Robert Bosch GmbH; Analysis of Agreement Containing Consent Orders To Aid Public Comment |
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Topics: Bosch, SPX Service Solutions
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Donald S. Clark
Federal Trade Commission
December 3, 2012
[Federal Register Volume 77, Number 232 (Monday, December 3, 2012)]
[Notices]
[Pages 71593-71599]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29031]
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FEDERAL TRADE COMMISSION
[File No. 121 0081]
Robert Bosch GmbH; Analysis of Agreement Containing Consent
Orders To Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
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SUMMARY: The consent agreement in this matter settles alleged
violations of federal law prohibiting unfair or deceptive acts or
practices or unfair methods of competition. The attached Analysis to
Aid Public Comment describes both the allegations in the draft
complaint and the terms of the consent order--embodied in the consent
agreement--that would settle these allegations.
DATES: Comments must be received on or before December 26, 2012.
ADDRESSES: Interested parties may file a comment at https://ftcpublic.commentworks.com/ftc/boschspxconsent online or on paper, by
following the instructions in the Request for Comment part of the
SUPPLEMENTARY INFORMATION section below. Write ``Bosch, File No. 121
0081'' on your comment and file your comment online at https://ftcpublic.commentworks.com/ftc/boschspxconsent by following the
instructions on the web-based form. If you prefer to file your comment
on paper, mail or deliver your comment to the following address:
Federal Trade
[[Page 71594]]
Commission, Office of the Secretary, Room H-113 (Annex D), 600
Pennsylvania Avenue NW., Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: Jacqueline K. Mendel (202-326-2603),
FTC, Bureau of Competition, 600 Pennsylvania Avenue NW., Washington, DC
20580.
SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal
Trade Commission Act, 15 U.S.C. 46(f), and FTC Rule 2.34, 16 CFR 2.34,
notice is hereby given that the above-captioned consent agreement
containing a consent order to cease and desist, having been filed with
and accepted, subject to final approval, by the Commission, has been
placed on the public record for a period of thirty (30) days. The
following Analysis to Aid Public Comment describes the terms of the
consent agreement, and the allegations in the complaint. An electronic
copy of the full text of the consent agreement package can be obtained
from the FTC Home Page (for November 26, 2012), on the World Wide Web,
at http://www.ftc.gov/os/actions.shtm. A paper copy can be obtained
from the FTC Public Reference Room, Room 130-H, 600 Pennsylvania Avenue
NW., Washington, DC 20580, either in person or by calling (202) 326-
2222.
You can file a comment online or on paper. For the Commission to
consider your comment, we must receive it on or before December 26,
2012. Write ``Bosch, File No. 121 0081'' on your comment. Your
comment--including your name and your state--will be placed on the
public record of this proceeding, including, to the extent practicable,
on the public Commission Web site, at http://www.ftc.gov/os/publiccomments.shtm. As a matter of discretion, the Commission tries to
remove individuals' home contact information from comments before
placing them on the Commission Web site.
Because your comment will be made public, you are solely
responsible for making sure that your comment does not include any
sensitive personal information, like anyone's Social Security number,
date of birth, driver's license number or other state identification
number or foreign country equivalent, passport number, financial
account number, or credit or debit card number. You are also solely
responsible for making sure that your comment does not include any
sensitive health information, like medical records or other
individually identifiable health information. In addition, do not
include any ``[t]rade secret or any commercial or financial information
which * * * is privileged or confidential,'' as discussed in Section
6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR
4.10(a)(2). In particular, do not include competitively sensitive
information such as costs, sales statistics, inventories, formulas,
patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential
treatment, you must file it in paper form, with a request for
confidential treatment, and you have to follow the procedure explained
in FTC Rule 4.9(c), 16 CFR 4.9(c).\1\ Your comment will be kept
confidential only if the FTC General Counsel, in his or her sole
discretion, grants your request in accordance with the law and the
public interest.
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\1\ In particular, the written request for confidential
treatment that accompanies the comment must include the factual and
legal basis for the request, and must identify the specific portions
of the comment to be withheld from the public record. See FTC Rule
4.9(c), 16 CFR 4.9(c).
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Postal mail addressed to the Commission is subject to delay due to
heightened security screening. As a result, we encourage you to submit
your comments online. To make sure that the Commission considers your
online comment, you must file it at https://ftcpublic.commentworks.com/ftc/boschspxconsent by following the instructions on the web-based
form. If this Notice appears at http://www.regulations.gov/#!home, you
also may file a comment through that Web site.
If you file your comment on paper, write ``Bosch, File No. 121
0081'' on your comment and on the envelope, and mail or deliver it to
the following address: Federal Trade Commission, Office of the
Secretary, Room H-113 (Annex D), 600 Pennsylvania Avenue NW.,
Washington, DC 20580. If possible, submit your paper comment to the
Commission by courier or overnight service.
Visit the Commission Web site at http://www.ftc.gov to read this
Notice and the news release describing it. The FTC Act and other laws
that the Commission administers permit the collection of public
comments to consider and use in this proceeding as appropriate. The
Commission will consider all timely and responsive public comments that
it receives on or before December 26, 2012. You can find more
information, including routine uses permitted by the Privacy Act, in
the Commission's privacy policy, at http://www.ftc.gov/ftc/privacy.htm.
Analysis of Agreement Containing Consent Order To Aid Public Comment
I. Introduction
The Federal Trade Commission (``Commission'') has accepted from
Robert Bosch GmbH (``Bosch''), subject to final approval, an Agreement
Containing Consent Orders (``Consent Agreement''), which is designed to
remedy the anticompetitive effects resulting from Bosch's acquisition
of SPX Service Solutions U.S. LLC (``SPX Service Solutions'') from SPX
Corporation (``SPX'') and to remedy anticompetitive conduct by SPX in
violation of Section 5 of the FTC Act.
Under the terms of the Consent Agreement, Bosch is required to (1)
divest its air conditioning recycling, recovery, and recharge
(``ACRRR'') business, including RTI Technologies, Inc. (``RTI''), to
Mahle Clevite, Inc. (``Mahle'') by December 31, 2012; (2) terminate
agreements with any persons that limit the ability of SPX's
competitors, including Bosch, from advertising, servicing,
distributing, or selling any ACRRR product in the U.S. market; and (3)
make available for licensing certain patents which may be used in the
implementation of two industry standards established by SAE
International, an industry association responsible for setting
standards for products so that they comply with regulations of the U.S.
Environmental Agency (``EPA''). The Consent Agreement has been placed
on the public record for 30 days to solicit comments from interested
persons. Comments received during this period will become part of the
public record. After 30 days, the Commission will again review the
Consent Agreement and the comments received, and will decide whether it
should withdraw from the Consent Agreement, modify it, or make it
final.
On January 23, 2012, Bosch entered into an agreement to acquire the
SPX Service Solutions business from SPX. The Commission's complaint
alleges the facts described below and that the proposed acquisition, if
consummated, would violate Section 7 of the Clayton Act, as amended, 15
U.S.C. 18, and Section 5 of the FTC Act, as amended, 15 U.S.C. 45, by
lessening competition in the market for ACRRR devices.
II. The Parties
Bosch, headquartered in Stuttgart, Germany and with U.S. operations
based in Broadview, Illinois, is a global supplier of automotive and
industrial technology, consumer goods, and building technology. North
American sales represent 18% of Bosch's
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revenues, and Automotive Technology is Bosch's largest business sector
in North America. Bosch is the second leading U.S. supplier of ACRRR
equipment. It acquired RTI in 2010, and sells ACRRR equipment under
both the Bosch and RTI brand, which account for approximately 10% of
the U.S. ACRRR market.
Headquartered in Warren, Michigan, SPX is a diversified global
supplier of highly engineered products for the following industries:
power and energy, food and beverage, vehicle and transit,
infrastructure and industrial processes. SPX's Service Solutions
business is a global supplier of automotive tools, equipment and
services, for both original equipment manufacturers (``OEMs'') and
aftermarket repair shops and technicians. SPX's Robinair brand is the
leading supplier of ACRRR equipment in the United States, accounting
for over 80% of sales in that market.
III. The Product and Structure of the Market
Bosch's proposed acquisition of SPX Service Solutions would create
a virtual monopoly in the ACRRR market. ACRRR devices are stand-alone
pieces of equipment used by automotive technicians to remove
refrigerant from a vehicle's on-board air conditioning system, store
the refrigerant while the air conditioning system is being serviced,
and recycle the refrigerant back into the system, adding more as
necessary. These tools are required to repair or service motor vehicle
air conditioning systems because no other equipment performs the
removal, recycling, and recharging functions while staying compliant
with EPA regulations prohibiting refrigerant from escaping into the
atmosphere. Devices that only extract refrigerant from air conditioning
systems but do not recycle or recharge them are not cost-effective
alternatives because they do not store or dispose of extracted
refrigerant as required. As a result, if the price of ACRRR equipment
were to increase 5-10%, customers would not switch to extraction-only
equipment or to equipment that flushes other fluids from vehicles,
which cannot be used in its place.
The relevant geographic area in which to evaluate the market for
ACRRR equipment is the United States. Environmental regulations vary by
country, so ACRRR machines designed to adhere to the regulations of one
country are not necessarily compatible with those of other countries.
In addition, differing electrical power specifications across the world
necessitate that the internal pumps and motors vary to meet differing
specification. As a result, purchasers in the United States could not
turn to suppliers in other countries for ACRRR equipment.
SPX's Robinair brand holds a dominant position in the ACRRR market,
with a share of over 80%. Bosch's RTI and Bosch brands comprise
approximately 10% of the market and are Robinair's most significant
competition. Four other firms selling ACRRR equipment in the U.S.
together account for the balance of ACRRR sales. Thus, the combination
of Bosch and SPX would confer a virtual monopoly position on Bosch. The
elimination of the direct competition between Robinair and Bosch would
allow the combined entity to exercise market power by unilaterally
increasing price, slowing innovation, or lowering its levels of
service.
IV. Entry
Entry into the ACRRR market sufficient to deter the anticompetitive
effects of this transaction is unlikely to occur in the next two years.
While designing and engineering a system to work effectively and meet
industry standards may be possible within a relatively short time
frame, other barriers, including the challenges of obtaining effective
distribution and developing a service network, make successful entry
very difficult. Advertising through leading automotive wholesale
distributors is the most effective means of promoting ACRRR to
independent auto repair shops and rapid-turnaround repair of ACRRR
equipment is critical because repair shops cannot provide air
conditioning service without this equipment. Obtaining effective
distribution and service networks has been especially challenging for
competitors of SPX because of limitations SPX puts on distributors and
service centers that sell and service Robinair-brand ACRRR. Another
factor affecting the likelihood of significant new entry or expansion
is the costs associated with meeting industry standards, which are
established by SAE International, formerly the Society of Automotive
Engineers.
IV. Effects of the Acquisition
The proposed acquisition would cause significant anticompetitive
harm to consumers in the U.S. ACRRR device market. The transaction
would combine SPX's Robinair brand ACRRR, that already commands over
80% of the market with its leading competitor, Bosch, with its Bosch-
and RTI ACRRR brands, with approximately 10% of the market, creating a
near-monopolist with a share of over 90%. The impact of eliminating the
competition between Bosch and SPX in the ACRRR market is highly likely
to result in consumers, who are automotive repair shops and
technicians, paying higher prices for ACRRR devices.
V. The Consent Agreement
A. The Merger Remedy
The proposed Consent Agreement eliminates the competitive concerns
raised by Bosch's proposed acquisition of SPX Service Solutions by
requiring the divestiture of Bosch's assets relating to the manufacture
and sale of ACRRR devices in the United States, including the RTI
business. Bosch and SPX have agreed to sell the U.S. ACRRR assets to
Mahle Clevite, Inc. (``Mahle'') before December 31, 2012.
Mahle possesses the resources, industry experience, and financial
viability to successfully purchase and manage the divestiture assets
and continue as an effective competitor in the ACRRR market. Mahle,
headquartered in Stuttgart, Germany with U.S. operations based in
Farmington, Michigan, is a supplier and development partner to the
automotive and engine industry. Mahle's diverse product lines include
aftermarket parts and automotive equipment sold a similar customer base
as RTI. Mahle's significant size and global presence will allow it to
quickly support additional expansion in the ACRRR market and replace
the loss of competition presented by Bosch's acquisition of SPX SS.
Pursuant to the Consent Agreement, Mahle would receive all the
assets necessary to operate Bosch's current U.S. ACRRR business,
including RTI's operations in York, Pennsylvania which include the RTI
manufacturing plant, current inventory, and relevant intellectual
property. In addition to ensuring that current RTI employees will
continue their employment with Mahle, the Consent Agreement requires
Bosch to provide access to certain key employees who may be necessary
to help facilitate the transition and fully establish the Bosch ACRRR
business within Mahle. The Consent Agreement also requires Bosch to
transfer all relevant intellectual property and all contracts and
confidential business information associated with the ACRRR business.
In addition, the Consent Agreement requires Bosch to license, royalty-
free, certain SPX patents that may be essential to the practice of two
industry standards to Mahle.
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B. The Conduct Remedy
In addition, the Consent Agreement includes a provision that
requires Bosch to make certain patents available to its competitors in
the ACRRR market. During its merger investigation, the Commission
uncovered evidence that SPX holds certain potentially standard-
essential patents necessary for implementing two SAE International
ACRRR industry standards, J-2788 and J-2843, which govern the operation
of ACRRR machines that handle the two most common types of air
conditioning refrigerant in vehicles today. SAE International adopted
J-2788 and J-2843 while SPX was a member of the SAE Interior Climate
Control Committee, the committee responsible for developing the
standards. SAE International's rules include an obligation by working
group members to disclose any patents or patent applications that would
be essential to the practice of a standard being developed, and to
offer a license to such patents on either royalty-free or fair,
reasonable, and non-discriminatory (``FRAND'') terms. After the
standards were adopted, SPX issued a letter of assurance to SAE
International acknowledging that it held patents that were potentially
essential to both standards and committing to license them under FRAND
terms. Following this letter of assurance, however, SPX continued to
seek previously initiated injunction actions against competitors using
those patents to implement the SAE International standards.
SPX's suit for injunctive relief against implementers of its
standard essential patents constitutes a failure to license its
standard-essential patents under the FRAND terms it agreed to while
participating in the standard setting process, and is an unfair method
of competition actionable under Section 5 of the FTC Act. Standard
setting is ``widely acknowledged to be one of the engines driving the
modern economy.'' Participants in the standard setting process rely on
the licensing commitments made by patent holders during the standard
setting process to protect them against patent hold-up. Patent hold-up
can occur when, after an entire industry has become ``locked in'' to
practicing a standard, a patent holder reneges on a licensing
obligation and seeks to exercise the market power that accrues to a
patent by virtue of being incorporated in the standard. FRAND
commitments and licensing obligations, such as those at issue here, are
an important way to mitigate the risk of patent hold-up, and are common
in the standard setting process. Seeking injunctions against willing
licensees of FRAND-encumbered standard essential patents, as SPX is
alleged to have done here, is a form of FRAND evasion and can reinstate
the risk of patent hold-up that FRAND commitments are intended to
ameliorate. As the Commission has previously explained, ``negotiation
that occurs under threat of an [injunction] may be weighted heavily in
favor of the patentee in a way that is in tension with the [F]RAND
commitment. High switching costs combined with the threat of an
[injunction] could allow a patentee to obtain unreasonable licensing
terms despite its [F]RAND commitment, not because its invention is
valuable, but because implementers are locked in to practicing the
standard.''
Bosch has agreed in the Consent Order to resolve the violations
committed by SPX. The Consent Order requires Bosch to offer a royalty-
free license to all potential implementers for certain enumerated
patents for the purpose of manufacturing ACRRR devices in the United
States. While a royalty-free license may not be an appropriate remedy
in every case involving evasion of a FRAND commitment, in this matter
Bosch has chosen to license these patents to the buyer of its ACRRR
business, Mahle, royalty-free, and a license to other market place
participants on the same terms is necessary to ensure that the merger
remedy is not inequitable in application. The Consent Order further
requires Bosch to deliver to the SAE a letter of assurance that makes a
binding, irrevocable commitment to license any additional patents that
Bosch may acquire in the future that are essential to practicing the J-
2788 or J-2843 standards on FRAND terms to any third party that wishes
to use such patents to produce an ACRRR device for sale in the United
States. Pursuant to its FRAND obligations, Bosch has agreed not seek
injunctive relief against such third parties, unless the third party
refuses in writing to license the patent consistent with the letter of
assurance, or otherwise refuses to license the patent on terms that
comply with the letter of assurance as determined by a process agreed
upon by both parties (e.g., arbitration) or a court.
The Consent Agreement also requires that Bosch discontinue its
restrictive arrangements with wholesale distributors and independent
service technicians. Bosch will be prevented from enforcing any
agreement that restricts a distributor or repair service provider from
advertising, servicing, distributing, or selling any ACRRR product from
any third party in the United States. Bosch will be prevented from
entering into such agreements for ten years after the date of the
Order. This provision allows entry by other competitors, and will allow
the existing competitors in the ACRRR market, including Mahle, to more
easily have access to leading wholesale distributors and service
providers to assemble repair networks to which customers can turn after
they have purchased ACRRRs.
The purpose of this analysis is to facilitate public comment on the
Consent Agreement, and it is not intended to constitute an official
interpretation of the proposed Decision and Order or to modify its
terms in any way.
Statement of the Federal Trade Commission
The Federal Trade Commission (``Commission'') has voted to issue
for public comment a Complaint and Order against Robert Bosch GmbH
(``Bosch'') designed to remedy the allegedly anticompetitive effects of
Bosch's acquisition of SPX Services (``SPX''), a division of SPX
Corporation. The Commission has reason to believe that the proposed
acquisition would cause significant anticompetitive harm to consumers
by creating a virtual monopoly in the market for automobile air
conditioning servicing equipment known as ``air conditioning recycling,
recovery, and recharge devices'' or ``ACRRRs.'' The proposed Order
eliminates the anticompetitive concerns raised by the proposed
acquisition by requiring the divestiture of Bosch's assets relating to
the manufacture and sale of ACRRRs to Mahle Clevite, Inc. The proposed
Order further requires Bosch to discontinue restrictive arrangements
SPX maintained with wholesale distributors and independent service
technicians.
The Complaint also alleges that, before its acquisition by Bosch,
SPX reneged on a licensing commitment made to two standard-setting
bodies to license its standards-essential patents (``SEPs'') relating
to ACRRRs on fair, reasonable and non-discriminatory terms (``FRAND'')
by seeking injunctions against willing licensees of those SEPs.\2\ We
have reason to believe this conduct tended to impair competition in the
market for these important automobile air conditioning servicing
devices. To its credit, Bosch has abandoned these claims for
[[Page 71597]]
injunctive relief and agreed to license the SEPs at issue.
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\2\ The licensing obligation in this matter was a FRAND
obligation, although RAND (reasonable and non-discriminatory)
licensing obligations raise similar issues.
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This case is another chapter in the Commission's longstanding
commitment to safeguard the integrity of the standard-setting
process.\3\ Standard setting can deliver substantial benefits to
American consumers, promoting innovation, competition, and consumer
choice. But standard setting also risks harm to consumers. Because
standard setting often displaces the normal competitive process with
the collective decision-making of competitors, preserving the integrity
of the standard-setting process is central to ensuring standard setting
works to the benefit of, rather than against, consumers.\4\ The
Commission's action today does just that.
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\3\ See In re Dell Computer Corp., 121 F.T.C. 616 (1996); In re
Union Oil Company of California, 2004 FTC LEXIS 115 (July 7, 2004);
In re Rambus, Inc., Dkt. No. 9302, 2006 FTC LEXIS 101 (Aug. 20,
2006), rev'd, Rambus Inc. v. F.T.C., 522 F.3d 456 (D.C. Cir. 2008);
In re Negotiated Data Solutions LLC, FTC File No. 051-0094, Decision
and Order (Jan. 23, 2008), available at http://www.ftc.gov/os/caselist/0510094/080122do.pdf.
\4\ See, e.g., Allied Tube & Conduit Corp. v. Indian Head, Inc.,
486 U.S. 492, 500-01 (1988) (noting that ``private standard-setting
associations have traditionally been objects of antitrust scrutiny''
because of their potential use as a means for anticompetitive
agreements among competitors).
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As explained in the Commission's unanimous filings before the
United States International Trade Commission in June 2012, the threat
of injunctive relief ``in matters involving RAND-encumbered SEPs, where
infringement is based on implementation of standardized technology, has
the potential to cause substantial harm to U.S. competition, consumers
and innovation.'' \5\ By threatening to exclude standard-compliant
products from the marketplace, a SEP holder can demand and realize
royalty payments that reflect the investments firms make to develop and
implement the standard, rather than the economic value of the
technology itself.\6\ This can harm incentives to develop standard-
compliant products. The threat of an injunction can also lead to
excessive royalties that can be passed along to consumers in the form
of higher prices.
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\5\ Third Party United States Federal Trade Commission's
Statement on the Public Interest filed on June 6, 2012 in In re
Certain Wireless Communication Devices, Portable Music & Data
Processing Devices, Computers and Components Thereof, Inv. No. 337-
TA-745, available at www.ftc.gov/os/2012/06/1206ftcwirelesscom.pdf
and in In re Certain Gaming and Entertainment\Consoles, Related
Software, and Components Thereof, Inv. No. 337-TA-752, available at
http://www.ftc.gov/os/2012/06/1206ftcgamingconsole.pdf.
\6\ Id. at 3-4 (``[A] royalty negotiation that occurs under
threat of an exclusion order may be weighted heavily in favor of the
patentee in a way that is in tension with the RAND commitment. High
switching costs combined with the threat of an exclusion order could
allow a patentee to obtain unreasonable licensing terms despite its
RAND commitment, not because its invention is valuable, but because
implementers are locked in to practicing the standard. The resulting
imbalance between the value of patented technology and the rewards
for innovation may be especially acute where the exclusion order is
based on a patent covering a small component of a complex
multicomponent product. In these ways, the threat of an exclusion
order may allow the holder of a RAND-encumbered SEP to realize
royalty rates that reflect patent hold-up, rather than the value of
the patent relative to alternatives, which could raise prices to
consumers while undermining the standard setting process.'').
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There is increasing judicial recognition, coinciding with the view
of the Commission, of the tension between offering a FRAND commitment
and seeking injunctive relief.\7\ Patent holders that seek injunctive
relief against willing licensees of their FRAND-encumbered SEPs should
understand that in appropriate cases the Commission can and will
challenge this conduct as an unfair method of competition under Section
5 of the FTC Act.\8\ Importantly, stopping this conduct using a stand-
alone Section 5 unfair methods of competition claim, rather than one
based on the Sherman Act, minimizes the possibility of follow-on treble
damages claims. Violations of Section 5 that are not also violations of
the antitrust laws do not support valid federal antitrust claims for
treble damages. There is also no private right of action under Section
5, and a Section 5 action has no preclusive effect in subsequent
federal court cases.
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\7\ See, e.g., Microsoft Corp. v. Motorola, Inc., 696 F.3d 872,
885 (9th Cir. 2012) (``Implicit in such a sweeping promise is, at
least arguably, a guarantee that the patent-holder will not take
steps to keep would-be users from using the patented material, such
as seeking an injunction, but will instead proffer licenses
consistent with the commitment made.''); Apple, Inc. v. Motorola,
Inc., No. 1:11-cv-08540, 2012 U.S. Dist. LEXIS 89960, at *45 (N.D.
Ill. June 22, 2012) (Posner, J., sitting by designation) (``I don't
see how, given FRAND, I would be justified in enjoining Apple from
infringing the '898 [patent] unless Apple refuses to pay a royalty
that meets the FRAND requirement. By committing to license its
patents on FRAND terms, Motorola committed to license the `898 to
anyone willing to pay a FRAND royalty and thus implicitly
acknowledged that a royalty is adequate compensation for a license
to use that patent. How could it do otherwise?'').
\8\ We have no reason to believe that, in this case, a
monopolization count under the Sherman Act was appropriate. However,
the Commission has reserved for another day the question whether,
and under what circumstances, similar conduct might also be
challenged as an unfair act or practice, or as monopolization.
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In her dissent, Commissioner Ohlhausen claims that today's decision
imposes liability on protected petitioning activity and effectively
undermines the role of federal courts and the ITC in the adjudication
of SEP-related disputes. We respectfully disagree. As alleged in the
Complaint, SPX committed to license its SEPs on FRAND terms. In doing
so, we have reason to believe SPX voluntarily gave up the right to seek
an injunction against a willing licensee. Moreover, the fact that both
the federal courts and the ITC have the authority to deny injunctive
relief where the SEP holder has broken its FRAND commitment does not
mean that this conduct is not itself a violation of Section 5 or within
our reach.
We also take issue with Commissioner Ohlhausen's suggestion that
the Commission's action ``appears to lack regulatory humility.'' The
Commission is first and foremost a law enforcement agency, and this
consent decree, like all of our unfair methods of competition
enforcement actions, is a fact-specific response to a very real problem
that threatens competition and consumer welfare.
Indeed, we view this action as well within our Section 5 authority.
The plain language of Section 5, the relevant legislative history, and
a long line of Supreme Court cases all affirm that Section 5 extends
beyond the Sherman Act.\9\ Moreover, this is not a circumstance where,
as Commissioner Ohlhausen contends, there are no discernible limiting
principles. SPX's failure to abide by its commitment took place in the
standard-setting context. In that setting, long an arena of concern to
the Commission, a breach of contract risks substantial consumer injury.
The standard setting context, together with the acknowledgment that a
FRAND commitment also depends on the presence of a willing licensee,
appropriately limit the Commission's enforcement policy and provide
guidance to standard-setting participants.
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\9\ See, e.g., F.T.C. v. R.F. Keppel & Bros., Inc., 291 U.S.
304, 310-313 (1934); F.T.C. v. Cement Inst., 333 U.S. 683, 693 & n.6
(1948); F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233, 241-244
(1972).
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For these reasons, we find Commissioner Ohlhausen's analogy of
SPX's conduct to a ``garden variety breach-of-contract'' to be
unpersuasive. While not every breach of a FRAND licensing obligation
will give rise to Section 5 concerns, when such a breach tends to
undermine the standard-setting process and risks harming American
consumers, the public interest demands action rather than inaction from
the Commission.
[[Page 71598]]
By direction of the Commission, Commissioner Rosch and
Commissioner Ohlhausen dissenting.
Donald S. Clark,
Secretary.
Statement of Commissioner Maureen K. Ohlhausen
I voted against accepting the proposed consent agreement in this
matter because I strongly dissent from those portions of the consent
that relate to alleged conduct by the respondent involving standard-
essential patents, or SEPs.\10\ Even if all of the SEP-related
allegations in the complaint were proved--including the allegation that
the patents at issue are standard-essential--I would not view such
conduct as violating Section 5 of the FTC Act.\11\ Simply seeking
injunctive relief on a patent subject to a fair, reasonable, and non-
discriminatory (``FRAND'') license, without more,\12\ even if seeking
such relief could be construed as a breach of a licensing commitment,
should not be deemed either an unfair method of competition or an
unfair act or practice under Section 5. The enforcement policy on the
seeking of injunctive relief on FRAND-encumbered SEPs that the
Commission has announced today suffers from several critical defects.
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\10\ I concur with the consent agreement reached in this matter
insofar as it requires the divestiture of certain assets to remedy
the Clayton Act Section 7 violation that likely would have resulted
from the proposed transaction. I do have strong reservations,
however, about the relatively broad fencing-in relief included in
the proposed Decision and Order that requires the respondent to
cancel the exclusivity provisions in its contracts with various
distributors and equipment servicers. See Decision and Order ] III.
Fencing-in relief that modifies contracts entered into by
participants across an industry raises concerns for me about whether
such relief goes beyond that which is necessary to protect the
viability of the divestiture buyer and thus effectuate the
legitimately pursued remedy in this matter.
\11\ See Complaint ]] 11-20, 23. See also Decision and Order ]
IV; Analysis of Agreement Containing Consent Order to Aid Public
Comment Sec. V.B.
\12\ See, e.g., In re Rambus, Inc., Dkt. No. 9302 (FTC Aug. 2,
2006) (Commission opinion) (finding deception that undermined the
standard-setting process), rev'd, Rambus Inc. v. FTC, 522 F.3d 456
(DC Cir. 2008); In re Union Oil Co. of Cal., 138 F.T.C. 1 (2003)
(Commission opinion) (same); In re Dell Computer Corp., 121 F.T.C.
616 (1996) (consent order) (alleging same).
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First, this enforcement policy raises significant issues of
jurisdictional and institutional conflict. It is simply not in the
public interest to effectively oust other institutions, including the
federal courts and the International Trade Commission (``ITC'') from
the important and complex area of SEPs through the use of our Section 5
authority. By imposing Section 5 liability on a firm that seeks
injunctive relief on its SEPs, the Commission is doing exactly that.
The FTC is not, nor should it be, the only institution acting in the
SEPs space. Moreover, it is unclear how the seeking of injunctive
relief, in either the courts or the ITC, on a patent--even a FRAND-
encumbered SEP--would not be considered protected petitioning of the
government under the Noerr-Pennington doctrine.\13\ In fact, a court
recently dismissed Sherman Act and state unfair competition claims
grounded on the seeking of injunctive relief in the courts and the ITC
on FRAND-encumbered SEPs, holding that such conduct was protected by
Noerr.\14\
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\13\ See Eastern R.R. Presidents Conference v. Noerr Motor
Freight, 365 U.S. 127 (1961); United Mine Workers of Am. v.
Pennington, 381 U.S. 657 (1965); California Motor Transp. Co. v.
Trucking Unlimited, 404 U.S. 508 (1972) (applying Noerr-Pennington
doctrine to petitioning of judicial branch).
\14\ See Apple, Inc. v. Motorola Mobility, Inc., No. 3:11-cv-
00178-BBC, 2012 WL 3289835, at *12-14 (W.D. Wis. Aug. 10, 2012)
(dismissing Apple's Sherman Act and state unfair competition claims
and holding that Motorola's filing of litigation in the federal
courts and ITC on its FRAND-encumbered SEPs was immune under Noerr).
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Second, this enforcement policy appears to lack regulatory
humility. The policy implies that our judgment on the availability of
injunctive relief on FRAND-encumbered SEPs is superior to that of these
other institutions. I agree that the FTC is well positioned to offer
its views and to advocate on the important issue of patent hold-up
using its policy tools. For that reason, I supported the Commission's
June 2012 filing with the ITC.\15\ However, as the Commission testified
to Congress shortly after filing its statement with the ITC, ``Federal
district courts have the tools to address this issue [hold-up], by
balancing equitable factors or awarding money damages, and the FTC
believes that the ITC likewise has the authority under its public
interest obligations to address this concern and limit the potential
for hold-up.'' \16\ I see no reason why this unanimous statement no
longer holds.\17\
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\15\ Third Party United States Federal Trade Commission's
Statement on the Public Interest, In re Certain Wireless
Communications Devices, Portable Music and Data Processing Devices,
Computers and Components Thereof, Inv. No. 337-TA-745 (Int'l Trade
Comm'n June 6, 2012), available at http://www.ftc.gov/os/2012/06/1206ftcwirelesscom.pdf.
\16\ Oversight of the Impact on Competition of Exclusion Orders
to Enforce Standard-Essential Patents: Hearing Before the S. Comm.
on the Judiciary, 112th Cong. 1-2 (2012) (statement of the Federal
Trade Commission), available at http://www.ftc.gov/os/testimony/120711standardpatents.pdf.
\17\ The cases cited in the Commission's statement for the
proposition that there is an ``increasing judicial recognition'' on
the tension between FRAND commitments and injunctive relief, to the
extent that they reveal anything, show that the courts are not
freely issuing injunctions against willing licensees of FRAND-
encumbered SEPs. See Statement of the Commission, at 2 n.6. Thus,
far from supporting the position that the FTC should block access to
other institutions, these cases clearly demonstrate that the courts
are well equipped to address issues involving injunctions on FRAND-
encumbered SEPs.
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Third, to the extent that the SEP allegations in the complaint
aspire to the consent agreement reached in the Commission's N-Data \18\
matter, I would submit that that consent is an ill-advised guidepost
for this agency to use in its enforcement of Section 5 for several
reasons. Most importantly, the N-Data consent fails to identify
meaningful limiting principles that would govern the Commission's use
of its Section 5 authority.\19\ As former Chairman Majoras explained in
her dissent, the N-Data consent was a material departure from the prior
line of standard-setting organization (``SSO'') cases brought by the
Commission, which were grounded in deceptive conduct in the standard-
setting context that led to, or was likely to lead to, anticompetitive
effects.\20\ Then-Commissioner Kovacic also dissented, objecting to,
among other things, the majority's assumption that a Section 5 action
would have no spillover effects in terms of follow-on private
litigation.\21\
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\18\ In re Negotiated Data Solutions LLC, FTC File No. 051-0094,
Decision and Order (Jan. 23, 2008), available at http://www.ftc.gov/os/caselist/0510094/080923ndsdo.pdf.
\19\ See, e.g., E.I. du Pont de Nemours & Co. v. FTC, 729 F.2d
128, 139 (2d Cir. 1984) (``Ethyl''); (``[T]he Commission owes a duty
to define the conditions under which conduct * * * would be unfair
so that business will have an inkling as to what they can lawfully
do rather than be left in a state of complete unpredictability.'');
FTC v. Abbott Labs., 853 F. Supp. 526, 535-36 (D.D.C. 1994) (``The
Second Circuit stated emphatically that some workable standard must
exist for what is or is not to be considered an unfair method of
competition under Sec. 5. Otherwise, companies subject to FTC
prosecution would be the victims of `uncertain guesswork rather than
workable rules of law.''') (quoting Ethyl, 729 F.2d at 139); ABA
Section of Antitrust Law, Antitrust Law Developments 661 (7th ed.
2012) (``FTC decisions have been overturned despite proof of
anticompetitive effect where the courts have concluded that the
agency's legal standard did not draw a sound distinction between
conduct that should be proscribed and conduct that should not.'').
\20\ See In re Negotiated Data Solutions LLC, FTC File No. 051-
0094, Dissenting Statement of Chairman Majoras, at 1-2 (Jan. 23,
2008), available at http://www.ftc.gov/os/caselist/0510094/080122majoras.pdf.
\21\ See id., Dissenting Statement of Commissioner William E.
Kovacic, at 1-2, available at http://www.ftc.gov/os/caselist/0510094/080122kovacic.pdf.
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The SEP allegations and consent in the instant matter suffer from
many of the same deficiencies as the N-Data consent. I simply do not
see any meaningful limiting principles in the enforcement policy laid
out in these cases. The Commission statement
[[Page 71599]]
emphasizes the context here (i.e. standard setting); however, it is not
clear why the type of conduct that is targeted here (i.e. a breach of
an allegedly implied contract term with no allegation of deception)
would not be targeted by the Commission in any other context where the
Commission believes consumer harm may result. If the Commission
continues on the path begun in N-Data and extended here, we will be
policing garden variety breach-of-contract and other business disputes
between private parties. Mere breaches of FRAND commitments, including
potentially the seeking of injunctions if proscribed by SSO rules,\22\
are better addressed by the relevant SSOs or by the affected parties
via contract and/or patent claims resolved by the courts or through
arbitration.
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\22\ The instant matter also raises concerns about the
Commission imposing requirements on the respondent that go beyond
those it agreed to as part of the SSO at issue here, which does not
appear to ban the seeking of injunctions on SEPs included in its
standards. See SAE International, Technical Standards Board
Governance Policy Sec. 1.14 (Nov. 2008), available at http://www.sae.org/standardsdev/tsb/tsbpolicy.pdf. Even more troublesome,
it is an open question whether the patents at issue are even
standard-essential. See, e.g., Complaint ] 16 (``After the adoption
of SAE J-2788, SPX Corporation sued certain competitors, including
Bosch, for infringing patents that may be essential to the practice
of SAE J-2788.'').
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It is important that government strive for transparency and
predictability. Before invoking Section 5 to address business conduct
not already covered by the antitrust laws (other than perhaps
invitations to collude), the Commission should fully articulate its
views about what constitutes an unfair method of competition, including
the general parameters of unfair conduct and where Section 5 overlaps
and does not overlap with the antitrust laws, and how the Commission
will exercise its enforcement discretion under Section 5. Otherwise,
the Commission runs a serious risk of failure in the courts \23\ and a
possible hostile legislative reaction,\24\ both of which have
accompanied previous FTC attempts to use Section 5 more expansively.
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\23\ See Ethyl, 729 F.2d 128; Official Airline Guides, Inc. v.
FTC, 630 F.2d 920 (2d Cir. 1980); Boise Cascade Corp. v. FTC, 637
F.2d 573 (9th Cir. 1980); Abbott Labs., 853 F. Supp. 526.
\24\ See William E. Kovacic & Marc Winerman, Competition Policy
and the Application of Section 5 of the Federal Trade Commission
Act, 76 Antitrust L.J. 929, 943 (2010) (``In the 1950s and the
1970s, Commission efforts to use Section 5 litigation to reach
beyond prevailing interpretations of Sections 1 and 2 of the Sherman
Act elicited strong political backlash from the Congress.'').
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This consent does nothing either to legitimize the creative, yet
questionable application of Section 5 to these types of cases or to
provide guidance to standard-setting participants or the business
community at large as to what does and does not constitute a Section 5
violation. Rather, it raises more questions about what limits the
majority of the Commission would place on its expansive use of Section
5 authority.
[FR Doc. 2012-29031 Filed 11-30-12; 8:45 am]
BILLING CODE 6750-01-P