IP and Anticompetitive Conduct

Intro to IP – Prof. Merges

4.28.09

Agenda

• Brief overview of antitrust principles

• Relationship to IP Law

• Walker Process; Brunswick Corp.; Data General

Defenses: Antitrust/Misuse

• Patents confer market power

• Market power can be abused

• When it has been, this may provide a defense for an infringer

Antitrust/Misuse

• Centers on how the patentee deploys the technology

• Numerous potential ways to abuse the market power conferred by a patent

Examples

• Use of patents to mask or hide a cartel

– “Horizontal” abuse

• Use of patents to exert control over dealers or customers

– “Vertical” abuse

Sherman Act: Section One 15 U.S.C. § 1

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

Sherman Act: Section Two 15 U.S.C. § 2

Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $10,000,000 if a corporation, or, if any other person, $350,000, or by imprisonment not exceeding three years, or by both said punishments, in the discretion of the court.

The Clayton Act (1914) extended the right to sue under the antitrust laws to "any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws." Under the Clayton Act, private parties may sue in U.S. district court and should they prevail, they may be awarded treble damages and the cost of suit, including reasonable attorney's fees.

Clayton Act: 15 USC sec. 15

IP and Antritrust

• IP Rights give the power to exclude from a market

– Colloquially: a “monopoly”

• Antitrust law polices monopolies

Strategic use of antitrust in IP litigation

• The power of a counterclaim

• Drive settlement, create a counter-risk for the plaintiff

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Counterclaim

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Licensing Agreement

Misuse/Antitrust Counterclaim

Plaintiff/Patentee Defendant

Licensing Agreement

Defendant asserts patent is unenforceable due to anticompetitive licensing agreement

Typical Counterclaims

• Anticompetitive acquisition of patent– Walker Process Equipment , Inc . v . Food Machinery

Chemical Corp., 382 U . S . 172 (1965); Handgards, Inc . v . Ethicon, Inc . 743 F . 2d 1282 (9th Cir . 1984)

• Illegal tie-in

– Morton Salt

Illinois Tool, 547 U.S. 28 (2006)Trident, a wholly-owned subsidiary of Illinois Tool Works,

is a manufacturer of printheads and owns U.S. Patent No. 5,343,226 covering the technology. The ‘226 patent discloses an ink jet device and a supply system with a hand actuated peristaltic pump. Trident also manufactures ink for use with the patented printheads. Although the ink is not protected by any of Trident’s patents, their standard license agreements grant the right to “manufacture, use and sell… ink jet printing devices…” to other printer manufacturers ONLY “when used in combination with ink and ink supply systems supplied by Trident.”

Illinois Tool

The Supreme Court eliminated the presumption that a patent provides market power in a licensing agreement involving a tie-in

The Court has signaled a willingness to revisit old precedent originating in the anti-patent era of the 1930s and 1940s when Congress and scholarly opinion had turned decisively against it

Walker Process

• Food Machinery Corp. sued Walker Process for patent infringement

• Patent invalidated: prior public use (more than 1 year prior to filing by FM)

• Defendant asserts WP knew patent was invalid and obtained and asserted it anyway

• “It must be remembered that we deal only with a special class of patents, i.e., those procured by intentional fraud.”

• -- p. 1128

• If fraud is found, must still evaluate antitrust claim on the merits: relevant market, monopolistic effect of patent – p. 1129

• Facts: Grew out of patent interference (not long gestation)

• Brunswick accused Riegel of fraudulently acquiring the patent

Brunswick v. Riegel

Posner’s 3 conditions

1. Patent must dominate actual mkt

2. Invention must not be patentableNB: Posner’s comments here: A/T law only!

1. “Colorable validity” – e.g., enforcement actions

Condition 2

• Theft of a valid patent creates no antitrust liability

• Maybe not here, but . . . See Note 3

Data General

• Computer system service industry

• Claim: refusal by DG to license ADEX, diagnostic s/w package

Unilateral refusal to deal

• Refusal to license, maintains market power position

• Aspen Skiing: essential facilities doctrine

• “Presumptively valid” to enforce copyright

• When can you overcome presumption?