IP MISUSE and ANTITRUST LAW

Eugene L. Chang

January 9, 2009

Competition vs. Innovation:Finding The Right Balance

Patent Laws Promote Innovation And Encourage Public Disclosure

Antitrust Laws Maximize Consumer Welfare By Promoting Competition

Both Patent Law And Antitrust Law Seek To Prevent Harm Caused By Invalid Patents Or Improper Extension Of Valid

Patents

Antitrust Law Is . . .

Sherman Act § 1 - Bars Unreasonable Agreements In Restraint Of Trade

Sherman Act § 2 - Prohibits Monopolization (Acquisition Or Maintenance Of Market Power Through Exclusionary Conduct)

Clayton Act § 7 - Prohibits Acquisitions That Will Reduce Competition Or Create A Monopoly

Federal Trade Commission Act § 5 - Prohibits Unfair Methods Of Competition And Unfair Or Deceptive Trade Practices

Antitrust Law Is . . . (Continued)

Some Activities Are Illegal Per Se (E.g., Horizontal Price Fixing)

Others Evaluated Under Rule Of Reason Examine Whether Restraint Is Likely To Have

Anticompetitive Effects If So, Examine Whether The Restraint Is Reasonably

Necessary To Achieve Procompetitive Benefits That Outweigh Those Anticompetitive Effects

Most Arrangements Involving IP Are Evaluated Under The Rule Of Reason

DOJ GUIDELINES (1995)Underlying Principles

LICENSING ARRANGEMENTS GENERALLY ARE PROCOMPETITIVE

INTELLECTUAL PROPERTY IS COMPARABLE TO ANY OTHER FORM OF PROPERTY

IP NOT PRESUMED TO CREATE MARKET POWER*

MARKET POWER = ABILITY TO PROFITABLY MAINTAIN PRICES ABOVE, OR OUTPUT BELOW, COMPETITIVE LEVELS FOR A SIGNIFICANT TIME PERIOD

ANALYTICAL TOOLS

PER SE RULE v. RULE OF REASON

HORIZONTAL v. VERTICAL RESTRAINTS

PER SE “PLUS”

DOJ will challenge under per se rule if:

“THERE IS NO EFFICIENCY-ENHANCING INTEGRATION OF ECONOMIC ACTIVITY AND IF THE TYPE OF RESTRAINT IS ONE THAT HAS BEEN ACCORDED PER SE TREATMENT.”

DOJ GUIDELINES

IN GENERAL, LICENSING ARRANGEMENTS PROMOTE SUCH EFFICIENCY-ENHANCING INTEGRATION OF ACTIVITY

LICENSES FACILITATE THE COMBINATION OF COMPLEMENTARY FACTORS

RULE OF REASON

1) RESTRAINT IS LIKELY TO HAVE ANTICOMPETITIVE EFFECTS

AND, IF SO,

2) IS RESTRAINT “REASONABLY NECESSARY” TO ACHIEVE BENEFITS THAT OUTWEIGH THOSE EFFECTS

DOJ GUIDELINESANTITRUST CONCERNS

HARMING COMPETITION AMONG COMPETITORS IN A RELEVANT MARKET

RESTRAINTS AMONG ENTITIES IN A “HORIZONTAL RELATIONSHIP”

CLASSICAL CONCERNS: MARKET DIVISION PRICE FIXING

DOJ GUIDELINESMarket Analyses

GOODS MARKETS

TECHNOLOGY MARKETS (I.P.)

INNOVATION MARKETS (R&D)

THE NINE NO-NO’sLicensing Provisions to Watch For

1. TIE-INS

TIE-INS

DOES A PATENT GIVE RISE TO MARKET POWER IN “TYING PRODUCT”?

International Salt (1942) – Market power in patented tying product is presumed

Independent Ink (2006)– Market power in patented tying product must be

proven

U.S. v. MICROSOFT

RULE OF REASON ANALYSIS PLATFORM SOFTWARE PRODUCTS

“FIRST CLOSE-UP LOOK AT THE TECHNOLOGICAL INTEGRATION OF ADDED FUNCTIONALITY INTO SOFTWARE THAT SERVES AS A PLATFORM FOR THIRD-PARTY APPLICATIONS

U.S. v. MICROSOFT

“NOT ALL TIES ARE BAD” SPELL CHECKERS IN WORD PROCESSORS

JEFFERSON PARISH SEPARATE PRODUCTS TEST A “POOR PROXY”

“UBIQUITY” OF BUNDLING IN SOFTWARE INDUSTRY

NEW EFFICIENCIES MAY EXIST IN MARKET

THE NINE NO-NO’sLicensing Provisions to Watch For

1. TIE-INS

2. GRANTBACKS

3. RESALE RESTRICTIONS

4. RESTRICTIONS ON FREEDOM TO DEAL OUTSIDE SCOPE OF PATENT

5. LICENSEE VETO OVER OTHER LICENSES

THE NINE NO-NO’sLicensing Provisions to Watch For

1. MANDATORY PACKAGE LICENSING

Philips v. ITC (Fed. Cir. 2005)

Patent Pool Allegedly Contained Essential And Nonessential Patents

No Finding Of Patent Misuse

– Licensees Were Not Being Charged For Nonessential Patents

– Licensees Were Not Forced To Use The Nonessential Technology, Unlike “Patent-To-Product” Tying

THE NINE NO-NO’sLicensing Provisions to Watch For

1. MANDATORY PACKAGE LICENSING

2. CONDITIONING ROYALTY PAYMENTS ON UNPATENTED ITEMS

3. RESTRICTION ON PRODUCTS MADE BY A PATENTED PROCESS

4. PRICE RESTRICTIONS

HATCH-WAXMAN ISSUESSettlements with Generic Drug Cos. GENERAL CONSTRUCT

GENERIC DRUG COMPANY INITIATES PATENT CHALLENGE

SETTLEMENT PRIOR TO TRIAL, DROPPING PATENT CHALLENGE

GENERIC COMPANY AGREES NOT TO MARKET PRODUCT FOR SOME OR ALL OF REMAINING PATENT TERM

BRAND COMPANY PAYS GENERIC COMPANY

HATCH-WAXMAN ISSUESANTITRUST VIOLATION?

YES Cardizem (6th Cir.) Terazosin (S.D. Fla.)

NO Ciprofloxacin (Fed. Cir.) Schering-Plough (11th Cir.) Tamoxifen (E.D.N.Y.) Asahi Glass (E.D. Pa.)

HATCH-WAXMAN ISSUESAnalytical Tools

Per se Cardizem

Rule of Reason Ciprofloxacin Existence of patent is important

11th Circuit factors (Terazosin, Schering-Plough) Evaluation of exclusionary scope of patent Evaluation of likely outcome of patent suit Whether settlement represented a reasonable

implementation of patent protections

IP - BUYING, HOLDING, SUINGAntitrust Problems?

ACQUISITION OF PATENTS Generally not an antitrust violation

REFUSALS TO LICENSE Intergraph v. Intel In re Independent Svc. Org.

BAD FAITH LITIGATION “Handgards” Actions

WALKER PROCESS CLAIMS

Noerr-Pennington Immunity

FIRST AMENDMENT IMMUNITY PETITION GOVERNMENT VIA LAWSUIT THAT IS NOT A

“SHAM”

PRE CASE DEFINES SHAM LITIGATION

PRE TEST FOR SHAM LITIGATION

OBJECTIVELY BASELESS SUIT

“NO REASONABLE LITIGANT COULD REALISTICALLY EXPECT SUCCESS”

NO SHAM IF SUIT IS “REASONABLY CALCULATED TO LEAD TO FAVORABLE OUTCOME”

AND

SUBJECTIVE BAD FAITH INTERFERENCE WITH COMPETITOR

CAFC APPLICATION OF PRE

HANDGARDS – PRE APPLIES Q-PHARMA BIO-TECHNOLOGY GENERAL

WALKER PROCESS - NO PRE Q-PHARMA NOBELPHARMA

APPLICATION OF PRE

Pre-Litigation Threats? Yes(?) – 1st, 2d, 5th, 11th Circuits No – 10th Cir. Hydril (Fed. Cir.) – Walker Process claims

Administrative Proceedings? Yes – 2d Cir. Unocal – Yes, if quasi-legislative

“Orange Book” Patent Listings? Yes – Organon (D.N.J.) No – Buspirone (S.D.N.Y.)

Standard-Setting Organizations? No – Rambus (F.T.C.) No – Broadcom (3d Cir.)

TRADEMARK ISSUESMISUSE

MISUSE IS A DEFENSE 15 U.S.C. 15 APPLIES EVEN TO INCONTESTABLE REGISTRATIONS

NO AFFIRMATIVE ACTION FOR MISUSE

TRADEMARK ISSUESTYING

IS THE TIED PRODUCT “ESSENTIAL” TO BE PURCHASED FROM THE TRADEMARK OWNER

NO – CHICKEN DELIGHT COOKING EQUIPMENT, FOOD MIXES,

PACKAGING

YES – BASKING ROBBINS ICE CREAM

COPYRIGHT LAWMISUSE

VALID DEFENSE NAPSTER (9th Cir. 2001) DSC COMM. (Fed. Cir. 1999) LASERCOMB (4th Cir. 1990)

NOT A DEFENSE ALLEN-MYLAND (E.D. Pa. 1990)

– “Most courts” have held it is not a valid defense

Thank you

Eugene L. Chang

Willkie Farr & Gallagher LLP

New York, New York

echang@willkie.com