Intellectual Property Intellectual Property and Antitrustand Antitrust

Antitrust Basics Antitrust Basics Lesson III: Lesson III: Intellectual PropertyIntellectual PropertyNovember 8, 2006November 8, 2006

Sean P. Gates

Federal Trade Commission

DisclaimerDisclaimer

The views expressed here are The views expressed here are mine alone and do not necessarily mine alone and do not necessarily reflect the views of the Federal reflect the views of the Federal Trade Commission, any Trade Commission, any Commissioner, or other FTC staff.Commissioner, or other FTC staff.

OverviewOverview

IntroductionIntroduction

Basic assumptions Basic assumptions

Analytical FrameworkAnalytical Framework

Open IssuesOpen Issues

IntroductionIntroduction

Types of Intellectual PropertyTypes of Intellectual Property

Applicable Antitrust LawsApplicable Antitrust Laws

Types of Types of Intellectual PropertyIntellectual Property PatentPatent: exclusive right to make, : exclusive right to make,

use, or sell a product or service use, or sell a product or service embodying the invention embodying the invention

CopyrightCopyright: exclusive right to : exclusive right to reproduce, prepare derivative reproduce, prepare derivative works, and distribute copyrighted works, and distribute copyrighted materialmaterial

TrademarkTrademark: exclusive right to use : exclusive right to use mark in commercemark in commerce

Applicable Antitrust Applicable Antitrust LawsLaws Section 1Section 1: coordinated conduct: coordinated conduct

– Licensing agreementsLicensing agreements– Patent poolsPatent pools

Section 2Section 2: unilateral conduct: unilateral conduct– Refusals to licenseRefusals to license– Bad faith enforcementBad faith enforcement

Section 7Section 7: acquisitions: acquisitions– Patent accumulationPatent accumulation

Basic AssumptionsBasic Assumptions

Historical ViewsHistorical Views

Current US ViewCurrent US View

International ViewsInternational Views

Historical ViewsHistorical Views

IP and Antitrust are in conflictIP and Antitrust are in conflict

Initial View: IP Prevails Over Initial View: IP Prevails Over AntitrustAntitrust

Early View: Antitrust Must Limit IP Early View: Antitrust Must Limit IP to the Scope of the Grantto the Scope of the Grant

Initial View: Initial View: IP “Trumps” AntitrustIP “Trumps” Antitrust IP law gives “immunity” from IP law gives “immunity” from

antitrustantitrust

““Very object” of IP is to grant Very object” of IP is to grant “monopoly”“monopoly”

IP law therefore gave “absolute IP law therefore gave “absolute freedom”freedom”

Early View: Early View: Antitrust Must Limit IPAntitrust Must Limit IP Focus was on scope of IP grantFocus was on scope of IP grant

Conduct inside scope was Conduct inside scope was immuneimmune

Conduct outside scope was Conduct outside scope was unlawfulunlawful

Current US View:Current US View:1995 IP Guidelines1995 IP Guidelines IP law and antitrust share common IP law and antitrust share common

purpose: promoting innovation and purpose: promoting innovation and enhancing consumer welfareenhancing consumer welfare

Antitrust analysis of IP like other Antitrust analysis of IP like other propertyproperty

IP does not necessarily confer IP does not necessarily confer market power market power

Licensing is generally Licensing is generally procompetitiveprocompetitive

International Views:International Views:Countries with Countries with Competition Laws: 1980Competition Laws: 1980

Source: ICN: Assessing Technical Assistance (2005)

Countries with Countries with Competition Laws: Competition Laws: 20052005

Source: ICN: Assessing Technical Assistance (2005)

International International Convergence:Convergence:EC Regulations (2004)EC Regulations (2004) Same “basic objective”: Same “basic objective”:

“promoting consumer welfare”“promoting consumer welfare” IP not immune from competition IP not immune from competition

lawlaw Market power based on extent of Market power based on extent of

substitutessubstitutes Technology transfer agreements Technology transfer agreements

usually pro-competitiveusually pro-competitive

International International Convergence: CCS Convergence: CCS Guidelines (2005)Guidelines (2005) IP and competition laws both IP and competition laws both

“promot[e] economic efficiency “promot[e] economic efficiency and innovation”and innovation”

IP “essentially comparable” to IP “essentially comparable” to “other property”“other property”

IP “does not necessarily create IP “does not necessarily create market power”market power”

Licensing generally procompetitiveLicensing generally procompetitive

Analytical FrameworkAnalytical Framework

Key QuestionsKey Questions

ApplicationsApplications

Analytical Framework: Analytical Framework: What are the key What are the key questions?questions? What is the competitive What is the competitive

relationship between the parties?relationship between the parties? Do the parties have market Do the parties have market

power?power? What is the mechanism of What is the mechanism of

potential harm?potential harm? What are the procompetitive What are the procompetitive

benefits?benefits?

What is the What is the relationship between relationship between the parties?the parties? Horizontal v. vertical relationshipHorizontal v. vertical relationship Are the parties actual or likely Are the parties actual or likely

competitors?competitors?– depends on scope of IPdepends on scope of IP– depends on relationship of IPdepends on relationship of IP

Do the parties have Do the parties have market power?market power? Market power: the ability to Market power: the ability to

profitably price above competitive profitably price above competitive level for significant period of timelevel for significant period of time

No presumptionNo presumption Depends on availability of Depends on availability of

substitutessubstitutes Must define relevant marketMust define relevant market

Market Power: in what Market Power: in what relevant market?relevant market? Goods marketGoods market

– Market for goods made using the IP and Market for goods made using the IP and subssubs

Technology marketTechnology market– Technologies and goods that are close Technologies and goods that are close

economic substituteseconomic substitutes Innovation marketInnovation market

– R&D to particular new goods or processes, R&D to particular new goods or processes, and close substitutes for that R&Dand close substitutes for that R&D

What is the What is the mechanism of mechanism of potential harm?potential harm? Limiting competition between Limiting competition between

partiesparties– market divisionmarket division– price fixingprice fixing

Limiting competition from othersLimiting competition from others– exclusive dealingexclusive dealing– tyingtying– package licensing/ patent poolspackage licensing/ patent pools

What are the What are the procompetitive procompetitive benefits?benefits? Exclusive dealingExclusive dealing

– encourage investments and promotionencourage investments and promotion Patent poolsPatent pools

– integrating complementary technologiesintegrating complementary technologies– reducing transaction costsreducing transaction costs– clearing blocking positionsclearing blocking positions– avoiding costly infringement litigationavoiding costly infringement litigation

Application: Cross-license Application: Cross-license with Territorial Market with Territorial Market DivisionDivision

Cross-license with Cross-license with Territorial Market Territorial Market DivisionDivision Competitive relationship?Competitive relationship?

– are the patents blocking?are the patents blocking?– are the patents complementary?are the patents complementary?

Market power?Market power? Mechanism of potential harm?Mechanism of potential harm?

– agreement not to compete agreement not to compete What are the procompetitive What are the procompetitive

benefits?benefits?– integrating complementary resources?integrating complementary resources?

Application: Application: Exclusive Dealing Exclusive Dealing

Exclusive DealingExclusive Dealing

Competitive relationship?Competitive relationship?– vertical or horizontal?vertical or horizontal?

Market power?Market power? Mechanism of potential harm?Mechanism of potential harm?

– foreclosure of competitorsforeclosure of competitors– foreclose licensee internal developmentforeclose licensee internal development

What are the procompetitive What are the procompetitive benefits?benefits?– encourage investment or promotionencourage investment or promotion

Open IssuesOpen Issues

Refusals to licenseRefusals to license

Proving market powerProving market power

““Reverse Payment” Settlements Reverse Payment” Settlements of IP Litigationof IP Litigation

Open Issues:Open Issues:Refusals to LicenseRefusals to License US ViewUS View

– In re ISO Antitrust Litigation (Xerox), In re ISO Antitrust Litigation (Xerox), 203 F.3d 1322 (Fed. Cir. 2000)203 F.3d 1322 (Fed. Cir. 2000)

– Image Technical Services, Inc. v. Eastman Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997)Kodak Co., 125 F.3d 1195 (9th Cir. 1997)

EC viewEC view– DG Comp Article 82 Discussion PaperDG Comp Article 82 Discussion Paper

Refusals to License: Refusals to License: Underlying IssuesUnderlying Issues Relationship between IP and Relationship between IP and

innovationinnovation– Does strong IP foster innovation?Does strong IP foster innovation?– Will requiring licensing in certain Will requiring licensing in certain

circumstances diminish incentives?circumstances diminish incentives?– Does the answer depend on the Does the answer depend on the

industry?industry?

Open Issues: Proving Market Power Open Issues: Proving Market Power or How do we know a patent is or How do we know a patent is blocking?blocking?

““[O]nly the legal force of the [patents] [O]nly the legal force of the [patents] themselves … can exclude competitors, themselves … can exclude competitors, and patent claim interpretation is… to be and patent claim interpretation is… to be decided by the courts” Minebea v. Papst, decided by the courts” Minebea v. Papst, _ F. Supp. 2d _, 2006 WL 2374458 _ F. Supp. 2d _, 2006 WL 2374458 (D.D.C. Aug. 17, 2006)(D.D.C. Aug. 17, 2006)

In re Union Oil Co. of Cal., 2004 FTC Lexis In re Union Oil Co. of Cal., 2004 FTC Lexis 115, 127 (2004) (market power could be 115, 127 (2004) (market power could be established through evidence of business established through evidence of business conduct and responses to threats and conduct and responses to threats and suits).suits).

Market Power Issue: Cross-Market Power Issue: Cross-license with Territorial Market license with Territorial Market DivisionDivision

Open Issue: “Reverse Open Issue: “Reverse Payment” Settlements of IP Payment” Settlements of IP LitigationLitigation Judicial treatmentJudicial treatment

Open analytical issuesOpen analytical issues

““Reverse Payment” Cases Reverse Payment” Cases in the Courts of Appealsin the Courts of Appeals

Decisions from Sixth, Eleventh Decisions from Sixth, Eleventh and Second Circuitsand Second Circuits

Sixth CircuitSixth Circuit: Applied per se test. : Applied per se test. – In re Cardizem CD Antitrust In re Cardizem CD Antitrust

Litigation, 332 F.3d 896 (6th Cir. Litigation, 332 F.3d 896 (6th Cir. 2003)2003)

““Reverse Payment” Cases Reverse Payment” Cases in the Courts of Appealsin the Courts of Appeals

Eleventh CircuitEleventh Circuit: Applied three-part : Applied three-part test: test: – ““potential exclusionary effect” of patent potential exclusionary effect” of patent – extent the agreement exceeded scope extent the agreement exceeded scope – anticompetitive effectsanticompetitive effects

Valley Drug Co. v. Geneva Pharms., 403 Valley Drug Co. v. Geneva Pharms., 403 F.3d 1056 (11th Cir. 2003) F.3d 1056 (11th Cir. 2003)

Schering-Plough Corp. v. FTC, 402 F.3d Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005) 1056 (11th Cir. 2005)

Andrx Pharms. v. Elan Corp., 421 F. 3d Andrx Pharms. v. Elan Corp., 421 F. 3d 1227 (11th Cir. 2005)1227 (11th Cir. 2005)

““Reverse Payment” Cases Reverse Payment” Cases in the Courts of Appealin the Courts of Appeal

Second CircuitSecond Circuit: Generally followed : Generally followed logic of Eleventh Circuit. logic of Eleventh Circuit.

In reIn re Tamoxifen, _ F.3d _ (2d Cir. 2006) Tamoxifen, _ F.3d _ (2d Cir. 2006)– Settlement after patentee loss at district Settlement after patentee loss at district

court not suspectcourt not suspect– Reverse payment not suspicious so long as Reverse payment not suspicious so long as

litigation not a shamlitigation not a sham– Restrictions within exclusionary scope Restrictions within exclusionary scope – Agreement did not cause bottleneckAgreement did not cause bottleneck

““Reverse Payment” Cases: Reverse Payment” Cases: District CourtDistrict Court

Kaiser Found. Health Plan v. Abbott Kaiser Found. Health Plan v. Abbott Labs., CV 02-2443-JFW (C.D. Cal.)Labs., CV 02-2443-JFW (C.D. Cal.) – Hytrin opt outHytrin opt out– agreement deemed per se illegalagreement deemed per se illegal– causation tried to jurycausation tried to jury

would generic enter “but for” agreementwould generic enter “but for” agreement

– Jury verdict for defendantsJury verdict for defendants

““Reverse Payment” Reverse Payment” Cases:Cases:View of Patent RightsView of Patent Rights Probabalistic patent rightsProbabalistic patent rights

Commission’s Cert. Petition, FTC v. Commission’s Cert. Petition, FTC v. Schering-Plough:Schering-Plough:– ““the ‘probabilistic’ nature of patents”the ‘probabilistic’ nature of patents”– ““As both economists and legal scholars As both economists and legal scholars

have remarked, ‘a patent is not a right to have remarked, ‘a patent is not a right to exclude, but rather a right to try to exclude, but rather a right to try to exclude.’”exclude.’”

ConclusionConclusion

Basic assumptions Basic assumptions – refined over timerefined over time– international convergenceinternational convergence

Analytical FrameworkAnalytical Framework– Key questionsKey questions

Open IssuesOpen Issues– Some key questions remain Some key questions remain

unresolvedunresolved