United States: Federal Circuit Revives Rule that Patent Grant Creates Presumption of Market Power

Last Updated: March 1 2005
Article by Danielle Fitzpatrick

The Federal Circuit recently revived the long-dormant legal canon that the possession of a patent creates a rebuttable presumption of market power - at least in tying cases brought under Section 1 of the Sherman Act.* Independent Ink, Inc. v. Illinois Tool Works, Inc., ___ F.3d ____, 2005 WL 147399 (Fed. Cir. January 25, 2005). The full implications of this surprising ruling are unknown. At a minimum, however, the decision will undoubtedly increase the risk of antitrust tying claims against patent holders who condition the purchase of a patented product on the purchase of an unpatented product.

Court Follows "Infirm" Precedent

Though harshly criticized in recent years - by Congress, other federal courts, and prominent antitrust commentators, as well as the FTC and the DOJ - the Federal Circuit has dutifully followed decades-old United States Supreme Court precedent that possession of a patent creates a presumption of market power. Indeed, the Federal Circuit itself recognized that the antiquated rule is "infirm" and that "the time may have come to abandon the doctrine," but left that task to either Congress or the Supreme Court.

In this case, Independent Ink claimed that Illinois Tool unlawfully tied the sale of its patented printhead (the tying product) to its unpatented ink (the tied product). Independent Ink is the defendant's competitor in the sale of ink. Illinois Tool faces competition from at least two companies in the sale of its patented printheads. The district court granted summary judgment to Illinois Tool on the grounds that Independent Ink failed to submit evidence of market power within a properly defined relevant market.

The Federal Circuit reversed that ruling, holding that Illinois Tool's patent covering its printheads "presumptively defines the relevant market as the nationwide market for the patented product itself" and "creates a presumption of power within this market." The court further held that Illinois Tool failed to rebut the presumption because it did not present sufficient evidence (e.g., expert testimony) that the boundaries of the relevant market extended beyond its patented printhead. In doing so, the court specifically rejected the notion that a patent creates an irrebuttable presumption of market power.

What Businesses Should Do

It is too early to predict the practical implications of the Federal Circuit's decision. Indeed, the decision's impact may be watered down by subsequent court rulings. Should Illinois Tool appeal to the Supreme Court, the decision may even be reversed. For now, however, businesses should consider the following:

  1. The court indicated that the presumption arises "when the tying product is patented or copyrighted." Therefore, both patent holders and copyright holders should take stock of sales practices.
  2. The decision makes it easier to bring an antitrust tying claim where a patent or copyright holder links the sale of patented and unpatented goods. This may result in more tying claims under Section 1 of the Sherman Act, although the litigation of those claims will likely not change significantly.
  3. Presumption or not, all patent and copyright holders who condition the sale of a patented product on the sale of an unpatented product (or are considering doing so) should undertake at least a preliminary analysis of the relevant market. A decision to tie products or services to patent rights or patented products raises serious antitrust concerns and should always be carefully reviewed by antitrust counsel. Even if the patent holder does not enjoy market power, it must nevertheless weigh the risk of antitrust litigation (which is widely recognized as one of the most expensive and time-consuming types of litigation) against the benefits of the sales practice.


* The court declined to extend the market power presumption to monopolization claims under Section 2, holding that a plaintiff alleging monopoly and attempted monopoly must still affirmatively plead and prove both a relevant market and the defendant's market power therein. The requirement of "appreciable economic power" in the tying product is a lesser quantum of market power than that required to support monopoly claims under Section 2. Moreover, the court recognized that Congress rejected the presumption when it comes to patent misuse based on tying, requiring proof of actual market power to establish the defense.

This article is intended to provide information on recent legal developments. It should not be construed as legal advice or legal opinion on specific facts. Pursuant to applicable Rules of Professional Conduct, it may constitute advertising.

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