Amicus Curiae Brief — Illinois Tool Works Inc. v. Independent Ink, Inc.

IN THE

No. 04-1329

Supreme Court of the Anited States

ILLINOIS TOOL WoRKS INC. et al.,

Vv.

Petitioners,

INDEPENDENT INK, INC.

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

MOTION FOR LEAVE TO FILE BRIEF FOR AMICUS

CURIAE AND BRIEF OF AMICUS CURIAE OF

INTELLECTUAL PROPERTY OWNERS

ASSOCIATION IN SUPPORT OF CERTIORARI

Of Counsel:

J. JEFFREY HAWLEY

President

DOUGLAS K. NORMAN

Chair, Amicus Brief Committee

INTELLECTUAL PROPERTY

OWNERS ASSOCIATION

1255 Twenty-Third Street, N.W.

Suite 200

Washington, DC 20037

(202) 466-2396

Amicus Curiae

GARY M. HOFFMAN *

MILTON MARQUIS

KENNETH W. BROTHERS

BRADLEY J. OLSON

DICKSTEIN SHAPIRO MORIN

OSHINSKY LLP

2101 L Street, Suite 400

Washington, DC 20037

(202) 828-2228

Counsel for Amicus Curiae

* Counsel of Record

Wicson-EPes PRINTING Co., INC. — (202) 789-0096 — WASHINGTON, D.C. 20001

IN THE

Supreme Court of the Anited States

No. 04-1329

ILLINOIS TOOL WorRKS INC. et a/.,

Petitioners,

Vv.

INDEPENDENT INK, INC.

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS

CURIAE OF INTELLECTUAL PROPERTY OWNERS

ASSOCIATION IN SUPPORT OF CERTIORARI

Pursuant to this Court’s Rule 37.2, Intellectual Property

Owners Association (IPO) respectfully moves for leave to file

the attached brief amicus curiae in this case. The consent of

the petitioner has been obtained. The consent of the

respondent, Independent Ink, Inc., was requested but refused.

Amicus IPO is a national organization consisting of

hundreds of large and mid-size companies, small businesses,

universities, inventors, authors, executives, law firms and

individual and attorneys. IPO is the only association in the

U.S. that serves all intellectual property owners of patents,

trademarks, copyrights and trade secrets in all industries and

all fields of technology. IPO regularly represents the interests

of its members before Congress, the U.S. Patent and Trade-

mark Office, and federal courts. The association adheres to a

policy of submitting amicus briefs only on significant issues

affecting the owners of intellectual property rights.

IPO and its members have a substantial interest in the

questions presented by the Petitioner. In filing this brief, IPO

seeks to bring to the Court’s attention arguments and

viewpoints in addition to those expressed in the petition for

writ of certiorari. For example, IPO’s brief points out that the

Federal Circuit decision in Independent Ink, Inc. v. Illinois

Tool Works, Inc. 396 F.3d 1342 (Fed. Cir. 2005), petition for

cert. filed, 73 U.S.L.W. 3604 (U.S. Apr. 4, 2005) (No. 04-

1329) in adhering to the precedential holding of /nternational

Salt Co. v. United States, 332 U.S. 392 (1947) and United

States v. Paramount Pictures, Inc., 334 U.S. 131 (1948), re-

affirmed in United States v. Loew's, Inc., 37\ U.S. 38 (1962),

holding that the mere fact of the existence of a patent on the

tying product creates a presumption of market power in the

relevant market in tie-in cases under Section | of the Sherman

Act (15 U.S.C. § 1), is not justified under current economic

realities. Because there often may be close substitutes in the

relevant market for the patented tying product to prevent the

exercise of market power, there is no rational justification for

a presumption of market power based upon the mere fact of

patent ownership. The presumption ignores the need to

define the relevant market and any analysis of whether the

patent really conveys power in such market. The pre-

sumption impedes robust development in a global economy,

and antitrust plaintiffs in tying cases involving patents should

be required, like all other tying plaintiffs, to prove that the

seller has market power in the tying product.

In summary, IPO’s brief provides the Court with the

perspective of a national association having members in all

major industries and fields of technology, and the perspective

of parties concerned about the effects on the patent system

beyond the present case.

Respectfully submitted,

Of Counsel: GARY M. HOFFMAN *

J. JEFFREY HAWLEY MILTON MARQUIS

Presiden KENNETH W. BROTHERS

DOUGLAS K. NORMAN BRADLEY J. OLSON

Chair, Amicus Brief Committee P!CKSTEIN SHAPIRO MORIN

INTELLECTUAL PROPERTY OSHINSKY LLP

OWNERS ASSOCIATION 2101 L Street, Suite 400

1255 Twenty-Third Street, N.W. Washington, DC 20037

Suite 200 (202) 828-2228

Washington, DC 20037 Counsel for Amicus Curiae

(202) 466-2396

* Counsel of Record

Amicus Curiae

May 5, 2005

TABLE OF CONTENTS

Page

INTEREST OF AMICUS CURITAE............:csssecsseeeceseees I

SOU Ses WEIN casessnesescasmmensnscseancensnccsssscsnnnenensncsssneses 2

SUMMARY OF ARGUMENT ...............cccccccssssssseeeeees 3

FEIT S cecsnsssscsssannemsnssemesesemeemmnsecesemminmnsses 4

I. THERE SHOULD BE NO PRESUMPTION

THAT A PATENT DEFINES AND CON-

FERS MARKET POWER IN A RELEVANT

MARKET ON A TYING PRODUCT UNDER.

SECTION | OF THE SHERMAN ACT........... 4

A. The Burden of Proving Market Power

Should Remain on the Antitrust Plaintiff in

a Patent Tying Case Without the Benefit of

a Market Power Presumption...............0000000+ 5

B. There is No Rational Economic Basis for a

Presumption of Market Power Because

Patents Do Not Inherently Define A

SRSRDURS DETR cscsssssseccscscensessssnsssenessessesesses 11

C. The Market Power Presumption Deters

Conduct by Patent Owners that Benefits

ID crcesscscsssssessssesseasensenseusssessnemnesasces 13

D. The Market Power Presumption Facilitates

the Assertion of Baseless Antitrust Coun-

terclaims by Infringers .................c0ceeseeeeeees 15

E. The Department of Justice and Federal

Trade Commission Do Not Apply A Pre-

sumption of Market Power When Eval-

uating a Tie-In Case Involving A Patent on

Ga TER, FURIE cxccssneneseznsesesnscscsssssenecscssszse 16

ee cccrnscnnsscensscensssensensnenssstnenesnansessemansaseassecs 18

FFG Ca eee crcsnncsssenenssesesasecessscssnsscssnemessnsnesssnengnscneunsnaen la

ii

TABLE OF AUTHORITIES

CASES Page

AJ. Root Co. v. Computer/Dynamics, Inc., 806

F.2d 673 (6th Cir. 1986) ........ccccccerseeeeereeeeeersenes 14

Am. Hoist & Derrick Co. v. Sowa & Sons., Inc.,

725 F.2d 1350 (Fed. Cir. 1984).........ccccccceeeeeeees 6

Atari Games Corp. v. Nintendo of America, Inc.,

897 F.2d 1572 (Fed. Cir. 1990)........ccccceerreeeeees 7

Blanchard v. Haynes, 3 F. Cas. 628 (C.C.D.N.H.

1B4B) (INO. 1512) ...cccccccccccececcccsccccsssccesscscccssscoees 8

Blonder-Tongue Labs., Inc. v. Univ. of lil.

Found., 402 U.S. 313 (1971) ..cccccccccessecereeeeeeeees 6

Bonito Boats, Inc. v. Thunder Craft Boats, Inc.,

489 U.S. 141 (19B9)...........ccccrccccrorreessersseereseees 9

Brenner v. Manson, 383 U.S. 519 (1966) .........00+++ 9

Chiuminatta Concrete Concepts, Inc. v. Target

Prods., Inc., No. CV 92-1523 LGB (SX), 1992

WL 465720 (C.D. Cal. Dec. 2, 1992), aff'd, 19

F.3d 41 (Fed. Cir. 1994).........ccccccseeeseeeereeeeneeenes 7

Eastman Kodak Co. v. Image Technical Servs.,

Inc., 504 U.S. 451 (1992).........sccrerccrcserrrsesseees 5

Eldred v. Ashcroft, 537 U.S. 186 (2003).........0000+ 7

Evans vy. Jordan, 13 U.S. (9 Cranch) 199 (1815)... 8

FB. Leopold Co. v. Roberts Filter Mfg. Co., 882

F. Supp. 433 (W.D. Pa. 1995), aff'd, 119 F.3d

15 (Fed. Cir. 1997).....ccccccccccscscccccccsccccsscsscsssooes 7

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabu-

shiki Co., Ltd., 535 U.S. 722 (2002) .....ccceeseeeeees 7,9

Grant v. Raymond, 31 U.S. 218 (1832) .......c-00+ 8

Graver Tank & Mfg. Co. v. Linde Air Prods. Co.,

339 U.S. GOS (1950).........ccceeereeeserreesseneeesssenees 9

In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d

1322 (Fed. Cir. 2000).........ccesssesrscesssersessesenes 6

iii

TABLE OF AUTHORITIES—Continued

Indep. Ink, Inc. v. Ill. Tool Works, Inc., 396 F.3d

1342 (Fed. Cir.), petition for cert. filed, 73

U.S.L.W. 3604 (U.S. Apr. 4, 2005) (No. 04-

STE cxccrnemrasstinpeietnansietnmnahantainitataiitabiinttaiabtaaes

International Salt Co. v. United States, 332 U.S.

392 (1947).......... pecnessesessensssssscescsesssosseese 3,5, 12

J.E.M. AG Supply, Inc. v. Pioneer Hi-Bred Int'l,

Fag FIO WE. 0BG CABG ccccccecsccssscnccocncseneveccsccs

Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466

es aoe ea nietetctincnianesinnnmioniitnianiiiiiiaieaas 10, 12

Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470

Gee a heneieetnavcisinninnnmeninansadsabinsinntiiabiiaiaieatiaiatasis

Markman v. Westview Instruments, Inc., 517 U.S.

ee

Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574 (1986)......ccccccccescesesseseeeeees

Mazer v. Stein, 347 U.S. 201 (1953) (1986)..........

Motion Picture Patents Co. v. Universal Films

Mfg. Co., 243 U.S. 502 (1917).....cccccccccccssceceecees

N. Pac. Ry. Co. v. United States, 356 U.S. |

ee ee TD

Precision Instrument Mfg. Co. v. Auto. Maint.

Mach. Co., 324 U.S. 806 (1945) .....cccccccssseeseeeees

Schlafly v. Pub. Key Partners, No. 94-20512 SW,

1997 WL 564073 (N.D. Cal. Aug. 29, 1997),

aff'd, 155 F.3d 565 (Fed. Cir. 1998) .....0..0.c...

Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225

Gore ee aiiictentenencsiittineieencnsantictiitidtaariiispa asses

State Oil Co. v. Khan, 522 U.S. 3 (1997).......cc0000

Stimpson v. W. Chester R Co., 45 U.S. (4 How.)

Ee RR ee

The Case of Monopolies (Darcy v. Allein), 77

Eng. Rep. 1260 (K.B. 1602) ...........ccccscccccscesseees

Page

, 15, 17

. 14, 16

iv

TABLE OF AUTHORITIES—Continued

Page

USM Corp. v. SPS Techs., Inc., 694 F.2d 505

(Tebe Che. 1962) .crcccocrscececccsccccscocvcscccssscsnsssssossees 6, 14

United States Steel Corp. v. Fortner Enters., Inc.,

429 U.S. 610 (1977)........cccscccsvsssrsesserereeseeeeees 9, 10, 12

United States v. Loew's, Inc., 371 U.S. 38 (1962).. 3, 5, 14

United States v. Paramount Pictures, Inc., 334

U.S. 131 (1948)....cccccrrcocrcoecscerscccessorescsssesersesees 5

Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860

(Fed. Cir, 1997)....ccccccccrscersccsesscccccccsssescovssssoseees 6

Will v. Comprehensive Accounting Corp., 776

F.2d 665 (7th Cir. 1985) .....ccccccecsseeeereeeeeeeeeeeeens 6, 14

STATUTES

1S U.S.C. § 0 .cccccccccccccccreccccvcccvescccsssovssecsssosossees 2,4, 5, 11

35 U.S.C. $§ 101-103 .......ccccccccrscvccscecsccessceseneresees 9

3S U.S.C. § UVZ...cccccccsscccsssccescccevcesecscvesssseesosesrossees 9

OTHER AUTHORITIES

Phillip Areeda & Donald F. Turner, Antitrust

Law F 1134b (1980) ..........ccrssssverrrsserrsseresseesees 12

Phillip E. Areeda, Einer Elhauge & Herbert

Hovenkamp, Antitrust Law § 1737c (2d ed.

BBG) ocececcesecccccssecccscsesevcccsssoscccnssscssessssossessnssesese 12

Yannis Bakos & Erik Brynjolfsson, Bundling and

Competition On The Internet Marketing

Science (Jan. OOO) ..........--0cccrvessrrressseereesersees 14

Yannis Bakos & Erik Brynjolfsson, Bundling

Information Goods: Pricing, Profits and

Efficiency, Management Science (Dec.1999)

(“Bundling Information GOOdS’’) .......0++0+00000000 13,14

Robert H. Bork, The Antitrust Paradox (1978) ..... 12

v

TABLE OF AUTHORITIES—Continued

Makan Delrahim, Deputy Assistant Attorney

General, Contemporary Issues At The Inter-

section of Intellectual Property And Antitrust,

Remarks made before the Fair Competition &

Market Economy 2004 Shanghai International

Forum, Shanghai, China, Nov. 10, 2004

available at http://www.doj.gov/atr/public/

| A

Robert C. Feldman, The Insufficiency of Antitrust

Analysis for Patent Misuse, 55 Hastings L.J.

ee

Herbert Hovenkamp, Federal Antitrust Policy

eer

William Montgomery, The Presumption of Eco-

nomic Power for Patented and Copyrighted

Products in Tying Arrangements, 85 Colum.

His nets OPTI UTED EN acitinrednednnesecenneanencsssterscsscceanees

R. Hewitt Pate, Acting Assistant Attorney

General, Antitrust And Intellectual Property,

Address before the American Intellectual

Property Law Association, Jan. 24, 2003,

available at http,//www.doj.gov/atr/public/

i ecenensenesenencenescstesmstecrsecens

Richard A. Posner, Antitrust Law (2d ed. 2001)...

H. Schwartz, Patent Law and Practice (2d ed.

Fed. Trade Comm’n, To Promote Innovation:

The Proper Balance of Competition and

Patent Law and Policy (2003) .......ccccss0seeeeeeeeeeee

U.S. Dep’t of Justice & Fed. Trade Comm'n,

Antitrust Guidelines for the Licensing of

Intellectual Property § 5.3 (1995) ...ccccccccccceseeeee

Page

17

13

17

16

16

IN THE

Supreme Court of the Anited States

No. 04-1329

ILLINOIS TOOL WORKS INC. ef al..,

Petitioners,

We

INDEPENDENT INK, INC.

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF AMICUS CURIAE OF INTELLECTUAL

PROPERTY OWNERS ASSOCIATION

IN SUPPORT OF CERTIORARI

INTEREST OF AMICUS CURIAE

Amicus Curiae Intellectual Property Owners Association

(IPQ), a tax-exempt association, is a national organization

founded in 1972 to represent the owners of intellectual

property in the United States.' IPO’s members currently

include over 150 large and mid-sized companies and over 250

' Pursuant to this Court’s Rule 37.6, amicus represents that this brief

was not authored in whole or in part by counsel for any party. Petitioner,

an IPO member, made no monetary contribution to the preparation or

submission of this brief beyond normal membership dues payments. No

other person or entity made a monetary contribution other than IPO, its

members, or its counsel.

2

small businesses, law firms, inventors, authors, executives

and attorneys who own or are interested in patents and other

forms of intellectual property in any industry or field of

technology. IPO members are granted about 30 percent of

the patents issued by the U.S. Patent and Trademark Office to

U.S. nationals. IPO regularly represents the interests of its

members before Congress and the U.S. Patent and Trademark

Office, and has filed amicus curiae briefs in this Court and

other courts on significant issues of intellectual property law.

IPO expressly declines to take any position on whether

there is a factual basis for finding market power. IPO is

concerned with the interests of all of its members in all

industries and all fields of technology. IPO believes that

while the Federal Circuit strictly applied Supreme Court

precedent, the market power presumption unfairly singles out

patent holders and creates a tension with modern economic

theory. The Federal Circuit’s Independent Ink opinion, if

not vacated or modified by the Court, will adversely affect

existing and future patent rights of a large number of

IPO members.

In this brief, IPO explains the how the Federal Circuit's

Independent Ink decision could affect the outcome of this and

future cases. IPO believes its brief will be helpful to the

Court in considering Petitioners’ writ of certiorari. The filing

of this brief was approved by IPO Board of Directors, the

members of which are listed in the Appendix.

INTRODUCTION

The United States Court of Appeals for the Federal Circuit

reversed the summary judgment that had been granted in

favor of Petitioners Illinois Tools Works, Inc. (“ITW”) and

Trident, Inc. (“Trident”) under a Sherman Act Section | (15

U.S.C. § 1) theory brought in a tie-in case in the district court

involving Trident and ITW’s U.S. Patent No. 5,343,226 (“the

“226 patent”). The Federal Circuit panel, in reversing the

3

summary judgment granted in favor of ITW and Trident,

relied on the holdings in /nternational Salt Co. v. United

States, 332 U.S. 392 (1947), and United States v. Loew's,

Inc., 371 U.S. 38 (1962), and held that patent and copyright

tying, unlike other tie-in cases, does not require a showing of

market power. Instead, “/nternational Salt and Loew's make

clear that the necessary market power to establish a section |

violation is presumed.” The Federal Circuit denied ITW and

Trident’s request that the Federal Circuit hold that /nter-

national Salt and Loew's were no longer good law. The Fed-

eral Circuit concluded thai, despite the perceived inade-

quacies of “the two cases,” it still “remains the ‘[Supreme]

Court's prerogative alone to overrule one of its precedents."”

Indep. Ink, Inc., v. lll. Tool Works, Inc., 396 F.3d 1342, 1351

(Fed. Cir.), petition for cert. filed, 73 U.S.L.W. 3604 (U.S.

Apr. 4, 2005) (No. 04-1329) (quoting State Oil Co. v. Khan,

522 U.S. 3, 20 (1997)).

Our members believe that the decisions of /nternational

Salt and Loews should at long last be overruled. The Federal

Circuit’s Independent Ink opinion, if not vacated or modified

by the Court by eliminating the presumption of market power

in patent tie-in cases established under /nternational Salt and

Loews's, will adversely affect existing and future patent

rights of a large number of IPO members. IPO believes its

brief will be helpful to the Court in considering Illinois Tool

Works and Trident, Inc.’s petition for writ of certiorari.

SUMMARY OF ARGUMENT

The burden of proving market power should be placed and

remain on the antitrust plaintiff in a patent tie-in case, just as

it is in any tying case not involving a patent or copyright.

There should be no presumption that because the tying

? Indep. Ink, Inc. v. Ill. Tool Works, Inc., 396 F.3d 1342, 1348-49 (Fed.

Cir.), petition for cert. fiied, 73 U.S.L.W. 3604 (U.S. Apr. 4, 2005)

(No. 04-1329).

4

product is patented, it somehow inherently defines the rele-

vant market and mandates a finding of market power.

There are compelling reasons for now reconsidering the

market power presumption in tie-in cases involving a patent.

Such presumption is at odds with the Court’s contemporary

approach as to how an antitrust plaintiff must prove market

power in non-patent tying cases. The application of the

presumption of market power theory in a patent tie-in case

has been repeatedly rejected by the Federal Trade Com-

mission and the Department of Justice, two federal antitrust

enforcement agencies responsible for enforcing the nation’s

antitrust laws. The presumption has been questioned by

several circuit courts and antitrust commentators, as an unfair

burden imposed upon patent and copyright owners that does

not extend to any other type of antitrust defendant involved in

a tie-in case. The /ndependent Ink case cleanly presents the

opportunity to the Court of deciding the validity vel non of

the presumption’s application to antitrust enforcement in

view of modern economic theories. The Court should grant

the petition to resolve this important question of antitrust law.

ARGUMENT

I. THERE SHOULD BE NO PRESUMPTION

THAT A PATENT DEFINES AND CONFERS

MARKET POWER IN A RELEVANT MARKET

ON A TYING PRODUCT UNDER SECTION 1

OF THE SHERMAN ACT

The Federal Circuit stated that it was compelled to follow

this Court’s precedent that a rebuttable presumption of market

power arises from the mere possession of a patent on the

tying product sufficient to establish a prima facie Sherman

Act Section 1 (15 U.S.C. § 1) patent tying claim.’ This

* Tying arrangements violate Section | of the Sherman Act (15 U.S.C.

§ 1) “if the seller has ‘appreciable economic power’ in the tying product

5

Court established such precedent more than 50 years ago in

International Salt Co. v. United States, 332 U.S. 392 (1947)

and United States v.. Paramount Pictures, Inc., 334 U.S. 131

(1948), and re-affirmed in United States v. Loew's, Inc., 371

U.S. 38 (1962),* where it held that the presumption that

market power exists in a tie-in case when the tying product is

patented or copyrighted and is sufficient to establish a prima

facie Sherman Act Section | (15 U.S.C. § 1) right of action.

That precedent should now be overturned, as it is contrary to

modern economic theory involving tie-ins. Instead, just as in

any other tie-in case, the burden of proof should remain

wholly on the antitrust plaintiff to establish market power in a

patent tie-in case as one of several elements of a cognizable

Sherman Act Section | (15 U.S.C. § 1) claim. Tie-in cases

involving a patent on the tying product should not be treated

any differently. The Court should act to overturn the

presumption of market power in intellectual property tie-in

cases crafted in /nternational Salt and Loew's and keep the

entire burden of proving market power on the antitrust

plaintiff to harmonize the law with non-patent tie-in cases.

A. The Burden of Proving Market Power Should

Remain on the Antitrust Plaintiff in a Patent

Tying Case Without the Benefit of a Market

Power Presumption

The standards for patentability should not be construed to

be equal to the standards of economic power necessary to

support anticompetitive behavior in the relevant market. The

market and if the arrangement affects a substantial volume of commerce

in the tied market."” Eastman Kodak Co. v. Image Technical Servs., Inc..

504 U.S. 451, 462 (1992) (citation omitted).

* Relying on the holding in /nternational Salt and Paramount Pic-

tures, the Court held that where the tying product is patented or

pee ayy market power may be presumed rather than proven. Loew’ s,

1 U.S. at 45.

6

burden of proving market power in tie-in cases involving a

patent on the tying product should be held to rest solely on

the antitrust plaintiffs in proving their case—no different than

the burden faced by antitrust plaintiffs when they attempt to

prove anticompetitive effects in tie-in cases not involving

intellectual property. This Court long ago recognized that

there is nothing inherently anticompetitive about patent

ownership. Mazer v. Stein, 347 U.S. 201, 219 (1954) (“The

economic philosophy behind the clause empowering Con-

gress to grant patents and copyrights is the conviction that

encouragement of individual effort by personal gain is the

best way to advance public welfare through the talents of

authors and inventors in ‘Science and useful Arts.””)

Moreover, this Court has also observed that “*A patent by its

very nature is affected with a public interest. . . . (It) is an

exception to the general rule against monepolies and to the

right to access to a free and open market.” Blonder-Tongue

Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 343 (1971)

(citing Precision Instrument Mfg. Co. v. Auto. Maint. Mach.

Co., 324 U.S. 806, 816 (1945)). Many courts when faced

with a tie-in case have concluded that a patent on the tying

product alone does not confer market power.

* Am. Hoist & Derrick Co. v. Sowa & Sons., Inc., 725 F.2d 1350, 1367

(Fed. Cir. 1984) (“patent rights are not legal monoplies in the antitrust

sense of that word.”); In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d

1322, 1325-26 (Fed. Cir. 2000) (“A patent alone does not demonstrate

market power.”); Va. Panel Corp. v. MAC Panel Co., 133 F.3d 860, 872

(Fed. Cir. 1997) (“Violation of the antitrust laws always requires . . .

market power in a defined relevant market (which may be broader than

that defined by the patent . . . .”); Will v. Comprehensive Accounting

Corp., 776 F.2d 665, 673 n.4 (7th Cir. 1985) (Easterbrook, J.); USM Corp.

v. SPS Techs., Inc., 694 F.2d 505, 511 (7th Cir. 1982) (Posner, J.) (*(O}f

course, not every patent confers market power .. . .”); Schlafly v. Pub.

Key Partners, No. 94-20512 SW, 1997 WL 564073, at *4 (N.D. Cal. Aug.

29, 1997) (“A patent does not of itself establish a presumption of market

power in the antitrust sense.”) (citations omitted), affd, 15S F.3d 565

(Fed. Cir. 1998) (“Mere possession of a patent, or a family of patents,

J

Patent rights are derived from the Constitution,® and as

interpreted by Congress, a patent grants inventors “‘the right

to exclude others from making, using, offering for sale,

selling, or importing the patented invention,’ in exchange for

full disclosure of an invention.” Markman v. Westview

Instruments, Inc., 517 U.S. 370, 372 (1996) (quoting H.

Schwartz, Patent Law and Practice |, 33 (2d ed. 1995)). The

grant of a U.S. patent conveys a unique form of property,

with the rights to exclude others from using the invention if

certain criteria are met,’ as “patents are not given as favors . .

. but are meant to encourage invention by rewarding the

inventor with the right, limited to a term of years fixed by the

patent, to exclude others from the use of his invention.”

Eldred v. Ashcroft, 537 U.S. 186, 215-16 (2003) (quoting

Sears, Roebuck & Co. v. Stiffel Co., 376 U.S. 225, 229-30

does not establish a presumption of antitrust market power.”); FB.

Leopold Co., v. Roberts Filter Mfg. Co., 882 F. Supp. 433, 454 (W.D. Pa.

1995) (patent on porous plate, the tying product, insufficient to establish

market power), aff d, 119 F.3d 15 (Fed. Cir. 1997); Chiuminatta Concrete

Concepts, Inc. v. Target Prods., Inc., No. CV 92-1523 LGB (SX), 1992

WL 465720, at *4 (C.D. Cal. Dec. 2, 1992) (patent on certain skid plates,

the tying products, insufficient to establish market power in tying claim),

aff d, 19 F.3d 41 (Fed. Cir. 1994); Atari Games Corp. v. Nintendo of Am.

Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990) (“[T}he aims and objectives of

patent and antitrust laws may seem, at first glance, wholly at odds.

However, the two bodies of law are actually complementary, as both are

aimed at encouraging innovation, industry and competition.”).

* “The [U.S.] Constitution empowers Congress ‘[t]o promote the

Progress of Science and useful Arts, by securing for limited Times to

Authors and Inventors the exclusive Right to their respective Writings and

Discoveries.” U.S. Const. art. 1, § 8, cl. 8. Congress first exercised this

authority in 1790, when it provided for the issuance of ‘letters patent,”

Act of Apr. 10, 1790, ch. 7, § 1, 1 Stat. 109." Markman v. Westview

Instruments, Inc., 517 U.S. 370, 372 (1996).

“The claimed subject matter must be useful, novel, and not obvious.”

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S. 722, 736

(2002) (citing 35 U.S.C. §§ 101-103 (1994 ed. and Supp. V)).

(1964)). In essence, a patent is merely a time-limited op-

portunity to try to capture a return on an investment of time

and capital. A patent is not a guarantee that the patentee will

ever earn anything from that bundle of rights granted by Act

of Congress. The gamble that the inventor invariably is

compelled to take once she submits an application to the

Patent Office i: thatthe relevant market may not be mature

enough to appreciate the commercial of the invention

during the patent's enforceable period.” Simply stated, the

market's inability to recognize or calculate the value of an

invention is one of the hazards of a limited patent term. See

Robin C. Feldman, The Insufficiency of Antitrust Analysis for

Patent Misuse 55 Hastings L.J. 399, 445 (2003).

Indeed, there can be no argument that the grant of a patent

is the grant of a statutory monopoly, just as the grant of

patents in England was an explicit exception to the statute of

James | prohibiting monopolies. See Sears, 376 U.S. at 229-

30 (citing The Case of Monopolies (Darcy v. Allein), 77 Eng.

Rep. 1260 (K.B. 1602)). However, the standards for patent-

ability should not be construed to equate with the standards of

economic power necessary to support anticompetitive

behavior in the relevant market.” It is only at a minimum

threshold that before a patent is granted, the claimed subject

* It should be noted that Congress has also long enjoyed the right to

modify or even extend the term of the limited patent monopoly when it

sees fit by exercising its “constitutional right to confer a new and further

term on the patentee.” Blanchard v. Haynes, 3 F. Cas. 628, (C.C.D.N.H.

1848) (No. 1512) (citing Stimpson v. W. Chester R Co., 45 U.S. (4 How.)

380 (1846); Evans v. Jordan, 13 U.S. (9 Cranch) 199 (1815); Grant v.

Raymond, 31 U.S. (6 Pet.) 218 (1832).

* William Montgomery, The Presumption of Economic Power for

Patented and Copyrighted Products in Tying Arrangements, Note, 85

Colum. L. Rev. 1140, 1149 (1985) (“[T]}he existence of a patent or

copyright provides little, if any, evidence of supernormal profits, barriers

to entry, consumer preferences, or absence of adequate substitutes. It thus

does not dispose of the question whether a product has market power.”).

9

matter only “must be useful, novel, and not obvious.” Festo

Corp. v. Shoketsu Kinzoku Kogyo Kabushiki Co., 535 U.S.

722, 736 (2002) (citing 35 U.S.C. §§ 101-103 (1994 ed. and

Supp. V)). “The patent application must describe, enable,

and set forth the best mode of carrying out the invention.” /d.

(citing 35 U.S.C. § 112 (1994)). Only these substantive

requirements must be satisfied before issuance of the patent,

for exclusive patent rights are given in exchange for

disclosing the invention to the public. Bonito Boats, Inc. v.

Thunder Craft Boats, Inc., 489 U.S. 141, 146 (1989) (“The

Patent Clause itself reflects a balance between the need to

encourage innovation and the avoidance of monopolies which

stifle competition without any concomitant advance in the

‘Progress of Science and useful Arts.’”); J.E.M. AG Supply,

Inc. v. Pioneer Hi-Bred Int'l, Inc., 534 U.S. 124 (2001) (“The

disclosure required by the Patent Act is ‘the guid pro quo of

the right to exclude.”” (quoting Kewanee Oil Co. v. Bicron

Corp., 416 U.S. 470, 484 (1974)); Brenner v. Manson, 383

U.S. 519, 534 (1966) (“The basic quid pro quo . . . for

granting a patent monopoly is the benefit derived by the

public from an invention with substantial utility.”); Graver

Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605

(1950) (the disclosure of inventions, “is one of the primary

purposes of the patent system”).

IPO believes that petitioners’ writ of certiorari should be

granted so that the Court can determine that a patent, without

more, merely is a grant of a property right to exclude others

for limited times from making, using selling, offering to sell

or importing into the U.S., the invention claimed in the

patent, and cannot serve as a substitute for actual evidence of

market power. The Court should act to harmonize the law for

matters involving patent tie-ins with those of non-patent tie-in

cases, which are only unlawful if the antitrust defendant has

demonstrable market power in the relevant market for the

tying product. United States Steel Corp. v. Fortner Enters.,

10

Inc., 429 U.S. 610, 620 (1977)."" In tie-in cases not involving

intellectual property, this Court has clearly held that there

must be proof of “forcing” or market power resulting in an

“actual adverse effect on Competition” in the relevant market

by the tying arrangement and that patents and copyrights are

not synonymous with “market power.” Jefferson Parish

Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 29-31, 37 n.7 (1984).

The principle behind the need to eliminate the presumption

of market power can be shown by way of example. If an

owner of an entire multi-unit condominium complex in a

typical city required each buyer to dine in a mezzanine level

restaurant in that building three times per week as a condition

of purchasing a condominium unit, there should be no

presumption that the multi-unit complex owner somehow has

market power in the relevant tying condo market in that city

sufficient to “force” buyers to purchase their meals in the

mezzanine restaurant, i.e., the tied product. Market power

would have to be proven by the antitrust plaintiff, not

presumed as no intellectual property is involved, and it is

'’ Determining market power requires making an inquiry into “whether

the seller has the power, within the market for the tying product, to raise

prices or to require purchasers to accept burdensome terms that could not

be exacted in a completely competitive market.” The requirement of

demonstrating sufficient market power to raise prices was notably more

onerous than the Northern Pacific requirement that there be some power

to “appreciably restrain free competition.” United States Steel, 429 U.S. at

620 (citing N. Pac. R. Co. v. United States, 356 U.S. 1 (1958)).

'' In Jefferson Parish, 466 U.S. at 37 n.7, Justice O'Connor wrote in

concurrence:

“A common misconception has been that a patent or copyright, a

high market share, or a unique product that competitors are not able

to offer suffices to demonstrate market power. While each of these

three factors might help to give market power to a seller, it is also

possible that a seller in those situations will have no market power:

for example, a patent holder has no market power in any relevant

sense if there are close substitutes for the patented product.”

unlikely to exist in a city where much cross-elasticity of

demand exists due to the existence of many other con-

dominium complexes competing for a share of the potential

buyer market.

The argument is no different if the property at issue is

intellectual and not tangible. Whether the property is real

property or intellectual property should not be a determinative

factor in deciding whether the owner possesses market power.

and to shift the burden of proof to the property owner to

establish the lack of market power. The same principle

should be applied to patent tie-in cases, where no market

power should be presumed ip the tying patented product just

because it met the minimum standards for novelty, use-

fulness, and non-obviousness, all patentability criteria wholly

unrelated to the economic factors underpinning modern

antitrust theory.

IPO requests the Court to hold that no presumption of

market power exists, rebuttable or otherwise, and the burden

of proving market power should be held to reside on the

antitrust plaintiff in a patent tying case.

B. There is No Rational Economic Basis for a

Presumption of Market Power Because Patents

Do Not Inherently Define A Relevant Market

As numerous commentators have recognized, merely

owning a patent does not confer market power to the patent

owner sufficient to satisfy the stringent requirements of a

Sherman Act Section | (15 U.S.C. § 1) tie-in case. The

assumptions underlying the presumption are invalid. The

presumption is based on the mere right of a patent owner to

exclude from practicing his or her invention without

permission. This right to exclude does not confer market

power on the patent owner for the simple reason that there

may be close non-infringing substitutes for the patented

product that would defeat any attempt by the patent owner to

12

exercise market power. Thus, the existence of non-infringing

substitutes renders the market broader than that defined by

the patent.

Indeed, the majority of patents lack real commercial value;

to the extent that patents have inherent value, they face robust

competition in the marketplace. For example, a company that

has a 1% share of the personal computer market hardly has

market power in that market merely because the company

owns a patent that relates to one component of the computer.

However, it is economically rational for the company to only

sell the component inside of its computer. The recognition

that a patent, without more, does not confer market power

was recognized by Justice O'Connor in her concurring

opinion in Jefferson Parish that “a patent holder has no

market power in any relevant sense if there are close sub-

stitutes for the patented product.” Jefferson Parish , 466 U.S.

at 37 n.7.

Prominent antitrust scholars have also long expressed

scrious doubts about the alleged anticompetitive effects of tie-

ins. Phillip E. Areeda, Einer Elhauge & Herbert Hovenkamp,

Antitrust Law 4 1737c, at 82 (2d ed. 2004) (“If Salt really

required power and inferred it from any patent, it erred. By

contrast, if Salt was essentially indifferent to power over the

tying product, it has been overruled by the legal rule adopted

in Fortner II] (United States Steel Corp. v. Fortner Enters.,

429 U.S. 610 (1977)] and Jefferson Parish.”), Phillip Areeda

& Donald F. Turner, Antitrust Law 4 1134b, at 205 (1980)

(tying may simply be used as an efficient method of effecting

lawful price discrimination, as a means of preserving

consumer confidence in the performance of a complex

product, or, in the case of servicing tied to distribution of a

complex product, an efficient mode of generating information

leading to product improvement.”); Robert H. Bork, The

Antitrust Paradox, 365, 372-75 (1978) (“The Supreme Court

has seen in this tying together of transactions nothing but the

13

suppression of competition. . . . [I]t is safe to say that

suppression of competition is the one function not

accomplished by the arrangements the Court has struck

down.”); Richard A. Posner, Antitrust Law, 197-207 (2d ed.

2001) (“[t}he frequency with which patents have been

involved in tie-in cases may stem from the fact that the

earliest such cases were not antitrust cases at all. They were

patent-misuse cases, where the issue was whether the

patentee had improperly extended the patent monopoly by

monopolizing an unpatented product tied to the patented

product.”(citing Motion Picture Patents Co. v. Universal

Films Mfg. Co., 243 U.S. 502 (1917)); Herbert Hovenkamp,

Federal Antitrust Policy § 10.3 (2d ed. 1999) (“Most patents

confer absolutely no market power on their owners. . . [The]

economic case for ‘presuming’ sufficient market power . . .

simply because the tying product is patented . . . is very

weak.”’)

It is clear under the application of modern economic theory

that the tying of a patented product will not grant the patent

owner any power to affect the price of the tied product.

There is no reason to assume that tying with a patented article

would adversely affect the market for an unpatented tied

article even if there are no substitutes as the patented tying

article may not be worth enough to the buyer to unduly

influence the market for the tied product.

€. The Market Power Presumption Deters Con-

duct by Patent Owners that Benefits Consumers

Historically, it has long been considered to be unprofitable

and inefficient to bundle together large numbers of unrelated

goods. However, some recent scholars have posited that

tying increases the availability of goods, especially with

respect to digital informational goods. Yannis Bakos & Erik

Brynjolfsson, Bundling Information Goods: Pricing, Profits

and Efficiency, Management Science (Dec. 1999) (“Bundling

14

Information Goods”’y, Yannis Bakos & Erik Brynjolfsson,

Bundling and Competition On The Internet, Marketing

Science (Jan. 2000).

Bundling very large numbers of unrelated information

goods can be quite profitable. The reason is that the law of

large numbers makes it much easier to predict consumers’

valuations for a bundle of goods than their valuations for the

individual goods when sold separately. A “predictive value

of bundling” makes it possible to achieve greater sales,

greater economic efficiency and greater profits per good from

a bundle of information goods than can be attained when the

same goods are sold separately. See Bundling Information

Goods at 2-3.

Circuit courts since Jefferson Parish, have held or

suggested that the mere ownership of a patent, viz., a “legal

monopoly” does not equate to market power sufficient to

support a per se rule against tie-ins involving patents. A./.

Root Co. v. Computer/Dynamics, Inc., 806 F.2d 673, 676-77

& n.3 (6th Cir. 1986) (“Loew's [was] overbroad and . . . we

reject any absolute presumption of market power for

copyright or patented product . . . such a presumption is not

warranted merely by existence of a copyright or patent.”);

USM Corp. v. SPS Techs., Inc., 694 F.2d 505 (7th Cir. 1982)

(suggesting in dicta that proof of market power may be

required in patent and copyright tie-ins); Will v. Compre-

hensive Accounting Corp., 776 F.2d 665 (7th Cir. 1985)

IPO requests the Court to hold that there is no rational

economic basis for a presumption of market power because

patents do not inherently define a relevant market; the burden

of proving market power should be held to reside on the

antitrust plaintiff in a patent tie-in case.

15

D. The Market Power Presumption Facilitates the

Assertion of Baseless Antitrust Counterclaims

by Infringers

Baseless antitrust claims will deter patent owners from

attempting to properly protect their patents from infringers.

A clear harmful effect in the practical application of the

presumption is that it provides an incentive to patent

infringement defendants to bring Sherman Act counterclaims

against patentees who are only properly seeking to enforce

their patent rights by bringing infringement suits. The

windfall of the burden shift onto the patentee to rebut a

presumed market power element raises the likelihood that

mevitless or weak antitrust claims will survive motions to

dismiss and summary judgment. The presumption blunts the

patentee’s underlying patent infringement case, and increases

the risk to the public that a potentially invalid patent will not

be judicially examined or patent claim terms not be

construed, as the risk of incurring statutorily mandated treble

damages for Sherman Act liability tips the scales towards a

rush to settle the underlying patent action and antitrust

counterclaims, to avoid the expense, and treble damages risk,

of an extended antitrust trial. It seems likely that in the

intervening decades since /nternational Salt was decided, the

presumption has invariably been used in antitrust coun-

terclaims in patent infringement cases to increase the cost of

owning and enforcing patented intellectual property.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 593 (1986) (citation omitted) (The “effect” of im-

plausible inferences to require a jury trial “is often to deter

procompetitive conduct.”)

16

E. The Department of Justice and Federal Trade

Commission Do Not Apply a Presumption of

Market Power When Evaluating a Tie-In Case

Involving a Patent on the Tying Product

Perhaps the most persuasive support for IPO’s argument

that the time is ripe to eliminate the market power

presumption are the policies promulgated by the two agencies

of the executive branch empowered with enforcing the federal

antitrust laws, viz., the Department of Justice and Federal

Trade Commission (“the Agencies”). The Agencies have

squarely rejected the notion that merely having a patent on

the tying product somehow confers a prima facie presumption

of market power.'? Instead, the Agencies have elected to

closely follow the guidance provided by Justice O°Connor’s

concurrence in Jefferson Parish, and require an antitrust

plaintiff to prove market power. The Guidelines expressly

state they are based on three underlying principles: “(a) for

the purpose of antitrust analysis, the Agencies regard

intellecwual property as being essentially comparable to any

other form of property; (b) the Agencies do not presume that

intellectual property creates market power in the antitrust

context, and (c) the Agencies recognize that intellectual

property licensing allows firms to combine complementary

factors of production and is generally procompetitive.” U.S.

Dept of Justice & Fed. Trade Comm’n, Antitrust Guidelines

for the Licensing of Intellectual Property § 2 (1995)"* (em-

phasis added).

'? U.S. Dep't of Justice & Fed. Trade Comm'n, Antitrust Guidelines for

the Licensing of Intellectual Property § 5.3 (1995) (the “Guidelines”).

'’ The pro-competitive effects of patenting were also recently discussed

by the DOJ and FTC after a series of public hearings set forth in the recent

Report by the Federal Trade Commission “To Promote Innovation: The

Proper Balance of Competition and Patent Law and Policy” Chap. 6

(October 2003).

17

The Court should carefully weigh that both federal

Agencies have repeatedly made clear that patent tying ar-

rangements frequently result in significant efficiencies and

procompetitive benefits.'* The fact that the two principal

federal antitrust enforcement agencies decline as part of their

prosecutorial discretion to “presume” market power when

evaluating a patent tie-in case lends strong support that it is

the appropriate time to overturn the market power pre-

sumption originating under /nternational Salt, a case that was

decided in the economic climate that followed in on the heels

of the Great Depression and the Second World War in the

first half of the last century.

' The Agencies’ joint policy is that they “[w]ill not presume that a

patent, copyright, or trade secret necessarily confers market power upon

its owner.” Guidelines § 5.3; R. Hewitt Pate, Acting Assistant Attorney

General, Antitrust and Intellectual Property, Address before the American

Intellectual Property Law Association. (Jan. 24, 2003), available at

http //www.doj.gov/atr/public/speeches/200701 .pdf (“Because patents do

not necessarily confer market power, there is no presumption that tying

arrangements involving patented products necessarily are illegal.”) (citing

the Guidelines § 5.3); Makan Delrahim, Deputy Assistant Attorney

General, Contemporary Issues at the Intersection of Intellectual Property

and Antitrust, Remarks made before the Fair Competition & Market

Economy 2004 Shanghai International Forum, Shanghai. China, (Nov. 10,

2004), available at hitp://www.doj.gov/atr/public/speeches/206607 .pdf

(the DOJ recognizes that “[c}lose substitutes in the marketplace may

foreclose the [patented product] from realizing any meaningful return”)

(citing the Guidelines §§ 2.1-2.2).

18

CONCLUSION

The Petitioner's writ of certiorari should be granted.

Respectfully submitted,

Of Counsel: GARY M. HOFFMAN *

MILTON MARQUIS

KENNETH W. BROTHERS

BRADLEY J. OLSON

DICKSTEIN SHAPIRO MORIN

OSHINSKY LLP

2101 L Street, Suite 400

Washington, DC 20037

J. JEFFREY HAWLEY

President

DOUGLAS K. NORMAN

Chair, Amicus Brief Committee

INTELLECTUAL PROPERTY

OWNERS ASSOCIATION

1255 Twenty-Third Street, N.W.

Suite 200 (202) 828-2228

Washington, DC 20037 Counsel for Amicus Curiae

(202) 466-2396 ° Gannett of Reseed

Amicus Curiae

May 5, 2005

APPENDIX

la

APPENDIX

Members of the Board of Directors,

Intellectual Property Owners Association”

Marc S. Adler

Rohm and Haas Co.

Mark P. Calcaterra

DaimlerChrysler Corp.

Angelo N. Chaclas

Pitney Bowes Inc.

William J. Coughlin

Ford Global Technologies, Inc.

Timothy Crean

SAP, AG

Gerald V. Dahling

Sanofi-Aventis

Q. Todd Dickinson

General Electric Co.

Beverly M. Dollar

ConocoPhillips

Kenneth D. Enborg

General Motors Corp.

Bart Eppenauer

Microsoft Corp.

J. Jeffrey Hawley

Eastman Kodak Co.

Stephen P. Fox

Hewlett-Packard Co.

Scott M. Frank

BellSouth Corp.

Andy Gibbs

PatentCafe.com, Inc.

Michael L. Glenn

Dow Chemical Co.

Bernard J. Graves, Jr.

Eastman Chemical Co.

Gary L. Griswold

3M Innovative

Properties Co.

John M. Gunther

EMC Corporation

Harry J. Gwinnell

Cargill, Inc.

Jack E. Haken

Koninklijke Philips

Electronics N.V.

Stephen D. Harper

Henkel Corp.

* IPO procedures require approval of positions in briefs by a three-

fourths majority of directors present and voting.

Robert P. Hayter

United Technologies Corp.

William B. Heming

Caterpillar Inc.

Ken Hobday

CheckFree Corp.

Dennis R. Hoerner, Jr.

Monsanto Co.

Philip S. Johnson

Johnson & Johnson

David J. Kappos

IBM Corp.

Mark P. Kesslen

JP Morgan Chase & Co.

Charles M. Kinzig

GlaxoSmithKline

Noreen A. Krall

Sun Microsystems, Inc.

Richard F. Lemuth

Shell Oil Co.

Michael L. Lynch

Micron Technology, Inc.

Jonathan P. Meyer

Motorola, Inc.

Steven W. Miller

Procter & Gamble Co.

Raghunath S. Minisandram

+ ie Technology

Claudio Morfe

Nortel Networks

Douglas K. Norman

Eli Lilly and Co.

Richard F. Phillips

ExxonMobil Corp.

Peter C. Richardson

Pfizer Inc.

Mark L. Rodgers

Air Products and

Chemicals, Inc.

Robert R. Schroeder

Mars Incorporated

David Simon

Intel Corp.

Frank J. Sroka

BP America, Inc.

Brian W. Stegman

BASF Corp.

Thierry Sueur

Air Liquide

Cheryl! J. Tubach

Coca-Cola Co.

John M. Vasuta

Bridgestone Americas

Holding, Inc.

Michael Walker

E.1. du Pont de Nemours and Co.

Stuart Watt

Amgen, Inc.

Herbert C. Wamsley

Intellectual Property

Owners Association

John K. Williamson

PPG Industries, Inc.