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Comment on the Japan Fair Trade Commission's Draft Partial Amendment to the Guidelines for the Use of Intellectual Property Under the Antimonopoly Act

This comment is submitted in response to the Japan Fair Trade Commission’s (JFTC’s) request for public comments on the Draft Partial Amendment to the Guidelines for the Use of Intellectual Property under the Antimonopoly Act (Draft Amendment). The Draft Amendment specifies that seeking injunctive relief to enforce a standard essential patent (SEP) encumbered by a commitment to license on fair, reasonable, and nondiscriminatory (FRAND) terms against a party that is willing to take a license on FRAND terms “may” constitute an unlawful exclusion of business activities in violation of Article 3 of Japan’s Antimonopoly Act (AMA) (Draft Amendment Part 3(1)(e)) or an unfair trade practice in violation of Article 19 of the AMA (Draft Amendment Part 4(2)(iv)). The Draft Amendment is premised upon the assumption that seeking injunctive relief “generally makes it difficult to research & develop ... products adopting the standards,” which in turn deters widespread adoption of standards. This assumption lacks empirical support. Further, as we explain, ordinary contract law makes an AMA sanction unnecessary to deter any instances of anticompetitive patent holdup that might arise; indeed, an AMA sanction is likely to reduce incentives to innovate and deter participation in standard setting, thereby depriving consumers of the substantial procompetitive benefits of standardized technologies. For these reasons, we respectfully recommend that Parts 3(1)(e) and 4(2)(iv) be deleted in their entirety. Should the JFTC decide to retain these provisions, however, they should at the very least be amended to limit liability to situations when there is proof that a FRAND-encumbered SEP holder has engaged in patent “holdup,” i.e., that the patent holder used the threat of injunctive relief to demand supra-competitive royalties.