Draft SEP Policy Statement

Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society's practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group Teleforum calls, become a Federalist Society member today at fedsoc.org.

 

Dean Reuter:  Good morning, and welcome to The Federalist Society’s Practice Group Teleforum webinar as today, March 14, 2022, we discuss the government’s draft SEP policy statement. I’m Dean Reuter, Senior Vice President and General Counsel at The Federalist Society. Pleased to welcome you here today to our program. As always, please note that all expressions of opinion are those of our expert today, and this is being recorded for use as a podcast and will likely be transcribed and posted on our website.

 

We’re very pleased to welcome a single expert today, a return guest to our Teleforum webinar, Andrei Iancu. He is a partner at Irell and Manella. But almost as importantly, he’s the former director of the patent and trademark office. We’re very pleased to have him talk in opening remarks for several minutes, and then I’ll probably have some questions for him. But as always, we’ll be looking to the audience for your questions. For that, please use the Q&A function at the bottom middle of your screen. We’ll take those questions in no particular order. But you can start submitting them any time along the way during our discussion and conversation with Commissioner Iancu. With that, Andrei Iancu, the floor is yours.

 

Andrei Iancu:  Thank you, Dean. Great to be with you again. Thank you for the invitation. Great privilege to be back with The Federalist Society once again. I remember, fondly, our meetings in person some years ago. And hopefully, we’ll return to that soon enough. But yeah, so for today’s topic, you said in the opening that it’s about SEPs. And it certainly is. But what are those things? So it really deals with standard essential patents. In basic terms, these are patents and various other intellectual property protections for technology that is essential to the practice of a particular standard.

 

So let me just back up for a second, Dean, and just first get a clear understanding of what’s a standard. Right? So a technology standard is a set of technologies and how to practice them that everybody has to conform to get uniformity across a particular area. So take, for example, 5G, which is a very typical standard that folks talk about nowadays. But even more simply, the plugs that you stick any electrical device in the wall, those are standardized because you need interoperability of devices. So in the United States, for example, the plugs have a certain shape. That is a standard. Interestingly enough, it’s not an international standard. And we all know the problems that that causes. Right? Every time we travel someplace overseas—back in the days when people still traveled—you have to carry these adapters so that --because it’s not standardized internationally, even though it’s standardized locally. Different countries have different plugs. Well, wouldn’t it be great to have just one standard for that?

 

When you talk about telecom, like 5G -- 4G, 5G, 6G, those are standards that are meant to be of international scope. The world is more and more interdependent on international standards. And those standards are more and more important as time goes forward. We talk about the use of the internet of things with all sorts of devices from all over the world plugging into the internet or artificial intelligence machines learning on their own and then operating to some extent on their own, self-driving vehicles of various sorts—all of these things are becoming more and more standardized. Other areas of technology that are really important for standardization is video compression so that videos, such as this one for example—but shows on TV, whatever—can be sent by the producer in a compressed format, received over the airways or through the internet at your home, and then expanded and played back so that you can see it. And remember, the producer has to send it in a format that the recipient at home understands it. And whether you’re at your house or at the hotel or traveling someplace, you want the same type of technology to be able to talk to each other.

 

So standards and standard-based technology is critically important and is becoming more and more important for our economy. So that’s point number one. Point number two -- patents and other intellectual property are critically important to the development of standards. Why is that? This is especially true here in the United States. We are a free market-based economy. So what incentivizes innovation in the United States? So the market needs to be able to invest in the technologies of the future, to take risks, to bring those to bear. And when it comes to standards, you take the risk that you’re going to develop a technology that may later not be adopted by the standard.

 

So the way it works is countries come together in standard-setting organizations, and they discuss which set of technological tools should be adopted for the next standard. So 6G, 7G -- whose standards, whose technology is going to be adopted for that? Companies need to develop those technologies and submit them to the standards organizations for adoption. They might not succeed. They might not be adopted. You make all these investments. You do all the development, and in the end, it doesn’t get adopted. But if it does -- so that’s the risk. But if it does get adopted, you want to make sure that you’re being properly compensated. This is the key for the development of standards in a free market economy.

 

Think about it the way it is in China and other centralized economies. There, the centralized Chinese Communist Party can dictate, “We’re going to develop five new technologies for a particular standard, and whatever happens, happens.” We cannot make such a -- we cannot issue such dictates here in the United States. So we need the appropriate incentives and the appropriate level of protections in the United States and other free market economies in order for companies to make the necessary investments and try hard to get their technologies adopted in the standards organizations. Having the appropriate policies when it comes to these intellectual property protections for standards is critically important.

 

So number one -- as I said, companies have to be incentivized. At the same time, to balance on the other side, you want to make sure that once a technology is adopted and the patent -- the technology developer has patents that protects that technology, that the patent owner does not freeze out the market—that the patent owner does not in technical terms, “hold up,” the market. If a standard has to be practiced, you have to enable implementers, companies implementing the standard, to actually practice it. So you want to make sure that you don’t have a system that is unbalanced and prevents the implementation of a standard once adopted. So that’s why balance is critically important. On the one hand, you have to have the right level of incentives and protections to create those technologies in the first place here in the United States, get them adopted by the international standard organizations, and at the same time, make sure that they are not overbearing such that the implementers cannot actually apply the technologies in products going forward. So getting that balance right is key.

 

So what does the government do to make sure that that balance is right? One thing the government could do is nothing. One thing the government could do is stay out of it and not dictate policies when it comes to this particular balance and let the market dictate those policies—markets, the courts, etc. And for the longest time, that’s been the case. For the longest time, there had not been any specific government-issued policy when it comes to standard essential patents. That’s true until 2013. In 2013, the administration, in a joint statement from the Department of Justice Antitrust Division and the USPTO, issued its first policy statement. So the 2013 policy tried to make the appropriate balance as between incentivizing technology developers and implementers of those technologies. That statement said that it is primarily concerned with what it sees in the market, what the government saw in the market at that time, as a “hold up” behavior from patent owners.

 

That statement issued with various positions on both sides, but in the years after that statement, courts interpreted it such that it became a de facto prohibition. The statement was read as a de facto prohibition against the use of injunctions and other types of remedies when it comes to the enforcement of patents essential to a standard. What does that mean? That means that if you have a standard essential patent and an implementer uses your technology and refuses to pay appropriate fees for that technology, you -- the patent owner can file a lawsuit against the implementer of the technology. What are the remedies for that? Is it just money? Or can you also ask the court to issue an injunction to stop the implementer from putting that technology out altogether? The 2013 statement was effectively read as a de facto prohibition against the use of injunctions, and we can talk about the problems that that creates in the system. But we saw it as a significant concern.

 

So in 2019, when I was the director of the USPTO, got together with the head of DOJ Anti-Trust and NIST—so three organizations, three government agencies—and we issued a 2019 policy statement that corrected that imbalance. And we effectively said, “Look. Standard essential patents are patents like all other patents and should be entitled to all the remedies that all other patents are entitled to. And depending on the facts and circumstances of any particular case, courts are very well-equipped to make the decisions as to the remedies in any particular case, including a standard essential patent case.” So we said, “Injunctions are appropriate if courts so determine, as well as any other remedy under the particular facts of that case.” And the particular example we gave in 2019 was, “If the implementer holds out and behaves in bad faith during negotiations for license of standard essential patents, then courts could issue an injunction.” And we can come back, Dean, and talk about the reasoning behind all of that.

 

So that was in 2019. Two years later, 2021, there’s a new administration. And President Biden issued an executive order in the summer of last year asking for -- on many issues -- but one of the points of the executive order was to ask the Department of Justice and the Department of Commerce to take a look at the 2019 statement and see if there’s a need to revise that once again. And sure enough, they did that, and they thought that, yes, it’s time to revise once again -- surprising result. So they issued in December of 2021 a draft revision and asked the public for comment. The comment period closed in February of this year—so just last month. They received several hundred comments from the public, and now we will see what happens. Presumably, the government agencies are reviewing those comments, and we will see what they do next. So with that background, let me stop there, Dean, and turn it over to you for questions or comments.

 

Dean Reuter:  Great. Thank you so much. And a reminder to the audience to use the Q&A function at the bottom of the screen if you have a question. And while we’re waiting for audience questions, this raises -- your presentation raises a lot of questions in my mind. You’ve covered a lot of territory, and I appreciate the background both on what SEPs are and where we are in this notice and comment proceeding. Can you say a little bit more about any national security implications? You mentioned China. Patents are a huge deal, as a far as I know, from a position of a novice. Can you address that a little bit?

 

Andrei Iancu:  Sure. So there are huge international implications here and national security issues. Standards-based technologies are critical to the fourth industrial revolution and the technologies of the future, like I mentioned, whether it’s telecommunications like 4G, 5G—we’re well past 4G, frankly; we’re actually past 5G as well— 6G and beyond, internet of things, autonomous vehicles, artificial intelligence, and so on. And what we want to make sure is that the United States remains at the forefront of those technologies. For the United States to remain at the forefront, the United States needs to innovate in the critical technologies of the future.

 

Well, we are being faced with a huge challenge from China and other countries when it comes to innovation in the technologies of the future. The Chinese have figured out that for them—and not just the Chinese, by the way, many other countries big, small, and medium -- but let’s focus on China because it’s one of our major competitors right now. They have figured out that for them to be competitive both economically, militarily, and everything else, they need to innovate. And they have focused, in their Made in China 2025 and beyond plans -- they have focused on the key technologies of the future. And they have said, all the way to the highest levels in their government, they said that those who control the standards, control the future. And they understand that, and it is true.

 

Think about it. –By definition, if we have an international standard, like 5G and 6G, then by definition, we all have to practice it. All of our phones, these things that all of us carry with us religiously, as I said, television transmission, whatever -- they will be applicable across the world. What would we rather have? Would we rather have technology that is driven by the Chinese Communist Party? Would we rather have artificial intelligence, machine learning technology, whatever it might be that’s controlled by the Chinese government and others? Or would we rather have the United States innovate in these areas and dictate or lead those technological standards into the future? I think the obvious answer -- the answer is obvious for all of us who want -- who are in favor of freedom and democracy. We want technology to be driven from companies that operate in a free-market system and from democratic countries and, especially for us here in the United States, from the United States.

 

For the United States, as a free-market economy, to lead in these areas, we need to innovate in those areas, and we need to have the appropriate free market incentives for that innovation. I can’t emphasize enough how critically important it is for the United States to keep innovating. And here's the thing, Dean. Everybody agrees that innovation is important. The problem is that not everybody agrees that intellectual property is a key ingredient to that innovation. That connection is missing, and our legislators and our government officials need to understand that in the United States and any other free-market economy, you don’t have that many levers to pull to incentivize the innovation in risky technologies.

 

By definition, the technologies of the future are risky. And as I said, that’s especially true with standards because you don’t know, after all the investment, that that standard—that technology—will be adopted in the standard. So you take this huge risk. There has to be a protection and an incentive for that risk that you’ve taken if, in fact, you succeed. Our free market is willing to take a chance and fail. That’s what entrepreneurship is all about. But they are not willing to take a risk and fail even if they succeed. There has to be a payday at the end of the day in case of success. And if you don’t have intellectual property protection, our free market will not invest at the same levels that are needed to compete with a centralized Chinese Communist Party that doesn’t have this free market issue.

 

Dean Reuter:  Yeah. Let me pick up, if I could, on one thing you said there because to me -- and maybe challenge you a little bit or get you to make the best case possible on the other side. It seems intuitively obvious that innovation is linked to IP rights, at least from my position as a non-expert—axiomatic even. I mean, you mentioned people who don’t link innovation and intellectual property and the synergies, I guess, between those. What’s their best-case argument for disaggregating those two concepts? Where does -- if not from intellectual property protection, where does innovation come from? Is it just spontaneous? Is it just people who are out to make the world better whether or not there’s a pay off at the end?

 

Andrei Iancu:  Yeah. As it happens, Dean, there is a school of thought—and it’s a significant school of thought—that innovation just happens. Human ideas just happen. Humans will think. That’s what we do. And we’re going to be creative. That’s the nature of a human being. So we’re going to be thinking, we’re going to be creative, we’re going to create stuff, and innovation just happens.

 

Dean Reuter:  Yeah.

 

Andrei Iancu:  And then patents are an afterthought by those clever enough who, after they’ve innovated, they want to pull up the ladder behind them. I don’t want to underestimate this school of thought. It’s very prevalent. It’s especially prevalent in academia. And it’s not new. This goes back to the beginning of intellectual property protections hundreds of years ago. There’s always a tension between the free flow of ideas and the protection of ideas in the form of a property right. And from the -- it was so important that tension was recognized by our founding fathers. Think about the fact that they put it in the Constitution. Right? In Article One, Section Eight, Clause Eight, there is the Intellectual Property Clause that gives exclusive rights to inventors and authors. Right? So that’s the foundation for the patent and the copyright system. They thought they had to overcome this tension in the Constitution itself. They didn’t put physical property rights in the Constitution. There is no clause that says you’re entitled to your piece of land. But they put it on the intellectual property rights to resolve this tension. And there’s writings from Jefferson and the like that show this tension. And now I very much believe that the answer after all these years is clear. You cannot compete in a free market economy without these protections and incentives. But the bottom line is that not everybody agrees.

 

Dean Reuter:  Yeah. Interesting. Does that school of thought—and you can just say yes or no to this if possible—does that school of thought concede that without patents and IP protection, even if humans are, by nature, inventive, you might get a level of innovation at 10, but with patent protection, you get 11 or something higher?

 

Andrei Iancu:  No. No. They think it’s the other way. So the opposite school of thought thinks that patents act as a barrier to innovation as opposed to a catalyst to innovation. Again, ideas will just happen, they say, and then the patents block further follow-on ideas. Now what I always say publicly is, show me the evidence because humanity does not know progress to the level that we have come to expect here without a robust patent system. Okay? When this country was founded in 1776, the state of humanity in 1776, just 200 some years ago, was basically the same as in antiquity. Okay? You basically were going around on horseback. You illuminated the room with candlelight. If you wanted to communicate something at a distance, you had to send Paul Revere on horseback. If you needed anesthesia, the best you could do is a shot of whiskey. I’m not kidding about these things. It’s just 200 years ago, even though humanity has been around for thousands or tens of thousands of years.

 

So all the progress we have made -- now, lots of things have come together, but the fact is that everything that we know from a technological development point of view has happened at the same time as the robust patent system. So I want to know the evidence. If you want to undo the system, --

 

Dean Reuter:  Yeah.

 

Andrei Iancu:  -- folks have to come and prove that this stuff can happen in a free market economy without intellectual property protection. This is so critical for standards-based technologies because it adds another layer—the technology’s adopted in a standard that’s in wide use across the world. But it is also true in everything else. We see it in the development of pharmaceuticals, and the same arguments are being made on the other side there. And it’s just as dangerous there. It’s across the board.

 

Dean Reuter:  Starting to get some questions in the Q&A. And I’ll remind the other guests to put their questions there, the Q&A at the bottom of your screen. In terms of the balance between the patent owners and those who want to license it or use the patent, can you say just a little bit about -- I’m under the impression that the patent owners, if it’s a standard essential patent—if it’s essential, like the shape of this USB cord—the owner of the patent has some obligation to deal fairly with people that want to use that standard essential patent. Is that correct? And what does that look like? And what does that do in terms of the balance of power between those two entities?

 

Andrei Iancu:  That is correct, except for your example. It is driving me crazy. Like, with every new phone I buy, I have to buy a different plug. I really wish that that would become standardized just from the convenience point of view. But it is true for the phone, like in how the phone transmits so that I can type a text in here, and it shows up on your phone no matter what your phone is, basically. Right?

 

Dean Reuter:  Yeah.

 

Andrei Iancu:  So, yeah. So once a standard is adopted, you have an obligation—the patent owner for the technology and that standard—you have an obligation to deal fairly with the implementers of that technology. So what the requirement is, is that if you’re a patent owner on that technology, is that you license it out on fair, reasonable, and nondiscriminatory terms. It’s called FRAND—fair, reasonable, and nondiscriminatory terms. You have to engage in a negotiation, and you cannot deny a license if the license is on fair, reasonable, and nondiscriminatory terms.

 

So there are two terms that are being used in this area. One is called “hold up.” So the patent owner is not permitted to “hold up” the implementation of that standard once that standard is adopted. So just because I have a patent, I cannot say, “Too bad. You’re excluded no matter what you’re offering me. You’re excluded because I don’t like you.” I cannot hold you up if you’re offering me a fair response—a fair license.

 

On the other side of this, the implementer can “hold out.” Okay? And they should not be allowed to do that either. So what does that mean? So an implementer can say, “Look, I’m going to practice your standard anyway, and I’m not paying you no matter what. You want a dollar a unit? I’m going to give you no more than a penny a unit, and I don’t care because I’m big. I’m a big implementer. I’m a big manufacturer of phones,” for example, or whatever. “So I don’t care. So I’m going to ‘hold out,’ and if you want, you can sue me. It's going to take you millions of dollars to prosecute that lawsuit. It will take you years to prosecute that lawsuit, and then we’ll see what happens at the end. And if I lose, I’ll just pay you then.” That’s called “hold out.” So that’s the balance that we must ensure. As policymakers, we must ensure that that balance is appropriately stricken so that you don’t have either “hold out” or “hold up.”

 

Dean Reuter:  Yeah. And you can see the importance immediately of an injunction in that process in terms of letting the time -- clock continue to run while somebody’s practicing the patent. Let me go to the Q&A here. Again, if you have a question, use the Q&A function at the bottom of your screen. This is, I think, a pretty fundamental question. I probably should have asked it earlier, but what role does the government play in selecting standards? Does the government play a direct role or is that the industry players that actually set the standards?

 

Andrei Iancu:  So in the United States, it’s private industry usually that sets the standards. Now government does play a role in participating in many of the standards development committees. NIST, the National Institute of Standards and Technology, a division of the Department of Commerce—an agency of the Department of Commerce—has the lead -- the government lead on that. So they participate. They can organize. They can incentivize. But the private companies are the ones that develop that technology and come to the meetings and present that technology for adoption by the standards-setting organization. Now that’s in the United States. That’s not true in China, obviously. Now, the Chinese -- it’s a centralized system, so the Chinese government has a much heavier role. They can dispatch lots of companies, lots of technologies, lots of engineers to these meetings. So the meetings many times are unbalanced as a result.

 

Dean Reuter:  Good. A second question from the audience, and that’s asking you to comment further on the effects of the monetary incentives for standards-based innovations when the ability to obtain an injunction is removed such that only monetary damages—money damages—are available and vice versa. What are the power dynamics there?

 

Andrei Iancu:  Yeah. Okay. So look, here’s the main argument on the other side. The other side, who is opposed to injunctions, they argue the following. They say that the patent owner is obligated to provide a license on fair, reasonable, and nondiscriminatory terms. You’re obligated to provide a license to those who want to implement the technology, which is true. So they say it’s just a question of money. By definition, once your technology has been adopted, you have accepted -- a patent owner has accepted that they will license out the technology. You have promised not to hold people out—to lock people out—and to allow them to practice because that’s why you’re contributing your technology to the license, and that’s the quid pro quo. So it’s just a question of money, and that means what is a fair, reasonable, and nondiscriminatory license? That’s all that matters. That’s all that matters. So you should not be entitled to obtain through judicial proceedings that that you cannot obtain on your own through negotiations. So you should not be allowed to have a court lock somebody out if you yourself cannot lock somebody out. That’s the argument.

 

Dean Reuter:  Yeah.

 

Andrei Iancu:  The problem with that argument is that that leads to perverse incentives and really bad behavior. So if I’m an implementer and I know for a fact that I can never be locked out either by the patent owner or through the court no matter what I do, and I know for a fact that worse comes to worst, at the end of the process here -- so you sue me, take five years, spend millions of dollars -- but worse comes to worst, at the end of that process, I’ll just have to pay the money damages that I would have paid anyway, why not take a chance every single time? Not pay—in other words “hold out—” not pay and litigate. Maybe I win, and if I don’t win, I’ll owe the same thing I would have owed five years ago anyway. So you have -- you want to make sure that you don’t have a system that creates these perverse incentives. So now, if an implementer holds out and behaves in bad faith during the FRAND negotiations, well, then perhaps FRAND doesn’t apply at all. If the implementer says, “I understand that you have to license it to me on FRAND terms, but I’m rejecting the FRAND framework.” Then, all of that is out, and now we are in regular patent terms—patent policy terms. So then, all the remedies, including an injunction, should apply.

 

Dean Reuter:  Interesting. Interesting. So referring now to -- that brings us up to the present day, I think, a little bit. With regard to the comments—I don’t know if you’ve had a chance to look at them; they haven’t they haven’t closed that long ago—but comments on the new proposal. How is industry lining up? Who are the pros, and who are the cons in favor of injunctions versus opposed? And has that changed at all in the different iterations of this policy? You mentioned it started in 2013, and then you guys did something in 2019, and now we have another revision. And in answering that, I’ve always been taught that business really hates uncertainty of all forms. And to me, if you’re flip-flopping -- I don’t want to say flip-flopping, but if you’re going in different directions in one administration and then reversing course and reversing course again, to me, that sounds like uncertainty. So if you could address that whole batch of issues as you answer.

 

Andrei Iancu:  Yeah. There’s a host of issues there, Dean. So the last point is very important, which is -- patents are a form of property. And it’s an investment mechanism. It’s an investment tool. I’ve always said—I agree with you—that consistency of that monetary tool is really important in patents, just as it is for the dollar. Imagine if the dollar had one value in one administration and a completely different value in a different administration. Now, of course, the dollar varies with inflation and whatnot, but we can see how destabilizing high rates of inflation is even there. But if you’re going to completely flip-flop, that can cause serious problems. People need to know how to invest. Patents last 20 years from the date of filing. That’s a long time. You need to know where to put your money to build technologies around it. You need to which -- you need to know how to avoid technology if you’re certain patents in -- if you’re on the implementer side—critically important.

 

So we had the policy in 2013. We corrected it in 2019. We corrected its understanding in 2019, and we didn’t reject the 2013 policy. What we said was that it was misunderstood and misapplied, and I firmly believe that that’s true. And we corrected it to its original intent because remember, even the 2013 policy statement said that the injunctions are appropriate if in certain circumstances. And now, not even two years later, they want to change it again. And where’s the evidence? Is there some documented evidence that the 2019 policy is not working out? That patent owners are behaving in predatory ways with “hold up” situations? Where is the evidence? The 2021 proposed policy is silent on any evidence of nefarious conduct. It just makes an academic presumption that there could be, but there is no actual evidence.

 

So if you’re going to engage in the policy flip-flop, you have to demonstrate that there is a critical need for that change. And that hasn’t been shown here. And to be frank, I would say that if we’re going to flip-flop again—if we’re going to change the policy again—within two years, then might as well just abolish it completely—have the government get out of this whole business. because -- look, for the longest time we didn’t have a policy. As I said, until 2013 we didn’t have a policy. So if we’re going to have a policy, it’s got to be more stable. But if we cannot get ourselves to have a stable policy, then we might as well have the government out of it completely. To the rest of your question -- what’s the lineup in industry? Well, look, as you would expect, generally speaking, large implementers of technology -- so those that, on balance, implement more than innovate for standards-based technologies—want a change, and they do not want injunctions at all or ever.

 

So if you look at the hundreds of comments that have come in in February, what you basically see -- and I’m generalizing a little bit, but what you basically see are the large, big tech companies in favor of the 2021 proposal -- their industry groups as well—so industry groups that are driven by the large, big tech companies. There are some automobile companies there as well because automobiles, to some extent, are big computers on wheels nowadays -- and China. Believe it or not, some Chinese IP association or the Chinese Patent Lawyers Association put in a comment favoring the 2021 policy. So what you basically have is big tech and China in favor of this. I actually had to double-check the Chinese entry. I thought it was a joke that actually -- that somebody was kidding when they told me that the Chinese put in a comment in favor of this. But no, it’s true. So that’s who you have in favor.

 

On the other side, you have companies that, on balance, innovate more than they implement—that get more patents than they use. So you have a lot of small and medium enterprises that depend heavily on IP because, if you’re a startup or a small or medium company, in order to compete, you really need IP -- so more of them against the statement. Large innovators are against the statement. Many, many former government officials are against the 2021 statement. And in fact, I was a signatory to a statement where I was joined by my predecessors in the Obama administration—so both at PTO, NIST, and DOJ. So that statement opposing the 2021 position was myself -- so all the PTO heads from Obama and Trump, all the NIST heads from Obama and Trump and then one head of DOJ antitrust from Obama and one head of DOJ antitrust from Trump—so eight of us all against, nobody in favor, no former official in favor. We have four senators -- or three senators, I think -- I think three senators against—so Senator Tillis, Coons, and Hirono. No senators in favor. There were four members of Congress from California in favor of the ‘21 statement. So folks who represent the districts generally from where big tech comes from. So it makes some sense there. So that’s generally the lineup. But there’s hundreds of comments. So I’m overgeneralizing a little bit.

 

Dean Reuter:  Yeah. So now, in terms of next steps, going forward, how are these comments incorporated into anything that becomes the final work product? And actually, before we go there, let me ask you about the former officials. I’m intrigued by that—that there are eight former officials at those levels through the Obama administration and Trump administration who seem unanimous in this versus, I suppose, three current officials who head each of these agencies. Has there been a change? I mean, I know there’s been a change in personnel at the top, but has there been a change in the environment that would indicate this is needed? And what can you say about those officials who are putting this forward?

 

Andrei Iancu:  Yeah. So first of all, there’s -- only one of those three agencies have a confirmed political appointee at this point. So only the head of the Department of Justice Antitrust Division has been appointed by President Biden and confirmed by the Senate. The heads of PTO and NIST have been nominated but not yet confirmed by the Senate. So they’re not in their seats, and they have not yet contributed to the statement. So this was one of the big concerns that we mentioned in our -- the former officials mentioned in our statement. You’ve got to give time for the appointed experts to be in their seats and contribute their expert views. Right? The head of the -- the undersecretary for IP is not there. So there is no IP view represented from a political nominee yet. Same thing from the standards -- so this is standard essential patent. So the head of the Standards Organization is not yet confirmed, and the head of the Patent Organization is not yet confirmed. Yet --.

 

Dean Reuter:  Can I ask -- I think you’ve answered this question, but if they’re not yet confirmed even though they’ve been nominated, they’re prohibited from participating in this process.

 

Andrei Iancu:  Right.

 

Dean Reuter:  So it’s not as if they’re informally giving their input. Is that correct?

 

Andrei Iancu:  Yeah. No. Well, they could’ve theoretically commented like every other -- they’re just a regular citizen but, they have been silent obviously.

 

Dean Reuter:  So is this being driven -- then, I guess the head of the Department of Justice Antitrust Division who has been confirmed -- are they the big dog in this new proposal? Are they the ones driving it? Is it supported by staff at PTO and NIST? Or what are they -- what are your insights there as to why this is moving forward? In the process itself, has there been a declamation of the need for this on such a, I guess, accelerated time frame or however you describe that?

 

Andrei Iancu:  Look, I don’t want to speculate. I don’t really know exactly the inner workings, obviously, since I’m a private citizen now. But you can read between the lines like everyone else. There is one political appointee here that, of the three, the other two are currently being led by career officials. But the bigger picture here, Dean, is that this is the result of an executive order from the white house. So as I mentioned at the top of the hour, the antecedent basis of this was an executive order from President Biden that was billed as a pro-competitive executive order—in other words, as an executive order that is meant to increase competition in the United States and to reign in the monopolistic tendencies of big tech companies. And there are many provisions in the executive order. This one on standard essential patents is just one small component of the much bigger executive order. What’s really interesting, though, is that this portion of the executive order on standard essential patents would have the exact opposite effect of what is intended by the overall theme of the executive order. If the Biden administration wants to reign in big tech and their monopolistic tendencies, they should ask themselves, why is it that it is basically only big tech companies and their surrogates that—and the Chinese patent system—that is supporting their proposed change?

 

Dean Reuter:  That’s interesting. Can I ask two factual questions? The number of the executive order, if you know that off the top of your head, which executive order it is -- if you don’t -- how explicit is this -- you mentioned this phrase that’s being used to push this policy forward. I mean, does it say, “Revisit the injunction policy. Revisit the 2019 statement.” Or is it more broad than that?

 

Andrei Iancu:  I, unfortunately, don’t know it. I’m sure I can find it easily. But I’m reluctant --

 

Dean Reuter:  It’s okay.

 

Andrei Iancu:  -- to do it while I’m talking to you. But it’s not that specific. Frankly, it just says that it directs the Department of Justice and the Department of Commerce—so basically, where the three agencies are located—to take a look and assess whether a change is needed.

 

Dean Reuter:  Okay.

 

Andrei Iancu:  It doesn’t say you must make the change.

 

Dean Reuter:  Got it.

 

Andrei Iancu:  And frankly, I would urge the three agencies, in light of the comments that have been received, to think carefully and proceed with extreme caution before effecting a change. And at the very minimum, I urge the three agencies to wait for the political appointees at the PTO and at NIST before they effect a change on such important issues. Look, it is exactly right now when we are feeling as a nation the importance of US-based innovation. It is exactly right now when we feel what it means to be dependent on the supply of critical technologies, such as semiconductor chips and so many other things, on foreign nations. This is right now when we have to all say to ourselves, especially our policymakers, what can we do to increase innovation in the United States?

 

And to the leaders of the three agencies, I say, listen to the experts. It is not a coincidence that all of the PTO heads from both Obama terms and Trump, all of the NIST, all of the standards heads—all of them from Obama, two terms, and Trump—and two of the DOJ folks, bipartisan, all of us think that this would be a grave mistake. And by the way, there was another statement that was put out through CSIS, The Center for Strategic and International Studies—a think tank, bipartisan think tank in Washington—that has a bunch of other officials—former officials—there from the national security parts of the administration. They are all opposed and urging extreme caution here, and there is none of them on the other side in support. Folks in the current administration should ask themselves, “Why is this the lineup? Why is it that their proposal is being supported by big tech and China, yet it is opposed by all the former experts in bipartisan administrations on these issues?”

 

Dean Reuter:  Yup. So I heard you urge them to wait for the confirmation of the other two officials. What are the next steps in terms of timing? Is it possible just to shut down the -- I suppose the government could, at this point, do nothing, or they could revise, based on comments, or they could go forward. And I did hear you urge they at least hold this in abeyance. But can you talk about the next steps going forward?

 

Andrei Iancu:  Yeah. So one thing would be for the government to do nothing, which means, de facto, you’re leaving in place the 2019 statement, which is working just fine. There are no -- there’s no evidence, as I said, and the stated 2021 proposal does not cite any evidence, that there is some breakdown in the system. By the way, the 2019 statement is in line with our European trade partners and Asian trade partners. The modern free-market economies have policies on standard essential patents that are similar to the 2019 position. And other countries are moving in that same direction. So one option would be just let it be. It seems to be working just fine.

 

Dean Reuter:  Yeah.

 

Andrei Iancu:  At a minimum, wait for the new folks to be confirmed—the experts—and then, have another discussion and see if the 2021 draft can be -- if you’re going to make a change, at least make some amendments to what you have proposed.

 

The third option, Dean, is for the government to say, “We’re pulling out completely. We’re going to pull out the 2019 statement but not put the new one in.” That’s another option, and a few of the comments suggest that. They say that if you’re going to -- if you don’t like the 2019 statement, just get out of it completely because we as an industry, some of the comments say, we cannot make business decisions if you’re going to make changes this often.

 

Dean Reuter:  Yeah.

 

Andrei Iancu:  Let me mention one more thing. The 2021 statement, in addition to effectively prohibiting injunctions, has lots of other problems. One of them is that it prescribes a framework for negotiations between the patent owners and the patent -- and the technology implementers to arrive at an appropriate license agreement. Think about it, the government, okay—and by the way, effectively unelected officials, okay—is issuing -- prescribing to industry -- to the experts in industry, a framework. I say and the comments -- the formal comment that the former officials put in -- we say, let industry dictate how it should negotiate. They know best. And it’s different from company to company. It’s different from industry to industry. How you negotiate in the telecom industry, like 5G, is going to be different from how you negotiate in video transmission industries, for example. The dynamics are different. The players are different. The international participants are different. Why would government prescribe a rigid framework is beyond me. So at a minimum, if you’re going to make a change, at the very, very minimum, you’ve got to take that out and let industry run its own business.

 

Dean Reuter:  Interesting. I don’t see any more questions in the Q&A from our audience. We’ve got a few minutes left. So before we call the curtain on this, I want to give you a minute or two to wrap up and express any final thoughts. You’ve been pretty clear so far, but take a minute or two and wrap up if you could.

 

Andrei Iancu:  Absolutely. So look, I believe very strongly that intellectual property protections are key to innovation in general but in particular for innovation in standards-based technologies. For intellectual property to be successful, it must be predictable, it must be reliable, and the system needs to avoid the ups and downs that are being suggested here. In addition, intellectual property protections to be effective, they need to be meaningfully enforceable, otherwise it is just a nice piece of paper with a beautiful ribbon from the patent office that might decorate your office. Other than that, in order to have a meaningful property right, you need to be able to enforce it, and you need to be able to enforce it against people who are violating that intellectual property rights. The US government cannot have a policy that removes all the teeth from its intellectual property system because, at that point, you might as well not have a system altogether. And that is something the United States categorically cannot afford. So with that, as I said earlier, I very much urge the three agencies to think carefully. Listen to industry. Listen to experts. And wait for the experts in the particular agencies who are responsible for these issues.

 

Dean Reuter:  Terrific. Well, great program, Andrei. I thank you for your time and for your thoughtfulness on this. It seems like a sort of first-year law school notion that a right without a remedy really isn’t much of a right at all. So I appreciate you shining some light on this. Look forward to having you back on a future program. We will post this online for people who want to revisit it and circulate it. My thanks to Andrei Iancu for his time. I also want to thank the audience for their time and for their questions. A reminder to our audience to check your emails and our website for upcoming programs which will happen probably later today. I haven’t looked myself, but until the next program, we are adjourned. Thank you very much, everyone.

 

Andrei Iancu:  Thank you all.

 

[Music]

 

Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at fedsoc.org.