Antitrust Issues in the Acquisition, Procurement, and Ownership of Intellectual Property

• Author: Bradford P. Lyerla
• Pages: 5-48

5

chapter 2

Antitrust Issues in the

Acquisition, Procurement,

and Ownership of

Intellectual Property

I. Introduction

Parties considering mergers, acquisitions, joint ventures, or joint develop-

ment agreements should consider whether these collaborations will limit

or appear to limit competition. They must be careful to properly procure

their intellectual property to avoid later antitrust disputes. In managing

their intellectual property portfolios, intellectual property holders also

should be aware of potential antitrust issues associated with their refusal

to sell or license their property, especially if such refusal is done in concert

with others. FTC and DOJ officials recently reaffirmed that they will con-

tinue to focus on competition concerns in the patent area, including portfo-

lio acquisitions.1 This chapter will address antitrust issues associated with

acquiring, procuring, and owning intellectual property.

II. Acquisition

The acquisition of intellectual property presents three antitrust ques-

tions: (1) what markets may be affected, (2) how will the acquisition affect

market power in those markets, and (3) what are permissible methods of

intellectual property acquisition?

1. ABA, Intellectual Prop. Comm., DOJ and FTC Will Continue to Focus on Competition

Concerns in the Patent Area,

tidBitS,

Mar. 15, 2013.

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CHAPTER 2

6

Sections 2.1, 2.2, and 2.3 discuss three kinds of relevant markets that

may be implicated: goods, technology, and innovation markets. Sections

2.4 and 2.5 discuss important principles for assessing whether market

power may exist: monopolization and barriers to entry. Sections 2.6, 2.7,

2.8, and 2.9 discuss antitrust issues that arise when acquiring intellectual

property in various ways: exclusive versus non-exclusive licenses, joint

ventures, cross-licensing and pooling arrangements, and grantbacks.

§2.1 Goods Markets

Related markets of goods can be relevant to evaluating the competitive

effects of an acquisition or licensing arrangement. For example, “[a]

restraint in a licensing arrangement may have competitive effects in mar-

kets for final or intermediate goods made using the intellectual property,

or it may have effects upstream, in markets for goods that are used as

inputs, along with the intellectual property, to the production of other

goods.”2 When reviewing a transfer of intellectual property through an

acquisition or license, federal agencies evaluate the delineation of the

goods market as detailed in Section 1 of the U.S. Department of Justice

and Federal Trade Commission’s Horizontal Merger Guidelines.3

In the context of a proposed acquisition of intellectual property,

antitrust authorities analyze the relevant product market to determine

whether the acquisition will have anticompetitive effects in that market.

For example, the DOJ closely examined the product market for wireless

device operating systems in connection with three separate proposed

acquisitions.4 At the end of 2011, Google’s Android accounted for approx-

imately 46 percent of the U.S. smartphone operating system platform

subscribers, while Apple, Research In Motion, and Microsoft held 30, 15,

and 6 percent of subscribers, respectively.5 The DOJ scrutinized three

patent portfolio acquisitions: (1) Google’s acquisition of 17,000 issued pat-

ents and 6,800 applications from Motorola Mobility, including hundreds

of Standard Essential Patents (SEPs) relevant to wireless devices; (2) the

2.

U.S. dep’t of JUStice & fed. trade comm’n

,

antitrUSt GUidelineS for the licenSinG of

intellectUal property

§3.2 (Apr. 6, 1995) [hereinafter

antitrUSt-ip licenSinG GUidelineS]

,

available at http://www.justice.gov/atr/public/guidelines/0558.htm.

3.

U.S. dep’t of JUStice & fed. trade comm’n, horizontal merGer GUidelineS

§5.2 (Aug.

19, 2010) [hereinafter

horizontal merGer GUidelineS

] (“The Agencies normally calculate

market shares for all firms that currently produce products in the relevant market, subject

to the availability of data.”).

4. Dep’t of Justice, Statement of the Department of Justice’s Antitrust Division on

Its Decision to Close Its Investigations of Google Inc.’s Acquisition of Motorola Mobility

Holdings Inc. and the Acquisitions of Certain Patents by Apple Inc., Microsoft Corp. and

Research In Motion Ltd. (Feb. 13, 2012).

5. Id.

lye54458_02_ch02_005-048.indd 6 4/28/16 1:03 PM

Antitrust Issues in the Acquisition, Procurement, and Ownership of Intellectual Property 7

acquisition by Rockstar Bidco, a partnership including RIM, Microsoft,

and Apple, of 6,000 patents and patent applications, including many SEPs

relevant to wireless devices, from Nortel; and (3) Apple’s acquisition of

patents held by CPTN Holdings LLC, formerly owned by Novell.6 After

carefully analyzing the product market and relying on assurances from the

acquiring companies about their intended licensing practices with respect

to the newly acquired patents, the DOJ determined that the acquisitions

were unlikely to substantially lessen competition.7

The FTC and the lawyers for Integrated Device Technologies, Inc.

and PLX Technology, Inc. disputed the relevant market to consider when

analyzing the proposed purchase of PLX.8 The FTC contended that the rel-

evant market was PCIe switches.9 In contrast, PLX contended that PCIe

switches were not a relevant market because PCIe switches were part of

a wider “systems interconnect solutions” market, in which PCIe competes

with various data transfer protocols including Ethernet and InfiniBand.10

FTC Commissioner Julie Brill’s public comments about the case suggest

that the FTC believed, after interviews with IDT and PLX customers, that

customers would most likely pay the increased price and not switch to the

alleged substitutes for PCIe switches if faced with a price increase follow-

ing the merger.11

Other product markets involving patents that have been the subject

of recent antitrust inquiry include over-the-counter motion sickness medi-

cation;12 generic pharmaceuticals to supplement fluoride;13 the market for

air-conditioning recycling, recovery, and recharge services;14 and magne-

sium plates for photoengraving applications.15

§2.2 Technology Markets

Technology markets “consist of the intellectual property that is licensed . . .

and its close substitutes—that is, the technologies or goods that are close

enough substitutes significantly to constrain the exercise of market power

6. Id.

7. Id.

8. Julie Brill, Comm’r, Speech on Merger Enforcement in High-Tech Markets (Jan. 28,

2013).

9. Id.

10. Id.

11. Id.

12. Complaint, In re Prestige Brands Holdings, Inc. & Insight Pharm. Corp., No. C-4487

(F.T.C. Aug. 27, 2014).

13. Complaint, In re Endo Health Solutions, Inc. et al., No. C-4430 (F.T.C. Jan. 29, 2014).

14. Press Release, FTC, FTC Order Restores Competition in U.S. Market for Equipment

Used to Recharge Vehicle Air Conditioning Systems (Nov. 26, 2012).

15. Press Release, FTC, FTC Order Restores Competition in Market for Magnesium

Plates for Photoengraving (Oct. 12, 2012).

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