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

No. 04-1329 | Supreme Court 7

FILED

AUG 4 ~ 2005

IN THE OFFICE OF THE CLERK |

Supreme Court of the United States

ILLINOIS TOOL WorKS INC. ef al...

Petitioners,

V.

INDEPENDENT INK, INC.

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF AMICUS CURIAE

INTELLECTUAL PROPERTY OWNERS

ASSOCIATION IN SUPPORT OF THE PETITIONERS

Of Counsel: GARY M. HOFFMAN *

MILTON MARQUIS

KENNETH W. BROTHERS

BRADLEY J. OLSON

DICKSTEIN SHAPIRO MORIN

OSHINSKY LLP

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

J. JEFFREY HAWLEY

President

DOUGLAS K. NORMAN

Chair, Amicus Brief Committee

INTELLECTUAL PROPERTY

OWNERS ASSOCIATION

* Counsel of Record

Amicus Curiae

es

WILSON-EPES PRINTING CO., INC. — (202) 789-0096 — WASHINGTON, D.C. 20001

TABLE OF CONTENTS

FAITE canenissssssensseenmmepeneduemimannennneen

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...........

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 ...

There Is No Rational Economic Basis For

A Presumption Of Market Power Because

Patents Do Not Inherently Define A

ES CED ecctscreciieanpensnttunsenmimemneniinn

The Market Power Presumption Deters

Conduct By Patent Owners That Benefits

SE ccsitsscenenscridietnensiininnnenenioninnes

The Market Power Presumption Facilitates

The Assertion Of Baseless Antitrust

Counterclaims By Infringers .................006+

(i)

11

13

il

TABLE OF CONTENTS—Continued

Page

E. The Department Of Justice And Federal

Trade Commission Do Not Apply A

Presumption Of Market Power When

Evaluating A Tying Case Involving A

Patent On The Tying Product ............:c00+ 14

COINCLIUBIOIN ..cccccccescccccscesccescosssosossnsssssesenssnnenseniannnes 17

DY og 1) (ae la

ill

TABLE OF AUTHORITIES

Cases:

A.J. Root Co. v. Computer/Dynamics, Inc., 806

EEE NEES UII ccicccnensccescsessessssessesssesces

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

725 F.2d 1350 (Fed. Cir. 1984) .00.........cccceeees

Atari Games Corp. v. Nintendo of Am., Inc., 897

en GPUS PUD Gly BUIED ceccccscececescccssescseeccseese

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

Found., 402 U.S. 313 (1971) ......ccccccccceseceseeeeeees

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

Ee

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

Chiuminatita 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

|

Eastman Kodak Co. v. Image Technical Servs.,

Peg Bee Siete GPO CED OED cccccccccscecccccsccccscccssoesse

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

F.B. Leopold Co. v. Roberts Filter Mfg. Co.,

882 F. Supp. 433 (W.D. Pa. 1995),

aff'd, 119 F.3d 15 (Fed. Cir. 1997)....0..000.000.....

Festo Corp. v. Shoketsu’ Kinzoku Kogyo

Kabushiki Co., Ltd., 535 U.S. 722 (2002).........

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

cae

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

a eiedeserineneesneenenseesnnesenscence

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)

ea

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

ae Pier crncscssssnscsscscccsnesecscsssecsccssecees 3, 4, 5,

s >

16, 17

iV

TABLE OF AUTHORITIES—Continued

Page

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

we LC Gl 8

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

Of) 9,11, 12, 13, 15

Jungersen v. Ostby & Barton Co., 335 U.S. 560

Se 16

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

en 8

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

A 6,7

Matsushita Elec. Indus. Co. v. Zenith Radio

Cann, SES US, FPO COTE cccessscnsssssssssscssessssse0s 14

Mazer v. Stein, 347 U.S. 201 (1953) (1986).......... 5

Motion Picture Patents Co. v. Universal Films

Mfg. Co., 243 U.S. 502 (1917) ..........ccccccceeeeeeees 12

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

FIT cancsncnecesnnvesesnenbiaseinnasininsiitibiiiniinrnpatmaiapiassinnin )

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

Mach. Co., 324 U.S. 806 (1945)..........cccccceeeeeees 5

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

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

aff'd, 155 F.3d 565 (Table), 1998 WL 205766

44>). 6

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

SS 7

State Oil Co. v. Khan, 522 U.S. 3 (1997) .........0004. 3

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

Eng. Rep. 1260 (K.B. 1602)................:cccseseeees 7

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

QQ i Ua 6, 13

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

Ot Go, 9,12

United States v. Loew's Inc., 37\ U.S. 38 (1962)..3, 4, 5, 13

\

TABLE OF AUTHORITIES—Continued

Page

United States v. Paramount Pictures, Inc., 334

ee Be GU ccncictnnicennsennmnnnincseninn 5

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

NS ee 6

Will v. Comprehensive Accounting Corp., 776

ee 6,14

Statutes:

BP Weise 0 © censunsssssensnsssvensnsenesenininnenesmsuneinensenies passim

a ie le Oe ccccetenncnnnianiniteneniontiitennne 8

SP te ©) BU cancicenrnatensteresemmmnnneinnns 8

Other Authorities:

Phillip Areeda & Donald F. Turner, Antitrust

i 12

Phillip E. Areeda, Einer Elhauge & Herbert

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

iat Tp resessmemmnmnemempsneetnmmnie, 12

Yannis Bakos & Erik Brynjolfsson, Bundling

and Competition On The Internet Marketing

Science (Jan. 2000). sos apeemnenenineiateaiuamnanmenniateseatessiianiieauiian 13

(“Bundling Information Goods’’)............. tie 13

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

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 ccinniniesenseninnsenscsenniinaiins 16

vi

TABLE OF AUTHORITIES—Continued

Robin C. Feldman, The Insufficiency of Antitrust

Analysis for Patent Misuse, 55 Hastings L-J.

EE

Herbert Hovenkamp, Federal Antitrust Policy

RG yyy

William Montgomery, The Presumption of Eco-

nomic Power for Patented and Copyrighted

Products in Tying Arrangements, 85 Colum.

A yyy

R. Hewitt Pate, Acting Assistant Attorney Gen-

eral, Antitrust And Intellectual Property,

Address before the American Intellectual

Property Law Association, Jan. 24, 2003,

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

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

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

cena hessashieesaidiiieaniaeate

Fed. Trade Comm'n, To Promote Innovation:

The Proper Balance of Competition and

Patent Law and Policy (2003) ...............0cccc+e0000

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

Antitrust Guidelines for the Licensing of

Intellectual Property § 5.3 (1995)...........ccccse00e

15

IN THE

Supreme Court of the United States

No. 04-1329

ILLINOIS TOOL WoRKS INC. ef al.,

Petitioners,

Vv.

INDEPENDENT INK, INC.

Respondent.

On Writ of Certiorari to the

United States Court of Appeals

for the Federal Circuit

BRIEF AMICUS CURIAE

INTELLECTUAL PROPERTY OWNERS

ASSOCIATION IN SUPPORT OF THE PETITIONERS

INTEREST OF AMICUS CURIAE'

Amicus Intellectual Property Owners Association (IPO) is a

non-profit, national organization founded in 1972 to represent

the owners of intellectual property in the United States.

IPO’s members currently include 120 large and mid-sized

companies and over 250 small businesses, law firms, inven-

' The parties have consented to the filing of this brief amicus curiae.

In accordance with Supreme Court Rule 37.2(a), the letters of consent are

attached hereto. 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.

Petitioners, both IPO members, 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

tors, 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 Petitioners’ claims to be

invalid or unenforceable. 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 decades-old Supreme Court precedent, the

market power presumption unfairly handicaps patent holders

and is in tension with modern economic theory. The Federal

Circuit's /ndependent Ink opinion, if not vacated or modi-

fied by the Court, will adversely affect legitimate business

and creative uses of patent rights of a large number of

IPO members.

In this brief. IPO explains 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’ brief on the merits. The

filing of this brief was approved by at least a three-fourths

majority of the IPO Board of Directors, the members of

which are listed in the accompanying 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 |

3

(15 U.S.C. § 1) theory brought in a tying case in the district

court involving Trident and ITW’s U.S. Patent No. 5,343,226

(“the °226 patent”). The Federal Circuit panel 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

tying cases, does not require plaintiffs to show market power

in the tying product. Instead, “/nternational Salt and Loew's

make clear that the necessary market power to establish a

section | violation is presumed.”? The Federal Circuit

rejected ITW and Trident’s claim that /nternational Salt and

Loew's were no longer good law. The Federal Circuit

concluded that, despite the perceived inadequacies of the two

cases, it still “remains the ‘{[Supreme] Court’s prerogative

alone to overrule one of its precedents.”” Indep. Ink, Inc., v.

Ill. Tool Works, Inc., 396 F.3d 1342, 1351 (Fed. Cir.), peti-

tion 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 firmly believe that the more than a half-

century-old decisions of /nternational Salt and Loew's should

at long last be overruled.

SUMMARY OF ARGUMENT

The burden of proving market power should be placed and

remain on the antitrust plaintiff in a patent tying case, as it is

in all other tying cases. There should be no presumption that

because the tying product is patented, it somehow inherently

defines the relevant market and mandates a finding of mar-

ket power.

: Indep. Ink, inc. v. lll. Tool Works, Inc., 396 F.3d 1342, 1348-49 (Fed.

Cir.), petition for cert. filed, 73 U.S.L.W. 3604 (U.S. Apr. 4, 2005) (No.

04-1329).

4

There are compelling reasons for now reconsidering the

market power presumption in tying cases involving a patent.

Such presumption is squarely at odds with the Court's

contemporary approach as to how an antitrust plaintiff must

prove market power in non-patent tying cases. The Federal

Trade Commission and the Department of Justice, two federal

antitrust enforcement agencies principally responsible for

enforcing the nation’s antitrust laws, have repeatedly rejected

the application of the presumption of market power theory in

patent tying cases. Several circuit courts and notable antitrust

commentators have brought the presumption into question as

an unfair burden imposed upon patent and copyright owners

that does not extend to other types of antitrust defendants

involved in a tying case. The /ndependent Ink case clearly

presents the opportunity for the Court to harmonize patent

tying cases with modern economic theory. The Court should

overturn the precedent of /nternational Salt and Loew's and

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 | claim.’ This Court established such precedent

* Tying arrangements violate Section | of the Sherman Act “if the

seller has ‘appreciable economic power’ in the tying product 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).

5

more than fifty years ago in /nternational Salt Co. v. United

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

Pictures, Inc., 334 U.S. 131 (1948), and reaffirmed in United

States v. Loew's Inc., 371 U.S. 38 (1962), holding that a

presumption of market power exists in a tying case when the

tying product is patented or copyrighted. That precedent

should be overturned, as it is contrary to modern economic

theory involving tying. Instead, just as in any other tying

case, the burden of proof should rest squarely on the

shoulders of the antitrust plaintiff to establish market power in

the patented tying product.

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

Meeting the standards for patentability does not equate

with meeting the definition of economic power necessary to

support anticompetitive behavior in a relevant market. This

Court recognized long ago 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 Congress 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 observed that

““A patent by its very nature is affected with a public

interest... .(It) is an exception to the general rule against

monopolies 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) (quoting Precision Instrument Mfg.

Co. v. Auto. Maint. Mach. Co., 324 U.S. 806, 816 (1945)).

Many lower courts, when faced with a tying case, have

6

concluded that a patent on the tying product does not alone

confer market power.’

Patent rights are derived from the Constitution,” and as

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

* 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) (“Vio-

lation of the antitrust laws always requires . . . market power in a defined

relevant market (which may be broader than that defined by the patent. . .

.”); Atari Games Corp. v. Nintendo of Am., Inc., 897 F.2d 1572, 1576

(Fed. Cir. 1990) (“{T]Jhe 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.” (Citation omitted.)); Will v. Comprehensive

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

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

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

sense of that word”); 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 itseif

establish a presumption of market power in the antitrust sense.”) (citations

and internal quotation marks omitted), aff'd, 155 F.3d 565 (Table), 1998

WL 205766, at *7 (Fed. Cir. 1998) (“Mere possession of a patent, or a

family of patents, does not establish a presumption of antitrust market

power.”); F.B. 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).

> “The [U.S.] Constitution empowers Congress ‘[t]o promote the Prog-

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

and Inventors the exclusive Right to their respective Writings and Dis-

coveries.” [U.S. Const.] art. |, § 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, 373 (1996).

7

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 1, 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

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

opportunity to attempt to capture a return on an investment of

time and capital. Owning a patent does not guarantee that the

patentee will ever earn anything from the bundle of rights

granted by Act of Congress. The gamble that the inventor

invariably is compelled to take once she submits an ap-

plication to the Patent Office is that the industry may not be

mature enough to appreciate the commercial aspects of the

invention during the patent’s enforceable period. Indeed,

there is no guarantee that a patentee will ever be able to

practice his or her invention as other patents owned by

competitors on an underlying invention frequently act as a

legal roadblock. The marketplace’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).

The grant of a patent has been construed by some to be

akin to a statutory monopoly, just as the granting of patents in

England was an explicit exception to the statute of James

I 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)). But the standards for patentability

8

should not somehow be misconstrued to equate with the

standards of economic power necessary to support a deter-

mination of anticompetitive behavior for antitrust purposes in

a relevant market.° At a minimum, before a patent is granted,

the claimed subject 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 & Supp. V)). Moreover, “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)). It is only these substantive threshold requirements

that have to be satisfied before issuance of a patent can occur,

for exclusive patent rights are granted 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, 142 (2001)

(“The disclosure required by the Patent Act is ‘the guid pro

guo 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 guid 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, 607

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

purposes of the patent system”).

* 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

The Court’s precedent should be overturned so that the law

will be clear that a patent, without more, is merely a grant of

a property right to exclude others for limited times from

making, using, selling, offering to sell, or importing into the

United States the invention claimed in the patent. A patent

cannot serve to define a market, much less provide actual

evidence of market power. The Court should act to har-

monize the law for matters involving patent tying cases with

those of non-patent tying 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., Inc., 429 U.S. 610, 620 (1977)

(“Fortner IT’).’ In tying cases not involving intellectual

property, this Court has consistently 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 also has recognized 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).* .

’ 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.” Fortner [/, 429 U.S. at

620. The requirement of demonstrating sufficient market power to raise

prices was notably more onerous than the Northern Pacific require-

ment that there be some power to “appreciably restrain free competition.”

Fortner II, 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 these situations will have no market power:

10

The need to eliminate the presumption of market power

can readily be shown by way of example. For instance, 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. These potential

buyers can purchase a condominium unit from a different

owner and dine elsewhere as they see fit. Market power

would. have to be proven by the antitrust plaintiff, not

presumed, as no intellectual property is involved, and it is

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. The same principle should be

applied to patent tying cases, where market power should not

be presumed in the patented tying product just because a

patent application met the minimum standards for novelty,

usefulness, and non-obviousness. These patentability criteria

have no necessary relationships to the economic factors that

define markets and establish the existence of market power.

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

sense if there are close substitutes for the patented product.

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 long recognized, the mere

ownership of a patent does not confer market power to the

patent owner sufficient to satisfy the stringent require-

ments of a Sherman Act Section | tying case. The premises

underlying the presumption are invalid. Before one can have

market power, one must first define the market. Patent claims

* define an invention, not a market. The presumption is

tenuously based on the basic right of a patent owner to exclude

others from practicing his or her invention without permission.

If one assumes that patent claims define a market, then this

right to exclude does not confer market power on the patent

owner for the simple reason that there may be, and often are,

close non-infringing substitutes for the patented invention.

Thus, the existence of non-infringing substitutes precludes the

owner from exercising market power.

Indeed, the majority of patents lack any real semblance of

commercial value; to the extent that patents have inherent

value, they invariably face robust competition in the mar-

ketplace. For example, a company that has a |% 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 own brand of computers. 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

substitutes for the patented product.” Jefferson Parish , 466

U.S. at 37 n.7.

12

Prominent antitrust scholars have also long expressed

serious doubts about the alleged anticompetitive effects of

tying. Phillip E. Areeda, Einer Elhauge & Herbert Hoven-

kamp, 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 Il [United States Steel Corp. v. Fortner

Enters., 429 U.S. 610 (1977)] aru Jefferson Parish.”),; Phillip

Areeda & Donald F. Turner, Anuirust Law 4 1134b, at 205

(1980) (tying may simply be used as an efficient method of

effecting lawful price discrimination, as a means of pre-

serving consumer confidence in the performance of a com-

plex 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 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 tying 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. 2%

| The] economic case for ‘presuming’ sufficient market power

. . . Simply because the tying product is patented . . . is

very weak.”)

13

C. 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 actually increases the availability of goods, especially

with respect to digital information goods. Yannis Bakos &

Erik Brynjolfsson, Bundling Information Goods: Pricing,

Profits and Efficiency, Management Science (Dec. 1999)

(“Bundling Information Goods”), 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 economies

of scale make 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 bun-

dling” 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.

Moreover, circuit courts since Jefferson Parish was de-

cided have likewise held or suggested that the mere owner-

ship 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 . . . [SJuch 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

14

market power may be required in patent and copyright tie-

ins); Will v. Comprehensive Accounting Corp., 776 F.2d 665

(7th Cir. 1985).

D. The Market Power Presumption Facilitates

The Assertion Of Baseless Antitrust Counter-

claims By Infringers

The cost of defending baseless antitrust claims deters

patent owners from properly enforcing their patents against

infringers. A clear harmful effect in the practical application

of the presumption is that it facilitates patent infringement

defendants to bring Sherman Act counterclaims against

patentees. The presumption shifts the burden onto the

patentee to rebut a presumed market power element and

raises the potential that meritless or weak antitrust claims will

survive motions to dismiss and summary judgment. The

presumption 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 forces

settlement of the underlying patent action and antitrust

counterclaims to avoid the expense, and treble damages risk,

of an extended antitrust trial. Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 U.S. 574, 593 (1986) (citation

omitted) (The “effect” of implausible inferences to require a

jury trial “is often to deter procompetitive conduct.”).

E. The Department Of Justice And Federal Trade

Commission Do Not Apply A Presumption Of

Market Power When Evaluating A Tying Case

Involving A Patent On The Tying Product

Compelling support for IPO’s argument that it is time to

eliminate the market power presumption is provided by the

policies promulgated by the two agencies of the executive

branch empowered with enforcing the federal antitrust laws,

15

viz., the Department of Justice and Federal Trade Commis-

sion (“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 intellectual 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. Dep’t of Justice & Fed.

Trade Comm’n, Antitrust Guidelines for the Licensing of

Intellectual Property § 2 (1995).'° (emphasis added).

The Court should carefully weigh that both federal agen-

cies have repeatedly made clear that patent tying arrange-

ments frequently result in significant enhancement of ef-

ficiencies and pro-competitive benefits.'' The fact that

* 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 Agencies 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

(Oct. 2003).

'' 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/20070 1 .pdf (“Because patents do

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

16

agencies decline as part of their prosecutorial discretion to

“presume” market power when evaluating a patent tying case

lends strong support that it is the appropriate time to overturn

the market power presumption originating under the /nter-

national Salt doctrine, 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, and in

which patent rights were viewed through a distorted lens. '?

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

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 http://www _.doj.gov/atr/public/speeches/206607 pdf (the DOJ

recognizes that “[cjlose substitutes in the marketplace may foreclose

the [patented product] from realizing any meaningful return.”) (citing

Guidelines §§ 2.1-2.2).

? Indeed, the general attitude towards patents during late 1940s when

International Salt was decided may be fairly characterized as antagonistic,

glimpsed where Mr. Justice Jackson (in dissent) spoke of the “strong

passion in this Court for striking them [patents] down so that the only

patent that is valid is one which this Court has not been able to get its

hands on.” Jungersen v. Osthy & Barton Co., 335 U.S. 560, 572 (1949).

Note that the Court had the same complement of Justices when it de-

cided Jungersen as it did when it decided /nternational Salt several

years earlier.

17

CONCLUSION

The precedent under /nternational Salt and Lowe's pro-

viding for a presumption of market power in a Sherman Act

Section | patent tying case should be overturned.

Respectfully submitted,

Of Counsel: GARY M. HOFFMAN *

MILTON MARQUIS

KENNETH W. BROTHERS

BRADLEY J. OLSON

J. JEFFREY HAWLEY

President

DOUGLAS K. NORMAN

Chair, Amicus Brief Committee gy neers ~ MORIN

INTELLECTUAL PROPERTY ;

OWN ASSOC 2101 L Street, Suite 400

vews oe Washington, DC 20037

wb ~~

Suite 200 .

Washington, DC 20037 Counsel for Amicus Curiae

(202) 466-2396 ‘ lef

Amicus Curiae

APPENDIX

Members of 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 Globa!

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.

Andy Gibbs

PatenCafe.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.

J. Jeffrey Hawley

Eastman Kodak Co.

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

fourths majority of directors present and voting.

Bart Eppenauer

Microsoft Corp.

Stephen P. Fox

Hewlett-Packard Co.

Scott M. Frank

BellSouth Corp.

Dennis H. 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.

2a

Robert P. Hayter

United Technologies

Corp.

William B. Heming

Caterpillar Inc.

Ken Hobday

CheckFree 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.

Jonathan P. Meyer

Motorola, Inc.

Steven W. Miller

Procter & Gamble Co.

Raghunath S. Minisandram

Seagate Technology LLC

Claudio Morfe

Nortel Networks

Douglas K. Norman

Eli Lilly and Co.

Richard F. Phillips

ExxonMobil Corp.

3a

Michael Walker

E.I du Pont de

Nemours and Co.

Herbert C. Wamsley

Intellectual Property

_ Owners Association

Stuart Watt

Amgen, Inc.

John K. Williamson

Kirkpatrick & Lockhart

Nicholson Graham LLP

IPO Immediate Past

President

Jon D. Wood

Bridgestone Americas

Holding, Inc.