As former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law, we write to express our support for the Avanci business review letter issued by the Antitrust Division of the U.S. Department of Justice on July 28, 2020 (the “2020 business review letter”). The 2020 business review letter represented a legally sound and evidence-based approach in applying antitrust law to innovative commercial institutions like the Avanci patent pool that facilitate the efficient commercialization of new standardized technologies in the fast-growing mobile telecommunications sector to the benefit of innovators, implementers, and consumers alike.

Read the full letter here.

Interest of Amici Curiae

Amici curiae are seventeen law professors, economists, and former government officials with expertise in antitrust, patent law, and law and economics. Their work has appeared in the American Economic Review, the Journal of Law and Economics, the Yale Law Journal, and the Harvard Law Review, among others, and collectively has been cited more than 16,000 times. As scholars and former public servants, they have an interest in promoting the coherence and development of legal doctrines consonant with sound economic principles and in ensuring that both consumers and the general public benefit from new inventions and technologies. They have no stake in any party nor in the outcome of this proceeding. Amici write to serve the Commission and the public interest by elaborating the legal and economic principles that frame this dispute. The amici and their affiliations are listed in the Appendix.

Introduction

This case presents a complex set of transactions whereby Illumina, Inc. (“Illumina”) created GRAIL, Inc. (“GRAIL”), spun it off while retaining a minority interest, and now has reacquired it. Complaint Counsel seeks to unwind this recent reacquisition. But as Chief Administrative Law Judge D. Michael Chappell’s Initial Decision (“ID”) recognized, vertical mergers are structurally distinct from horizontal mergers. Horizontal mergers carry inherent risks of anti-competitive effect; vertical mergers, by contrast, often offer procompetitive benefits. (See ID 169.) Unwinding this transaction would set a dangerous precedent by deterring innovative companies like Illumina from developing and commercializing new products or, at a minimum, restricting consumers’ access to those products. Antitrust enforcers should be held to a higher burden before risking such market disruptions.

An overbroad presumption against vertical mergers—of the type Complaint Counsel advocates here—is particularly inappropriate in the complicated institutional landscape of biopharmaceutical markets, especially those still in their infancy. Here, for example, it is difficult to predict how the market for Multi-Cancer Early Detection Tests (“MCEDs”) will operate, particularly when true alternatives to GRAIL’s products from other producers are still years away. (See ID 143.) Given the singular importance of capital investment in developing, testing, and commercializing MCEDs, the risks to consumers of blocking such investment are particularly high. Accordingly, courts have refused to enjoin vertical mergers without compelling, concrete evidence that a vertical merger is likely to harm competition to a substantial degree. See, e.g., United States v. AT&T, Inc., 916 F.3d 1029, 1032 (D.C. Cir. 2019). Scholars and courts alike have recognized that the efficiency gains from vertical mergers make it impossible to treat this class of transactions as presumptively anticompetitive. As Judge Chappell acknowledged, challenges to vertical mergers require a more fact-intensive inquiry. (ID 168-69.)

Nor should a company’s self-imposed restraints, such as Illumina’s Open Offer, be discounted in the way that Complaint Counsel advocates. (See Complaint Counsel Br. (“CC Br.”) 35.) The Open Offer is a market fact, not a legal remedy, and implicates Complaint Counsel’s prima facie case. Market participants should be encouraged to structure their operations ex ante to avoid potential anticompetitive effects. When markets are new and incentives are speculative, the Commission should not presume that a company in a vertical merger would breach its contractual obligations, especially when there are clear performance metrics that are easily monitored and enforced by the relevant parties.

The potential costs of preventing vertical mergers are high, as experience in emerging-technology markets amply demonstrates. Given the ultimate benefits to consumers, the Commission should be wary about importing the strong presumptions from horizontal-merger law and upsetting a model of spin-off and reacquisition that offers significant procompetitive benefits to consumers.

Read the full brief here.

Abstract

This comment by 25 law professors, economists and former United States government officials was submitted to the European Union Commission in response to a “call for evidence” on the licensing, litigation, and remedies of standard-essential patents (SEPs). It details the principal concepts and substantial evidence relating to the constructive role of SEPs in efficiently promoting innovation and structuring commercialization activities in high-tech devices generally and the mobile revolution specifically. It also addresses widespread misunderstandings and misstatements about the commercialization and litigation of SEPs. It broadly makes three points.

First, in contrast to the evidence of the positive role of SEPs in promoting innovation and commercialization in wireless technologies, no published empirical study has found evidence of the predicted marketplace effects of “holdup” or “royalty stacking” theories, such as higher prices, less innovation, and less market competition in smartphones. Second, contrary to claims by some commentators that courts do not issue injunctions for the infringement of SEPs, the comment reviews some representative decisions from the substantial case law in Europe in which SEP owners have requested or obtained injunctions against implementers engaging in holdout tactics. Third, it explains how courts have consistently held that the fair, reasonable, and non-discriminatory (FRAND) commitment by SEP owners does not mandate a “license to all” rule nor that reasonable royalties be calculated according to the “smallest salable, patent practicing unit” (SSPPU) standard. These court decisions are consistent with the economic function and evidence of SEP licensing on FRAND terms.

The mobile revolution has created unparalleled economic and technological growth over the past three decades. So long as courts provide robust enforcement of intellectual property rights, and do not impede the licensing and other contracts predicated on those rights, there is every reason to believe that the mobile market will continue to thrive. The comment concludes with an Appendix listing the substantial, published literature addressing both the success of the SEP-based sector of the global innovation economy and the numerous substantive and methodological flaws in “holdup” and “royalty stacking” theories.

Abstract

This comment by 27 law professors, economists and former government officials was submitted to the Department of Justice in response to a call for comments on a draft policy statement on standard essential patents (SEPs). Although the draft policy statement is right to seek a “balanced, fact-based analysis [that] will facilitate and help to preserve competition and incentives for innovation and continued participation in voluntary, consensus-based standard-setting activity,” the comment identifies how its proposals fail to accomplish this goal. First, the draft policy statement fails to account for the extensive scholarly research and rigorous empirical studies identifying numerous substantive and methodological flaws in the “patent holdup” theory, including its failed predictions of high prices, less innovation, and less market competition; instead, a growing mobile communications marketplace has existed for several decades. Second, the draft policy statement micro-manages the negotiation and litigation process for SEPs, which would make injunctions and exclusion orders at the International Trade Commission a de facto nullity for SEPs. This special rule effectively prohibiting injunctions contradicts repeated court decisions in both the U.S. and Europe concerning the general availability of all patent remedies for SEPs. Ultimately, the draft policy statement incentivizes strategic holdout by implementers and de facto prohibits injunctive relief for ongoing infringement of an SEP by an unwilling licensee. This would harm U.S. innovators facing increasing economic and strategic competition from China. It also threatens U.S. economic leadership and its national security, which contradicts the expressly stated goal of President Joseph Biden’s Executive Order, the progenitor of this draft policy statement, of “preserving America’s role as the world’s leading economy.” Thus, the 27 legal academics, economists, and former government officials urge the agencies to reconsider its draft policy statement on SEPs. The comment includes an Appendix of the literature on the licensing and enforcement of SEPs.