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

[a

Supreme Court. 1 S

|

FILED

(2) | AUG 4 ~ 2005

OFFICE OF THE c

No. 04-1329 CLERK

IN THE

Supreme Court of the Anited States

ILLINOIS TOOL WORKS INC. AND TRIDENT. INC..

Petitioners,

Vv.

INDEPENDENT INK, INC..

Respondent.

On Writ of Certiorari

to the United States Court of Appeals

for the Federal Circuit

’

BRIEF OF THE AMERICAN BAR ASSOCIATION

AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

Robert J. Grey, Jr., President”

American Bar Association

321 North Clark Street

Chicago, IL 60610

(312) 988-5000

Richard J. Wallis

Kevin D. McDonald

“Counsel of Record

Counsel for Amicus Curiae,

The American Bar Association

TABLE OF CONTENTS

Page

ee Fe SE trcecatsncndinnitancistsinianssanninsnnnaneine ii

DE AUTO E COU BEG BERIID DE cccceseccecoscnscccsnssenssonsssscereonsecese l

SUMMARY OF THE ARGUMENT ............... ce eeeeeeeeeeeeee 2

I EIIIIIITTT suscutestdsinteinciandeitabenapitibiibdidinaintisheniianisininidiensabeineties 8

I. A Presumption That The Existence Of Intellectual

Property Rights Implies Market Power Is Unfounded

PS I svitccnsecintsictiniiinbincinninaisientatntsiitmininnueigaeies 8

A. The Presumption Is False ...........ccccccccccssssssssseees 9

B. The Presumption Is Unworkable..................... 1]

Il. The Market Power Presumption Finds No Support In

The Prior Holdings Of This Court......... seocccsocnenvvesoccees 14

A. The Period OF “Hostility” .....ccccccsssccecscccesesseceee 15

B. The Period Of “Uniqueness” .................:..:00008 17

C. The Period Of Market Power ................:.:000+ 21

Ill. The Doctrine of Stare Decisis Cannot Justify The

Presumption of Market Powet.................:cccceseseeeereeeees 24

A. The Presumption of Market Power Was Not

Necessary to The Result in Loew's ................. 24

B. Loew's Meets The Court’s Criteria For

Rejection Under Stare Decisi8.............:c00000000 26

a There is No “Reliance” Interest That

Supports the Application of Stare Decisis

TEER RNa eee oer eae ee Se I 27

Ce I cxecrnrisneneenesnncntccsnsmnsenssosmmnmnemnsssntecsonsetonndienis 30

TABLE OF AUTHORITIES

Page

Cases

3 P.M., Inc. v. Basic Four Corp.,

591 F. Supp. 1350 (E.D. Mich. 1984) wo... eeeeeeeeeees 26

A.L Root Co. v. Computer/ Dynamics, Inc..

806 F.2d 673 (6th Cir. 1986)............ deoceneneonneneaneinidi 8, 28

Bleistein v. Donaldson Lithographing Co.. 5

13S U.S.-2359 (IDES) .ccccsssccescncstecctssiensanmmnsninnanennanaa 20

Capital Temps., Inc. v. Olsten Corp..

506 F .26 GSB (28 Cle, UDP) nccccececcnssiitienscatinimsuiuaeaiaan 25, 26

Copperweld Corp. v. Independence Tube Corp..,

467 U.S. TS2 (1DBE) nccccccsccsecssesseseccsstentssenmmnly man aan

Data Gen. Corp. v. Digidyne Corp..,

473 U.S. SOB (1DBS) ncccnccecasccsssessscnsestisitumammmemmmnia 23, 28

Digidyne Corp. v. Data Gen. Corp.,

T34 F.2d 1336 (Sia Che. IDG) ncccccaciistninscntnintsmnsniial 8. 29

Eastman Kodak Co. vy. Image Technical Serv.,

SO4 U.S. 451 (B9GZ) .ncccccsccsssvcsestininmenctiiamensiinmaiaial 25

Festo Corp. v. Shoketsu Kinzoku Kogyo Kabushiki

Ca., 53S US. 722 (GBR) nceccsssstiniincmaiiiiiinmiemannia 20

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

394 U.S. O95 (ISGP) .nccnsscesnsteenssttennmtionmaeammai 21

Henry v. A.B. Dick Co., 224 U.S. 1 (1912) ccc 15, 16

Independent Ink vy. Illinois Tool Works, Inc..

F956 FSG 1342 (FOG. Civ. BOGS) nccccecccccscsscnsssonsssesocns passim

Indiana Grocery, Inc. v. Super Valu Stores, Inc.,

864 F.2d 1409 (7th Cir. 1989)............ccsscccssecenessesssseeess 13

Int'l Salt Co. v. United States,

55S UD. FS (PSP ccrecicccninssiinnstiaiiasaiiiiins 5, 10, 16, 17, 18

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

GEG US. 2 (FSBO) ccceccccccssenctinenciinimintisininiiamiemmins passim

Motion Picture Patents Co. v. Universal Film Mfg.

Car, BED US. FEB (OGG Pieccnccvcccsssscseninisdlsssemiatitiiitnanininssn 16

_— ~

iil

TABLE OF AUTHORITIES

Page

Northern Pac. Ry. Co. v. United States,

EL 6, 17, 18, 19, 20, 21, 23

Spectrum Sports, Inc. v. McQuillan,

ec 11

State Oil v. Khan, 522 U.S. 3 (1997) ........000cc000 7, 24, 26, 27

Telerate Sys., Inc. v. Caro,

689 F. Supp. 221 (S.D.N.Y. 1988) .................ccccccccessesees 28

Times-Picayune Publ'g Co. v. United States,

Ee 5,17

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

ite eceentinseeenenemeesenenase 6, 8, 21, 22, 27

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

United States v. Paramount Pictures, Inc.,

a 5, 10, 16, 17, 20

United States v. Yellow Cab Co..,

. EE, >

Walker Process Equip., Inc. v. Food Mach. &

Cihome, Corp... S62 U.S. 172 (19GS).......0002.000.00sceseccceeeeeee 11

Will v. Comprehensive Accounting Corp.,

776 F.2d 665 (7th Cir. 1985) ..........ccccccccccceeeseeees 8, 10, 28

Statutes

i rrnreerreneenmenemmennnsnnenesnasn 4.11

Other Authorities

X P. Areeda, E. Elhauge & H. Hovenkamp,

Antitrust Law (2d ed. 2004) ........c..ccccccceeceeeeneeneenenees 11, 28

P. Areeda & H. Hovenkamp, Antitrust Law

ee 9, 29

IIA P. Areeda, H. Hovenkamp & J. Solow,

LL 9

W. S. Bowman, Jr., Patent and Antitrust Law

ET 15

iv

TABLE OF AUTHORITIES

W.S. Bowman, Jr.. Tying Arrangements and the

Leverage Problem &7 Yale LJ. 19 (1957) o.oo 5

Hon. F. H. Easterbroo* . Intellectual Property is Still

Property, 13 Harv. J.L. & Pub. Pol'y 108 (1990) ....28, 29

R. Feldman. The Insufficiency of Antitrust Analysis

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

H. Hovenkamp., M. Janis & M. Lemley.

1 JP and Antitrust (Supp. 2005 )..............c.ccccceeeeeees passim

R. N. Pearson. 7ving Arrangements and Antitrust

Policy, 60 Nw. U. L. Rev. 626 (1965) .........ccccccccccceeeeeeee 25

Panel Discussion. The Value of Patents and Other

Legally Protected Commercial Rights, 53 Antitrust

Sassi: SIP Ie iharinsneciestarisohenreiensteniensieiiescinieansibiiteimiibiinieadaibaal )

Market Power and Intellectual Property

Litigation: Hearing Before the Subcomm.

on Courts, the Internet, and Intellectual

Property of the H. Comm. on the Judiciary,

eR EE TT 8

L. A. Sullivan. Handbook of the Law of Antitrust

SD Ge enncnicinsiencstaniensieennntnicinteniieitiiiniaieiiitetinieat 13

STATEMENT OF INTEREST’

The American Bar Association (“ABA”), with over

405,000 members. is the leading national membership

organization of the legal profession. Its members come from

each of the fifty states, the District of Columbia, and the U.S.

territories. Membership is voluntary and includes attorneys

in private practice, government service, corporate law

departments, and public interest organizations, as well as

legislators, law professors, law students, and non-lawyer

associates in related fields. ABA members represent the full

spectrum of public and private litigants, including plaintiffs

and defendants. Among the ABA entities are the Section of

Antitrust Law, with over 9,000 members. and the Section of

Intellectual Property Law. with over 19,000 members.

This case squarely presents the question whether a court

must presume that a patent confers market power for

purposes of a tying claim under Section | of the Sherman

Act. In 1990, the House of Delegates of the ABA adopted a

resolution providing that intellectual property rights shall not

be presumed to define a market or to establish market power

in actions under the antitrust laws.’ Because the ABA

' in accordance with Supreme Court Rule 37.6, the ABA states that this

brief has not been authored in whole or in part by counsel for a party and

? Specifically. the ABA House of Delegates adopied a policy position

a “in principle legislation such as H.R. 469, 101st Cong., Ist

Sess. (1989) (Fish) and S. 270, 101st Cong., 2d Sess. (1989) (Leahy)

which provide{d] that inteilectual property rights should not be presumed

to define a market or to establish market power in actions under the

antitrust laws.” ABA Section of Patent, Trademark & Copyright Law.

Report and Recommendation to the House of Delegates, Report No.

|

represents a uniquely broad spectrum of the American legal

community. its perspective on the central issue in this case

should be helpful to this Court.’

SUMMARY OF THE ARGUMENT

The question presented in this case is narrow and focused.

The Court granted certiorari to determine whether. in a claim

for unlawful tying under Section | of the Sherman Act.

“market power in the relevant market for the tying

product ... is presumed based solely on the existence of [a]

patent on the tying product.” Petition at |. The American

Bar Association urges the Court to hold that the answer is no.

Contrary to the view of the court below. the ABA believes

that this answer is consistent with the Court's prior decisions

and the meaning of Section |. Therefore. the decision of the

Court of Appeals for the Federal Circuit should be reversed.

The Federal Circuit held that a presumption of market

power must apply where the tying product is patented not

because such a presumption is factually supportable. nor

because it serves any overriding legal policy. Rather. the

Federal Circuit held that the market power presumption was

mandated by this Court's prior decisions. especially United

States v. Loew's Inc.. 371 U.S. 38 (1962).

But the Court of Appeals. like some others, has misread

Loew's. The “presumption” applied in Loew's was not a

presumption of actual market power. as the Court's tying

122C (Feb. 1990). The action of the House of Delegates adopting the

report is at 115 ABA Reports 42 (1990). The Section report itself is at

11S ABA Reports 1365-70 (1990). In 2001. the ABA reiterated its

support for bills that would prevent any presumption of market power in

intellectual property cases. See Market Power and Intellectual Property

Litigation’ Hearing Before the Subcomm. on Courts, the Internet, and

Intellectual Property of the H. Comm. on the Judiciary, \O07th Cong. 11

(2001) (statement of Charles P. Baker. Chair, ABA Section of

Intellectual Property Law ).

* Both parties have consented to the filing of this brief. The letters of

consent are on file with the Clerk of the Court.

jurisprudence now requires. It was, to use the Loew's

Court's own words, a “presumption of uniqueness resulting

from the existence of the [intellectual property] itself.” 371

U.S. at 48 (emphasis added). Indeed, the Loew's Court

expressly stated that its references to the “requisite economic

power” over the tying product should not be confused with

actual market power:

[T]he requisite economic power may be found on the basis

of either uniqueness or consumer appeal, . . . [because]

market dominance in the present context does not

necessitate a demonstration of market power in the sense

of § 2 of the Sherman Act....

Id. at 45 n.4. The “presumption of uniqueness” in Loew's,

moreover, was obviated by this Court's later decisions in

which the requirement of “power” in the tying product

market was expressly defined to mean actual market power

in the sense of power over price.

Neither Loew's nor any other decision of this Court has

ever applied a presumption of actual market power to decide

a case in which the tying product was protected by a patent

or copyright. Thus, the ABA does not believe that Loew's

must be overruled. We emphasize. however, that the

question presented is not whether any decisions of this Court

must be overturned, or how many, but whether a

presumption of market power based on intellectual property

alone should be rejected. While the necessity of overruling

Loew's may be debatable, the American Bar Association

respectfully submits that the question presented by the

Petition is not.

A. The Presumption Is Baseless And Unworkable.

The ABA adopted its 1990 policy because the market

power presumption has no basis in economic reality and

therefore unjustifiably reduces incentives to innovate. We

are aware of no evidence that the fact of a patent, copyright,

or other intellectual property confers market power in all or

even a significant majority of cases. The judicial and

4

academic consensus that any such presumption is unwise,

moreover. is overwhelming. As a result. neither the court

below nor the Respondent here has cited any economic or

legal commentator who currently defends the presumption.

Members of the executive and legislative branches agree

that the presumption should be rejected. Both antitrust

enforcement agencies have eschewed it in their intellectual

property enforcement guidelines. and Congress specifically

amended the patent laws to ensure that any claim of

“misuse” based on tying would require proof of market

power. 35 U.S.C. § 271(d).’ Even those few courts that

have regarded the presumption as mandated by Loew's. have

made no attempt to defend it.

The presumption is also unworkable. as the anomalies that

arise from the Federal Circuit's attempt to apply it in this

case demonstrate. To reach the result below. the Federal

Circuit concluded that:

(1) a presumption that a patent creates market power in

fact is warranted under Section | of the Sherman Act, but

plays no role whatsoever under Section 2.

(2) the market power presumption must be deemed

rebuttable (a conclusion based on “clearly articulated

Supreme Court dicta.” Pet. App. 15a (the Federal Circuit's

opinion reported at 396 F.3d 1342). but it may not be

rebutted by evidence going to the heart of any finding of

actual market power. that is. the “presence of competing

substitutes for the tying product.” Pet. App. 16a (internal

quotation marks omitted). and

(3) the presumption carries with it a presumed

geographic market. in which (contrary to existing law and

* See H. Hovenkamp. M. Janis & M. Lemley. /P and Antitrust § 4.26, at

4-36 (Supp. 2005) (hereinafter “HJL Treatise”) (“It would also be

irrational for Congress to immunize patent ties from Patent Act liability

only to have them condemned under the Sherman or Clayton Act... .”).

5

common sense) every product with a United States patent

competes in a market defined as the United States.

These propositions have no basis in the decisions of this

Court or the economics of tying arrangements. Rather, they

demonstrate the difficulty of applying a presumption with no

basis in fact to actual cases. If the Federal Circuit's

presumption is not rejected, that difficulty will be visited on

every member of the bench and bar struggling with the

application of antitrust law to intellectual property.

B. This Court’s Decisions Do Not Support The

Market Power Presumption.

The lower court’s conclusion that it was bound to apply

the market power presumption to a patented tying product

reflects a fundamental misunderstanding of Loew's and this

Court's tying jurisprudence.

Many of the Court's early tying decisions condemned

tying arrangements included in intellectual property licenses

as inherently anticompetitive. A principal rationale

employed by the Court during that period was the so-called

“leveraging fallacy’—that the patentee was using one

monopoly (on the invention) to gain a second monopoly (on

the tied product).° Although that rationale has not survived

the Court’s later decisions, it was the primary basis for the

findings of per se illegality in decisions such as /nternational

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

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

In the 1950s, the Court decided a tying case for the first

time by focusing on the degree of the seller's power in the

market for the tying product.” In a series of subsequent cases

that included Loew's, however, the Court emphasized that

the requisite “power” was not actual market power, but

’ See, e.g. W. S. Bowman, Jr., Tying Arrangements and the Leverage

Problem, 67 Yale LJ. 19 (1957).

. Times-Picayune Publ'g Co. v. United States, 345 U.S. 594 (1953).

6

merely a showing of distinctiveness or uniqueness. This

showing was easily met in a patent case. “[s]ince one of the

objectives of the patent laws is to reward uniqueness... .”

Loew's, 371 U.S. at 46. But. even as these cases found that

patents could justify a “presumption of uniqueness” by

definition. id at 48. the Court acknowledged that a

presumption of actual market power could not be justified.

because it was “common knowledge” that patents do not

necessarily confer market power. Northern Pacific Ry. Co.

v. United States, 356 U.S. 1. 10 n.8 (1958).

Loew's was the first and last case in which this Court

applied a presumption of any kind to a tying product

protected by intellectual property rights. But Loew's

specifically denied that its “presumption” was the same as

the presumption applied by the Federal Circuit below—that a

patented tying product may be presumed to confer actual

market power. Thus. Loew's simply did not ask or answer

the question presented here.

The Court's subsequent cases have taken a different

approach to the question of “power” in tving cases and have

thus undermined the rationale for the Loew's “presumption

of uniqueness.” Beginning with United States Steel Corp. v.

Fortner Enterprises, Inc.. 429 U.S. 610 (1977) (“Fortner

IT’), the Court has held repeatedly that a tying claim cannot

survive unless a plaintiff first pleads and proves that the

seller has genuine market power in the tying product.

Fortner Il reversed a judgment of illegal tying based upon

jury findings of uniqueness because those findings did not

establish actual market power. In 1984, Jefferson Parish

Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984) (“Hyde”),

confirmed the rule by rejecting a tying claim in which the

seller had only 30 percent of the tying market. Based on

these decisions, scholars have concluded that this Court's

current requirement of market power in the tying product

“would refuse to find sufficient power in /nternational

Salt... or in decisions such as Paramount or Loew's... .”

HJL Treatise, supra note 4. § 4.2e4(A). at 4-31.

7

In its opinion below, the Federal Circuit acknowledged

this change in the law of tying, but argued that it occurred

only for unpatented products, not patented ones. Pet. App.

6a. The Federal Circuit based this conclusion principally on

“dicta” from Hyde suggesting that the Court's current market

power requirement could be satisfied by the existence of a

patent. Pet. App. 9a, 14a-15a. That suggestion, which was

immediately challenged by the four concurring Justices, and

later questioned by other members of the majority, cannot

change the holding of Loew's. And that holding did not

apply a presumption of market power to intellectual

property.

C. Stare Decisis Does Not Justify Adherence To The

Presumption Of Market Power.

In the view of the ABA, the principles of stare decisis do

not present an obstacle to the Court’s rejection of the

presumption of market power.

First, this Court overrules only cases in which the

principle at issue was necessary to the result. The Loew's

Court relied on additional evidence of arguable market

power that provides alternative grounds for the holding.

Second, if the Court concludes that it must overrule

Loew's to reverse the judgment below, there are powerful

reasons to do so. As improved analysis of economic

practices and priorities has evolved, this Court has overruled

several prior holdings in the antitrust area, especially in cases

challenging assumptions underlying per se rules of liability.

See, e.g., State Oil v. Khan, 522 U.S. 3, 20 (1997) (“Khan”).

Here, both the overwhelming opposition to the presumption

and the continued debate over the meaning of Loew's make

this an even more compelling case for overcoming stare

decisis.

Third, Loew's has caused uncertainty, not reliance.

Accordingly, the ABA does not believe that members of the

legal and business community have relied to their detriment

on the interpretation of Loew's that the Federal Circuit found

8

controlling here. Rather, the ABA believes that the majority

view for the past twenty years that patents do not justify a

presumption of market power has been undermined and

unsettled by the decisions. including the opinion below,

redefining the Loew's presumption to mean market power.

Any disapproval of Loew's that accompanies rejection of the

market power presumption would result in clarity and

common sense, not disappointed expectations.

ARGUMENT

I. A Presumption That The Existence Of Intellectual

Property Rights Implies Market Power Is

Unfounded And Unwise.

The presumption of market power applied by the Court of

Appeals below has no basis in economic reality or legal

policy. In the 1980s. it became ctear that. despite this

Court's decisions in Fortner I] and Hyde. some lower courts

would presume market power from the existence of a patent

or copyright.’ while others would not.* The ABA adopted its

first resolution opposing the presumption in 1990, and has

maintained that position for the reasons summarized by the

Chair of the ABA Section of Intellectual Property Law when

testifving before Congress in 2001:

Because such presumptions are arbitrary. ignoring real

world facts, they have no proper basis from the point of

view of either intellectual property or antitrust law, and

they lower incentives created by intellectual property law

to invest in new jobs and new industrial facilities based on

technical advances.”

. Digidyne Corp. v. Data Gen. Corp. 734 F.2d 1336 (9th Cir. 1984).

* will v. Comprehensive Accounting Corp., 776 F.2d 665 (7th Cir. 1985);

Al. Root Co. v. Computer Dynamics, Inc., 806 F.2d 673 (6th Cir. 1986).

” See Market Power and Intellectual Property Litigation: Hearing Before

the Subcomm. on Courts, the Internet, and Intellectual Property of the H.

Comm. on the Judiciary, \O7th Cong. 11 & nn.l & 2 (2001) (Statement

of Charles P. Baker, Chair, Section of Intellectual Property Law, on

9

We ask the Court to reject the presumption for two principal

reasons:

A. The Presumption Is False.

First and foremost, “whether a patent confers market

power is a question of fact, not policy.”'” As the Petition in

this case amply demonstrates (Pet. 19-20), there is no

empirical evidence that patents confer market power in every

case (as the presumption holds), or even in any significant

number of cases. In fact. the evidence available indicates

that the vast majority of patents confer neither market power

nor monetary profit to the patentee.'' Thus, there is nothing

to contradict the answer to the question from Professor

Areeda: “Patents, copyrights, trademarks, and other forms of

intellectual property do not themselves confer any market

sell

power.

Nor is the factual case for the presumption improved, as

the Respondent argues, by narrowing the field of

“presumptive” patents to those that are employed in tying

arrangements. This Court has repeatedly recognized the

benefits of and reasons for tying arrangements that apply

behalf of the American Bar Association citing prior testimony by the

ABA on this issue) (Mr. Baker’s statement is also available at

http://www.abanet.org/ intelprop/ marketpower.pdf).

'0 pb. Areeda and H. Hovenkamp, Antitrust Law $518, at 194 (Supp.

2005).

' See, e.g., Comments of F. M. Scherer, Panel Discussion, The Value of

Patents and Other Legally Protected Commercial Rights, 53 Antitrust

L.J. 535, 547 (1985) (“{s}tatistical studies suggest that the vast majority

of all patents confer very little monopoly power—at least, they are not

very profitable”); R. Feldman, The Insufficiency of Antitrust Analysis for

Patent Misuse, 55 Hastings L.J. 399, 437 (2003) (“eighty percent to

ninety percent of patents never create any monetary return on the patent

holder” (footnote omitted)).

'2 11A P. Areeda, H. Hovenkamp & J. Solow, Antitrust Law ¥ 523, at 130

(Ist ed. 1995) (original emphasis).

10

with or without market power.’ Among those benefits are

quality assurance and customer preference.'* Of particular

note here, tying can be used as a means of “metering” the use

of the invention itself. allowing the patentee to charge more

to those who use the invention more intensively (that is,

those who buy more ink), and less to those who do not. Such

metering is “nearly always procompetitive.”'* In such a

case. the patentee who imposes the tie “would be precisely

equivalent to the lessor of an automobile who charges by the

mile that the lessee drives.”'® Thus. the mere use of a tie,

successful or not. cannot transform Illinois Tool. or a rental

car company, into a monopolist.

In addition to its theoretical flaws and lack of empirical

evidence, the argument that a patentee who insists on a tying

arrangement “must” have market power is belied by the

history of tying cases brought before this Court. In each of

the Court's antitrust cases discussed below involving a tying

product subject to intellectual property rights. there was clear

evidence that the defendant did not have market power in the

tving product. In /nternational Salt, “there were several

firms selling roughly equivalent lixator machines,”'’ and in

Paramount and Loew's “not only the defendants but

presumably numerous rivals offered copyrighted motion

pictures of equivalent quality and desireability.”'* Indeed.

the record in this case—which reflects substantial other

sellers of substitutes for the tying product. and was fatal to

' See, ¢. g.. Will, 776 F.2d at 673 (“The Supreme Court emphasized in

Hyde and again in National Collegiate Athletic Association that tying

may have competitive benefits.” ) (citations omitted).

'* HJL Treatise. supra note 4, § 21.2, at 21-8.

'S id, at 21-12.

© id. at 21-13.

7 Id. § 4.2e4, at 4-31.

” Jd. Those rivals would include the four co-defendants in Paramount

Pictures. Columbia Pictures, Universal. United Artists, and Loew’s itself.

the Section 2 claim below—belies any claim that the

presumption is ordinarily true.

Because the presumption is groundless, it places a burden

on intellectual property rights that is unjustified. Thus, there

is striking unanimity among both economic and legal

commentators that the presumption is harmful to consumers

and should be abandoned. See Pet. 19. The federal enforce-

ment agencies have expressly eschewed the presumption in

their enforcement guidelines. Pet. 17-18. And Congress has

expressly amended the Patent Act to provide that any claim

of “misuse” by tying must prove market power, “thereby

abolishing any presumption that a patent itself defines a

market or implies market power.”'” For these reasons, most

courts have also rejected the presumption (Pet. 9) and others

that have applied it have done so solely in deference to this

Court.

B. The Presumption Is Unworkable.

In its attempt to apply the presumption of market power to

the case before it, the opinion below highlights certain

anomalies of the presumption, and actually creates new ones.

First, the court had to acknowledge that the presumption it

found warranted in a Section | tying case had no application

whatsoever in a Section2 claim. Pet. App. 17a. The

conclusion that Section 2 requires market power was

mandated by this Court’s decisions in Walker Process and

Spectrum Sports® The Court of Appeals offered no

'° x P. Areeda, E. Elhauge & H. Hovenkamp, Antitrust Law § 1737c, at

83 (2d ed. 2004), citing 35 U.S.C. § 271(d), and noting: “While the Act

does not define proof of illegal tying under the antitrust laws, it would be

anomalous to equate patents with power for antitrust purposes but not for

misuse purposes, for the patent misuse defense is either equivalent to the

antitrust offense or more hostile to the tying defendant.”

20 Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S.

172, 177-78 (1965) (“Without a definition of that market there is no way

to measure [the patentee’s] ability to lessen or destroy competition. . . .

There may be effective substitutes for the device which do not infringe

the patent.”); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993).

12

rationale for the distinction, and none is apparent. If the

presumption were grounded in fact, it would have at least

some relevance to any antitrust analysis of market power.

Instead, the anomalous result was accepted below for a

single reason: “Neither /nternational Salt nor Loew's dealt

with section 2 of the Sherman Act.” Pet. App. 17a.

Of-greater practical consequence, however, the Court of

Appeals next considered what would happen afier the

presumption was applied. For, unlike this Court's decision

in Loew's, the Federal Circuit's decision here did not end the

case in the plaintiff's favor. Acknowledging that this Court

had never decided the issue. the Court of Appeals concluded

that the presumption must be rebuttable. based on “clearly

articulated Supreme Court dicta.” Pet. App. 15a. That dicta

came from the Court’s 1984 Hyde decision, in which the

majority observed that it was “fair to presume” that a patent

“gives the seller market power.” /d. (quoting Hyde. 466 U.S.

at 16). The Federal Circuit thus remanded the case to give

the defendant an opportunity to rebut the presumption of

market power.

In doing so. however, the court further observed that

“[t]he mere presence of competing substitutes for the tying

product ....is insufficient to” rebut the presumption. Pet.

App. 16a. This language came from the decision in Loew's,

in which (as noted) the presumption applied was expressly

not a presumption of market power, but a presumption of

“uniqueness.” The Loew's Court was simply stating that the

presence of competing substitutes was insufficient to

overcome the presumption because, even though directly

relevant to the question of market power, market power was

not the test: “Market dominance—some power to control

price ard to exclude competition—is by no means the only

test of whether the seller has the requisite economic power.”

Loew's, 371 U.S. at 45.

Because it applied the Loew's language about “competing

substitutes” to a test that dves require market power under

13

this Court’s current law, the Federal Circuit's rule is quite

extraordinary. There is no more direct evidence that a party

lacks market power than the presence of other significant

competitors already in the market.”' Such competitors, by

definition, are supplying options to consumers, have

overcome any barriers to entry, and may have the current

capacity to expand output and defeat any attempt by the

alleged monopolist to curtail output.” After excluding this

compelling evidence from consideration, the Federal Circuit

stated that

[t]he presumption can only be rebutted by expert

testimony or other credible economic evidence of the

cross-elasticity of demand, the area of effective

competition, or other evidence of lack of market power.

Pet. App. 16a. But what “expert testimony” on the subject of

actual market power would ignore the presence of direct

competitors? What cross-elasticities will be more relevant

than those of the “competing substitutes”? And what “other

evidence of lack of market power” will suffice? In antitrust

terms, it is as if the Federal Circuit has told the patent holder

that you may rebut a presumption that it is raining, perhaps

by expert analysis of barometric pressure, or by measuring

reservoir levels, but not by going outside and taking your hat

off.

There is practical difficulty in the Federal Circuit's

selection of a “rebuttable” geographic market as well.

Although Loew's made no reference to geographic markets

either, the Federal Circuit supplied one itself: “Thus, a

patent presumptively defines the relevant market as the

2! & L.A. Sullivan, Handbook of the Law of Antitrust § 8, at 30-31

(West 1977) (“[MJarket power is the power of a firm to affect the price

which will prevail on the market in which the firm trades. Whether a

seller possesses such power depends upon the... availability of

substitutes for the seller’s product.”).

= See, ¢.g., Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d

1409, 1414-15 (7th Cir. 1989).

14

nationwide market for the patented product itself... .~ Pet.

App. 15a (emphasis added). But there is no reason to believe

that all products with U.S. patents compete in the same

“nationwide” geographic market. It is widely recognized

that geographic markets for patented products may have only

a local reach. or may go well beyond domestic borders.~°

Here. the Federal Circuit's presumption of a “nationwide™

market does not even comport with the market definition of

this very plaintiff. who argued in the District Court that “the

geographic market for the tying product is the United States

and Canada.” Pet. App. 45a.

We emphasize these practical problems because the

consequences of these rules will be visited on those

individuals and businesses attempting to negotiate, execute.

and enforce intellectual property agreements—as well as the

28.000 members of the ABA's Sections of Intellectual

Property Law and Antitrust Law attempting to advise clients

and try cases.

Il. The Market Power Presumption Finds No Support

In The Prior Holdings Of This Court.

As noted. we do not believe the market power

presumption can be supported as a matter of economic

policy. A closer question is whether the Court's precedent

has previously applied such a presumption. The Court of

Appeals construed Loew's to hold “that, where the tying

product is patented or copyrighted, market power may be

presumed rather tnan proven.” Pet. App. 8a. To square that

holding with the Court's later decisions requiring genuine

market power to support a claim of tying, the Court of

Appeals also construed Loew's as “confirm[ing] that patent

tying is a distinct doctrine” from tying involving nonpatented

>? See. e.g. HJL Treatise. supra note 4, § 4.3b, at 4-45 (giving examples

of different markets and concluding that “the characteristics of the

[patented] good itself determines the size of the market and the range of

competitive choices”).

15

products. Pet. App. 9a. As indicated, we do not believe that

Loew's can support either proposition.

The flaw in the Circuit Court's reading lies in its failure to

recognize the role in this Court’s decisions of “economic

power” in the tying product, and how the definition of that

power has changed over time. The Court’s decisions can be

divided into three parts: (1) the period of “hostility” —before

power in the tying product was even considered, (2) the

period of “uniqueness’—when “power™ was defined to mean

a sense of distinctiveness so easy to satisfy that it could be

inferred from the existence of the tie itself. and (3) the

current period of actual market power—in which power is

defined as market power in the modern sense of power over

price.

A. The Period Of “Hostility.”

Nearly one hundred years ago, this Court rejected an

attack on a tying arrangement strikingly similar to this one—

in which a patented mimeograph machine was licensed on

the condition that the licensee purchase the ink from the

patent holder. Henry v. A.B. Dick Co., 224 U.S. 1 (1912).

The patentee had argued, even then, that the tying

arrangement was a form of metering, by which the licensor

“is merely insuring to himself a royalty based upon the

output of the machine.” /d. at 65. In upholding the tie as

consistent with the use of the patent right, the majority

rejected the argument of Chief Justice White in dissent that

the use of a tie allowed the patent holder “to bring within the

claims of his patent things which are not embraced therein,

thus .. . to multiply monopolies at the will of an interested

party.” /d. at 53. This was an early and forceful articulation

of what many have called the “patent leveraging fallacy.””*

>4 W.S. Bowman, Jr. Patent and Antitrust Law 154 (U. Chi. Press 1973).

Whether the leveraging theory was properly applied in the Court's early

cases is not within the scope of the question presented here. We note

only that the theory has been abandoned in the Court’s modern decisions,

16

Five years later, in Motion Picture Patents Co. v.

Universal Film Mfg. Co., 243 U.S. 502 (1917), the views of

Chief Justice White prevailed. and Henry v. A.B. Dick was

overruled. This time. Justice Holmes dissented:

The supposed contravention of public interest sometimes

is stated as an attempt to extend the patent law to

unpatented articles. which of course it is not, and more

accurately as a possible domination to be established by

such means. But the domination is one only to the extent

of the desire for the |patented] fea pot or film feeder, and

if the owner prefers to keep the pot or the feeder unless

you will buy his tea or films. | cannot see in allowing him

the right to do so anything more than an ordinary

incidence of ownership .. . .

243 U.S. at 520 (emphasis added). The Court then embarked

on a_ period of self-described “hostility” to tying

arrangements. See Loew's, 371 U.S. at 46. That period

culminated in the Court’s 1947 decision in /nternational Salt

Co. v. United States, 332 U.S. 392 (1947), where the tying

product was patented. and its 1948 decision in United States

v. Paramount Pictures, Inc., 334 U.S. 131 (1948), where the

tying product was copyrighted.

International Salt and Paramount Pictures are significant

here because the Federal Circuit has suggested that they must

be “overrulfed]~ to reject the presumption of market power.

Pet. App. 14a. But that is difficult to justify when neither

see. e.g.. Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 36

(1984) (O°Connor, J.. concurring) (“The existence of a tied product

normally does not increase the profit that the seller with market power

can extract from sales of the tying product.”) (emphasis omitted), and is

routinely rejected by the commentators: “Tying cannot enable a patentee

to attain a double monopoly profit by tying unpatented goods.” HJL

Treatise. supra note 4, § 21.3b, at 21-20. See also Hyde, 466 U.S. at 36

(concurrence describing this view as “easily demonstrated and widely

accepted”). Whatever the historical merit of the leveraging theory, it

helps to explain why the Court's early decisions did not address the issue

of power in the tying product market.

17

case addressed, or even discussed, any requirement of power

in the tying product. Instead, the cases relied expressly on

the leveraging theory as their rationale.?> The /nternational

Salt opinion condemned the tie as long as the “volume of

business” affected in the tied product not be “insignificant or

insubstantial.” 332 U.S. at 396. The principal competitive

evil identified was the tendency of the tie “to foreclose

competitors from” access to sales of the tied product. /d If

these cases no longer comport with this Court's tying

jurisprudence, they were disapproved long ago. It is not

necessary to overrule them for providing the “wrong” answer

to a question that was never asked.

B. The Period Of “Uniqueness.”

The first case to consider any concept of power in the

tying market came five years later in Times-Picayune

Publishing Co. v. United States, 345 U.S. 594 (1953). There

the Court refused to condemn as an illegal tie a newspaper's

requirement that ads be run in both its morning and

afternoon papers. The Court’s opinion described the

Sherman Act’s prohibition on tying as confined to cases

where “the seller enjoys a monopolistic position in the

market for the ‘tying’ product.” 345 U.S. at 608. Because

the defendant had no power in the relevant market for

advertising, the tying claim was rejected.

In a series of subsequent decisions, however, the Court

made clear that the definition of the “power” sufficient to

satisfy this test was not actual market power in the modern

sense of power over price, but something far broader. The

first was Northern Pacific Railway Co. v. United States, 356

U.S. 1 (1958), in which the tying product was the

>> Im'l Salt, 332 U.S. at 395-96 (“But the patents confer no right to

restrain use of, or trade in, unpatented salt.”); Paramount Pictures, 334

U.S. at 158 (“Where a high quality film greatly desired is licensed only if

an inferior one is taken, the latter borrows quality from the former and

strengthens its monopoly by drawing on the other.”).

18

“exclusive” landholdings of certain railroads along the right-

of-way. Justice Black made clear that the suggestion in

Times-Picayune that the defendant have a “monopolistic

position” would not be taken literally:

While there is some language in the Jimes-Picayune

opinion which speaks of “monopoly power” or

“dominance” over the tying product as a necessary

precondition for application of the rule of per se

unreasonableness to tying arrangements, we do not

construe this general language as requiring anything more

than sufficient economic power to impose an appreciable

restraint on free competition in the tied product... ..

356 U.S. at 11. That power could be found in a tying case

“regardless of the source from which the power is derived

and whether the power takes the form of a monopoly or not.” -

Id. Indeed, that definition of power was so broad that it

could be inferred from the very fact of the tying arrangement

itself: “The very existence of this host of tying arrangements

is itself compelling evidence of the defendant’s great

power....” /d at 7-8.

As the defendants in Northern Pacific argued

unsuccessfully that market power was now the test, they

tried to distinguish /nternational Salt, which had not required

proof of power. by asserting that the existence of the patent

made the difference. Justice Black disagreed:

In arriving at its decision in /niernational Salt the Court

placed no reliance on the fact that a patent was involved

nor did it give the slightest intimation that the outcome

would have been any different if that had not been the

case. If anything, the Court held the challenged tying

arrangements unlawful despite the fact that the tying item

was patented, not because of it.

Id. at 9 (original emphasis). For the Court in Northern

Pacific, the result in I/nternational Salt was compelling

evidence that the requisite power was nof true market

19

power—if that were the test, a patent alone clearly would not

meet it:

Of course it is common knowledge that a patent does

not always confer a monopoly over a_ particular

commodity. Often the patent is limited to a unique form

or improvement of the product and the economic power

resulting from the patent privileges is slight.

Id. at 10 n.8.

Four years later, this Court’s decision in Loew 's continued

the process of defining down the concept of “power” in the

tying market. The Court’s oft-repeated statement that “[t}he

requisite economic power is presumed when the tying

product is patented or copyrighted” was immediately

preceded by this passage:

Market dominance—some power to control price and to

exclude competition—is by no means the only test of

whether the seller has the requisite economic power.

Even absent a showing of market dominance, the crucial

economic power may be inferred from the tying product's

desirability, to consumers or from uniqueness in its

attributes.

371 U.S. at 45 (footnote omitted). The Loew's Court thus

could not have been clearer that its definition of the

“requisite economic power” was not “some power to control

price,” and thus not actual market power in its modern sense.

The Loew's Court continued in a footnote that a finding of

“economic power...on the basis of either uniqueness or

consumer appeal . . . does not necessitate a demonstration of

market power.” 371 U.S. at 45 n4. And the Court

specifically noted that “it should seldom be necessary in a

tie-in sale case to embark on a full-scale factual inquiry into

the scope of the relevant market . . . [or compute] the seller's

percentage share in that market.” /d.

Once the requisite power was defined as “uniqueness,”

moreover, a presumption of such power based on the

existence of intellectual property followed by definition,

20

because “one of the objectives of the patent laws is to reward

uniqueness.” /d. at 46. This is understandable. A patent is

awarded only to inventions that are both novel and not

obvious.” and thus distinctive by their very nature. A

copyrighted work. moreover, is literally unique, as the law

protects only the original item itself.*’ Thus. it was not

difficult for the Loew's Court to find that the holding of

Paramount Pictures, notwithstanding its failure to address

the issue of power. fit comfortably into the “presumption of

uniqueness.” for “[a] copyrighted feature film does not lose

its legal or economic uniqueness because it is shown on a

television rather than a movie screen.” 371 U.S. at 48.

In sum. and contrary to the opinion below, Loew 's did not

“ma|k]Je clear that. where the tying product is patented or

copyrighted. market power may be presumed rather than

proven. Pet. App. 8a (emphasis added). Rather, it held

only that uniqueness may be (and arguably must be)

presumed from a copyright or patent. And that, as this Court

has repeatedly stressed. is a very different inquiry.**

"2 g.. Festo Corp. v. Shoketsu Kinzoku Kogvo Kabushiki Co., 535 U.S.

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

>” Bleistein v. Donaldson Lithographing Co., 188 U.S. 239, 250 (1903)

(Holmes, J.) (“Personality always contains something unique. . . . [Even]

a very modest grade of art has in it something irreducible, which is one

man’s alone. That something he may copyright .. . .”).

“* Nor did Loew's “confir[m] that patent tying is a distinct doctrine” from

the law governing non-patented products. Pet. App. 8a. The Court of

Appeals based that conclusion solely on a reference in Loew's to the

defendants’ argument “that their behavior is not to be judged by the

principle of the patent cases .... but by the general principles which

govern .. . nonpatented products.” /d. But the Loew's Court, like Justice

Black in Northern Pacific, rejected the defendants’ argument that the

doctrines were separate. noting that “[a]pplicability of Paramount

Pictures brings with it a meeting of the test of Northern Pacific (for

unprotected products], since Paramount Pictures is but a particularized

application of the general doctrine as reaffirmed in Northern Pacific.”

Loew's, 371 U.S. at 50.

21

A The Period Of Market Power.

The Court’s subsequent decisions in Fortner I] and Hyde

fundamentally altered the law of tying. In Fortner //, the

Court reversed a finding of requisite power in the tying

product market that was based on a finding of uniqueness.

That finding, in turn, was based on several indicia of

uniqueness suggested by Justice Black in his prior opinion

for the Court in Fortner 1.7” See Fortner II, 429 U.S. at 614-

16. Among the findings of uniqueness considered in Fortner

/] was the same one that Justice Black had stressed in his

Northern Pacific opinion: that “petitioners entered into tying

arrangements with a significant number of customers in

addition to Fortner.” /d. at 614. This time, however, the

Court rejected these findings as insufficient to establish the

power requirement for tying. /d. at 618.

The Fortner I] Court explained that “uniqueness” was

relevant to the question of tying product power only to the

extent that it reflected “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.” /d. at 620

(footnote omitted). The Court acknowledged that a

commentator on Fortner | had “correctly analyzed the

burden of proof” when he stated that “[it is] clear that market

power in the sense of power over price must still exist.” /d.

at 620 n.13.

In this way, the definition of power for purposes of the

“forcing” requirement in tying was changed fundamentally

from the approach of Northern Pacific and Loew's. Whereas

in Loew's true market power was simply one means of

showing the requisite “uniqueness,” now “uniqueness” was

relevant only as a means of showing real power over price.

Because what the plaintiff in Fortner // labeled “uniqueness”

29 Fortner Emers., Inc. v. United States Steel Corp., 394 U.S. 495

(1969).

22

did not relate to actual market power. moreover, the plaintiff

lost. /d. at 621-22. The doctrine was cemented by the

decision in Hyde. where the Court rejected a tying claim

because a 30-percent market share was too small to show

market power. despite evidence that the surgical services

involved were “unique” in other senses. Hyde, 466 U.S. at

27 (“While these factors may generate “market power’ in

some abstract sense. they do not generate the kind of market

power that justifies condemnation of tying.” (footnote

omitted)). //vde thus turned on precisely the kind of “factual

inquiry into the... seller's percentage share” of the market

that the Loew 's opinion said was unnecessary “in a tie-in sale

case.” Loew's. 371 U.S. at 45 n.4. Those holdings cannot be

squared with the statement in Loew's that “the mere presence

of competing substitutes for the tying product” is insufficient

to defeat a tying claim. Loew's, 371 U.S. at 49.

The Federal Circuit's conclusion that the requirement of

tving product power was fundamentally altered by these

decisions with respect to most products, but was left

undisturbed when the tying product was patented or

copyrighted. does not follow. The principal ground for the

Federal Circuit's conclusion was a statement in Hyde—

which the Federal Circuit described as “clearly articulated

Supreme Court dicta” (Pet. App. 15a)—that it is “fair to

presume” that a patent “gives the seller market power.” /d.

at 9a (quoting Hyde. 466 U.S. at 16). But that statement is

insufficient to resolve the question presented here for

numerous reasons.

Because Hivde did not involve intellectual property, the

Statement about patents in the majority opinion was not

necessary to the Court's holding. Thus, that remark should

be read with caution. especially when the only authority cited

was Loew's itself. see Hyde, 466 U.S. at 16, citing 371 U.S.

at 45-47. including the very page stating that a tying claim

“does not necessitate a demonstration of market power... .”

Loew 's. 371 U.S. at 45 n.4.

23

The Court’s assertion, moreover, if construed to presume

actual market power, had aiready been questioned by other

“clearly articulated Supreme Court dicta.” Pet. App. 15a.

Indeed, the falsity of that proposition was described as

“common knowledge” by the Court twenty-five years earlier

in Northern Pacific, 356 U.S. at 10 n.8.

The Hyde majority's remark about patents was further

questioned by the four concurring members of the Court.

Indeed. Justice O°Connor’s Hyde concurrence described the

presumption of market power in patent cases as a “common

misconception.” 466 U.S. at 37 1.7 (O’Connor, J.,

concurring). And when, only two months later, the Ninth

Circuit relied on Loew's to apply a presumption of market

power to intellectual property Justices White and Blackmun,

both members of the Hyde majority, dissented from the

Court’s refusal to grant certiorari, describing the Ninth

Circuit decision as “suspect on several grounds.” Data Gen.

Corp. v. Digidyne Corp., 473 U.S. 908, 909 (1985) (White,

J.. dissenting from denial of cert.) (urging review to

determine “what effect should be given to the existence of a

copyright . . . in determining market power’).

We do not suggest that “nose-counting,” as the Federal

Circuit characterized it, Pet. App. 12a, can be used to declare

a change in this Court’s law. The question here is whether

the language in Hyde—telied upon, and characterized as

dicta, by the Federal Circuit—should suffice to carve a

patent exception to the new requirement of market power in

tying cases.

The answer is that dicta should not decide cases. One of

the many ironies of the cases following Hyde is that this

Court’s effort to expand the range of legality under the

antitrust laws for beneficial ties in all areas (by redefining

the recuired “power” as market power) has inadvertently

narrowed the scope of legality for ties involving intellectual

property. By also redefining the Loew's “presumption” to be

one of market power, courts like the Federal Circuit have

24

taken what was designed to be an additional burden for the

claimant (who must prove real market power) and turned it

into a burden for the intellectual property defendant (for

whom real market power is presumed). Only by relying on

the “dicta” in Hvde could the Federal Circuit reach such a

strange result under this Court's decisions.

In sum. a review of this Court's tying jurisprudence does

not support the holding of the Federal Circuit below. Rather,

the conclusion of Justice O°Connor in the concurring opinion

in Hyde still holds: “Nor does any presumption of market

power find support in our prior cases.”

Ill. The Doctrine of Stare Decisis Cannot Justify The

Presumption of Market Power.

A. The Presumption of Market Power Was

Not Necessary to The Result in Loew’s.

We have shown that there is no need to overrule Loew's

because its holding did not depend on the question presented

here. While it may be true that many of the presumptions,

rationales. and acknowledged “hostilities” underlying

Loew's have been undermined by the Court's tying

jurisprudence. that happened long ago. As this Court

observed in reconsidering another antitrust precedent,

“[w]ith the views underlying [Loew 's] eroded by this Court's

precedent. there is not much of that decision to salvage.”

State Oil vy. Khan, 522 U.S. at 21.

This Court has made it clear that the doctrine of stare

decisis is reserved for holdings. Thus, in Copperweld Corp.

v. Independence Tube Corp., 467 U.S. 752, 760 (1984), the

Court pointed out that. while many of its prior decisions had

expressed approval of the intra-enterprise conspiracy

doctrine. “in all but perhaps one instance” that doctrine was

unnecessary to the result. The Court did not, for example,

overrule its decision in United States v. Yellow Cab Co., 332

” Hyde. 466 US. at 38 n.7.

25

U.S. 218 (1947), on which many had relied in applying the

intra-enterprise conspiracy doctrine. That was because

Yellow Cab had been misinterpreted as applying the doctrine.

when in fact it did not. See Copperweld, 467 U.S. at 762

(finding “little support for the broad doctrine Yellow Cab has

been thought to announce’).

The Court may deal with Loew's in the same way,

because the holding in Loew's may be supported on

alternative grounds, independent from the presumption of

uniqueness. In Loew's, the lower court had found that each

film “was in itself a unique product.” The court had relied

on evidence of the characteristics of each copyrighted film,

which “varied in theme, in artistic performance, in stars, in

audience appeal, etc..” for its conclusion that each defendant

had market dominance over each film. Loew's, 371 U.S. at

48 (quoting 189 F. Supp. at 381). Based on this evidence,

this Court concluded that each defendant “had a

‘monopolistic’ position as to each tying product,” resulting

in “sufficient economic power” to “confirm — the

presumption” and condemn the tie. /d at 48.°' Under this

view, each individual film was a market unto itself in which

the defendants held complete power over price and output.

Because such a market definition is theoretically possible,”

it is not clear that the holding in Loew's was necessarily

dependent on any presumption. Indeed, several courts have

distinguished Loew's on these grounds.”

*! Professor Pearson, in contemporaneous commentary, agreed with this

approach, stating that “unless the Court is to play the part of the critic in

each block-booking case to come before it, it would have to take the

position either that each film is a separate product or that films are

fungible. | think it was well warranted in taking the former approach.”

R. N. Pearson, Tying Arrangements and Antitrust Policy, 60 Nw. U. L.

Rev. 626, 651 n.88 (1965).

= See Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451,

482 (1992).

” See, e.g., Capital Temps., Inc. v. Olsten Corp., 506 F.2d 658, 663 (2d

Cir. 1974) (“The appellant misreads Loew's if he concludes that the mere

26

B. Loew's Meets The Court’s Criteria For

Rejection Under Stare Decisis.

If. notwithstanding the above analysis, Loew's is read as

supporting a presumption of market power, it appropriately

may be overruled in keeping with the Court's past

application of stare decisis. This Court has pointed out that

“{iJn the area of antitrust law. there is a competing interest.

well represented in this Court's decisions, in recognizing and

adapting to changed circumstances and the lessons of

accumulated experience.” Ahan, 522 U.S. at 20. Rejecting

the putative market power presumption of Loew's thus fits

comfortably within the Court's “common-law tradition” of

developing antitrust doctrine. /d. at 20-21. Here, as in

Copperweld, this Court “has never explored or analyzed in

detail the justifications for such a rule.” 467 U.S. at 766.

Here. as in Khan. “the analytical underpinnings of [Loew's]

were substantially weakened by™ later decisions. 522 U.S. at

14.

Indeed. this is a stronger case for reversal in at least two

ways. First. the extent of opposition to the presumption is

unprecedented. For this Court to uphold an antitrust rule

deemed unambiguously harmful to consumers solely on the

basis of stare decisis would transform the doctrine into an

“inexorable [and irrational] command.” Khan, 522 U.S. at

20. Second. unlike the rules rejected in Copperweld and

Khan, there is substantial disagreement as to what this

Court's “prior” rule has been. As we explain below, there is

ample dissent among the courts as to what Loew's requires.

That was not the case in Copperweld. where Justice Stevens

pointed out that “it had been the universal conclusion of both

the lower courts and the commentators that this Court's cases

establish” the intra-enterprise conspiracy doctrine. 467 U.S.

existence of the copyrighted tying motion pictures was enough to create

the tying.”): 3 P.M. Inc. v. Basic Four Corp., 59\ F. Supp. 1350, 1359

n.11 (E.D. Mich. 1984). See also HJL Treatise, supra note 4, at 4-37

n.114.

27

at 783-84 (Stevens, J., dissenting). In Khan, moreover, there

was no dispute that the Court's decisions had declared

maximum vertical price-fixing unlawful per se. 522 U.S. at

7. The case for stare decisis is undermined where, as here.

there is sharp disagreement as to whether the “established”

rule is, in fact, established.

Cc. There is No “Reliance” Interest That

Supports the Application of Stare Decisis

Here.

Respondent has argued that the doctrine of stare decisis

prohibits the Court from overruling Loew's because

members of the legal and business communities have for

several decades relied on Loew's and ordered their affairs

accordingly. Resp. Br. in Opp. to Cert. at 5. If the Court

determines that it must overrule Loew's, the ABA believes

that it offers a valuable perspective on the extent to which

this legal doctrine has ordered legal affairs. In our view,

Respondent has it backwards.

For nearly 30 years, it has been clear to bench and bar that

the per se rule against tying was not a per se rule in the same

sense as others, that is, one in which no inquiry into actual

market structure is made. Rather. the Court held in Fortner

/1 and emphatically reaffirmed in Hyde that a tying

arrangement cannot harm competition without a showing of

actual market power in the tying product. This requirement,

as the Federal Circuit acknowledged below, Pet. App. 6a-7a,

marked a fundamental change from this Court's prior

precedents.

These decisions eroded the basis for assuming that the

Court would continue to apply any presumption to

intellectual property—much less a new presumption of

genuine market power. This view was confirmed shortly

after the 1984 decision in Hyde, when the Ninth Circuit

construed Loew's to require a presumption of market power

28

and two Justices of the Hyde majority promptly labelled the

decision “suspect.”** By 1986, both the Sixth and Seventh

Circuits had rejected that reading of Loew's.’ and the

majority of courts thereafter concurred. Pet. 23 n.8.

In fact. the criticism of the Ninth Circuit's Digidyne

decision for over twenty years makes the point that there has

been no “reliance” by the legal and business community on

the presumption of Loew's. Far from being accepted as an

inevitable application of Loew's, Digidyne has been assailed

by commentators, rejected by other Circuits, and ignored by

numerous District Courts.” Thus, the suggestion of the

Federal Circuit below that the presumption of market power

in patent cases is a settled doctrine only questioned by the

Sixth Circuit in 4.1 Root and by two others “in dictum,”

Pet. App. I3a. is unfounded. On the contrary, Judge

Easterbrook’s description fifteen years ago is closer to the

mark:

The tying doctrine was linked to market power in Hyde,

and although some lower courts missed the message and

_continued to hold that copyrights and patents are

monopolies. most got on board.”

4 Data Gen. Corp. v. Digidyne Corp.. 473 U.S. 908, 908 (1985) (White.

J.. dissenting from denial of cert.).

*S 4.1 Root Co. v. Computer’ Dynamics, Inc., 806 F.2d 673 (6th Cir.

1986): Will v. Comprehensive Accounting Corp., 776 F.2d 665 (7th Cir.

1985),

*° See X Areeda & Hovenkamp. € 1737d, at 83-85 (discussing Digidyne

and observing that “[t}he basis for inferring power from a copyright or

trademark is even weaker than it is for patents”): Will, 776 F.2d at 673

n.4 (rejecting Digidvne). Telerate Sys., Inc. v. Caro, 689 F. Supp. 221,

236 (S.D.N.Y. 1988) (same): X Areeda & Hovenkamp, € 1737d. at 85

n.37 (collecting cases).

*” Hon. FH. Easterbrook, Intellectual Property is Still Property, 13

Harv. J.L. & Pub. Pol'y 108, 113 (1990). The principal case that “missed

the message” at that time was Digidyne:

The Ninth circuit held in Digidine Corp. v. Data General Corp., 734

F.2d 1336 (9th Cir. 1984), that the software of a computer

29

Current commentators agree that “[e]ven in antitrust cases.

the presumption of market power for patents has largely

disappeared since 1988.”°* In commenting on the Federal

Circuit's decision in this case, moreover, Professor

Hovenkamp concluded as follows:

Heretofore the presumption of market power for patented

or copyrighted products had languished to the point that

antitrust plaintiffs chose not to rely on it. With the

Federal Circuit's new imprimatur, however, one can

expect that plaintiffs will rely on the presumption in a

much wider variety of situations, and in most of these it

will be unwarranted.”

Whichever way the Court decides to resolve the issue

now, the state of the law we have set forth does not describe

orderly adherence to an established precedent reflected by

the holding of cases such as Digidyne. It describes, rather, a

state of uncertainty. And that uncertainty has been

heightened dramatically by this decision of the Federal

Circuit, a court which has stated that “the antitrust

consequences of patent tying... is a question governed by

our law.” Pet. App. 4a-5a (footnote omitted).

From the perspective of the ABA, therefore, there has not

been “reliance” by the legal or commercial community on

the presumption in Loew's in any sense important to stare

decisis. Rather, there has been a consensus that a

presumption of market power is unwarranted as a matter of

representing less than one percent of any market represented

economic power sufficient to bar a tie-in between hardware and

software. Almost everyone else, including the Seventh Circuit, in

Will v. Comprehensive Accounting Corp., 776 F.2d 665 (7th Cir.

1985), rejected that view and held that intellectual property is now

just like other property.

Id. at 113 0.18.

WL Treatise, supra note 4, at 4-36.

*” Areeda & Hovenkamp, supra note 10, 4 518, at 197-98 (Supp. 2005)

(footnote omitted).

30

economics and legal policy. At the same time, the ABA has

recognized that. while most courts have rejected the

presumption of market power. others have felt constrained to

apply it. The Court's effort to provide clarity and guidance

in this area of the law will be frustrated as long as there are

those who believe that the presumption of market power in

patent cases is “still” the law.

CONCLUSION

For the reasons stated. the ABA respectfully requests that

this Court reverse the decision of the Court of Appeals for

the Federal Circuit.

Respectfully submitted,

Robert J. Grey. Jr.. President”

American Bar Association

321 North Clark Street

Chicago, IL 60610

(312) 988-5000

Richard J. Wallis

Kevin D. McDonald

“Counsel of Record

Counsel for Amicus Curiae,

The American Bar Association

August 3. 2005