Appendix K. 1995 Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual Property

• Pages: 625-662

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APPENDIX K

1995 DEPARTMENT OF JUSTICE AND

FEDERAL TRADE COMMISSION ANTITRUST

GUIDELINES FOR THE LICENSING OF

INTELLECTUAL PROPERTY

1. Intellectual property protection and the antitrust laws

2. General principles

2.1 Standard antitrust analysis applies to intellectual property

2.2 Intellectual property and market power

2.3 Procompetitive benefits of licensing

3. Antitrust concerns and modes of analysis

3.1 Nature of the concerns

3.2 Markets affected by licensing arrangements

3.2.1 Goods markets

3.2.2 Technology markets

3.2.3 Research and development: Innovation markets

3.3 Horizontal and vertical relationships

3.4 Framework for evaluating licensing restraints

4. General principles concerning the Agencies’ evaluation of licensing

arrangements under the rule of reason

4.1 Analysis of anticompetitive effects

4.1.1 Market structure, coordination, and foreclosure

4.1.2 Licensing arrangements involving exclusivity

4.2 Efficiencies and justifications

4.3 Antitrust “safety zone”

5. Application of general principles

5.1 Horizontal restraints

5.2 Resale price maintenance

5.3 Tying arrangements

5.4 Exclusive dealing

5.5 Cross-licensing and pooling arrangements

5.6 Grantbacks

5.7 Acquisition of intellectual property rights

6. Enforcement of invalid intellectual property rights

626 MERGERS AND ACQUISITIONS

1. Intellectual Property Protection and the Antitrust Laws

1.0 These Guidelines state the antitrust enforcement policy of the U.S.

Department of Justice and the Federal Trade Commission (individually,

“the Agency,” and collectively, “the Agencies”) with respect to the

licensing of intellectual property protected by patent, copyright, and

trade secret law, and of know-how.1 By stating their general policy, the

Agencies hope to assist those who need to predict whether the Agencies

will challenge a practice as anticompetitive. However, these Guidelines

cannot remove judgment and discretion in antitrust law enforcement.

Moreover, the standards set forth in these Guidelines must be applied in

unforeseeable circumstances. Each case will be evaluated in light of its

own facts, and these Guidelines will be applied reasonably and flexibly.2

In the United States, patents confer rights to exclude others from

making, using, or selling in the United States the invention claimed by

the patent for a period of seventeen years from the date of issue.3 To

gain patent protection, an invention (which may be a product, process,

machine, or composition of matter) must be novel, nonobvious, and

1.These Guidelines do not cover the antitrust treatment of trademarks.

Although the same general antitrust principles that apply to other forms of

intellectual property apply to trademarks as well, these Guidelines deal

with technology transfer and innovation-related issues that typically arise

with respect to patents, copyrights, trade secrets, and know-how

agreements, rather than with product-differentiation issues that typically

arise with respect to trademarks.

2.As is the case with all guidelines, users should rely on qualified counsel

to assist them in evaluating the antitrust risk associated with any

contemplated transaction or activity. No set of guidelines can possibly

indicate how the Agencies will assess the particular facts of every case.

Parties who wish to know the Agencies’ specific enforcement intentions

with respect to any particular transaction should consider seeking a

Department of Justice business review letter pursuant to 28 C.F.R. § 50.6

or a Federal Trade Commission Advisory Opinion pursuant to 16 C.F.R.

§§ 1.1-1.4.

3.See 35 U.S.C. § 154 (1988). Section 532(a) of the Uruguay Round

Agreements Act, Pub. L. No. 103-465, 108 Stat. 4809, 4983 (1994)

would change the length of patent protection to a term beginning on the

date at which the patent issues and ending twenty years from the date on

which the application for the patent was filed.

Appendix K 627

useful. Copyright protection applies to original works of authorship

embodied in a tangible medium of expression.4 A copyright protects

only the expression, not the underlying ideas.5 Unlike a patent, which

protects an invention not only from copying but also from independent

creation, a copyright does not preclude others from independently

creating similar expression. Trade secret protection applies to

information whose economic value depends on its not being generally

known.6 Trade secret protection is conditioned upon efforts to maintain

secrecy and has no fixed term. As with copyright protection, trade secret

protection does not preclude independent creation by others.

The intellectual property laws and the antitrust laws share the

common purpose of promoting innovation and enhancing consumer

welfare.7 The intellectual property laws provide incentives for

innovation and its dissemination and commercialization by establishing

enforceable property rights for the creators of new and useful products,

more efficient processes, and original works of expression. In the

absence of intellectual property rights, imitators could more rapidly

exploit the efforts of innovators and investors without compensation.

Rapid imitation would reduce the commercial value of innovation and

erode incentives to invest, ultimately to the detriment of consumers. The

antitrust laws promote innovation and consumer welfare by prohibiting

certain actions that may harm competition with respect to either existing

or new ways of serving consumers.

4.See 17 U.S.C. § 102 (1988 & Supp. V 1993). Copyright protection lasts

for the author’s life plus 50 years, or 75 years from first publication (or

100 years from creation, whichever expires first) for works made for hire.

See 17 U.S.C. § 302 (1988). The principles stated in these Guidelines also

apply to protection of mask works fixed in a semiconductor chip product

(See 17 U.S.C. § 901 et seq. (1988)), which is analogous to copyright

protection for works of authorship.

5.See 17 U.S.C. § 102(b) (1988).

6.Trade secret protection derives from state law. See generally Kewanee

Oil Co. v. Bicron Corp., 416 U.S. 470 (1974).

7.“[T]he aims and objectives of patent and antitrust laws may seem, at first

glance, wholly at odds. However, the two bodies of law are actually

complementary, as both are aimed at encouraging innovation, industry

and competition.” Atari Games Corp. v. Nintendo of America, Inc., 897

F.2d 1572, 1576 (Fed. Cir. 1990).