On July 9, 2021, President Biden executed an Executive Order (EO) on Promoting Competition in the American Economy. This EO impacts the Intellectual Property (IP) transactions and portfolios as discussed below.
The EO directly mentions the information technology sector, the prescription drugs/healthcare sector, and the telecommunications sector as being in need of additional regulation. The EO states that the:
information technology sector has long been an engine of innovation and growth, but today a small number of dominant Internet platforms use their power to exclude market entrants, to extract monopoly profits, and to gather intimate personal information that they can exploit for their own advantage. Too many small businesses across the economy depend on those platforms and a few online marketplaces for their survival. And too many local newspapers have shuttered or downsized, in part due to the Internet platforms’ dominance in advertising markets.
Americans are paying too much for prescription drugs and healthcare services—far more than the prices paid in other countries. Hospital consolidation has left many areas, particularly rural communities, with inadequate or more expensive healthcare options. And too often, patent and other laws have been misused to inhibit or delay—for years and even decades—competition from generic drugs and biosimilars, denying Americans access to lower-cost drugs.
In the telecommunications sector, Americans likewise pay too much for broadband, cable television, and other communications services, in part because of a lack of adequate competition.
Thus, these industries are now subject to additional scrutiny by the following agencies: the Department of the Treasury, the Department of Agriculture, the Department of Health and Human Services, the Department of Transportation, the Federal Reserve System, the Federal Trade Commission (FTC), the Securities and Exchange Commission, the Federal Deposit Insurance Corporation, the Federal Communications Commission, the Federal Maritime Commission, the Commodity Futures Trading Commission, the Federal Energy Regulatory Commission, the Consumer Financial Protection Bureau, and the Surface Transportation Board.
The EO recognizes that a whole-of-government approach is necessary to address overconcentration, monopolization, and unfair competition in the American economy. Agencies can and should further the polices by adopting pro competitive regulations and approaches to procurement and spending, and by rescinding regulations that create unnecessary barriers to entry that stifle competition.
The EO goes on to state that the White House Competition Counsel (WHCC) shall work with the respective government agencies to “work across agencies to provide a coordinated response to overconcentration, monopolization, and unfair competition in or directly affecting the American economy.” The WHCC will be assembled to make sure that the agencies consider:
(i) the influence of any of their respective regulations, particularly any licensing regulations, on concentration and competition in the industries under their jurisdiction; and
(ii) the potential for their procurement or other spending to improve the competitiveness of small businesses and businesses with fair labor practices.
(b) The Attorney General, the Chair of the FTC, and the heads of other agencies with authority to enforce the Clayton Act are encouraged to enforce the antitrust laws fairly and vigorously.
(c) To address the consolidation of industry in many markets across the economy, as described in section 1 of this order, the Attorney General and the Chair of the FTC are encouraged to review the horizontal and vertical merger guidelines and consider whether to revise those guidelines.
(d) To avoid the potential for anticompetitive extension of market power beyond the scope of granted patents, and to protect standard-setting processes from abuse, the Attorney General and the Secretary of Commerce are encouraged to consider whether to revise their position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued jointly by the Department of Justice, the United States Patent and Trademark Office, and the National Institute of Standards and Technology on December 19, 2019.
So what does this mean? For over 25 years, the enforcement of the Sherman Antitrust Act (26 Stat. 209, 15 U.S.C. 1 et seq.) (Sherman Act), the Clayton Antitrust Act (Public Law 63-212, 38 Stat. 730, 15 U.S.C. 12 et seq.) (Clayton Act), or other laws and rulings such as 15 U.S.C. § 18 and Standard Oil Co. v. United States, 221 U.S. 1 (1911), were things that would need to be considered in IP transactions but were not driving factors in IP transactions, IP licensing, or IP prosecution. This EO changes that with respect to at least the information technology, drug, and telecommunication industries.
Now, additional thought should be placed on any merger in this space that may be viewed as consolidating the marketplace that would result in an anticompetitive environment. These types of issues have not been emphasized in mergers for quite a while and can be easily overlooked. Unfortunately, these issues are not just reserved for the big boys and may impact transactions of smaller sizes.
When drafting patents in the telecom space and other highly regulated areas, standard essential patents and FRAND regulations come into play. A standard is a document that defines technology and how it will function or interact with other technology by a standards body. Some commonly known standards are USB, LTE, WiFi, and other similar communications technologies. While these examples are for communications, it should be appreciated that other areas of technology are impacted by standards. For example, the color, shape, smell, and size of prescription drugs can be subject to standards as well as numerous other technology areas.
A standard essential patent is like any other patent application but becomes essential to a given standard when it is declared to be essential by one of the contributing participants of the standards body. This puts the owner of the patent/patent application in a position that they must agree to license any issued patent on fair, reasonable, and non-discriminatory terms. Thus, the term FRAND. This obligation only exists with companies that have participated in the standards body. Thus, there is a balance between the exclusivity provided by the patent and the need for standardization. This EO indicates that there may be changes coming down the pike from the U.S. Patent Office on these patent applications or on the inclusion of non-participating companies to license under FRAND terms.
In addition, IP licenses will be impacted by this additional scrutiny. Tying is the sale or license of an item with additional restrictions not associated with the sale or license of the goods or services. For example, a license agreement to purchase seeds where the agreement includes a non-replant provision that prevents farmers from gathering the seeds from crops planted from the purchased seeds. Highly restrictive downstream or unrelated license provisions will need to be carefully reviewed for compliance with current and the changing landscape.
Thus, this EO, while innocuous and well-intended, may have meaningful impact on IP transactions and portfolios for years to come. So the short answer is yes; antitrust is back as a meaningful consideration for IP transactions and portfolios.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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