FTC Must Protect New Entrants From Anticompetitive Patent Infringement Suits
Apr 2, 2019
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In a post last December, I pointed to Nielsen’s lawsuit against Sorenson Media as an example of how strategic patent litigation can significantly raise a rival’s cost. In 2016, Nielsen sued an upstart rival, Sorenson Media, which used screen tracking technology to compete against Nielsen. As my post lamented, we’ll never know if this litigation were meritorious because Sorenson declared bankruptcy while the suit was in progress. Getty
Subsequent events vindicated this analysis. In February, Nielsen, in order to consolidate its patent portfolio, acquired Sorenson in bankruptcy for $11.25 million. How can we stop this problem in the future? Only aggressive antitrust enforcement can protect against dominant firms, such as Nielsen, from using IP litigation to consolidate their monopolies or build their market power. Without stepped up antitrust enforcement, this type of strategic, business-destroying, and wasteful litigation will wreak havoc upon the knowledge economy. And, there is little doubt here that this suit reflected a strategic use of market power. After all, In 2011, Nielsen stipulated in court that it “exercises monopoly power over the television audience measurement services industry, both nationally, for the United States as a whole, and for 210 local markets.”
New technology poses the biggest threat to Nielsen’s monopoly. Reuters noted recently that Nielsen “faces competition from start-ups using automated content recognition (ACR) to track viewing habits via mobile devices and smart TVs.” Yet through a combination of mergers, litigation, and regulation, Nielsen is trying to nip competition in the bud. As the Second Circuit noted in SCM Corp. v. Xerox Corp , “Patent acquisitions are not immune from the antitrust laws. Surely, a § 2 violation will have occurred where, for example, the dominant competitor in a market acquires a patent covering a substantial share of the same market that he knows when added to his existing share will afford him monopoly power.” However, antitrust regulators have done little as Nielsen has acquired their few competitors and their patents. In 2014, Nielsen acquired Arbitron, another digital competitor. The FTC found that the “effects of the Acquisition, if consummated, may be to substantially lessen competition and tend to create a monopoly in the market for national syndicated cross-platform” due, in part, to its new patent portfolio. But, nonetheless, the FTC ultimately approved the merger. In 2016, Nielsen acquired Gracenote, one of its top competitors with ACR technology. Nielsen then used Gracenote to sue Sorenson for patent infringement. While the DOJ/FTC Antitrust Guidelines for the Licensing of Intellectual Property establish that patent abuse from “inequitable conduct that falls short of fraud under some circumstances may violate section 5 of the Federal Trade Commission Act,” the FTC will generally not take action against abusive patent litigation until after it’s been proven to be frivolous. Unfortunately, by that time, it may be too late. Parties have difficulty showing a patent suit is frivolous on its face, and in the case of Sorenson, it was bankrupted by the monopolistic plaintiff before the courts could make a judgment. Then, due to the Sorenson’s value decrease in bankruptcy, the acquisition merger slipped under the FTC’s review thresholds. Now Nielsen is once again using suing SambaTV--another small startup that uses new technology to challenge its dominance. As Alan Wolk noted in Forbes after the Samba lawsuit, “Nielsen has shown a proclivity as of late to sue companies in the smart TV and ad space.”
To be clear, I don’t have enough information to know if Nielsen’s litigation against Samba or Sorenson is frivolous. While I understand the FTC is not equipped to judge the merits of every IP action taken by a dominant firm before the cases resolve, this behavior shows that the agency needs to take some proactive steps to ensure that dominant firms don’t bankrupt their competitors through litigation and then acquire them—essentially escaping all meaningful review and oversight. Contributor
I am a law professor at Michigan State University and direct its IP, Information, and Communications Law Program. Previously, I served as an attorney with the Federal Co...