Antitrust Issues in Licensing Intellectual Property

AuthorBradford P. Lyerla
chapter 3
Antitrust Issues in Licensing
Intellectual Property
I. Introduction
Intellectual property holders typically exploit their intellectual property
by forming licensing agreements with third parties. If performed appropri-
ately, licensing intellectual property can foster pro-competitive behavior
between parties. However, if not performed appropriately, licensing intel-
lectual property may be perceived as anticompetitive, which may result in
increased exposure to antitrust liability. This chapter focuses on antitrust
issues associated with the licensing of intellectual property and explores
the boundary between forming pro-competitive and anticompetitive licens-
ing agreements.
II. Analyzing Antitrust Issues
in Licensing Agreements
There are generally two types of conduct by an intellectual property holder
that give rise to antitrust liability in intellectual property licensing. First,
there are multilateral actions between an intellectual property holder and
a third party such as a licensee that result in a restraint of trade. Multi-
lateral action cases are generally analyzed under section 1 of the Sherman
Act,1 which states that “[e]very contract, combination in the form of trust
or otherwise, or conspiracy, in restraint of trade or commerce among the
several States, or with foreign nations, is declared to be illegal.”2 A viola-
tion of section 1 of the Sherman Act has three elements: (1) an agreement,
1. 15 U.S.C. §1.
2. Id.
lye54458_03_ch03_049-084.indd 49 4/28/16 1:06 PM
(2)which unreasonably restrains competition, and (3) which affects inter-
state commerce.3 The overwhelming majority of antitrust issues in intel-
lectual property licensing are associated with multilateral action cases
such as an intellectual property holder imposing a restraint on the licens-
ee’s use of intellectual property in a licensing agreement.
Second, there are unilateral actions by the intellectual property holder
resulting in or expanding monopoly power. Unilateral action cases are
analyzed under section 2 of the Sherman Act.4 This chapter primarily
focuses on the multilateral actions of intellectual property holders and
provides an analytical framework for determining whether an intellectual
property licensing agreement may create antitrust liability under section
1 of the Sherman Act.
§3.1 The DOJ and FTC Licensing Guidelines
The U.S. Department of Justice and the U.S. Federal Trade Commission
jointly released in 1995 antitrust guidelines for the licensing of intellectual
property,5 hereinafter the Licensing Guidelines or Guidelines. The Licens-
ing Guidelines provide the antitrust enforcement policy of the DOJ and
the FTC, hereinafter in this chapter collectively referred to as the Agen-
cies. The Licensing Guidelines describe the analytical framework used by
the Agencies in examining potential anticompetitive practices associated
with the licensing of patents, copyrights, trade secrets, and know-how. In
contrast to previous position statements by the Agencies, it is important
to recognize that the Agencies state in the introduction of the Licensing
Guidelines that “[t]he intellectual property laws and the antitrust laws
share the common purpose of promoting innovation and enhancing con-
sumer welfare.”6 Therefore, these guidelines provide an excellent starting
point for analyzing and evaluating the antitrust implications of intellec-
tual property licensing agreements. Although the Licensing Guidelines
are now twenty years old, they remain a frequently cited source when
analyzing licensing and competition issues. Because of their continuing
influence and the likelihood that IP practitioners have limited experience
3. See Richter Concrete Corp. v. Hilltop Basic Res., Inc., 547 F. Supp. 893, 917 (S.D. Ohio
1981), aff’d, 691 F.2d 818 (6th Cir. 1982); Consol. Farmers Mut. Ins. Co. v. Anchor Sav.
Ass’n, 480 F. Supp. 640, 648 (D. Kan. 1979); Mardirosian v. Am. Inst. of Architects, 474 F.
Supp. 628, 636 (D.D.C. 1979).
4. 15 U.S.C. §2.
U.S. Dept of JUStice & feD . traDe commn
antitrUSt GUiDelineS for the lice nSinG
of intellectUal property
(Apr. 6, 1995) [hereinafter
licenSinG GUiDelineS
], available at
6. Id. §1.
lye54458_03_ch03_049-084.indd 50 4/28/16 1:06 PM
Antitrust Issues in Licensing Intellectual Property 51
with the Guidelines, this chapter will discuss the Licensing Guidelines
in detail. It should be noted that the Agencies did not address antitrust
enforcement policy for trademarks in the Licensing Guidelines; however,
the Agencies mention that the same general principles may also be applied
to trademarks.7
§3.1.1 General Principles
The Licensing Guidelines provide guiding principles used by the Agencies
in shaping their antitrust enforcement policy. First, the Agencies apply the
same general antitrust principles to the use of intellectual property as to
the use of any other form of property. The Agencies describe that “[i]ntel-
lectual property has important characteristics, such as ease of misappro-
priation, that distinguishes it from many other forms of property . . . and
[does] not require the application of fundamentally different principles.”8
The Agencies further comment that “[i]ntellectual property is thus neither
particularly free from scrutiny under the antitrust laws, nor particularly
suspect under them.”9 In addition, the Agencies recognize that the Licens-
ing Guidelines “apply equally to domestic and international licensing
Second, the Agencies do not presume that intellectual property cre-
ates market power. The Agencies define market power as “the ability to
profitably maintain prices above, or output below, competitive levels, for a
significant period of time.”11 The Agencies comment that “market power (or
even a monopoly) that is solely ‘a consequence of a superior product, busi-
ness acumen, or historic accident’ does not violate the antitrust laws.”12
The Agencies further note that market power does not “impose on the
intellectual property owner an obligation to license the use of the property
to others.”13
Third, the Agencies recognize that licensing intellectual property is
generally pro-competitive. The Agencies observe that licensing intellec-
tual property “can facilitate integration of the licensed property with
complementary factors of production” such as other intellectual property,
manufacturing and distribution facilities, and workforces.14 The Agencies
7. Id. §1.0 n.1.
8. Id. §2.1 (emphasis added).
9. Id.
10. Id.
11. Id. §2.2.
12. Id.; see also United States v. Grinnell Corp., 384 U.S. 563, 571 (1966).
licenSinG GUiDelineS
, supra note 5.
14. Id. §2.3.
lye54458_03_ch03_049-084.indd 51 4/28/16 1:06 PM

To continue reading

Request your trial