Supreme Court Finds Existence of Patent Does Not Confer Market Power Sufficient to Find Antitrust Injury

Supreme Court Finds Existence of Patent Does Not Confer Market Power Sufficient to Find Antitrust Injury

Court overrules precedent holding that market power presumed in tying product tied to unpatented tied product

Background

Trident ownsU.S.patent no. 5,343,226, which claims a patent on an ink jet device and supply system used in the manufacture of printers.  Trident also manufactures ink for use in the patented ink jet device.  In licensing agreements with OEM manufacturers to use the patented ink jet device, Trident required the OEM manufacturers to purchase from Trident the ink used to refill the licensed ink jet devices.  A competitor, Independent Ink, sued Trident claiming that the license agreements constitutes a per se illegal tying arrangement in violation of the Sherman Act, 15 U.S.C. §1 et seq.  Specifically, Independent Ink asserted that license illegally tied the licensing of the patented ink jet with the purchase of unpatented ink. 

Federal Circuit Overruled District Court on Issue of Tying

While the District Court held that such tying arrangements require a showing of market power in the market for the patented ink jet device, the Federal Circuit overturned the District Court’s decision.  Specifically, the Federal Circuit noted that, as required by the Supreme Court in Jefferson Parish Hospital District No. 2 v. Hyde, 466 US 2, 16 (1984) and International Salt Co. v. United States, 332 US 392 (1947), where the tying product is patented, there is a presumption of market power in the tying market.  The Federal Circuit specifically noted that, in comparison with recent trends to require a showing of market power for non-patented tying goods, the treatment of patented tying products and the presumption of market power has been “more consistent” than for unpatented products.  (Opinion at Pg. 8).  As such, while there is considerable criticism of the presumption of market power for patented products and while the prosecutorial guidance set forth in the Department of Justice’s Antitrust Guidelines for the Licensing of Intellectual Property (1995) indicates that no presumption of market power exists based only upon a patent, this criticism and exercise of prosecutorial guidance “does not affect the validity of the Supreme Court’s decisions in International Salt and [United States v. Loew’s Inc., 371 US 38 (1962)]” such that both International Salt and Loew’s remain good law.  (Opinion at Pgs. 13 and 14, n. 10).  Therefore, the Federal Circuit held that Independent Ink did not need to prove market power in the market of the patented tying product. 

Supreme Court Definitively Holds Patents Do Not Automatically Confer Market Power

In distinguishing from the existing tying case law found in Jefferson Parish Hospital

District No. 2 v. Hyde, 466 US 2, 16 (1984) and International Salt Co. v. United States, 332US 392 (1947), the Supreme Court held that the subsequent amendment of the Patent Act at 35 U.S.C. §271(d) removed the presumption of market power in a patented product.  As such, for a tied purchase of patented and unpatented goods to be an unlawful tying arrangement, the mere fact that the patent was used to require the purchase of unpatented goods does not evidence an antitrust injury.  Instead, there needs to be evidence that the patent owner has sufficient market power in the tying product beyond the mere existence of the patent. 

A copy of the case is available at Independent Ink, Inc. v. Illinois Tool Works, Inc., et al.No. 04-1329 (Sup. Ct. March 1, 2006).

Significance of case for licensing and Saleof patented goods

In its decision, the Supreme Court has confirmed the changing attitude that the courts are applying to patented goods.  Specifically, the Supreme Court vindicated the Department of Justice and others in their opinion that patents do not, by themselves, confer market exclusivity in a manner which is necessarily harmful to the consumer.  Moreover, the Supreme Court recognized that there can be competitive benefits to such tying arrangements which might justify what is otherwise a seemingly harmful tie.  Therefore, patent owners can more easily license or sell patented and unpatented goods without inadvertently violating U.S.antitrust laws, which was easily accomplished under the previous per se rule.

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