Overview of Antitrust and Misuse Law in the Patent Context

• Pages: 89-139

89

CHAPTER II

OVERVIEW OF ANTITRUST AND MISUSE LAW

IN THE PATENT CONTEXT

This chapter provides a broad overview of the legal claims that may

be asserted by a party accused of violating another party’s patents.1 It

first discusses the antitrust laws and the patent misuse doctrine generally,

and then specifically addresses antitrust and misuse claims that may arise

in the patent or intellectual property context. The chapter groups these

issues into four main sections: (1) antitrust claims arising from the

unilateral conduct of patent holders; (2) antitrust claims and misuse

defenses arising from the acquisition or licensing of patents; (3) antitrust

claims arising from horizontal concerted action; and (4) related state-law

claims.

A. Overview

1. Antitrust Laws

The United States antitrust laws prohibit activities that harm

competition and consumers, such as anticompetitive agreements,

monopolistic conduct, and anticompetive mergers.. Sections 1 and 2 of

the Sherman Act are the key provisions relevant to this book.2

Section 1 of the Sherman Act prohibits agreements in unreasonable

restraint of trade. Section 1 outlaws naked horizontal price fixing,

market allocation, customer allocation, and similar activities typical of a

competitor cartel. Such “naked” price-fixing and market allocation

agreements among competitors are generally deemed to be per se illegal

because of their obvious anticompetitive effects. By comparison, other

less clearly anticompetitive horizontal agreements, as well as vertical

agreements between parties that are not direct competitors, such as

suppliers and their distributors, or licensors of intellectual property and

1. For more comprehensive coverage of the issues discussed herein, see

ABA SECTION OF ANTITRUST LAW, INTELLECTUAL PROPERTY AND

ANTITRUST HANDBOOK (2007); HERBERT HOVENKAMP ET AL., IP AND

ANTITRUST: AN ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO

INTELLECTUAL PROPERTY LAW (Supp. 2007).

2. 15 U.S.C. §§ 1–2.

90 Antitrust Counterattack in Intellectual Property Litigation Handbook

their licensees, may require a more complete “rule-of-reason” analysis

to determine whether the vertical agreement is illegal because its

anticompetitive effects outweigh its benefits.3

Section 2 of the Sherman Act is directed primarily at unilateral

conduct by a single firm, which prohibits monopolization and attempted

monopolization. Section 2 also outlaws conspiracies among competitors

to monopolize, but such claims often mimic those brought under Section

1.4 Monopolization and attempted monopolization claims require proof

that the defendant possesses, or is close to obtaining, monopoly power in

a properly defined relevant market, and that the defendant has engaged in

conduct deemed anticompetitive or exclusionary. The issues associated

with defining a relevant market and establishing that the defendant has

monopoly power in that market are similar whether patents or other

products are involved.5

The issues unique to patent infringement litigation typically concern

whether behavior by a patentee or its licensee is exclusionary.

Generally, restrictions that fall within the scope of the patent are

permissible under the antitrust laws. On the other hand, restrictions that

are beyond the patent’s scope—that could not be accomplished simply

by enforcing or attempting to enforce the patent—may well subject the

patentee or its licensee to antitrust liability. Common examples of

anticompetitive unilateral behavior under Section 2 include (1)

fraudulent procurement of a patent, (2) enforcement of a patent in bad

faith, or (3) patent hold-up in a standard-setting context.

2. Misuse Doctrine

Patent misuse is an equitable defense to infringement, as opposed to

an affirmative counterclaim for damages or injunctive relief by an

infringement defendant.6 The misuse doctrine arises from the principle

that a patent owner should not be allowed to expand the competitive

3. See generally U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST

GUIDELINES FOR THE LICENSING OF INTELLECTUAL PROPERTY § 2.0

(1995) [hereinafter IP GUIDELINES].

4. See, e.g., Biovail Corp. v. Hoechst AG, 49 F. Supp. 2d 750, 767 (D.N.J.

1999) (holding that an agreement between two companies to keep other

competitors out of the market could be the basis for a Section 1 or Section

2 claim).

5. Ill. Tool Works v. Indep. Ink, Inc., 547 U.S. 28, 46 (2006).

6. See, e.g., B. Braun Med. v. Abbott Labs., 124 F.3d 1419, 1427 (Fed. Cir.

1997).

Overview of Antitrust and Misuse Law in the Patent Context 91

advantage that naturally results from the patent.7 A successful patent-

misuse defense renders the patent unenforceable until the misuse is

“purged” by the patent owner.8 As an affirmative defense, misuse does

not allow for the recovery of damages.9

In addition to misuse as a defense to patent infringement claims,

most circuit courts recognize copyright misuse as a valid defense to

copyright infringement claims.10 The misuse doctrine may apply to

trademarks as well, though no court has yet adopted the defense in that

context.11

3. Similar Objectives for Antitrust and Intellectual Property Laws

Antitrust and intellectual property laws may appear to have contrary

objectives. Antitrust laws attempt to prevent exclusionary conduct,

whereas patents, at their very essence, provide the patent holder with the

right to exclude certain forms of competition. Despite the apparent

competing objectives, many authorities now recognize that both the

antitrust and patent laws seek to foster competition by providing

incentives for innovation, which ultimately provides consumers with

better products over time.12

7. See, e.g., U.S. Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179, 1184

(Fed. Cir. 2005).

8. B. Braun Med., 124 F.3d at 1427.

9. Id.

10. See, e.g., Lasercomb Am., Inc. v. Reynolds, 911 F.2d 970, 973 (4th Cir.

1990); DSC Communs. Corp. v. DGI Techs., 81 F.3d 597, 601 (5th Cir.

1996); Practice Mgmt. Info. Corp. v. Am. Med. Ass’n, 121 F. F.3d 516,

520 (9th Cir. 1997); DSC Communs. Corp. v. Pulse Communs., 170 F.3d

1354, 1368 (Fed. Cir. 1999).

11. See Microsoft Corp. v. Compusource Distribs., 115 F. Supp. 2d 800, 810

(E.D. Mich. 2000).

12. See generally F

ED. TRADE COMM’N, TO PROMOTE INNOVATION: THE

PROPER BALANCE OF COMPETITION AND PATENT LAW AND POLICY (Oct.

2003), http://www.ftc.gov/os/2003/10/innovationrpt.pdf (discussing

policy issues regarding the intersection of antitrust and patent law and

proposing recommendations to address perceived problems); Antitrust

Modernization Comm’n, Report and Recommendations, at 34 (April

2007), available at http://govinfo.library.unt.edu/amc/report_

recommendation/amc_final_report.pdf (stating that “antitrust enforcers

have recognized the importance of intellectual property as a spur to

innovation and have adopted policies that reflect a greater sensitivity to

the need to protect incentives to innovate”).