The Biden Administration's Confusion on Big Tech
Even as bipartisan support grows in Congress for legislation aimed at curbing the economic power of Big Tech, the Biden Administration’s Department of Justice, with tacit support from the U.S. Patent & Trademark Office (USPTO) and the National Institute of Standards and Technology (NIST), is trying to push through a shift in policy that would increase significantly the ability of those same technology giants to thwart competition from smaller innovators and competitors. This bizarre anomaly came at a time when there was not even a Senate-confirmed leader at USPTO or NIST, suggesting that the real push may be coming from the White House and is more about politics than substance.
The proposed directive would implement a policy, long-sought by Big Tech, limiting the legal tools available to competitors to enforce their intellectual property. It first appeared as part of an Executive Order signed last July, at a time when none of the three agencies had a confirmed leader, and has been further advanced in a recently published request for comments on a so-called “policy statement” intended to govern negotiations between private companies about royalties that inventors can request for the use of patents on inventions they contribute to industry collaboration groups that define “standards.” These are often referred to as “standard essential patents” or SEPs. The administration’s proposal would make it nearly impossible for companies whose patents are part of these standards to seek an injunction when competitors infringe them. The outcome of this new policy directive would be to allow some of the largest companies in the world — particularly Big Tech companies — to more freely infringe SEPs from innovative startups.
By contributing patented technology to the development of a standard, inventors are compensated by licensing income from other participants. To make certain that royalty demands are reasonable, SEP holders must agree to license their patents on “fair, reasonable, and non-discriminatory” terms. Normally, license royalties (in effect, rent for using the innovation) are set through arms-length negotiations between the owner of the SEPs and companies that want to use the standard for their products. In those few instances where the parties are not able to agree on a royalty, they can ask a court to resolve their differences. The administration’s new policy directive would make it much easier for large companies to game this process and avoid paying royalties for the use of SEPs owned by inventors and startups. It does this by limiting the ability of SEP owners to ask courts to stop the use of their inventions while large companies stall for time, pretending to negotiate while they build profitable businesses around infringement of others’ patents. In most cases, injunctions (court orders against infringement) are the only meaningful tool that inventors have to enforce their patent rights, because few small companies have the resources to endure months or years of expensive litigation to recover a small percentage of the value of their asset being used by a large technology company. Without any risk of an injunction, the worst-case scenario for Big Tech is that they may have to pay some money some day in the future, if the inventor can survive getting through trial and appeals. And once one company infringes an inventor’s patent with no penalty, that invention is devalued and it becomes more difficult for the inventor to negotiate fair licensing arrangements with other companies.
Not surprisingly, the administration’s proposal has generated an outpouring of opposition from a wide range of stakeholders and experts — including three members of the Senate Judiciary Committee and numerous former U.S. officials — expressing genuine concern about the threat to fair and open competition and to our nation’s innovation goals posed by the proposed policy directive. We can only hope that decision makers within the Biden administration will take the time to review the hundreds of comments filed, reflect on the expertise of those that submitted them, and think in terms broader than just what is best for the largest technology companies who dislike paying for the use of others’ innovations. Otherwise, all of the talk we hear about decreasing the economic power of Big Tech is just noise and our country’s global technological leadership and competitiveness will be dramatically undermined.
Bob Pavey, a venture capitalist since 1969, is a founding partner of Morgenthaler Ventures, a former president of the National Venture Capital Association, and a long-time venture investor in technology startups.
