Illinois Tool Works Inc. v. Independent Ink, Inc.: the Intersection of Patent Law and Antitrust Law in the Context of Patent Tying Arrangements - Tiffany L. Williams

• Jurisdiction: United States,Federal
• Publication year: 2007
• Citation: Vol. 58 No. 3

Comment

Illinois Tool Works Inc. v. Independent Ink, Inc.: The Intersection of Patent Law and Antitrust Law in the Context of Patent Tying Arrangements

I. Introduction

It is increasingly common for businesses to sell products that are protected by a patent. But what happens when the company markets a bundle of products where some products are protected by patents, but others are not? under well-settled antitrust jurisprudence, such marketing typically would raise antitrust concerns as a tying arrangement only where there are at least two separate products, the company has market power over one of the products, and the company requires that customers buy one or more additional products as part of a bundle.¹

In Illinois Tool Works Inc. v. Independent Ink, Inc.,² the United States Supreme court grappled with the issue of whether the existence of patent protection over one product created market power in that product market such that the presence of market power is presumed for patent tying arrangements.³ Antitrust enforcement agencies, economists, and academics have long concluded that the mere presence of a patent does not automatically provide economic market power.⁴ However, a long line of cases by the Supreme Court have suggested otherwise, creating confusion among the lower courts facing this issue.

In Illinois Tool Works, the Supreme Court reversed the long-standing per se presumption of illegality under Sec. 1 of the Sherman Antitrust Act⁵ for patent tying arrangements on the basis that the approach was flawed from the beginning and required reversal.⁶ This presumption originated over sixty years ago in International Salt Co. v. United States,⁷ which incorporated the patent misuse doctrine into antitrust law.⁸ However, this presumption has faced increasing criticism over the last twenty years due to congressional revisions to the patent misuse doctrine, which have eroded the foundation for the presumption.⁹ The decision in Illinois Tool Works brings the treatment of patent tying arrangements into alignment with the law regarding tying arrangements in general, which requires proof of market power in the tying product market prior to finding that a tying arrangement violates antitrust law.¹⁰ Therefore, plaintiffs asserting patent tying claims must establish all of the elements of a tying violation under Sec. 1, including defining a market to evaluate the tying arrangement and showing that the defendant has market power in that market.¹¹

This Comment explores the recent decision of Illinois Tool Works and how that decision reversed the rule of per se illegality for patent tying arrangements in antitrust law. Parts II and III outline the evolution of the per se rule for patent tying arrangements and the problems associated with the per se approach. Part IV examines the Illinois Tool Works history and the facts that led to the Supreme Court's rejection of the per se rule in favor of a rule of reason approach for patent tying arrangements. Finally, Part V discusses the positive and negative implications that may result from the adoption of the rule of reason approach.

II. Evolution of the Per Se Rule for Patent Tying Arrangements

A. The Ostensible Tension Between Antitrust and Patent Law

In 1789 the Constitution endowed Congress with the power "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."¹² For almost one hundred years, no laws conflicted with the granting of what can be characterized as limited duration monopolies. In 1890, however, Congress passed the Sherman Antitrust Act,¹³ which established American antitrust laws and created the apparent inconsistency in Congress's treatment of "monopolies." In 1914 the tension became even clearer when Congress enacted Sec. 3 of chapter 323 of the Clayton Act.¹⁴ The Clayton Act makes it unlawful "to lease or make a sale or contract for sale of goods, . . . whether patented or unpatented" by placing a condition on the purchaser not to use goods of a competitor where the condition may "substantially lessen competition or tend to create a monopoly."¹⁵

The tension between the doctrines of patent and antitrust law appears wholly irreconcilable at first glance. Patent law, after all, allows for exclusion, while antitrust law is designed to require entry. However, antitrust and patent law share complementary objectives such as "promoting innovation and enhancing consumer welfare."¹⁶ Antitrust law incorporates these goals by ensuring that companies do not use market power to exploit consumers, force competitors out of the market, or prevent competitors from entering the market.¹⁷ Without antitrust law, companies would be able to take advantage of market power in a manner that is anticompetitive. Innovation and creativity suffer because those with market power can prevent the entry of new players. Patent law strives to achieve these common goals by granting creators of novel products or works a limited monopoly to control the use of that work or invention.¹⁸ Without patent protection, inventors struggle to obtain the benefit of their inventions.

While some observers argue that the two disciplines work together to accomplish consumer benefit, other critics contend that the approaches are so diverse that the common goals do little to reconcile the approaches. In order to optimize productivity and promote creativity, a careful balance must be struck between antitrust law and patent law. Antitrust law cannot be construed so broadly that it strips away property rights to the frustration of inventors, and patent law cannot be construed so broadly that it allows patentees to stifle competition.

As antitrust law developed, it tended to surround patent law, restricting patent rights in two ways. First, the Sherman Act barred activities that placed an unreasonable restraint on trade or tended to create monopolies,¹⁹ which were actions specifically granted through patent laws.²⁰ Second, antitrust law borrowed the concept of patent misuse from patent law but significantly increased the consequences associated with an act of patent misuse.²¹ Under patent law, a party found guilty of patent misuse was prevented from enforcing the patent until the misuse was corrected, whereas the same act subjected the patentee to treble damages under antitrust law.²² Used either as a claim or a defense, patent misuse is a vehicle by which a party may assert a theory of competitive harm that is akin to an antitrust claim.

Establishing a violation of Sec. 1 of the Sherman Act requires proof that a defendant entered into a contract that restrained trade or commerce and that a plaintiff was damaged by the violation.²³ over time, two distinct types of inquiry into the legality of agreements under Sec. 1 have evolved: rule of reason and per se illegality.²⁴ The rule of reason is essentially a balancing test between the procompetitive and the anticompetitive effects of an agreement.²⁵ If the procompetitive effects are greater than or equal to the anticompetitive effects, then the practice is lawful. If the procompetive effects are less than the anticompetitive effects, then the practice is unlawful. The rule of reason approach requires proof of four elements: (1) existence of a relevant market that was affected by the restraint; (2) possession of market power by the defendant within that market; (3) an anticompetitive effect in the intrabrand or interbrand market; and (4) negative effects on competition that are not outweighed by the positive effects on competition.²⁶

The per se illegality concept bypasses the rule of reason balancing test and outlaws certain agreements categorically, without consideration of whether they are, in fact, anticompetitive or procompetitive.²⁷ The per se analysis presumes the existence of market power and does not look into the reasonableness of the action.²⁸ The per se analysis is typically used "[o]nce experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it."²⁹ Thus, a per se illegality approach lessens the burden for plaintiffs to prove an antitrust violation and should only be used in cases where the circumstances justify application of such a presumption.

B. History of Patent Tying

1. Patent Tying Arrangements as Patent Misuse. A tying arrangement is a restraint on trade within the meaning of the Sherman Act.³⁰ Tying arrangements are agreements that require the purchase of products (tied items) as a precondition to the purchase of other products (tying items).³¹ For example, a tying arrangement exists when a consumer purchases a printer from a printer manufacturer and is also required to purchase the ink from the printer manufacturer as a condition of the printer purchase. The printer is the tying item and the ink is the tied item. The printer manufacturer is trying to extend its market power from the printer market into the ink market.

A tying arrangement is particularly likely to be given per se illegality treatment in the courts,³² but the United States Department of Justice and the Federal Trade Commission do not usually challenge tying arrangements as anticompetitive unless: "(1) the seller has market power in the tying product, (2) the arrangement has an adverse effect on competition in the relevant market for the tied product, and (3) efficiency justifications for the arrangement do not outweigh the anticompetitive effects."³³ Tying arrangements that involve a patented item as the tying product have historically been found to be per se illegal because "[t]he requisite economic power is presumed when the tying product is patented."³⁴ This assumption arose from hostility to patent tying arrangements, which were viewed as an attempt by patent owners to extend their limited monopoly from the patented items into markets that reach beyond the patent.³⁵ As a result, patent...