The United States of America

• Pages: 11-72

11

Chapter II

THE UNITED STATES OF AMERICA

A. Introduction

In the United States, authorities have recognized that both the

antitrust and intellectual property laws seek to foster competition by

providing incentives for innovation, which ultimately provides

consumers with better products over time.1 U.S. courts and agencies

have continually weighed the competing interests of intellectual property

and antitrust laws, particularly in recent decades, thereby creating a well-

developed body of law. Although the present balance between

intellectual property and antitrust laws is likely to continue to evolve, this

chapter will provide a broad overview of how they currently interact in

the context of licensing agreements.2 This chapter will first provide a

broad overview of U.S. competition and intellectual property laws, and

then discuss licensing issues that may arise at the intersection of these

two areas of law.

1. See, e.g., FED.TRADE COMM’N,TOPROMOTE INNOVATION:THE PROPER

BALANCE OF COMPETITION AND PATENT LAW AND POLICY 2-3 (2003)

(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

34 (2007) [hereinafter AMC REPORT] (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”).

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

ABA SECTION OF ANTITRUST LAW,INTELLECTUAL PROPERTY AND

ANTITRUST HANDBOOK (2007) [hereinafter ABA IP and Antitrust

Handbook] and HERBERT HOVENKAMP ET AL., IP AND ANTITRUST:AN

ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL

PROPERTY LAW (Supp. 2007).

12 Antitrust Issues in International IP Licensing Transactions

B. The Sources and Basics of United States Competition Law

The Sherman Act, Clayton Act, and Federal Trade Commission Act

are the principal antitrust laws in the United States. Section 1 of the

Sherman Act3 addresses conduct involving an agreement between two or

more independent parties, including parties in both vertical and

horizontal relationships. 4 Section 2 of the Sherman Act 5 focuses

predominantly on unilateral conduct of a single firm, such as claims of

monopolization or attempted monopolization.6 Section 7 of the Clayton

Act7 addresses whether mergers may lead to a substantial lessening of

competition and allows mergers be evaluated either pre- or post-

consummation.8 Federal and state agencies, as well as private parties

(provided certain requirements are met), are empowered to enforce the

Sherman and Clayton Acts.9 Section 5 of the FTC Act10 focuses on

unfair methods of competition and can only be enforced by the FTC.11

1. Section 1 of the Sherman Act

Section 1 of the Sherman Act provides that “[e]very contract,

combination in the form of trust or otherwise, or conspiracy in restraint

of trade or commerce . . . is declared to be illegal.”12 The Supreme Court

has interpreted the statute to prohibit only those restraints that restrict

competition unreasonably.13 The extent of analysis under Section 1

varies according to the nature of the conduct at issue and the surrounding

circumstances. Certain conduct is per se unlawful; a violation can be

3. 15 U.S.C. § 1.

4. See, e.g., Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 730 &

n.4 (1988).

5. 15 U.S.C. § 2.

6. See, e.g., Verizon Commc’ns. v. Law Offices of Curtis V. Trinko, 540

U.S. 398, 407 (2004); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447,

456 (1993).

7. 15 U.S.C. § 18.

8. See, e.g., United States v. Long Island Jewish Med. Ctr., 983 F. Supp.

121, 135-37 (E.D.N.Y. 1997).

9. See 15 U.S.C. §§ 15a, 26; Standard Oil Co. v. Arizona, 738 F.2d 1021,

1023 (9th Cir. 1984).

10. 15 U.S.C. § 45.

11. See, e.g., FTC v. Motion Picture Adver. Serv., 344 U.S. 392, 394-95

(1953).

12. 15 U.S.C. § 1.

13. See Standard Oil Co. v. United States, 221 U.S. 1, 52 (1911).

The United States of America 13

established without proof of market power or evaluation of

justifications. 14 The most common examples of per se Section 1

violations are naked price-fixing and market allocation among horizontal

competitors, i.e., activities that are likely to cause anticompetitive harm

and never or almost never have an efficiency justification. In contrast,

most conduct is analyzed under the rule of reason, pursuant to which

courts will engage in a more comprehensive analysis that weighs the

conduct’s procompetitive effects against its anticompetitive effects.15

The rule of reason is often used to analyze horizontal and vertical

agreements that accompany economic integration or have the potential to

result in procompetitive benefits.16 For example, licensing agreements

between a licensor and licensee are typically analyzed under the rule of

reason.17

2. Section 2 of the Sherman Act

Section 2 of the Sherman Act provides that “[e]very person who

shall monopolize, or attempt to monopolize, or combine or conspire with

any other person or persons, to monopolize any part of the trade or

commerce . . . shall be deemed guilty of a felony.”18 In United States v.

Grinnell Corp.,19 the Supreme Court held that “[t]he offense of

monopoly under section 2 of the Sherman Act has two elements: (1) the

possession of monopoly power in the relevant market and (2) the willful

acquisition or maintenance of that power.”20 To establish a claim of

attempted monopolization under Section 2, one must prove “(1) that the

defendant has engaged in predatory or anticompetitive conduct with (2) a

specific intent to monopolize and (3) a dangerous probability of

achieving monopoly power.”21 Of particular importance, Section 2 only

prohibits acquisition or attempted acquisition of monopoly power, and

14. See, e.g., United States v. Trenton Potteries, 273 U.S. 392, 396-98 (1927);

N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958).

15. See, e.g., State Oil v. Khan, 552 U.S. 3, 10 (1997).

16. See, e.g., Rothery Storage & Van Co. v. Atlas Van Lines, 792 F.2d 210,

214 (D.C. Cir. 1986).

17. See, e.g., Broad. Music Inc. v. Columbia Broad. Sys., 441 U.S. 1, 23

(1979).

18. 15 U.S.C. § 2.

19. 384 U.S. 563 (1966).

20. Id. at 570-71.

21. Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993) (internal

citations omitted).