Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. ____ (2006).
For at least 50 years, the Supreme Court has presumed that a patent necessarily confers market power in antitrust cases in which the plaintiff alleges that the patentee has unlawfully "tied" a non-patented product (the "tied product") to its patented product (the "tying product"). Based on this presumption, the tying of unpatented goods to patented goods was deemed illegal per se under Section 1 of the Sherman Act, 15 U.S.C. § 1. The Supreme Court’s recent holding in Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. ____ (2006), eliminates the presumption that a patent necessarily confers market power and instead demands that the plaintiff prove that the patentee in fact possesses the requisite power in the relevant market.
Tying involves the "seller’s exploitation of the control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere on different terms." Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984). The presumption of market power in patent tying cases has its foundation in the patent misuse doctrine—a judicial creation that provided a defense to a claim of patent infringement when the patentee uses its patent "as the effective means of restraining competition with its sale of an unpatented article." Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488, 490 (1942). Where patent misuse was asserted as a defense to infringement, the courts assumed, without analysis of market conditions, that by tying the purchase of unpatented goods to the sale of patented goods, the patentee had restrained competition. Id. "The presumption that a patent confers market power migrated from patent law to antitrust law in International Salt Co. v. United States, 332 U.S. 392 (1947)." Slip Op. at 9. As a result, tying arrangements involving a patented product were deemed to be per se illegal under the antitrust laws.
In 1988, Congress amended the Patent Code to eliminate the presumption of market power in the patent misuse context. 35 U.S.C. § 271(d)(5). Thus, for an alleged infringer to successfully use a defense of patent misuse, it must offer proof that the patent holder actually had market power when it conditioned the sale of the patented product upon the purchase of a non-patented product.
The question presented to the Court was whether the presumption of market power in patent tying cases should similarly be eliminated.1 The Supreme Court answered in the affirmative. The Court analyzed the history of tying cases under the antitrust laws, examining the increasing insistence of the courts on a full proof of economic power, as illustrated by cases like United States Steel Corp. v. Fortner Enterprises, Inc., 429 U. S. 610, 622 (1977), and Jefferson Parish, supra. The Court also found the 1988 amendments significant:
It would be absurd to assume that Congress intended to provide that the use of a patent that merited punishment as a felony [under the Sherman Act] would not constitute "misuse." Moreover, given the fact that the patent misuse doctrine provided the basis for the market power presumption, it would be anomalous to preserve the presumption in antitrust after Congress has eliminated its foundation.
Slip Op. at 13. The Court went on to reject any sort of middle-ground, such as imposing a rebuttable presumption of market power upon a patentee or limiting the presumption to certain types of ties. Id. at 14.
The practical impact of the Illinois Tool opinion is readily apparent: patent holders will face significantly less antitrust risk when conditioning or otherwise relating the sale of unpatented products to patented products. Of course, patent holders have enjoyed this reduced risk for some time with regard to enforcement actions brought by the government. In their jointly issued Antitrust Guidelines for the Licensing of Intellectual Property, the U.S. Department of Justice, Antitrust Division and the Federal Trade Commission disclaimed any reliance upon the presumption that a patent confers market power. U.S. Dept. of Justice & FTC Antitrust Guidelines for the Licensing of Intellectual Property § 2.2 (April 6, 1995). Thus, as the Supreme Court itself noted, the Illinois Tool opinion merely joined the conclusion already reached by "Congress, the antitrust enforcement agencies, and most economists that a patent does not necessarily confer market power upon the patentee." Slip Op. at 16.
The abandonment of market presumption for patented products in Illinois Tool is likely to have a ripple-effect, so as to directly impact the treatment of other so-called "unique" products, meaning products for which there is no close practical substitute. See, e.g., United States v. Loew’s Inc., 371 U.S. 38, 45 & n.4 (1962) ("Even absent a showing of market dominance, the crucial economic power may be inferred from the tying product’s desirability to consumers or from uniqueness in its attributes."), abrogated by Illinois Tool Works, 547 U.S. ___(2006). Products bearing a copyright have been held to be "unique," like patented products, and therefore, have been treated with some presumption of market power. Loew’s, 371 U.S. at 45 & n.4. ("Since the requisite economic power may be found on the basis of either uniqueness or consumer appeal . . . when the tying product is patented or copyrighted . . . sufficiency of economic power is presumed."). Similarly, land, as a type of product, has been deemed sufficiently unique to confer a presumption of market power. See, e.g., Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 7-8 (1958) (holding that "the defendant possessed substantial economic power by virtue of its extensive landholdings" based on the conclusion that "this particular land was often prized by those who purchased or leased it and was frequently essential to their business activities."). To the extent these decisions still had any continuing precedential value, it now seems relatively clear that mere uniqueness will not meet the economic power requirement and that true market power will have to be demonstrated.
Notwithstanding the elimination of any presumption of market power, Illinois Tool does not by any means immunize patent holders from all tying claims. Rather, Illinois Tool serves only to put patent and other tying products on equal ground vis-à-vis the antitrust laws. If a plaintiff (or the government) can establish that a patent truly does confer market power and that the patent holder is requiring its licensees to use non-patented commodities as a condition to the license, then a tying arrangement may still be found. The patent holder may be subjected in these circumstances to substantial treble damage liability under the antitrust laws and the loss of the right to enforce the patent against infringers under the patent misuse doctrine.
The issue of whether a patent provides its holder with market power may be a complex one deserving of considerable legal and economic analysis. In cases in which market power is present or arguably present, patent holders may want to consider alternative approaches to realizing the value of their patents that may reduce antitrust risk while still achieving their business goals.
Footnotes
1. The actual facts of Illinois Tool involved a paradigm case of a manufacturer-patentee selling patented printheads and ink containers that required its licensees to purchase unpatented ink produced by the manufacturer for use with the patented products. Slip Op. at 2. The plaintiff was an ink-producing competitor who sued the patentee alleging that this arrangement constituted unlawful tying under the antitrust laws. Id.© 2006 Sutherland Asbill & Brennan LLP. All Rights Reserved.
This article is for informational purposes and is not intended to constitute legal advice.
