Antitrust Issues in Transactions Involving Intellectual Property

• Pages: 269-313

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CHAPTER IV

ANTITRUST ISSUES IN TRANSACTIONS

INVOLVING INTELLECTUAL PROPERTY

A. Antitrust Statutes and Acquisitions of Intellectual Property

1. Overview of Section 7 of the Clayton Act

Acquisitions of intellectual property are subject to the Clayton Act,1

the Sherman Act,2 and the Federal Trade Commission Act.3 The most

frequently applied of these is Section 7 of the Clayton Act, which

prohibits mergers and acquisitions if, “in any line of commerce or in any

activity affecting commerce in any section of the country, the effect of

such acquisition may be substantially to lessen competition, or tend to

create a monopoly.”4 The Antitrust Division of the Department of Justice

(DOJ) and the Federal Trade Commission (FTC) exercise concurrent

jurisdiction to enforce Section 7 and to challenge mergers, acquisitions,

joint ventures, and other transactions as necessary. States and private

parties also may sue to enforce Section 7 pursuant to Section 4 or 16 of

the Clayton Act.5

1. 15 U.S.C. §§ 12-27.

2. 15 U.S.C. §§ 1-7. Mergers and acquisitions can constitute unreasonable

restraints of trade under § 1 of the Sherman Act, which prohibits “[e]very

contract, combination . . . or conspiracy, in restraint of trade.” 15 U.S.C.

§ 1; see, e.g., United States v. First Nat’l Bank & Trust Co., 376 U.S. 665

(1964); United States v. Columbia Steel, 334 U.S. 495 (1948). They also

can be a form of monopolization or attempted monopolization in

violation of § 2 of the Sherman Act. 15 U.S.C. § 2; see, e.g., Columbia

Steel, 334 U.S. at 531-34.

3. The FTC can challenge transactions under § 5 of the FTC Act, which

prohibits “unfair methods of competition.” 15 U.S.C. § 45 (“Unfair

methods of competition . . . are hereby declared unlawful.”).

4. 15 U.S.C. § 18.

5. Section 4 of the Clayton Act allows any “person . . . injured in his

business or property by reason of anything forbidden in the antitrust

laws” to recover treble damages. 15 U.S.C. § 15(a); see, e.g., Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) (acknowledging

private right of relief under § 7 but denying competitors’ claims because

270 Intellectual Property and Antitrust Handbook

Section 7 encompasses a broad range of acquisitions, including

stocks, assets, and partnership interests. As originally enacted in 1914,

Section 7 prohibited only acquisitions of stock. In 1950, Congress

amended Section 7 with the passage of the Celler-Kefauver Antimerger

Act to include asset acquisitions. Patents,6 copyrights,7 and trademarks8

are considered assets for purposes of Section 7. An acquisition of an

exclusive license to intellectual property is also considered an asset for

the purpose of Section 7 analysis.9

Standard merger analysis typically applies to acquisitions of

intellectual property. Federal (and many state) enforcers assess the

potential competitive effects of transactions under the DOJ/FTC 2010

Horizontal Merger Guidelines (2010 Merger Guidelines)10 and the 1995

Antitrust Guidelines for the Licensing of Intellectual Property (1995 IP

Guidelines).11

The 2010 Merger Guidelines set forth the analysis used to determine

if a merger or acquisition may substantially lessen competition and result

in increased prices, reduced output, or reduced innovation. This analysis

“while [their] loss occurred ‘by reason of’ the unlawful acquisitions, it

did not occur ‘by reason of’ that which made the acquisitions unlawful.”).

States also are considered “persons” under the Act. Hawaii v. Standard

Oil Co., 405 U.S. 251 (1972). Additionally, any person “threatened [with]

loss or damage by a violation of the antitrust laws” may sue for injunctive

relief. 15 U.S.C. § 26; see, e.g., California v. American Stores Co., 495

U.S. 271 (1990) (upholding divestiture as potential remedy in private

merger challenge).

6. See, e.g., SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1205 (2d. Cir.

1981); Telectronics Proprietary, Ltd. v. Detronic, Inc., 687 F. Supp. 832,

844 (S.D.N.Y. 1988); United States v. Lever Bros., 216 F. Supp. 887, 889

(S.D.N.Y. 1963).

7. See, e.g., United States v. Columbia Pictures, 189 F. Supp. 153, 181-82

(S.D.N.Y. 1960).

8. See, e.g., Lever Bros. 216 F. Supp. at 889.

9. See, e.g., Record Club of Am. v. Capitol Records, 1971 U.S. Dist. LEXIS

11738, at *6-7 (S.D.N.Y. 1971); Western Geophysical Co. v. Bolt

Assocs., 305 F. Supp. 1248, 1251 (D. Conn. 1969); United States v.

Columbia Pictures, 189 F. Supp. 153, 181-82 (S.D.N.Y. 1960).

10. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES (2010) [hereinafter 2010 MERGER GUIDELINES], available at

http://ftc.gov/ os/2010/08/100819hmg. pdf.

11. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTIRUST GUIDELINES

FOR THE LICENSING OF INTELLECTUAL PROPERTY (1995) [hereinafter

1995 IP GUIDELINES], available at http://www. justice.gov/

atr/public/guidelines/0558.htm.

Issues in Transactions Involving Intellectual Property 271

involves the consideration of reasonably available evidence, including

market shares, the level of market concentration, changes in market

concentration, the likelihood of unilateral anticompetitive effects or

coordinated interaction, entry conditions, and efficiencies.

The 1995 IP Guidelines provide that certain intellectual property

transfers are to be analyzed with reference to the 1992 Horizontal

Merger Guidelines,12 now replaced with the 2010 Merger Guidelines.

According to the 1995 IP Guidelines, certain transfers of intellectual

property rights are most appropriately analyzed by applying the

principles and standards used to analyze mergers, particularly those in

the 1992 Horizontal Merger Guidelines.13 The 1995 IP Guidelines

explain that the DOJ and FTC will apply a merger analysis to an outright

sale by an intellectual property owner of all of its rights to that

intellectual property and to a transaction in which a person obtains

through grant, sale, or other transfer an exclusive license for intellectual

property (i.e., a license that precludes all other persons, including the

licensor, from using the licensed intellectual property).14 Such

transactions may be assessed under Section 7 of the Clayton Act,

Sections 1 and 2 of the Sherman Act, and Section 5 of the Federal Trade

Commission Act.15

2. Acquisition of Patents

Patent acquisitions that may draw antitrust scrutiny fall into three

principal categories: (1) a company transfers the ownership or control of

a patent as part of the purchase of, or merger with, another company;

(2) a company internally develops technology and builds a patent

portolio in a particular field; or (3) a company acquires patent rights

through grantbacks, as discussed earlier in Chapter II.B.10.

A licensing arrangement involving exclusivity may raise

anticompetitive concerns if the licensees themselves, or the licensor and

its licensees, are in a horizontal relationship.16 In that setting, exclusive

licensing may anticompetitively foreclose (or increase the cost of)

competitors’ access to important inputs, or may facilitate coordination to

12. U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, HORIZONTAL MERGER

GUIDELINES (1992).

13. 1995 IP GUIDELINES, supra note 11, § 5.7.

14. Id.

15. Id.

16. Id. § 4.1.2.