Counseling Guidelines for the Licensing of Intellectual Property

• Pages: 355-420

355

CHAPTER VI

COUNSELING GUIDELINES FOR THE LICENSING

OF INTELLECTUAL PROPERTY

The Department of Justice and Federal Trade Commission Antitrust

Guidelines for the Licensing of Intellectual Property (1995 IP

Guidelines)1 continue to be a key resource for advising clients on the

antitrust boundaries of technology licensing, even though they date back

to 1995 and are merely persuasive—not binding—authority in the

courts.2 Other relevant authority includes the 2007 joint report on

Antitrust Enforcement and Intellectual Property Rights: Promoting

Innovation and Competition3 along with analogous reports issued by

competition agencies in other jurisdictions,4 and case law addressing the

1. See U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for

the Licensing of Intellectual Property (1995) [hereinafter 1995 IP

Guidelines], available at http://www. usdoj. gov/atr/public/ guidelines/

0558.pdf.

2. The 1995 IP Guidelines reflect the enforcement position of the federal

antitrust authorities, but they are not binding on the courts. Nonetheless,

the 1995 IP Guidelines themselves are based primarily on existing case

law and current economic thinking, making them persuasive authority

and an informed source for counselors. See Yee Wah Chin & Kathryn E.

Walsh, Antitrust Counseling in Intellectual Property Licensing, 832

PLI/Pat 267, 275 (2005); Richard J. Hoskins & Zubin P. Khambatta,

Antitrust Law and Intellectual Property Licensing: An Overview, 806

PLI/PAT 449 (2004). Also relevant to understanding the enforcement

position of the agencies are the various mechanisms used to provide

industry guidance, including speeches from the top ranking officials,

studies from agencies’ leading economists, policy statements regarding

the negotiation and settlement of claims that fall short of litigation, and

joint reports generated from investigative hearings into particular

practices and hearings.

3. U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and

Intellectual Property Rights: Promoting Innovation and Competition

(2007) [hereinafter 2007 IP Report], available at www.usdoj.gov/atr/

public/hearings/ ip/222655.pdf.

4. The European Commission has issued a notice of particular relevance for

intellectual property licensing practitioners. See European Comm’n,

Communication from the Commission—Guidelines on the Application of

Article 101 of the Treaty on the Functioning of the European Union to

Technology Transfer Agreements, 2014 O.J. (C 89) (Mar. 21, 2014)

356 Intellectual Property and Antitrust Handbook

appropriate antitrust principles to be applied in the context of intellectual

property licensing. In addition, the agencies also respond to specific

requests for guidance from the business community—through the

Department of Justice (DOJ)’s business review letter and the Federal

Trade Commission (FTC)’s staff advisory opinion letter processes—

detailing how they would evaluate and react to particular types of

business conduct. Finally, counselors should be aware of case law that

involves the sale of goods (as opposed to the licensing of intellectual

property), which also provides important guidance as to the appropriate

antitrust framework to apply to the licensing of intellectual property. In

fact, the first principle set forth in the 1995 IP Guidelines is that,

generally, intellectual property ought to be treated much like other forms

of property.5 These sources should be considered collectively by the

antitrust counselor. This chapter relies most extensively on the 1995 IP

Guidelines and the 2007 IP Report and notes some differences in the

case law or agency guidance from other jurisdictions. Those looking for

a more comprehensive discussion of these subjects should also consult

the more substantive treatment of many of the subjects in the preceding

chapters, as well as the related ABA treatise, Federal Antitrust

Guidelines for the Licensing of Intellectual Property: Origins and

Applications.6

At the most basic level, the 1995 IP Guidelines instruct that antitrust

counseling is inherently a fact-specific process, requiring attorneys to

comprehend the substance of a licensing transaction.7 To facilitate the

process, the 1995 IP Guidelines outline a multistep approach for

effective counseling.

[hereinafter 2014 EU TECHNOLOGY TRANSFER GUIDELINES]. There are

also two additional notices from the Commission that, although more

general in scope, are also helpful: European Comm’n, Communication

from the Commission—Guidelines on the Application of Article 81(3) of

the Treaty, 2004 O.J. (C 101) (Apr. 27, 2004) [hereinafter 2004 EU

GUIDELINES ON THE APPLICATION OF ARTICLE 81(3)], and European

Commission, Communication from the Commission—Guidance on the

Commission’s Enforcement Priorities in Applying Article 82 of the EC

Treaty to Abusive Exclusionary conduct by Dominant Undertakings, 2009

O.J. (C 45) (Feb. 24, 2009).

5. See 1995 IP GUIDELINES, supra note 1, §§ 2.0-2.1.

6. ABA Section Of Anttirust Law, The Federal Antitrust Guidelines For The

Licensing Of Intellectual Property: Origins And Applications (3d ed.

2010).

7. 1995 IP GUIDELINES, supra note 1, § 1.0, n.2.

Counseling Guidelines For The Licensing Of Intellectual Property 357

As an initial matter, counselors must identify the nature of the

licensing restrictions associated with the transaction and how such

restrictions affect the parties’ relationship to one another and to other

potential competitors.8 This inquiry requires an examination of what

anticompetitive effects potentially can arise from a particular

arrangement, and in so doing, a determination of the level of antitrust

scrutiny likely to be applied. In the absence of market power, antitrust

liability is unlikely to attach to any but the most suspect of licensing

practices.9 However, counselors should keep in mind that a licensor may

possess market power in a technology market even if the licensor appears

to have an insignificant share of sales in a market for physical products.10

Moreover, some practices rise to the level of per se violations or per se

patent misuse, and thus risk leaving a licensor unable to enforce its

patent rights even if no market power or anticompetitive effects can be

demonstrated.11

Where market power exists, or where the parties purport to have a

compelling need for engaging in practices traditionally viewed as

problematic, the counselor must evaluate the strength and legitimacy of

the proffered business justifications and whether the procompetitive

goals of the restraints can be accomplished by less restrictive means.12

Finally, where licensing restrictions are reasonably necessary to advance

valid business justifications yet present a risk of restraining competition,

the counselor must evaluate whether the arrangement will produce

sufficient offsetting procompetitive effects to outweigh the potential for

anticompetitive harm.13

8. See id. §§ 3.3-3.4.

9. See id. § 3.4.

10. See id. § 3.2.

11. The distinction between antitrust and patent misuse inquiries, and the

narrow categories of per se patent misuse, are discussed in more detail in

part F.1 of this chapter and in Chapter II. See Virginia Panel Corp. v.

MAC Panel Co., 133 F.3d 860, 869 (Fed. Cir. 1997) (two types of per se

patent misuse are tying arrangements “in which a patentee conditions a

license under the patent on the purchase of a separable, staple good, and

arrangements in which a patentee effectively extends the term of its

patent by requiring post-expiration royalties.”) (citation omitted). See

generally Geoffrey D. Oliver, Princo v. International Trade Commission:

Antitrust Law and the Patent Misuse Doctrine Part Company,

ANTITRUST, Spring 2011, at 62-67.

12. See 1995 IP GUIDELINES, supra note 1, §§ 3.4, 4.1-4.2, 5.1.

13. For a discussion of valid business justifications, see part E of this chapter.