Not Our Cup of JOE

One part of the anticompetitive Verizon/cable transactions that has received less attention is the companies’ plans to create a Joint Operating Entity (JOE) to allow them to collaboratively develop new technologies “that will integrate wired video, voice and high-speed Internet with wireless technologies” for a seamless user experience.  While we’re all for “developing new technologies,” recent experiences have shown us how technology licensing can be used as an anti-competitive weapon.

Overall the JOE seems most like CableLabs—an organization that often develops non-standard “standards” that are widely used by its cable system members and are licensed on terms that serve their interests rather than the interest of the industry as a whole—or that can’t be licensed due to technical limitations. After all, industry likes control and uniformity that benefits it. This is why CableLabs, a consortium of cable operators, tried to impose OpenCable Application Program technology to access certain programming features to control the cable industry and harm manufacturer’s ability to create new technology. That attempt fizzled but in the mean time it froze other people from developing their own technology. This is also why AT&T and Verizon’s LTE 4G network prevailed over Sprint’s WiMAX 4G network. But Verizon itself has criticized CableLabs, calling it “an exclusionary body beholden to incumbent providers [with] every incentive to develop a standard that works only with the technology used by its members.”

Yet exclusion and uniformity are exactly what will happen if Verizon and the cable companies can implement JOE. Hawaii Telcom sounded the alarm because it believes Verizon and the cable companies will develop technology that is not compatible with its network or other companies’ networks.  And if Hawaii Telcom has the opportunity to license the technology, it might be on very onerous terms. But Hawaii Telcom is just one of many companies at risk, including bigger companies like AT&T, Sprint, T-Mobile, Dish, and DIRECTV. When companies team up, they have no incentive to share technology with the marketplace and instead try to control and compartmentalize the market. No amount of good faith will prevent this outcome given the amount of information the companies have already shared with each other. The CableLabs model should not be the future of research and development in this industry.

The “CableLabs model” is not the only way that technology licensing can be used anticompetitively—just look at the battles being fought throughout the tech industry, where a series of unsympathetic tech giants are all suing each other to gain dominance in new markets. For example:

  • Late to the market with its Windows Phone 7 platform, Microsoft has found another way to “compete”—it’s sued so many companies making Android devices (from phones to e-readers) that some have speculated it makes more money off Android than Google. Microsoft has also complained that Motorola Mobility and Google are not making other essential patents available on fair terms, instead charging about a thousand times too high a fee. 
  • In a rerun of its “look and feel” lawsuits of the late 80s and early 90s, Apple has sued its biggest hardware rival in smartphones, Samsung, for infringing various patents. Returning the favor, Samsung sued Apple for infringing patents related to wireless technology.  
  • Motorola would not make standard essential patent licenses available to Apple in Germany, instead demanding that Apple pull its gear off the market. (Because its patents were necessary to implement an industry standard, a German court found that Samsung had to license them at a reasonable fee to all comers.)
  • TiVo sued AT&T and Verizon over its DVR patents after suffering a drop in revenue, attempting to make up for losses and have investors recognize its patent portfolio.  The DoJ has taken notice of the widespread anticompetitive use of technology licenses, and recently gave Google a stern lecture stating that it “will not hesitate to take appropriate enforcement action to stop any anticompetitive use” of important patents. 

But it’s not as though Google, or Apple, or Samsung, or Microsoft are special cases. Lots of companies would rather compete in the courtroom instead of the marketplace or use technology licenses to disadvantage rivals. Just because this is sadly common, doesn’t mean it’s okay. As the Federal Circuit wrote, “ntellectual property rights do not confer a privilege” to break the law, and saying that exercising lawfully acquired intellectual property rights cannot give rise to antitrust liability “is no more correct than the proposition that use of one’s personal property, such as a baseball bat, cannot give rise to tort liability.”  

Let’s keep Verizon and its cable partners’ cup of JOE from spilling over and staining the market.