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Verizon, Comcast, and the Patent Wars

July 27, 2012 ,

As the Federal Communications Commission (FCC) and Department of
Justice (DOJ) continue their review of the proposed deals between
Verizon, Comcast, and several other large cable companies, attention
is turning to the companies’ side agreements tied to the proposed
spectrum transfer
.
From the very beginning of this proceeding Public Knowledge has
focused on the ways that the side agreements threaten the public
interest
, in
addition to potentially spelling the end of competition between wireline and
wireless internet service providers.

For example, Verizon, Comcast, and the other cable companies have
jointly created a new company called the Joint Operating Entity (JOE),
which the companies will use to develop technology that integrates
wireline and wireless service.
Of course, for these companies, developing new technology will go
hand-in-hand with obtaining new patents. As a result, the JOE could
have a monopoly over foundational technologies for the next
generation of internet access service.

This means that Verizon and Comcast in particular would have a new,
particularly powerful weapon in the escalating patent wars that already cost tech companies obscene amounts of money in
litigation costs and stand in the way of actual innovation.
Given the scope of the JOE’s stated purpose, its patents could likely
reach other companies’ efforts to come up with new offerings that deliver online video, voice, and data services.

The idea of these companies potentially controlling the patents that
could effectively become the standard for the next generation of
internet access service is even more worrisome when you actually read
the details of the agreements, which have been submitted to the FCC
under confidentiality protections. More than two months ago Public
Knowledge challenged the companies’ confidentiality claims over parts of
the agreements that don’t qualify for confidentiality protections but
are still hidden from the public, but the FCC has not yet ruled on our
challenge.

But even without being able to go into details on all of the ways the
agreements, we can still broadly discuss how we can stop these
agreements from stifling innovation and anointing a new communications
cartel that would have enormous leverage against its competitors. The
real answer that is that no combination of conditions on these deals
can really prevent the public interest harms they would likely create,
but there are some conditions that could somewhat lessen the public
interest harms.

First, one of the more obvious tools that could help rein in the
damage that will be caused by the JOE and its patent war chest is a condition that the JOE must license its technologies to other
companies on reasonable and non-discriminatory terms (RAND terms).
This could potentially prevent the JOE from withholding its
technologies from other companies that are willing to reasonably
license the patents, bundling the important technology with patents
the licensees don’t actually want, restricting licensees’ deals with
competitors, and requiring licenses to the other company’s patents as
payment. It would also stop the JOE from discriminating against
certain companies trying to license the JOE’s patents.

Of course, the JOE is just one (especially bad) part of the web of
deals between these companies, which also include a spectrum transfer,
joint marketing agreements, and wireless reseller agreements. This
means that any package of conditions that even comes close to
addressing the many public interest harms threatened by this deal
would need to include conditions like spectrum divestitures, strong
spectrum build-out requirements, a “use it or share it” condition on
the transferred spectrum, limits on joint marketing deals where the
companies currently compete on wireline service, and conditions that
ensure Verizon could not try to prevent the cable companies from
partnering with others to offer new services that rely on WiFi offload
technologies.

These agreements are extraordinarily complex, deeply interconnected,
and pose serious threats to competing companies and consumers. As they
review these deals, the FCC and DOJ should stay strong to protect
consumers from the many anticompetitive threats of these deals.