Antitrust Analysis Of Intellectual Property Agreements

Pages53-169
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CHAPTER II
ANTITRUST ANALYSIS OF
INTELLECTUAL PROPERTY AGREEMENTS
Agreements involving intellectual property have drawn more
attention as high-technology and pharmaceutical companies settle high-
profile litigation or buy patents from bankrupt innovators such as Kodak
and Nortel. Their continuing importance has led to a renewed focus on
how these agreements license intellectual property, settle intellectual
property disputes, and transfer intellectual property rights.
In some circumstances the highest value of intellectual property may
only be realized when the property is combined with complementary
resources. A patent covering a new device, for example, is worthless
unless combined with the manufacturing capacity to produce it. Because
intellectual property holders sometimes lack the resources to exploit their
property, they often integrate their intellectual property with the
appropriate complementary resources through agreements between firms.
In other words, agreements involving intellectual property can be
markedly procompetitive. Yet such agreements may also include terms
that produce anticompetitive effects and therefore raise antitrust
concerns. This chapter explores the line between procompetitive and
anticompetitive intellectual property agreements.
A. General Antitrust Principles Applied to Intellectual Property
Agreements
The Antitrust Guidelines for the Licensing of Intellectual Property,1
issued by the Department of Justice and the Federal Trade Commission
1. U.S. DEPT OF JUSTICE & FED. TRADE COMMN, ANTITRUST GUIDELINES
FOR THE LICENSING OF INTELLECTUAL PROPERTY (April 1995), available
at http://www.justice.gov/atr/public/guidelines/0558.htm [hereinafter
1995 IP GUIDELINES]. The agencies have issued several additional reports
that provide further insight into the analytical framework to be applied
and reflect the continuing development of the agencies’ approach. See,
e.g., U.S. DEPT OF JUSTICE & FED. TRADE COMMN, ANTITRUST
ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING
INNOVATION AND COMPETITION (April 2007) [hereinafter 2007 IP
54 Intellectual Property and Antitrust Handbook
in 1995 (1995 IP Guidelines), provide the starting point for guidance
regarding the antitrust principles applicable to intellectual property
agreements. The 1995 IP Guidelines set forth a well-accepted analytical
framework for these types of agreements. The following sections
therefore focus on the Guidelines, supplemented by case law and the
enforcement agencies’ subsequent analyses and policy statements.
The 1995 IP Guidelines reflect the principle that standard antitrust
analysis applies to intellectual property, and that intellectual property is
“neither particularly free from scrutiny under the antitrust laws, nor
particularly suspect under them.”2 Standard antitrust analysis under the
Sherman Act encompasses more than 100 years of standards, burdens,
and presumptions that have waxed and waned with developing legal and
economic theories and experience.3
In assessing restraints in licensing arrangements, it is also important
to consider intellectual property misuse doctrines. In 1969, the Supreme
Court noted in Zenith Corp. v. Hazeltine Research4 that patent misuse
does not necessarily embody “the ingredients of a violation of either § 1
or § 2 of the Sherman Act.”5 But since the Zenith case, courts have
tended to require a showing of adverse effects on competition in a
relevant market to establish misuse, blurring the distinctions between
antitrust and misuse.6 Case law involving misuse defenses therefore has
REPORT], available at http://www.justice.gov/atr/public/hearings/ip/
222655.pdf.
2. 1995 IP GUIDELINES. supra note 1, § 2.1.
3. This chapter addresses intellectual property agreements that raise antitrust
concerns. Unilateral conduct raising antitrust concerns is addressed in
Chapter III. Nevertheless, license agreements, naturally subject to § 1 of
the Sherman Act because they are “agreements,” may also raise antitrust
concerns that may be addressed by § 2 of the Sherman Act depending on
the circumstances. See, e.g., United States v. Microsoft Corp., 253 F.3d
34 (D.C. Cir. 2001) (Section 2 violation found and upheld on appeal
based on exclusive dealing, even where § 1 claim with respect to the
same conduct failed).
4. 395 U.S. 100 (1969).
5. Id. at 140.
6.. See Mallinckrodt, Inc. v. Medipart, Inc., 976 F.2d 700 (Fed. Cir. 1992);
Windsurfing Int’l v. AMF, Inc., 782 F.2d 995, 1001-02 (Fed. Cir. 1986)
(“To sustain a misuse defense involving a licensing arrangement not held
to have been per se anticompetitive by the Supreme Court, a factual
determination must reveal that the overall effect of the license tends to
restrain competition unlawfully in an appropriately defined relevant
market.”); USM Corp. v. SPS Techs., 694 F.2d 505, 510-14 (7th Cir.
Analysis of Intellectual Property Agreements 55
become important in evaluating potential antitrust issues. The misuse and
antitrust doctrines nevertheless remain distinct, with distinct elements
and different remedies.7 This case law is discussed in later sections—in
addition to antitrust case law and the 1995 IP Guidelines—when relevant
to specific types of licensing arrangements.
1. Distinguishing Between Vertical and Horizontal Arrangements
In analyzing whether an agreement unlawfully restrains trade, the
enforcement agencies, courts, and economists distinguish between
vertical and horizontal restraints.8 The characterization of a restraint as
horizontal or vertical generally depends on the relationship of the parties
to the agreement imposing the restraint.9
As described in the 1995 IP Guidelines, the agencies’ antitrust
analysis of intellectual property licensing arrangements “examines
whether the relationship among the parties to the arrangement is
primarily horizontal or vertical in nature, or whether it has substantial
aspects of both.”10 Distinguishing between vertical (complementary) and
horizontal (competitive) relationships can be more difficult for
intellectual property licensing arrangements than for those involving the
manufacture and distribution of other goods.
1982) (analyzing discriminatory royalties under antitrust principles and
holding that there was no patent misuse).
7. See Virginia Panel Corp. v. Mac Panel Co., 133 F.3d 860, 872 (Fed. Cir.
1997) (“[V]iolation of the antitrust laws, in this case Section 2 of the
Sherman Antitrust Act, . . . requires more exacting proof than suffices to
demonstrate patent misuse.”); cf. Nobelpharma AB v. Implant
Innovations, Inc., 141 F.3d 1059, 1068-71 (Fed. Cir. 1998) (discussing
the distinctions between equitable defense in infringement action of
inequitable conduct and Walker Process “fraud” that might support an
affirmative antitrust claim).
8. See, e.g., Leegin Creative Leather Prods. v. PSKS, Inc. 551 U.S. 877, 888
(2007) (“Our recent cases formulate antitrust principles in accordance
with the appreciated differences in economic effect between vertical and
horizontal agreements.”).
9. See Business Elecs. v. Sharp Elecs., 485 U.S. 717, 730 (1988)
(“Restraints imposed by agreement between competitors have
traditionally been denominated as horizontal restraints, and those
imposed by agreement between firms at different levels of distribution as
vertical restraints.”).
10. 1995 IP GUIDELINES, supra note 1, § 3.3.

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