it can seek injunctions against products from rival companies that use some of its patents.

Throughout recent smartphone wars and other major patent litigation, holders of so-called "standard essential patents" have been accused of using them to bully competitors into paying high licensing rates or as leverage in patent disputes.

The FTC's deal with Google looks to clarify how standard essential patents can be used, according to Colleen Chien, a professor specialising in patent law at Santa Clara University School of Law in California.

The deal set out a process by which technology makers can avoid injunctions while ensuring patent holders get compensated, Chien said. "The FTC has deflated the power of the injunction and also the incentives to not pay that have existed."

In its case against Google, the FTC claimed that Google and its subsidiary Motorola had breached commitments to standard-setting bodies to license its patents on terms that are fair, reasonable and non-discriminatory.

As part of the deal, Google agreed to drop claims for injunctive relief against competitors in certain patent disputes around the world. It also agreed to submit to the jurisdiction of a court or arbitrator when disputes over payment rates arise.

Future template

The FTC concluded that the threat of injunctions by holders of essential patents hurt competition. The agreement with Google could be used as a "template" for other patent disputes, it said.

Unlike a court decision, the FTC's agreement with Google is not binding on other companies, but it could give leverage to defendants in disputes with essential patent holders that could be used in court.

"We know in today's world, defendants are getting more aggressive," said Matthew Woods, an antitrust and patent attorney at Robins, Kaplan, Miller and Ciresi. "Defendants will seize on this and tell courts that injunctions are something the court should not even countenance."

But the agreement with Google may not be all good news for companies wanting to use other firms' patent, according to Jay Jurata, an antitrust partner at Orrick, Herrington and Sutcliffe, who said that it could have unintended consequences.

The elaborate agreement allows Google to seek injunctions against companies that are unwilling to pay for a license on fair, reasonable and non-discriminatory terms. But the question of when a company is considered an unwilling licensee is an open question and could be exploited by powerful patent owners, said Jurata.

"They provided a roadmap for other standard essential patent holders to engage in opportunistic behaviour to paint otherwise willing licensees as unwilling licensees," he said.

Miller of Robins Kaplan also cautioned that the FTC's deal with Google may be unique because of the company's giant size and dominance, which can attract the attention of regulators.

"There are a lot litigants who aren't going to see this agreement as restraining them, because they don't have the same portfolio as Google," Miller said.

Read more about: