The FCC’s Failure to Adopt a RAND Licensing Requirement Is a Gift For Sinclair That Breaks With Decades of Precedent

The importance of Sinclair’s patent to the proliferation of Next Generation TV requires strong policies in place to ensure the broadcaster does not essentially control the entire ATSC 3.0 market through its royalty rates. However, the FCC’s Order failed to adopt a reasonable and non-discriminatory (RAND) licensing requirement for patent holders, a move that breaks with precedent and leaves the enforcement of potential unfair licensing deals struck by Sinclair uncertain.

In the past, the FCC has consistently required licensing agreements to be reasonable and non-discriminatory. For the transition to Digital TV, the FCC explicitly imposed a RAND requirement for participants in the new transmission standard in a 1996 Order. The Commission stressed that the adoption of that standard was “premised on reasonable and nondiscriminatory licensing of relevant patents,” and noted that despite not adding additional regulations on the subject, the Commission would “take appropriate action” if a future problem emerged.¹ In making this declaration, the FCC signaled to the industry that it would be watching over the marketplace to ensure licensing agreements were made on a RAND basis. The very adoption of the new broadcasting standard was based on the assumption that parties involved would uphold RAND licensing agreements.

The FCC has a detailed record of protecting competitive markets in the industries it oversees through RAND licensing requirements before ATSC 3.0.

When the FCC established rules on the operation of distributed transmission systems for Digital TV service in 2008, it stated the expectation that the “licensing of the patents for DTS technology will be on RAND terms” and promised, as it did in the 1996 Digital TV Order, to address any future issues that arose on patent royalties.² When the FCC amended rules on AM Radio transmission equipment standards in 1993, the Commission conditioned the selection of Motorola's system as the AM stereo standard by requiring Motorola to license its patents to other parties under “fair and reasonable terms.”³ As part of amendments to the FM Radio standard in 1961, the FCC required commitments that proponents of the systems at issue would “grant non-exclusive licenses under any one or more of its patent applications” and that any patents would be issued with “reasonable royalties for the manufacture, use and sale of the apparatus covered thereby.”⁴

However, the FCC broke with this long-standing precedent in the ATSC 3.0 proceeding by failing to make similar assurances to ensure action over discriminatory licensing deals in the final Next Generation TV Order. The FCC dismissed the entire issue without discussion in a footnote, concluding, “With no evidence of patent licensing issues, we believe it is premature to impose regulations on the private licensing marketplace.”⁵ Even assuming this statement were true, it would likely be because the market for ATSC 3.0 is only just developing. Ultimately, ample historical evidence—evidence that the FCC has previously acknowledged and addressed—clearly demonstrates that the owner of a patent for vital technology like Sinclair has the market incentive to abuse its status and exploit the licensing process.

In an attempt to justify the lack of antidiscrimination protections in the ATSC 3.0 order, the Commission fell back on the Advanced Television Systems Committee (ATSC), a private third party that requires RAND licensing but lacks any powers to enforce the requirement.⁶ ATSC bylaws only require RAND licensing for member organizations, and only on a voluntary basis.⁷ In addition, Section 3.8 of the ATSC’s bylaws stipulate that, “[w]henever a Voting Member or Observer is found in default of its financial or other obligations to the Corporation, as set forth in the Articles of Incorporation, in these bylaws, or policies established by the Board of Directors [emphasis added], the President of the Corporation shall take appropriate action which may include termination of Voting Member or Observer status.”⁸ Other than terminating Sinclair’s status as a voting member of the Committee, it is unclear what actions the ATSC can take if the broadcaster violates the RAND licensing requirement.

Furthermore, ATSC does not actively police a RAND requirement or participate in licensing negotiations. The organization explicitly absolves itself of any responsibility to identify potential problems.⁹ By exempting itself of responsibility in this regard, ATSC enables Sinclair to engage in anticompetitive behavior that leaves its competitors and customers subject to the patent holder’s unchecked demand for royalties in exchange for access to technology that the National Association of Broadcasters is billing as the future of the industry.¹⁰

Sinclair may have incentives to adhere to the ATSC’s RAND licensing requirement simply because a failure to do so puts the standard in jeopardy; in other words, the ATSC may choose to withdraw the standard if Sinclair does not allow access to the necessary technology on RAND terms. However, history suggests that such a deterrent insufficiently protects pro-competitive RAND licensing. There have been well-documented instances of abuse by presiding patent holders in previous periods of transition. For example, in 2014, then-Representative Mike Pompeo (R-Kan.) expressed apprehensions about the ATSC patent pool, which he claimed had been a “government granted monopoly since the digital television transition (DTV).”¹¹ Pompeo raised concerns over the exorbitant licensing fees charged by essential patent holders, which were five times as much as fees charged for similar technologies around the world.¹² As manufacturers are forced to pay the high royalties in order to abide by FCC-mandated regulations, these fees would translate into higher retail prices for consumers. Patent holders imposed these exorbitant royalty rates despite the FCC’s adoption of the Digital TV standard with RAND licensing requirements in 1996.¹³ These vulnerabilities should not be ignored in the FCC’s regulations overseeing the transition to the Next Generation TV standard.

Entities that are unable to gain access to Sinclair’s patent on RAND terms may seek redress at the Patent and Trademark Office, the International Trade Commission, or in federal court, but those alternatives can be burdensome.¹⁴ When it opted into the ATSC’s patent policy and disclosed ownership of patents relevant to the A/321 specification in the ATSC 3.0 transition, Sinclair’s subsidiary, ONE Media, entered into a legally binding contract enforceable by third parties.¹⁵ This contract allows license seekers to pursue legal action, but the burden to seek redress is unfairly placed on the aggrieved third party rather than on the ATSC, the party that requires the RAND licensing terms. Civil lawsuits are costly and time-intensive, particularly for a third party on a FCC-mandated deadline for transitioning to the new technology.

An ongoing lawsuit by consumer electronics company Haier America underscores the complexity of ATSC patent litigation. Haier alleges that Samsung and LG abused several original ATSC digital standard patents they hold by violating promises to the ATSC and FCC that they would license ATSC standard-essential technology on a RAND basis. These grievances include unreasonable demands such as exorbitantly high royalties and forcing third parties to license additional, non-essential patents to gain access to the critical technology. Sinclair also possesses the potential to exploit its status as a patent holder of ATSC 3.0 technology in a similar manner. Sinclair is also under no obligation to license the technology at all. By foregoing a requirement for RAND licensing simultaneously with the transition to ATSC 3.0 technology, the FCC tilts the playing field heavily in Sinclair’s favor.

The Federal Trade Commission (FTC) may be an additional venue for ex poste enforcement action. Relying on the FTC is not optimal, however, as relief from violations would only come long after the harm has already occurred. For example, Motorola had a history of reneging on its RAND licensing commitment to several standard-setting organizations, but it was not until Google acquired the company in 2012 and continued breaches of its RAND commitments that the Commission sought a remedy—one was eventually granted in July 2013.¹⁶

The FCC should adopt a RAND licensing requirement to ensure that all patent holders, not just the ones that belong to the ATSC, are subject to the requirement. Though Sinclair is currently a member of the ATSC, membership is non-binding and it may not be the case that Sinclair, let alone any member organization of the ATSC, remains the patent holder indefinitely. Either a member organization could leave the ATSC, making it no longer subject to the contractual requirement to grant access to the critical technology on RAND licensing terms, or the patent could be transferred to a non-member that never agreed to the ATSC’s patent policy in the first place. The question of whether non-members were subject to a RAND licensing requirement overseen by the ATSC if they obtained ownership of relevant patents was a key issue that arose from a 2007 lawsuit involving Harris Corporation and Rembrandt. Rembrandt allegedly refused to license Digital TV technology on RAND terms after the company acquired the relevant patent from AT&T.¹⁷ AT&T had been subject to the ATSC’s patent policy as a member of the Committee. Rembrandt, however, was not a member, and it argued in a lawsuit that it was therefore not subject to the terms of AT&T’s contract with the ATSC.¹⁸ Although Rembrandt’s contractual argument was ultimately not addressed, the case demonstrated a critical oversight in the FCC’s rationalization of foregoing a RAND licensing requirement in its Next Generation TV Order: the ATSC only has authority over its membership, and the relevant patents may not always be held by a member of the Committee. Therefore, a RAND licensing requirement is needed to cover all patent holders, not just the ones that would be subject to the ATSC’s authority.