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

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0084%3A24

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2006
- **Citation:** 547 U.S. 28

## Text

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0084%3A24. Public record. Not legal advice.