In Google Patent Case, F.T.C. Set Rules of Engagement for Battles

originally appeared in The New York Times:

The Federal Trade Commission’s antitrust investigation of Google focused mainly on the company’s lucrative search business, while its inquiry into the tech giant’s handling of patents seemed an afterthought.

Yet even as Google made only a few voluntary promises on search, it agreed to a legal settlement on patents that the commission chairman, called a landmark enforcement action that applies to huge high-tech markets like smartphones and tablet computers.

The commission action by no means spells the end of the smartphone patent wars, a global conflict in which major corporations including Apple, Samsung and Google have spent billions amassing patent portfolios and then suing and countersuing one another in courts around the world. But legal experts say Google’s settlement with the F.T.C. signals progress in clarifying the rules of engagement in high-tech patent battles, and thus could ease them.

The agreement represents a significant stride forward in reducing the confusion and uncertainty that currently surrounds how these patents can be used, according to a patent expert at the Santa Clara University School of Law.

The commission’s settlement with Google, announced on Thursday, focused on patents covering communications and data transmission technologies that are crucial for the basic operation of smartphones and tablets — what are known as standard-essential patents. (There are many other patents in mobile devices, covering physical design and software features.) The legal gamesmanship of the epic smartphone patent battles, according to economists and technology experts, consumes time and investment that could be better used to develop new products. In his comments on Thursday, the commission chairman pointed to those concerns. Today’s commission action, he said, will also relieve companies of some of the costly and inefficient burden of hoarding patents for purely defensive purposes, savings that we hope can be invested in job-creating research and development.

Under the settlement, Google agreed to license its standard-essential patents to other companies on “fair and reasonable” terms. It also agreed not to seek court injunctions to halt the shipment of smartphones, tablets and other devices that use its standard patents.

The issue arose from Google’s $12.5 billion purchase of Motorola Mobility, announced in 2011 and completed last year. Google acquired Motorola partly to defend itself and the smartphone makers that use its Android software after rivals had already loaded up on patents.

With the acquisition, Google picked up 17,000 patents, including many relating to wireless devices that Motorola, a pioneer in the wireless phone business, had pledged to license on reasonable terms. Those commitments were made to technology standards organizations, intended to assure that basic technical innovations are widely available, stimulating growth in the industry.

Over the years, according to the commission chairman, companies took Motorola at its word and developed products assuming they could routinely license Motorola’s patents. But Motorola later refused to license its standard-essential patents and sought court injunctions to stop shipment of rival products.

After Google purchased Motorola, he said, it continued these same abusive practices.

In recent months, the F.T.C. has issued position papers and filed friend-of-the-court briefs, opposing the motions for injunctions using standard patents. The Justice Department and European regulators have echoed the commission’s stance.

Regulators around the world have become increasingly sensitive to just how important technical standards and standards-setting bodies are to the modern system of economic innovation, according to an economist at Harvard Business School.

The threat of court injunctions to stop shipment of products, economists say, is the factor that drives up the cost of patent wars. Because an injunction could be devastating, companies will pay dearly to remove that risk, settling with a plaintiff or spending on patents to build a defensive arsenal.

Some courts have recently resisted granting injunctions based on standard patents. Google’s settlement with the F.T.C., according to a former chief economist in the Justice Department’s antitrust division, helps solidify the move to stop injunctions in standard-essential patent cases, which is great.

A professor at the University of California, Berkeley, said that courts had also been more hesitant recently to grant injunctions in cases that did not involve standard patents. In suits involving smartphones and tablets — amalgams of hardware, software and telecommunications technologies covered by many thousands of patents — judges are sometimes less likely to halt the shipment of a device based on a few infringing patents.

Last month, for example, a Federal District Court judge in San Jose, Calif., denied Apple’s motion for an injunction against Samsung products. In August, a jury in that court found that Samsung products infringed on a handful of Apple design and software patents, and awarded Apple $1.05 billion in damages.

The judge declined to grant Apple’s motion for injunction, essentially saying that Apple’s claim was outweighed by the public interest in keeping Samsung shipments flowing. Apple is appealing the ruling.

The courts seem to be moving toward taking a dimmer view of injunctions generally, he said. That’s a big deal.