antitrust risks in ip acquisitions, and...

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Antitrust Risks in IP Acquisitions, Antitrust Risks in IP Acquisitions, Transfers and LicensesNavigating the Challenges with Patent Pools, Tying Arrangements, Pricing and Bundling

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1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

TUESDAY, OCTOBER 25, 2011

Today’s faculty features:

Paul Saint-Antoine, Partner, Drinker Biddle & Reath, Philadelphia

M. Howard Morse, Partner, Cooley, Washington, D.C.

Henry C. Su, Attorney Advisor, Federal Trade Commission, Washington

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Strafford PublicationsLegal WebinarLegal Webinar

October 25, 2011

A tit t Ri k iAntitrust Risks inIP Acquisitions, Transfers

and Licenses

Paul H. Saint-AntoineDrinker Biddle & Reath LLP

Philadelphia, PA(215) 988-2990

Paul Saint Antoine@dbr [email protected]

Antitrust Risks in IP Acquisitions, T f d LiTransfers and Licenses

What Are The Legal Sources Of Antitrust Risk?Of Antitrust Risk?

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l f i i kLegal Sources of Antitrust Risk? Wide Array of U.S. Antitrust Statutes and Wide Array of U.S. Antitrust Statutes and

Case Law Applicable to IP

• Sections 1 and 2 of the Sherman Act

• Section 7 of the Clayton Act

• Section 5 of the FTC Act

7

Antitrust Risks in IP Acquisitions, Transfers and Licenses

Legal Sources of Antitrust Risk?Legal Sources of Antitrust Risk? Global Marketplace

• IP Likely to Be Licensed and Sold in Broad Geographic Markets

f b l• IP Often Subject to Simultaneous Regulation in the U.S., EU and Elsewhere

Prospect of Conflict of Laws• Prospect of Conflict of Laws

8

Antitrust Risks in IP Acquisitions, Transfers and Licenses

Legal Sources of Antitrust Risk?Legal Sources of Antitrust Risk? The Earlier View

Th “Ni N N ’ ”• The “Nine No-No’s”• Patents = Monopoly Power

The Prevailing Viewg• The 1995 IP Guidelines

Essentially Comparable to Any Other Form of Property Not Presumed to Create Market Power Generally Pro-Competitive

• Illinois Tool Works (U.S. 2006)

9


Intellectual Property Licensing:Intellectual Property Licensing:Licenses, Cross-Licenses and ,

Patent Pools

10


I t ll t l P t Li iIntellectual Property Licensing General Analytical Framework

• Unilateral v. Concerted Action

• Horizontal v. Vertical Relationshipp

• Per Se v. “Rule of Reason” Treatment

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I t ll t l P t Li iIntellectual Property Licensing Unilateral Refusals to Deal

• Basic Right of IP Owners to Exclude Others

• Meaning of Section 271(b) of the Patent Act

• Conflicting Case Law from Ninth and Federal Circuits• Conflicting Case Law from Ninth and Federal Circuits

• What Risk Is Left After Trinko?

12


I t ll t l P t Li iIntellectual Property Licensing Tying Arrangements

• Analysis Relevant to Bundled Licenses

• Prospect of Either Misuse Defense or Antitrust Liability If Market Power In “Tying” Technology and Adverse a o y g o ogy a d dEffect on Competition in Market for “Tied” Product

• Minimize Risk of Antitrust Liability If Separate Licenses Available

• Possible Defense If Tie Technologically Necessary

• Federal Circuit in Princo Rejected the Patent Misuse Defense Based on a Patent-to-Patent Tying Theory

13

y g y


I t ll t l P t Li iIntellectual Property Licensing Resale Price Maintenance

• U.S. Supreme Court Has Abandoned the Per SeTreatment of Both Maximum and Minimum Resale Price Maintenance

• Both Forms of Price Maintenance are Now Subject to More Flexible “Rule of Reason” Analysis

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Intellectual Property LicensingIntellectual Property Licensing Exclusive Licensing and Exclusive Dealing

• Two Different Types of Licensing Arrangements• For Exclusive Licenses, Consider the Competitive

Relationship of the Licensor and LicenseeAl T l E l i Li A S bj t t A l i • Also, Truly Exclusive Licenses Are Subject to Analysis Under Section 7 of the Clayton Act and, Possibly, Reportable Under the Hart-Scott-Rodino Act

• Exclusive Dealing Arrangements Impose Restrictions Exclusive Dealing Arrangements Impose Restrictions on the Licensee

• Relevant Factors In Assessing Exclusive Dealing Include the Market Power of the Licensor and the Degree of Foreclosure

15

Degree of Foreclosure


I t ll t l P t Li iIntellectual Property Licensing Grantbacks

• May Promote the Dissemination of Technology

• However, Some Potential Exists to Create Disincentives To Innovateo o a

• Non-Exclusive Grantbacks Less Likely to Pose Antitrust Risks

16


Intellectual Property LicensingIntellectual Property Licensing Pooling Arrangements

• Potential Pro-Competitive Integration of Complementary IP

• Antitrust Risk of Unlawful Allocation of Markets and Price FixingFixing

• Safeguards Include: Limiting Pools to “Essential” Patents; Use of Patent Expert To Avoid Inclusion of “Non-Essential” Patents; Non-Exclusive Pool Licenses;

d Li Off d N Di i i B iand Licenses Offered on Non-Discriminatory Basis• “Essential” Patents are Complementary, Non-Competing

– I.e., Patents That, Absent a License, Would Necessarily Be Infringed by Practice of a Standard

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Be Infringed by Practice of a Standard

Antitrust Risks in

IP AcquisitionsIP Acquisitions, Transfers and Licenses

October 25 2011October 25, 2011

M. Howard MorseCooley LLPCooley LLP

Washington, D.C.

© 2010 Cooley LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA 94306The content of this packet is an introduction to Cooley LLP’s capabilities and is not intended, by itself, to

provide legal advice or create an attorney-client relationship. Prior results do not guarantee future outcome.

Agenda

Hart Scott Rodino Reporting Requirements

Substantive Analysis of IP Acquisitions

Recent Enforcement

www.cooley.com19

Hart Scott Rodino Reporting Requirements

www.cooley.com

Hart Scott Rodino Act

“No person shall acquire, directly or indirectly, any voting securities or assets of any other person” before providing notice and observing a statutory waiting period

“Informal Interpretations” reveal FTC position that the grant of an exclusive license is the transfer of an asset, though a non-exclusive license is not.

E l i A t T f N E l i NOT A t T fExclusive = Asset Transfer

Exclusivity in a “field of use” (e.g., in a geographic territory or for specific uses)

Non-Exclusive = NOT Asset Transfer

A co-exclusive license where the licensor retains rights to the IP

uses)

Even if termination or march-in rights

An exclusive license for an area outside of the United States is considered an

Exclusive marketing and distribution rights

Licensor maintains right to manufacture in U.S., even if only for foreign sale (but not if retain manufacturing rights only toof the United States is considered an

asset located outside the U.S.not if retain manufacturing rights only to support development)

Make

Use

Make

Use

www.cooley.com

SellDistribute

SellDistribute

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HSR Filing Obligations

Size-of-Person Test Size-of-Transaction Test

> $13.9 mrevenue

or assets

> $131.9 mannual revenue or

total assets

> $ 66.0 mor

> $263 8 m regardless of size of parties

If a filing is required, the HSR Act requires a waiting period, generally 30

> $263.8 m, regardless of size of parties

www.cooley.com

days, unless “early termination” is granted or a “Second Request” is issued

*All thresholds indexed to GNP annually22

Size-of-Transaction Test: Valuation

Acquisition PriceG t f f t lti d

Fair Market Value“D t i d i d f ith b th

OR Gross amount of future royalties due

under the license agreement

Not discounted to present value or discounted for risk, BUT

“Determined in good faith by the board of directors of the [buyer] … or by an entity delegated that function” within 60 days of consummation if no fili

if future royalties are too speculative to estimate reasonably, the acquisition price is “undetermined”

filing

the CFO or financial officer with direct responsibility for the transaction will be treated as a de ??is undetermined

if future milestones are contingent on conditions outside the control of the parties, it may be

facto delegee

What a licensee would pay at present in cash, in an arm’s length negotiation

??impossible to calculate them with “reasonable certainty”

then the acquirer must estimate the fair market value of a “fully

negotiation

any reasonable basis for valuation, made in good faith, not necessarily in accordance

www.cooley.com

the fair market value of a fully paid-up license” with GAAP

23

Substantive Analysis of IP Acquisitions

www.cooley.com

Acquisitions of Intellectual Property

Patents, trademarks and copyrights are “assets” and acquisitions of such intellectual property are subject to scrutiny under Section 7 of the Clayton Act and Section 5 of the FTC Act which occurs in two major contexts:FTC Act, which occurs in two major contexts:

(1) the transfer of ownership or control of intellectual property as part of the purchase of assets from, or merger with, another company g , p y

(2) the acquisition of an exclusive license to specific intellectual property

A non-exclusive license to intellectualA non exclusive license to intellectual property does not raise antitrust concerns unless…

… the terms of the license or the circumstances render it a de facto exclusive license

Acquisitions also occur in the context of settlements

Settlement of litigation is an efficiency to be considered in the analysis

www.cooley.com

Settlement of litigation is an efficiency to be considered in the analysis Mere fact of settlement, however, does not immunize agreement

25

Merger Standards Apply to IP Acquisitions

Governed by DOJ/FTC Horizontal Merger Guidelines (2010)“The Agencies will apply a merger analysis to an outright sale by an intellectualThe Agencies will apply a merger analysis to an outright sale by an intellectual property owner of all of its rights to that intellectual property and to a transaction in which a person obtains through grant, sale or other transfer an exclusive license for intellectual property (i.e., a license that precludes all other persons, including the licensor form using the intellectual property) ”the licensor, form using the intellectual property).

- DOJ/FTC Antitrust Guidelines for the Licensing of Intellectual Property (1995)

Acquisitions are analyzed in product technology and innovation markets Acquisitions are analyzed in product, technology, and innovation markets Product markets: goods or services; “traditional” antitrust markets Technology markets: markets in which companies compete in the licensing of IP Innovation markets: markets in which companies compete in R&D Innovation markets: markets in which companies compete in R&D

www.cooley.com26

Hovenkamp Rules

Acquisition by a monopolist of exclusive rights in related patents should be presumptively a Section 2 exclusionary practice

A monopolist should be free to acquire exclusive rights in

should be presumptively a Section 2 exclusionary practice1

A monopolist should be free to acquire exclusive rights in unrelated patents, and non-exclusive rights in any patent

2

Patent acquisitions should be lawful if the acquirer is not a monopolist at the time the acquisition was made, and remain lawful even if it should acquire a monopoly thereafter3

The focus in patent acquisitions should be on the market power conferred by the

www.cooley.com

patent and the market position of the acquiring party SCM v. Xerox (2d Cir. 1981)

27

Monopolization

Patents acquisitions may violate the Sherman Act where part of a broader monopolization scheme or agreement among competitors to restrain trade Mere accumulation of internally developed patents is not illegal “Procurement of a patent . . . will not violate § 2 even

where it is likely that the patent monopoly will evolve into an economic monopoly” SCM v Xerox (1981)into an economic monopoly SCM v. Xerox (1981)

Creation of a “killer patent portfolio” may lead tomonopolization charges, e.g., Xerox (1975), Ciba Geigy/Sandoz (1997) as will enforcement of a patent secured by fraud

on the Patent Office (Walker Process) Monopolization cases have also challenged acquisition, non-use, and enforcement

of “every important patent” (Kobe Inc v Dempsey Pump Co 10th Cir 1952) andof every important patent (Kobe, Inc. v. Dempsey Pump Co., 10th Cir. 1952) and transfer of a patent to facilitate bringing infringement actions (United States v. Singer Manufacturing, 1963)

Courts split on whether a monopolist can be required to license internally-developed IP

www.cooley.com

Compare Image Technical Services v. Eastman Kodak (9th Cir. 1997) with Indep. Service Org. Antitrust Litig. (Xerox) (Fed. Cir. 2000)

28

Recent Developments

www.cooley.com

CPTN Holdings / Novell (April 2011)

CPTN Holdings was consortium created by Microsoft, Oracle, Apple, and EMC for the purpose of acquiring 882 Novell patents and applications

DOJ concerned deal would jeopardize ability of open source software to innovate and compete, where Novell had made open source commitments

In response to DOJ investigation CPTN revised its agreements so that: In response to DOJ investigation, CPTN revised its agreements so that: patents to be acquired subject to open source and Linux licenses

parties would not acquire certain patents, subject to licenses to use those patents

www.cooley.com30

Other Reported IP Acquisition Investigations

Rockstar / Nortel Auction in June 2011 for 6,000 Nortel patents

Rockstar Bidco (consortium including Apple, EMC, Ericsson, Microsoft, RIM, and Sony) bid $4.5 billion

G l t d t b th i t t t th

Google / Motorola

Google was expected to be the winner to protect the android platform from litigation

Google / Motorola Google announced in August 2011 intention to buy

Android phone maker Motorola Mobility for $12.5 billion

DOJ issued a “second request” in September 2011

Motorola controls over 17,000 patents

Speculation that motivated by desire to protect

www.cooley.com

Speculation that motivated by desire to protect android platform from patent litigation

31

Contact Information

P ti b f FTC DOJ d t t tt l Practice before FTC, DOJ, and state attorneys general Mergers, acquisitions, joint ventures, licensing, standard

setting, distribution practices, alleged restraints of trade, and monopolization

Focus on issues confronting high tech industries, including pharmaceutical, biotech, medical device, computer hardware, software, and e-commerce companies

Former Assistant Director, FTC Bureau of Competition

M. Howard Morse

Cooley LLP777 6th Street, NWWashington DC 20001-3714

Former Assistant Director, FTC Bureau of Competition Chair, ABA Antitrust Section, Federal Civil Enforcement

Committee Described in Chambers USA Guide to America's Leading

Lawyers as “a tireless advocate for his clients” whoWashington, DC 20001-3714(202) [email protected]/hmorse

Lawyers as “a tireless advocate for his clients” who “impresses with his superb analytical and communications skills” and “valued for his practical experience as a former Assistant Director of the FTC Bureau of Competition”

www.cooley.com32

Antitrust Risks Associated with IP Li i St d d S ttiLicenses in Standard Setting

Henry C. [email protected]

October 25 2011October 25, 2011

Disclaimer

The views expressed on these slides and during the webinar areslides and during the webinar are mine alone, and not necessarily those of the Federal Trade Commission or any of its CommissionersCommissioners.

All images appearing in these slides are freely usable, thanks to Wikimedia Commons and its contributing authors.

34

Introduction

Standards are created to enable firms toStandards are created to enable firms to develop products that are compatible or interchangeable with one another

Standards frequently involve the q yselection and incorporation of technologies and processes, some of which may be proprietary and protectedwhich may be proprietary and protected by IP rights, including patents

35

Description of the Problem

Patent holdup – after a standard has been developed and adopted,been developed and adopted, industry participants may be “locked in,” i.e., unable to switch from the patented technologies to something elsesomething else

Patent ambush – a standard may have been developed and adopted without notice or knowledge of essential IP rights belonging to aessential IP rights belonging to a firm

36

Licensing Solutions

RAND – firms commit to license essential IP rights

Ex ante – firms unilaterally announce royalty rates and

on “reasonable and non-discriminatory” terms; some

people add the term “fair”

other licensing terms for essential IP rights before a

standard is adopted; negotiation may take placeg y p

37

Open Issues – RAND Commitment

Wh t i thOn whom is a RAND

What should be the roles

f thWhat does RAND mean?

What is the nature of a RAND commitment?

RAND commitment binding? Whom does it

of the standard-setting body and the courtcommitment? Whom does it

benefit?and the court in enforcing RAND?

38

Open Issues – Ex Ante Disclosure

When, why and how does ex ante di l f li i t ?disclosure of licensing terms occur?

When, why and how does ex ante negotiation of licensing terms occur?

Does ex ante disclosure or negotiation greally make a difference?

Are there any guidelines for ex anteAre there any guidelines for ex ante disclosure or negotiation?

39

FTC’s Interest and Involvement

S ti 5 f th FTC A tSection 5 of the FTC Act; Sherman Act

Guidelines – IP and Collaboration

Advisory Opinions

C D ll R b NCases - Dell, Rambus, N-Data

Workshops and Reports

40

Key Values and Themes

Interoperability

Alternativetechnologies

Essentiality

Cost to rivals and consumers

C ll b tiCollaboration v. concerted action

41

For More Information

http://www.ftc.gov/opp/workshops/standards/index.shtml

http://www.uspto.gov/ip/officechiefecon/#heading-2

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