Chapter §19.06 Antitrust Counterclaims in Patent Cases

• Jurisdiction: United States

§19.06 Antitrust Counterclaims in Patent Cases

[A] Generally

Section 282(b) of 35 U.S.C. does not speak to the assertion of antitrust liability on the part of the patent owner as a defense to a charge of infringement. Therefore a patent owner's alleged violation of the antitrust laws is not asserted by an accused infringer as an affirmative defense but rather as the subject of a counterclaim.⁹⁶⁰ Nevertheless, antitrust counterclaims in patent infringement cases are included in this chapter because they are the subject of increasing interest among the antitrust bar and Federal Circuit watchers in general.⁹⁶¹

Antitrust counterclaims in patent cases are most commonly brought under Section Two of the Sherman Act, which prohibits acquisition or maintenance of monopoly power through anticompetitive conduct.⁹⁶² Patents have been viewed (in pejorative fashion) as "monopolies," such that accused infringers of patents have asserted (under certain limited circumstances) that patent owners' enforcement of their "monopoly" rights represented a violation of the antitrust laws.

The mere assertion of patent rights is certainly not enough to give rise to antitrust liability, however; the party asserting a Sherman Act §2 monopolization must show (1) that the patentee has monopoly power in the relevant market, and (2) that it has acquired or is maintaining that power in an anticompetitive manner.⁹⁶³ These elements are commonly abbreviated as "market power" and "anticompetitive conduct." Each element is addressed below.

[B] Market Power

In practice, the requirement for a showing of market power⁹⁶⁴ excludes much of typical patent owner behavior from antitrust prosecution.⁹⁶⁵ The mere fact that a firm owns a patent on a particular invention does not in and of itself demonstrate the requisite market power, because the antitrust law of market definition recognizes the possibility of noninfringing substitutes for the patented technology.⁹⁶⁶ Moreover, the successful assertion of an antitrust counterclaim against a patent owner bringing an infringement suit is relatively rare because of certain antitrust protections given to intellectual property holders, discussed below.

The need for rigorous economic analysis of relevant market in patent/antitrust cases was emphasized in Unitherm Food Sys., Inc. v. Swift-Eckrich, Inc.⁹⁶⁷ There the Federal Circuit vacated the judgment of a district court entered on a jury verdict that had found patent owner Swift-Eckrich (d/b/a ConAgra Refrigerated Foods) liable under the antitrust laws for attempted monopolization in the amount of $18 million in trebled damages. "The district court erred," the Federal Circuit concluded, "in allowing the jury to decide Unitherm's antitrust claims despite the total absence of economic evidence capable of sustaining those claims."⁹⁶⁸

Applying Tenth Circuit law to those antitrust issues not intertwined with patent law, the Federal Circuit in Unitherm explained that a relevant product market is composed of "products that have reasonable interchangeability for the purposes for which they are produced."⁹⁶⁹ Market definition hinges on economic evidence, the Federal Circuit observed. In the case at bar, Unitherm's expert witness had defined the relevant product market as synonymous with the patented invention, a process for browning pre-cooked meats. The expert identified seven benefits of the patented process that no other similar process possessed and that, in his opinion, made the invention unique.

The expert's testimony, "or at least the relevant excerpts in the appellate record, cannot sustain Unitherm's definition of a relevant market," the Federal Circuit concluded. The expert's testimony addressed technological substitutability but not economic substitutability. Nothing in the record addressed "whether potential customers of the patented process faced with a price increase would shift to other processes offering different combinations of benefits."⁹⁷⁰ This determination "lies at the heart of market definition in antitrust analysis." "Not only is economic substitutability critical to market definition," the Federal Circuit explained, but also "it is improper to interpret 'the Sherman Act to require that products be fungible to be considered in the relevant market.' "⁹⁷¹ The minimal economic evidence in the record "suggested strongly" that Unitherm's expert's market definition was incorrect. In particular, the Federal Circuit found ConAgra's inability to attract any licensees indicative of a lack of pricing power—"the single most important element in defining a relevant antitrust market."⁹⁷²

Despite its economics-focused treatment of market power in the context of Sherman Act §2 cases such as Unitherm, the Federal Circuit in 2005 took a very different approach to market power in another patent/antitrust context, that of patent tying⁹⁷³ under Sherman Act §1.⁹⁷⁴ In Indep. Ink, Inc. v. Ill. Tools Works, Inc.,⁹⁷⁵ the appellate court recognized a presumption of market power on the part of the patent owner in a tying case, a presumption rejected shortly thereafter by the Supreme Court as discussed below.

Defendant Trident (a wholly owned subsidiary of Illinois Tool Works) held a patent on printheads⁹⁷⁶ and sold the printheads as well as ink (unpatented) used in the printheads. Trident's standard form licensing agreements with printer manufacturers (OEMs) granted the OEMs the right to "manufacture, use and sell . . . ink jet printing devices [printheads] supplied by Trident" only "when used in combination with ink and ink supply systems supplied by Trident." Thus, the licenses included an explicit tying provision conditioning the sale of the patented product (the printhead) on the sale of an unpatented product (the ink).

Plaintiff Independent Ink, a competitor of patent owner Trident in the manufacture and sale of ink, filed suit against Trident seeking a declaratory judgment that Trident's patent was invalid and not infringed. Independent Ink subsequently amended its complaint to allege that Trident had engaged in illegal tying under Sherman Act §1. A federal district court hearing the case rejected the notion of a presumption of market power on the part of a patent owner as contrary to modern economic thinking, and held that an antitrust claimant must affirmatively prove that a patentee has market power. Because antitrust claimant Independent Ink had not submitted any affirmative evidence defining the relevant market nor proving patentee Trident's power within it, the district court granted Trident's motion for summary judgment of no antitrust liability.

The Federal Circuit in Indep. Ink reversed the summary judgment for patentee Trident and remanded the case for further proceedings.⁹⁷⁷ After extensively reviewing the Supreme Court's tying jurisprudence, the Federal Circuit concluded that it was bound by the Court's holdings in Int'l Salt Co. v. United States⁹⁷⁸ and United States v. Loew's, Inc.⁹⁷⁹ to apply a presumption of market power in patent tying cases. None of the contrary authority relied on by the district court or Trident constituted an express overruling of the Supreme Court precedent.⁹⁸⁰ "Even where a Supreme Court precedent contains many 'infirmities' and rests upon 'wobbly, moth-eaten foundations,' " the Federal Circuit noted, "it remains the 'Court's prerogative alone to overrule one of its precedents.' "⁹⁸¹ The Federal Circuit concluded that although "[t]he time may have come to abandon the doctrine," it is "up to the Congress or the Supreme Court to make this judgment."⁹⁸²

Not surprisingly, the Supreme Court accepted the Federal Circuit's invitation.⁹⁸³ In Ill. Tool Works Inc. v. Indep. Ink, Inc.,⁹⁸⁴ the Court vacated the Federal Circuit's decision and held that "in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product."⁹⁸⁵ In other words, market power cannot be presumed from the fact that a patent covers the tying product; the antitrust claimant charging illegal tying must make a satisfactory evidentiary showing of the patent owner's market power based on actual market conditions. The Court characterized the traditional presumption of market power by patent owners as a "vestige of [its] historical distrust of tying arrangements,"⁹⁸⁶ which distrust has "substantially diminished" over time.⁹⁸⁷ It explained that the presumption of a patentee's market power first arose in the context of the patent misuse doctrine, outside of antitrust law, but later migrated into antitrust jurisprudence.

While the presumption's applicability was expanding in the case law, however, Congress began "chipping away at the assumption in the patent misuse context from whence it came."⁹⁸⁸ Most notably, Congress in 1988 amended the Patent Act by adding §271(d)(5). This statutory provision eliminated the patent-equals-market-power presumption in the patent misuse context.⁹⁸⁹ In view of Congress's judgment, the Supreme Court concluded that tying arrangements involving patented products should no longer be evaluated under the per se rule previously applied in cases such as Loew's and Morton Salt Co. v. G.S. Suppiger Co.⁹⁹⁰ While some tying arrangements involving patented products remain unlawful, such as those stemming from a true monopoly or marketwide conspiracy, "that conclusion must be supported by proof of power in the relevant market rather than by a mere presumption thereof."⁹⁹¹

The Ill. Tool Works Court also observed that its rejection of the presumption of market power from the existence of a patent "accords with the vast majority of academic literature on the subject."⁹⁹² The lesson to be drawn from this literature, as already adopted by Congress and the antitrust enforcement agencies, was that "[m]any tying arrangements, even those involving patents and requirements ties, are fully consistent with a free, competitive market."⁹⁹³ Hence, the Supreme Court reached the same conclusion: that a patent does not...