Patent-Based Gadget Bans do More Harm than Good, Says FTC

By Steve Anderson June 07, 2012

A surprising note of support for companies facing bans on their products over patent issues came from the Federal Trade Commission, who issued urgent remarks to the International Trade Commission earlier this week that banning gadgets for sale over patent issues does more harm ultimately than good to the marketplace.

The FTC's remarks went on to elaborate that when gadgets are banned from markets because of patent issues the ban has the “potential to cause substantial harm to U.S. Competition, consumers, and innovation.” Considering that Microsoft's Xbox 360 console is facing full bans over what are called standards-essential patents, the word from the FTC arrived at a very good time for Microsoft indeed.

But the implications of such a banning were actually worse, according to the FCC, as they noted that a full ban on Xbox could actually spawn more patent lawsuits, increase royalty rates to unreasonable levels, and end up ruining patent license agreements that make sense for everybody. The patent license agreements in question often revolve around what's known as FRAND—Fair, Responsible And Non-Discriminatory—licenses on technology that represents things like industry standards that everyone needs in their devices, but in which one company controls access to them.

Under FRAND terms, the company that controls access to the technology charges a small fee to access said technology, and keeps that fee small for everyone, even rivals in the industry.

Whether or not a technology should fall under FRAND principles is the sticking point in several lawsuits currently being waged, including the Samsung / Apple suits. More companies are pledging to stick to FRAND principles, but the execution is falling apart and leaving those companies that control FRAND technology demanding import bans on hardware that contains said technology whenever a rival doesn't agree to the licensing terms. Motorola, by way of example, reportedly demanded $4 billion per year from Microsoft to use its FRAND technology in its Xbox consoles.

At stake here is a disturbing sort of catch-22 of conflicting issues. Companies that develop a technology should have every right to disseminate the technology as they please. But at the same time, allowing them to use said technology as a weapon to keep other firms out of the market—especially those firms that are in direct competition on some products—is a disheartening practice to say the least. Much like the FTC says, it reduces competition in the open market which is worse for the consumer. But then, putting extra government regulation on businesses is also worse for the consumer as it removes more of the incentive to develop technology in the first place. Less technology means, once again, less choice for the consumer.

The solution to this problem is not immediately known, but any measure that supports the consumer is a good place to start. Requiring businesses to stick more closely to FRAND standards provides more options for consumers and gives us all access to those products we crave.

Edited by Carrie Schmelkin

Contributing TechZone360 Writer

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