Proposed Australian Competition and Consumer Commission Guidelines on the Repeal of Subsection 51(3) of the Competition and Consumer Act 2010
July 19, 2019Mr. Parnos Munyard
Advocacy and Law Reform
Australian Competition and Consumer Commission
Re Comments on the Australian Competition and Consumer Commission’s Draft Guidelines on the Repeal of Subsection 51(3) of the Competition and Consumer Act 2010
Dear Mr. Munyard,
The Australian Competition and Consumer Commission (ACCC) has invited public comments on its Draft Guidelines on the Repeal of Subsection 51(3) of the Competition and Consumer Act 2010.1 I respectfully submit my comments concerning the Draft Guidelines.
My name is J. Gregory Sidak. I am the chairman of Criterion Economics, LLC in Washington, D.C. I am also a founding editor of the Journal of Competition Law & Economics, published quarterly by the Oxford University Press since 2005, as well as the publisher and editor of the Criterion Journal on Innovation, which I founded in 2016. For 38 years, I have worked at the intersection of law and economics in academia, government, and private practice. As an expert economic consultant, I have served clients in the Americas, Europe, and the Pacific. I have worked extensively in the area of antitrust and patents. I have testified as an economic expert on issues regarding fair, reasonable, and nondiscriminatory (FRAND) licensing of standard-essential patents (SEPs) in various legal proceedings, I have published numerous academic articles on these topics, and I have presented my research at major universities and international conferences. I have also served as Judge Richard Posner’s court-appointed neutral economic expert on patent damages in the U.S. District Court for the Northern District of Illinois. With respect to this submission, I do not represent any party, and I have no economic interest in the repeal of Subsection 51(3).
In its Draft Guidelines, the ACCC provides no analysis of no-challenge provisions, nor does it mention the potential effects of no-challenge provisions on the licensing of SEPs that a patent holder has voluntarily committed to a standard-setting organization (SSO) to offer to license on FRAND terms (or on reasonable and nondiscriminatory (RAND) terms, as the case may be) to a third-party seeking to implement the standard.
In the enclosed article, Evading Portfolio Royalties for Standard-Essential Patents Through Validity Challenges,2 published in 2016 in the Kluwer Law journal World Competition, I analyze the marginal benefits and the marginal costs that eliminating no-challenge provisions would generate for consumers. I conclude as follows:
Economic analysis does not support the assumption [that] . . . encouraging a licensee to challenge the validity of licensed SEPs always benefits consumers. On the margin, once an implementer becomes a licensee of the SEP holder, often as part of a settlement of patent-infringement litigation, the licensee derives no legitimate benefit from thereafter challenging the validity of a given SEP in a licensed portfolio of substantial scale. Nor do consumers derive any marginal benefit. On the other hand, the licensee’s validity challenge does impose a significant marginal cost on the SEP holder if the challenge is intended merely to delay the licensee’s payment of the agreed-upon portfolio royalty for the licensed SEPs. Opportunistic litigation of this sort also imposes a marginal cost on consumers because, by denying the SEP holder fair and timely compensation for the use of its SEP portfolio, such litigation reduces the SEP holder’s incentive to keep investing in innovation and participating in collective standard setting. To protect consumer welfare, regulators should require that any policy that encourages a licensee to challenge the validity of SEPs within a large portfolio contain safeguards that will prevent the licensee from opportunistically evading payment of the agreed-upon portfolio royalty.3
I therefore respectfully caution the ACCC against concluding that all no-challenge provisions “involve a licensor seeking to gain an advantage that is collateral to the relevant intellectual property rights.”4
J. Gregory Sidak
Chairman, Criterion Economics
1. Australian Competition & Consumer Commission (ACCC), Guidelines on the Repeal of Subsection 51(3) of the Competition and Consumer Act 2010 (Cth) (June 2019), https://www.accc.gov.au/update/accc-releases-draft-guidelines-on-repeal-of-subsection-513-of-the-cca.
2. J. Gregory Sidak, Evading Portfolio Royalties for Standard-Essential Patents Through Validity Challenges, 39 World Competition 191, https://www.criterioneconomics.com/evading-portfolio-royalties-for-standard-essential-patents.html.
3. Id. at 211.
4. ACCC, Guidelines on the Repeal of Subsection 51(3) of the Competition and Consumer Act 2010 (Cth), supra note 1, § 3.15.