Patent tying and antitrust regulation - moving forward after Illinois Tool.

• Author: Sadarangani, Monique M.

Cite as 13 J. High Tech L. 613

1. INTRODUCTION

   Antitrust law seeks to enhance competition through its regulation of the marketplace. (2) Initially, Congress's primary focus through its legislation was stopping cartel-like behavior and monopolization. (3) Regulation soon progressed to other areas, including territorial divisions, attempts at monopolization, and tying arrangements to name a few. (4) The Supreme Court struggled with its analysis for years before adopting a per se approach to certain types of competition. (5) This easy to apply approach to antitrust law allowed lower courts throughout the United States to effectively and swiftly handle antitrust claims and manage anticompetitive behaviors. (6)

   Among the areas where the Court applied a per se approach was patent tying arrangements. (7) In applying a per se approach to patent tying arrangements, the Court presumed power to those individuals issued a patent. (8) The presumed power in a patent came from the fact that an individual issued a patent obtains a limited monopoly for a period of time in the patented product. (9) For the period of time that the patent is in effect, the patentee is the only one who can produce that particular product. (10) Therefore, if the patentee decides that in order for consumers to purchase their patented product, the consumers must also purchase another unpatented product, this could have detrimental effects on competition. (11) The Supreme Court indicated through its history of decisions related to patent tying relationships that forcing a consumer to purchase an unpatented product in order to get a patented product was unfair competition. (12)

   However, along with other areas of antitrust law, beginning in 2006 with the Supreme Court, swift changes began to occur in the way courts decide patent tying cases. (13) This new analysis adopted by the Court leaves an undesirable result to consumers: the party antitrust regulation seeks to protect.

   Part II looks at the history of antitrust law, with a focus on the history of tying arrangements and where the Supreme Court left off in its discussion of patent ties. Part II also looks at the overall changes that took place throughout the history of antitrust jurisprudence, moving from per se rules to a rule of reason approach. Part III sets forth the method of analysis currently in use for tying cases generally. Part III gives three fictional tying scenarios with an application of the tying analysis to the three sets of facts in order to illustrate that not all tying arrangements have negative consequences on competition and the consumer generally. This section also discusses the difficulty in finding a tying arrangement for antitrust purposes, aside from the market power analysis that concurrently must be accomplished. Finally, Part IV argues for a change in the current state of antitrust patent tying analysis. Part IV suggests that, especially with new and upcoming technologies, patents are necessary to protect interests in intellectual property. Tying products to these new and up and coming technologies could have more detrimental effects that what courts were previously looking at in their court rooms. In order for the courts to be able to effectively handle these types of cases, a clear and concise method must be adopted in order to counteract the potential for harm to the consumers through unfair anticompetitive practices. Part IV concludes by suggesting a method for dealing with patent tying that falls in between the per se market power presumption and a full-fledged market power analysis.

2. HISTORY

   Prior to the enactment of antitrust legislation, the United States failed to regulate commercial competition. (14) After the Civil War, expansion into the West, railroads, and increased manufacturing of goods led to unregulated economic growth in the United States. (15) In this period, citizens blamed their discontentment with conditions in factories and other areas of life on monopolies, and the public sought reform for big businesses. (16)

   The Sherman Act, therefore, initially began as a means to regulate and control private businesses that restrained competition. (17) Through the Sherman Act, courts began their interpretation of the legislation, often times with difficulty. (18) Therefore, the early Supreme Court antitrust cases constantly changed and evolved with varying degrees of interpretation of the Sherman Act. (19) While the early Supreme Court cases dealt mostly with whether a firm directly or indirectly restrained trade and interfered with interstate commerce, the Supreme Court soon dealt with other issues, one of them being tying arrangements. (20)

   1. STATUTORY AUTHORITY Of ANTITRUST LAW AND TYING

      A common form of tying occurs when a seller conditions the sale of one product (the "tying product") on the purchase of a separate product (the "tied product"). (21) The conditioning of one sale upon the purchase of another "forces" the consumer to purchase an unwanted product. (22) Courts utilize two Congressional acts to deal with tying: the Sherman Act of 189023 and the Clayton Act of 1914. (24) The United States antitrust laws and patent laws blend in the area of patent tying arrangements: restrictions within the scope of what a patent grants are permissible acts under the antitrust laws; restrictions beyond a patent's scope may be subject to antitrust liability. (25) While antitrust laws appear to restrict competition, and patent laws seek to foster competition through "incentives for innovation," both antitrust and patent laws "ultimately provide[] consumers with better products over time," thus making patent and antitrust laws complimentary. (26) The first piece of antitrust legislation, the Sherman Act, consists of two sections that concern tying arrangements. (27) Sherman Act [section] 1 states that "[e]very contract, combination ..., or conspiracy, in restraint of trade or commerce ... is declared to be illegal." (28) Sherman Act [section] 2 deals specifically with monopolization and attempts to monopolize in a given market, making such acts felonies. (29) A plaintiff may bring any type of antitrust claim concerning tying under the Sherman Act, but the Clayton Act deals solely with the tying of goods. (30)

      Congress established the Clayton Act as a civil remedy for antitrust violations, empowering private individuals harmed by these violations to sue for damages. (31) The Clayton Act [section] 3 states that:

      It shall be unlawful ... to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or other commodities, whether patented or unpatented ... on the condition, agreement, or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce. (32) Where the Clayton Act directly states a tying arrangement is unlawful in its statutory language, (33) the Sherman Act does not, but regulates tying by analyzing the tie's effect on competition. (34) Nonetheless, tying analysis is the same under both the Sherman Act and the Clayton Act. (35)

   2. THE PER SE VERSUS RULE OF REASON ANALYSIS IN ANTITRUST LITIGATION

      The early Supreme Court struggled with its statutory interpretation of the Sherman Act. (36) In Addyston Pipe, (37) the Court affirmed Judge Taft's Sixth Circuit decision establishing the ancillary restraint doctrine. (38) Under the ancillary restraint doctrine, a restraint is lawful only when it is reasonable and ancillary to the main purpose of a lawful contract. (39) Though the Court held that the restraint in Addyston Pipe was unreasonable, and therefore unlawful, the ancillary restraint doctrine proved to be an important doctrine in antitrust case history. (40)

      1. DEVELOPMENT OF THE RULE OF REASON IN ANTITRUST LAW

         The Court first advanced the rule of reason standard in Standard Oil Co. v. United States. (41) The rule of reason allowed courts to evaluate various factors in antitrust litigation, weighing the restraint's impact on competition with other pro -competitive factors. (42) While giving further breadth to Sherman Act interpretation, the Court in Standard Oil also concluded that certain conduct is inherently anticompetitive, and for these types, a rule of reason analysis is unnecessary. (43)

         The Court finally put the rule of reason to work in Chicago Board of Trade, where members of a trade organization entered an agreement that required all its members who purchased grain after trade closing hours to purchase at the closing price. (44) Though the trade organization essentially fixed the price of grain to be sold, traditionally subjecting them to per se condemnation, the Court applied a rule of reason analysis. (45) Justice Brandeis, writing for the Court, stated the rule of reason test to be "whether the restraint imposed is such as merely regulates[,] and perhaps promotes competition[,] or whether it is such as may suppress or even destroy competition." (46) Justice Brandeis indicated that a rule of reason analysis allows courts to "consider the facts peculiar to the business ...; its conditions before and after the restraint is imposed; the nature of the restraint and its effect, actual or probable." (47) Chicago Board of Trade, therefore, articulated a rule of reason approach that allowed anything and everything to be considered when determining whether a restraint was unlawful. (48)

      2. THE PER SE RULE OF ILLEGALITY

         The Court failed to give Standard Oil's per se rule substance until United States v. Trenton Potteries Co. in 1927. (49) Trenton Potteries involved a combination to fix prices of bathroom pottery equipment. (50) At the trial, the defendants' argued that...