The Supreme Court yesterday laid to rest the long discredited notion that patents inherently bestow market power. In Illinois Tool Works Inc. v. Independent Ink, Inc., No. 04-1329, the Court unanimously (with Justice Alito not participating) abandoned mid-twentieth century cases that had held that patents presumptively confer market power for purposes of antitrust tying claims, i.e., claims that a patent holder violated the antitrust law by forcing a purchaser of the patented product, through mandatory bundling or express agreement, also to purchase a product not covered by the patent. In dealing with forms of property other than patents and copyrights, the Court had long required a party alleging an unlawful tie to prove that the seller had market power in the desired — or "tying" — product sufficient to force a purchaser to take an unwanted — or "tied" — product. The Court leveled the playing field by holding that proof of market power in the tying product is required even when the tying product is protected by a patent. And, although the Court’s decision deals only with patent rights, its reasoning appears to extend to tying claims involving copyrights or other forms of intellectual property rights. As the Court recognizes, the decision reconciles its interpretation of Sherman Act tying claims with Congress’s amendment of the Patent Act and the federal antitrust enforcement agencies’ intellectual property licensing guidelines. While it made no substantive change to the antitrust law, in doing so, the Court clarified antitrust tying principles in a manner that will aid intellectual property rights holders in licensing and enforcing their rights.
The case arose from Illinois Tool’s requirement that purchasers of its patented printing systems agree to refill the system only with its unpatented ink. Independent Ink, a competing seller of ink, alleged that these agreements constituted illegal tying and that Illinois Tool’s patents themselves conferred market power sufficient to render the arrangement a per se violation of antitrust law. The District Court dismissed the tying claim on summary judgment because there was no proof that Illinois Tool’s printing system gave it market power. The Federal Circuit disagreed, concluding that Supreme Court precedent compelled it to hold that Illinois Tool’s patent on its printing system gave rise to a presumption of market power.
Reversing the Federal Circuit, the Supreme Court rejected the notion that patents carry a presumption of market power. It concluded that the original basis for this presumption was eviscerated by the 1988 amendments to the Patent Act, which expressly eliminated the presumption in connection with a patent misuse defense to infringement. Refusing to establish even a rebuttable presumption of patent market power, the Court explained that "[m]any tying arrangements, even those involving patents and requirements ties, are fully consistent with a free, competitive market." Slip Op. at 16.
Although Illinois Tool involved patent rights, the Court’s reasoning suggests that it would reach the same conclusion with respect to copyrights and other intellectual property. The market power presumption for all forms of intellectual property derives from the patent misuse doctrine, a context in which the presumption had already been eviscerated. And, in rejecting the presumption, the Court cites agency enforcement guidelines and academic commentaries that expressly refer to copyrights and other intellectual property as well as patents.
Beyond the decision’s holding rejecting the presumption of market power in antitrust tying claims involving patents, the decision may have several practical ramifications including the following:
- Sellers of patented (or copyrighted) products or licensors of patents (or copyrights) that do not have market power may have greater flexibility in bundling patented and non-patented technology. Uncoerced packaging and bundling has and continues to be legal, and the Court has now recognized that even mandatory bundling can have procompetitive effects.
- But the decision does not give patent and other intellectual property holders free rein to bundle products and technology. Substantive antitrust tying principles are unchanged. Tying arrangements can still violate the antitrust laws and certainly may continue to spawn costly litigation. Consequently, antitrust counsel should still be consulted before undertaking any such marketing or licensing practices.
- Even outside the tying context, parties contending that a patent holder has violated the antitrust laws will no longer be able to rely on the now-abandoned presumption of market power. This may deter some types of antitrust challenges. But certain antitrust claims, such as price fixing claims do not require a showing of market power, and this decision does not affect the need for continued vigilance in ensuring that marketing and licensing programs do not run afoul of these principles.
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