constantine & partners 1 constantine cannon 1 c c an overview of the antitrust/ip intersect by...

Constantine & Partners

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Constantine Cannon

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CCAn Overview of the Antitrust/IP

Intersect

By Jeffrey I. ShinderPartner, Constantine CannonNew York City/Washington

[email protected]

Presentation to

The In-House Counsel Forum onPharmaceutical Antitrust

May 24-25, 2005


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CCRole of AntitrustRole of Antitrust

• Protect consumer welfare

• Reflects policy that competition benefits consumers by ensuring:– Lower prices– Increased output– Incentive to innovate


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CCKey Antitrust StatutesKey Antitrust Statutes

• Sherman Act Section 1

• Sherman Act Section 2

• Clayton Act Section 7

• FTC Act Section 5


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CCAntitrust StandardsAntitrust Standards

• Per se standard -- Practice is anticompetitive on its face; anticompetitive effects are presumed.

• Rule of Reason -- Must prove anticompetitive effects with detailed economic analysis.


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CCSherman Act § 1Sherman Act § 1

• Conspiracy to restrain trade

– Requires concerted action involving at least two actors • E.g., patent pools, licensing arrangements


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CCSherman Act § 1 -- Types of ClaimsSherman Act § 1 -- Types of Claims

• Horizontal Price Fixing -- Per se violation

• Vertical Price Fixing – Minimum retail price maintenance -- per se– Maximum retail price maintenance -- Rule of

Reason

• Vertical Non-Price Restraints– Exclusive Territories--Rule of Reason– Exclusive Dealing--Rule of Reason


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• Illegal tying -- technically per se claim, but really a hybrid between per se and Rule of Reason.

– Elements of per se violation: • The products being “tied” are distinct;• Market power;• Forcing or actual tying;• An effect on a not insubstantial amount of

interstate commerce;• Anticompetitive effects (in some circuits).


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• Group Boycott--per se (if firm(s) have market power and/or deny access to elements essential to competition)

• Market Allocation Schemes--per se


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• Monopolization claims

• Concerns unilateral single firm conduct


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• A monopoly in and of itself is not illegal.• Acquiring monopoly power by being better is lawful.• The law places constraints on the behavior of a

monopolist to ensure that it is not improperly maintaining its monopoly power or using its monopoly power in one market to monopolize or attempt to monopolize another.

• The law constrains improper attempts to acquire monopoly power by firms who are dangerously close to acquiring such power.


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• Elements of Monopolization– Possession of monopoly power– Such power achieved or maintained by exclusionary

or anticompetitive conduct– Injury to competition


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• Attempt to monopolize– Specific intent to monopolize markets– Overt acts– Dangerous probability of monopolization

• Conspiracy to monopolize


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CCClayton Act § 7Clayton Act § 7

• Statute that prohibits mergers that create or enhance or facilitate the exercise of market power in a relevant market.– Forward looking analysis -- incipiency standard

• Merger cannot “substantially lessen competition” in a relevant market.


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CCThe Antitrust/IP IntersectThe Antitrust/IP Intersect

HistoryHistory• Perceived tension between Antitrust & IP

• Pre 1930- IP trumps Antitrust; early cases gave patentees wide latitude

• 1930-1970s-Antitrust Comes Back; Supreme Court retreats from earlier position

• 1980-Present; IP Again Trumps Antitrust?


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• 1995 DOJ/FTC Guidelines for the Licensing of Intellectual Property– IP should be treated like other forms of

property under the antitrust laws

– IP rights do not necessarily create market power in a relevant antitrust market

– Licensing is generally pro-competitive


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• Is IP the same as other property for antitrust purposes? NO– Power to exclude derives from US Constitution– Power to exclude is designed to encourage

innovation– Power to exclude is absolute– IP can be used simultaneously by competitors


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CCSherman Act Sherman Act §§ 2 2

• When Can Obtaining a Patent Violate Section 2? – When obtained through fraud on the PTO and

enforced against alleged infringers– Impropriety defined by Patent Act– Other elements of Section 2 violation must be

present


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CC• Fraud on the PTO-Walker Process Claims

– Misrepresentation or omission of material fact– Intent to deceive– Materiality: patent would not have issued but for

misrepresentation or omission– Other elements of Section 2 claim: monopolization or

dangerous probability of monopolization

Sherman Act Sherman Act §§ 2 2


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CCPatent AcquisitionsPatent Acquisitions

• When can acquiring a patent violate the antitrust laws?– IP acquisitions can violate Section 2 of the

Sherman Act and Section 7 of the Clayton Act– Must show monopolization or dangerous

probability of monopolization for Section 2 claim

– Must show threatened substantial lessening of competition for Section 7 claim


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CC• Analyzing the antitrust risks of potential IP acquisitions– Does the acquiring firm have market power?

If yes– Does the acquisition involve “exclusive rights”?– Does the acquisition concern rights in patents related

to the subject matter of the monopoly?

Sherman Act Sherman Act §§ 2--Patent Acquisition 2--Patent Acquisition


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CCPatent AcquisitionsPatent Acquisitions

• If firm with market power– Acquires exclusive rights to related patents: serious

antitrust issues– Acquires non-exclusive rights to related patents:

likely permissible despite risks to competition– Acquires exclusive rights to unrelated patents: no

antitrust issues


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CCSherman Act §Sherman Act § 2: Enforcing IP Rights 2: Enforcing IP Rights

• When can a firm violate the antitrust laws by attempting to enforce its IP rights?

– If enforcement is a “sham” it can violate Section 2 of the Sherman Act

– If “sham” enforcement is done collectively it can violate Section 1 of the Sherman Act


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CCSherman Act §Sherman Act § 2: Enforcing IP Rights 2: Enforcing IP Rights

• Basic Rule for Sham Litigation: Professional Real Estate Investors– “Suit must be objectively baseless … no reasonable

litigant could realistically expect success on the merits” and

– Suit must conceal an attempt to harm rivals


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CC• When wrongful

– Action based on fraudulently obtained patent– Action based on valid patents that are known to be

unenforceable– Action based on valid patent where infringement

plaintiff knew there was no infringement– Action based on clearly incorrect legal theory

Sherman Act §Sherman Act § 2: Enforcing IP Rights 2: Enforcing IP Rights


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CC• Does the immunity conferred by Professional

Real Estate Investors extend to certain pre and post-litigation conduct?– Threats to enforce IP: Yes– Publication of infringement in the marketplace:

Probably Yes– Threats and publication where litigation is never

initiated: Maybe Not.– Settlements: Open question, probably not

Sherman Act §Sherman Act § 2: Enforcing IP Rights 2: Enforcing IP Rights


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CC• Can the owner of a lawfully-acquired patents

ever violate Section 2 of the Sherman Act by refusing to license?– Most authorities say no

Sherman Act §Sherman Act § 2: Refusals to Deal 2: Refusals to Deal


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CC• Recent Case Law & Enforcement Activity

– Image Technical (9th Cir.)- lawful patent creates rebuttable presumption that refusal was lawful, but presumption was rebutted in that case

– Intel

– Xerox- refusal to license immune from antitrust, with three exceptions

• Walker Process claim (i.e., patent was fraudulently obtained)

• Sham litigation

• Illegal tying

Sherman Act §Sherman Act § 2: Refusals to Deal 2: Refusals to Deal


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CC• Greater tolerance for restraints involving IP

– Most IP restraints have an ancillary character– Patent Act commands a tolerance for such

agreements– Licenses are vertical restraints

Sherman Act §Sherman Act § 1 1


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CC• Key Question: Does the license have a

horizontal aspect?– Would the parties to the agreement have been actual

or likely potential competitors in the absence of the license?

– Horizontal relationship could be found in product, technology, or innovation markets

– If license is purely vertical• IP creates no additional complications for defendants• IP often provides compelling justifications• tying claims may be a concern

Sherman Act §Sherman Act § 1 1


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CCSherman Act § 1: Licenses Affecting PriceSherman Act § 1: Licenses Affecting Price

• Price of the license does not raise antitrust concerns

• What if license requires the licensor to sell at prices set by licensor?

– Permissible if patent covers all or a significant portion of resulting product

– United States v. General Electric (1926 Supreme Court Case)


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CCSherman Act § 1: Licenses Affecting PriceSherman Act § 1: Licenses Affecting Price

• GE still stands but has been limited to its facts– Line Material: declined to extend GE to cross-licensing

arrangement in which resale price imposed on sub-licensees– United States Gypsum: declined to extend GE to licenses with

resale price restrictions imposed on every producer in the industry

• Other limitations to GE– Price limitation beyond first sale– Price restraint extends beyond the patent– Fixing prices of unpatented goods produced by patented

process


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CCSherman Act § 1: Output RestraintsSherman Act § 1: Output Restraints

• General Principles

– Naked output limitations are illegal per se

– Quantity limitations in vertical patent licenses are treated under the rule of reason and are generally lawful

– May violate the antitrust laws when

• Concerns unpatented product made with a patented process

• Cross-licenses used as a façade by competing licensors and/or licensees to limit output and fix prices


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CCSherman Act § 1: Patent Pools/Cross-Sherman Act § 1: Patent Pools/Cross-

LicensingLicensing• Antitrust recognizes that they are often pro-competitive

• IP Guidelines explain why they may be pro-competitive

– Integrate complementary technology

– Reduce transaction costs

– Clear blocking positions

– Avoid costly infringement actions

• Cross-licensing without restrictions almost always lawful


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CCSherman Act § 1: Patent Pools/Cross-Sherman Act § 1: Patent Pools/Cross-

LicensingLicensing• They can violate the antitrust laws when:

– Pool/cross-license includes restraints on price or output

– Pool/cross-license is used to exclude rivals

– Pool/cross-license includes agreement not to engage in certain types of research


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CCSherman Act § 1: Market Allocation Sherman Act § 1: Market Allocation

AgreementsAgreements• Territorial Divisions

– Patent Act specifically permits them– Immune from antitrust challenge if relationship is

purely vertical– Immunity does not extend to territorial restrictions

after first sale– Reviewed under the Rule of Reason if license has a

horizontal aspect


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CCSherman Act § 1: Sherman Act § 1:

Market Allocation AgreementsMarket Allocation Agreements• Field of Use and Customer Restrictions

– Treated as non-price vertical restraints and are usually lawful

– Cannot be used to impose price restrictions on purchasers of products with unlimited right to sell the product

– Can be illegal per se if used to create horizontal market allocation scheme

• Patent is invalid

• Patent is trivial component of final product


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CCSherman Act § 1: Exclusive DealingSherman Act § 1: Exclusive Dealing

• Can patentee condition its license or sale of patented good on agreement not to purchase competing goods?– Yes, if sufficient percentage of market is available to

competitors– Yes, if exclusive is easily terminated– Yes, if efficiencies outweigh possible harm to

competition


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CCSherman Act § 1: TyingSherman Act § 1: Tying

• Background

– Early Supreme Court cases held that market power can be presumed from patent

– Courts condemned tying as patent misuse without inquiring into market power or anti-competitive effects

– 1988 Patent Misuse Reform Act: must show market power

– Courts mixed: some follow early Supreme Court market power presumption, some do not

– Courts mixed: some say patent misuse same as tying under antitrust law, others do not


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• Distinct Products– Bundles with staples are distinct products– Bundles with non-staples are single products– Blocking patents are one product


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• Market Power in Tying Product Market– Courts have inferred market power from IP – Leading Supreme Court case demanded actual proof

of market power, but appeared to allow the inference of such power from a patent

– Lower courts generally demanded actual proof of market power

– 1988 Patent Misuse Reform Act: requires market power over tying product


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• Anti-competitive Effects in Tied Product Market– Supreme Court decisions suggest that de minimis

foreclosure of commerce is sufficient– Lower courts are mixed, many Circuits now require

anti-competitive effects in tied product market– IP Guidelines require an adverse effect on

competition

constantine & partners 1 constantine cannon 1 c c an overview of the antitrust/ip intersect by...

Documents

c c sherman act

c c antitrust standards

c c role of antitrust

se slide

competition slide

rule of reason slide

clayton act section

ftc act section