Harmonizing competing legal theories in patent law, antitrust law and the first amendment.

Author:O'Brien, Michael


Patent law complements antitrust law. The patent system seeks to "promote the progress of science" by adjusting investment-based risk (U.S. Const, art. I, [section] 8, cl. 8). Likewise, the antitrust laws seek to foster competition in industry. Using civil actions to enforce the patent law and antitrust laws are complicated by the First Amendment of the U.S. Constitution. Likewise, antitrust law seeks to foster competition in industry. However, using civil actions to enforce patent and antitrust laws are complicated by the First Amendment of the U.S. Constitution.

The primary reason for this complication is that patent law antitrust law and the First Amendment have very different underlying jurisprudential theories that have guided their respective interpretations in American courts since the beginning of the twentieth century. Patent law has been formed and guided by property theories. Patent law seeks to determine when a property right is created, when that property right is misappropriated, and what remedies are available for such misappropriations (O'Brien, 2009). In contrast, antitrust law is formed and guided by microeconomic theory and, in particular, industrial organization. Industrial organization asks how firms set prices in a market economy (Fisher & Monz, 1991). A part of industrial organization regards either causing a deviation from an equilibrium market price, or punishing such a deviation when it occurs. The former is commonly called regulation, and the latter is commonly referred to as competition policy or antitrust. Antitrust often involves balancing society's interests with the interests of a particular firm; this utilitarian balancing is similar to that used in First Amendment analysis. The First Amendment protects certain kinds of expression from interference by the government. In doing so, courts consider "competing private and public interests at stake in the particular circumstances shown." (Barenblatt v. United States, 1959).

Consequently, patent law, antitrust law, and the First Amendment intersected in a unique variety of antitrust laws that developed over the last few decades. This article examines the interplay of these laws and their underpinnings in the context of direct purchasers, typically retailers, suing sellers of patented products for deceiving the U.S. Patent and Trademark Office while their patents are being obtained. This is commonly referred to as a Walker Process claim. This article argues that allowing retailers' broad standing to sue disregards the nuance that Walker Process embraced. The article concludes with recommendations to balance the antitrust policy considerations of purchasers with property rights of patentees and the First Amendment.

Patent Law : a Primer

An inventor may obtain a patent for "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof' (35 U.S.C. [section] 101). In order to do so, an inventor must apply to the U.S. Patent and Trademark Office (USPTO) and explain how to make and use the invention (35 U.S.C. [section] 112). A person is entitled to patent on a device, unless the device was "in public use or on sale [for] more than one year prior to the date of the application for patent," or the applicant "did not himself invent the subject matter sought to be patented" (35 U.S.C. [section] 102(b)). Additionally, an applicant has a "duty to disclose information material to patentability" such as prior sales, previous public uses, and other inventors (37 C.F.R. 1.56). Therefore, a patent application often contains more than just a description of the invention, since it must also contain information that could negatively affect patentability.

Once a patent issues, the patentee has the right to prevent others from making, using, or selling the patented invention anywhere in the United States and the patentee can obtain money damages for an infringement of these rights (35 U.S.C. [section] 271). An action for infringement requires 1) an act of infringement, and 2) a valid patent (35 U.S.C. [section] 271). When a patent represents an entire market, and that patent is enforced, the patent holder has an opportunity to gain a monopoly in that market in and obtain monopolist profits. Such large rewards have tempted some patent applicants to avoid disclosing information that could negatively affect patentability. Unfortunately, when an applicant fails to disclose known information that is material to patentability, an issued patent could later be cancelled.

In this regard, the creation and modification of a property right manifests the moral underpinning of the Patent Act. People have ownership rights to the fruits of their labor that result in an added value to society (Locke, 1986, p.8). Once ownership is established, society has the prerogative to create rules regarding modification (Epstein, 1998, p.30). The primary modification to ownership that society seeks to prevent is theft (Exodus 20:15). Without protections to prevent theft, individuals would have limited incentive to add value to society out of fear that this value may be stolen from them (Aquinas, II-II, q.66).

Wrongfully obtained property is equally troubling. The action requiring one to return wrongfully obtained property has been recognized at Common Law since the time of King Henry III (Statute or Marlbridge). Likewise, a prohibition against stealing from the sovereign has been recognized since time immemorial (Genesis 42:29-43:15 King James Version). It follows reasonably then, that patents are property rights that should be protected--unless the patent is a product of deceit on the USPTO, in which case, the patent should be cancelled. However, the extent of the ramifications of the monopoly power, in the context of patent enforcement, is the subject of antitrust law, which is discussed in the next section.

The Intersection of Patent Law and Antitrust Law

A patent enables the patentee to prevent others from making, using, or selling the patented device anywhere in the United States (35 U.S.C. [section] 271). However, there can be no monopoly until a patent is enforced. For example, through patent enforcement, competition can be removed from the marketplace by using the threat of an infringement lawsuit (35 U.S.C. [section]281). Once competition has been removed, the firm with the patent is able to charge a cartel price--an artificially high price that is well above the market price of the invention. (Sexton, R. 2010, p. 370).

Cartel prices can cause two possible antitrust injuries. The first possible injury is a competition injury that applies to either those persons about to enter, or those persons who are presently in, the market place. Typically, this injury is calculated as the business loss of the plaintiff who was unable to enter the marketplace and is independent of any profits of the defendant (Foer & Cuneo, J. 2010, pp. 84-86). The second possible injury is an overcharge injury that applies to the direct purchaser and is calculated as the difference between the cartel price and the market price (Foer, A. pp. 84-86). Practically, direct purchasers typically suffer very minor and speculative injuries--perhaps only a few pennies (Crane, 2010, p. 12-14). This minimal injury is because most of the injury to the direct purchaser is passed through to the consumer (Crane, p. 12-14).

Section 2 of the Sherman Antitrust Act prevents the willful acquisition or maintenance of monopoly power in a market (Sherman Antitrust Act). However, obtaining a patent gives the patent holder an exception to Section 2 and the ability to charge cartel prices without facing criminal penalties under the Sherman Act or civil penalties under the Clayton Act (United States v. General Electric Co., 1926). This exception would appear to comport with the moral underpinnings of the Patent Act, by creating a property right for the inventor, and then giving the inventor the opportunity to enforce the property right. However, the termination of a property right, specifically by the sovereign, raises First Amendment issues.

Utilitarian Balancing under the First Amendment

In Walker Process Equip. Co. v. Food Mach. & Chem. Corp., (1965) (Walker Process), the U.S. Supreme Court held that "the enforcement of a patent procured by fraud on the Patent Office may be violative of [section] 2 of the Sherman Act provided the other elements necessary to a [section] 2 case are present". In that case, Walker Process Equipment sued Food Machinery & Chemical for infringing its patent for knee-action swing diffusers used in aeration equipment for sewage treatment systems. Food Machinery & Chemical counterclaimed, claiming that Walker Process Equipment "illegally monopolized interstate and foreign commerce by fraudulently and in bad faith obtaining and maintaining ... its patent . . . well knowing that it had no basis for ... a patent" (Walker Process Equip. Co., at 175). In particular, Food Machinery & Chemical stated that Walker Process Equipment, in its patent application, failed to report sales that would qualify as prior art, thereby violating the duty to disclose information material to patentability (Walker Process Equip. Co., at 175). In short, the defendant counterclaimed that Walker Process Equipment, by suing Food Machinery & Chemical, was seeking to enforce a patent that should not have been issued by virtue of the previous undisclosed sale.

The Supreme Court recognized that the counterclaim in Walker Process involved balancing conflicting interests between the Sherman Act and the First Amendment of the U.S. Constitution. The Sherman Act prevents willful acquisition or maintenance of monopoly power in a relevant market (Sherman Antitrust Act; United States v. Grinnell Corp., 1966). Simultaneously, Americans can "petition the Government for a redress of grievances" under the First Amendment (U.S. Const, amend. I). This "right to...

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