Amicus Curiae Brief — Eastman Kodak Co. v. Image Technical Services, Inc.

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Supremié Court, U.S.

| FILED

Le MAR &6

ah | 1996

t. CLERK

No. 97-1298 =

OCTOBER TERM, 1997

EASTMAN KODAK COMPANY,

Petitioner,

IMAGE TECHNICAL SERVICES, INC., et ai.,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF FOR AMICUS CURIAE

INFORMATION TECHNOLOGY

INDUSTRY COUNCIL

IN SUPPORT OF PETITIONER

JOSEPH KATTAN

Counsel of Record

MARK A. PERRY

DELWEN A. JONES

GIBSON, DUNN & CRUTCHER LLP

1050 Connecticut Avenue, N.W.

Washington, D.C. 20036

(202) 955-8500

Counsel for Amicus Curiae

QUESTIONS PRESENTED

Amicus curiae Information Technology Industry Council

addresses the following three questions in this brief:

I. The patent and copyright laws grant intellectual prop-

erty owners the absolute right to refuse to license patented

inventions or copyrighted works to anyone. A uniform line

of decisions holds that antitrust liability cannot be premised

on an intellectual property owner’s mere exercise of its

statutory rights of exclusion. The first question addressed by

amicus is whether the court of appeals erred by departing

from this settled principle and predicating antitrust liability

on an intellectual property owner’s simple unilateral refusal

to license its property that is unaccompanied by any other

exclusionary act.

Il. Nothing in the patent and copyright laws conditions an

intellectual property owner’s right of exclusion on its sub-

jective state of mind. This Court has long held that motiva-

tion is irrelevant in evaluating the legality of an intellectual

property owner’s unilateral refusal to deal. The second

question addressed by amicus is whether the court of appeals

erred by departing from this settled principle and concluding

that antitrust liability may be imposed where reliance on

statutory intellectual property rights is determined to be

“pretextual.”

III. Requiring firms to deal with their rivals undermines,

rather than promotes, the purposes of the antitrust laws. For

this reason, the courts have required such dealings only

where cooperation among competitors is essential for com-

petition to exist at all. The third question addressed by ami-

cus is whether the court of appeals erred by departing from

this settled line of decisions and effectively requiring peti-

tioner to sell or license its property to its competitors without

any requirement of essentiality.

TABLE OF CONTENTS

QUESTIONS PRESENTED 1..0....scssssecsscssscssesecccesseseeeeccccce.. i

INTEREST OF AMICUS CURIAE cecsesessescccssseeeccsssssss....... 1

STA cect 2

REASONS FOR GRANTING THE PETI-

5: Reman kB ET oe eee 4

I. Antitrust Liability Cannot Be Premised

On A Unilateral Refusal To Sell Or Li-

Il. An Intellectual Property Owner’s Sub-

jective Motivation in Refusing to Li-

cense Its Patents or Copyrighted Works

BE RUDI sseenchicnssintieniaiasibiaitiidie I ei: 11

Ill. A Refusal To Supply Rivals Is Not Un-

lawful Where Such Dealing Is Not Es-

ti ee Oe ON 13

IV. Review By This Court Is Warranted To

Correct The Court Of Appeals’ Errone-

ous Construction Of The Antitrust And

Intellectual Property Laws ..0...........cescecescsescesososeeseeeses.... 17

I iccissnicititcinhcbitiiiahii laa ai 20

ill

TABLE OF AUTHORITIES

CASES

Advanced Computer Services v. MAI Systems

Corp., 845 F. Supp. 356 (E.D. Va. 1994) ou... eee 6

Aspen Skiing Co. v. Aspen Highlands Skiing

I III oar canecenencisanecsescasonsennescoconse 14

Beal Corp. Liquidating Trust v. Valleylab, Inc.,

927 F. Supp. 1350 (D. Colo. 1996) ...................ccssccesesssses 6

CSU Holdings, Inc. v. Xerox Corp., 129 F.3d

nr csewtnesnconnnnnrenaeonmnes 18

Chisholm-Ryder Co. v. Mecca Bros., Inc., 217

U.S.P.Q. 1322 (W.D.N.Y. 1982), aff'd, 746

nT ce recesenstaccecssevncesentevecnsess 7

City of Anaheim v. Southern California Edison

ag He REE PPT MIN CIE, BIIED pnesccessncececcsscccsscncesee 14

Continental Paper Bag Co. v. Eastern Paper

Bg Be See OE CED aricccsesassnccnscecsccvecececccssssee 12

Data General Corp. v. Grumman Systems Sup-

port Corp., 36 F.3d 1147 (1st Cir. 1994) ............... passim

Dawson Chemical Co. v. Rohm & Haas Co.,

I I oir crrentatarsinonngseonesenovecesensenennte 5,13

Eastman Kodak Co. v. Image Technical Serv-

em, Bae, FE UB. SOT CUI ED oo nncncsscecncecscdesqeceeses passim

Ethyl Gasoline Corp. v. United States, 309 U.S.

el erties ea ied tl SE ace Ee 5

Fogerty v. Fantasy, Inc., 510 U.S. 517 (1994) ..........ceeeees 20

Fox Film Corp. v. Doyal, 286 U.S. 123 (1932) ...........::00008 5

GAF Corp. v. Eastman Kodak Co., 519 F. Supp.

I I oi casa tisenveenineveiancanevibesevecenasaves 7

Genentech, Inc. v. Eli Lilly and Co., 998 F.2d

931 (Fed. Cir. 1993), cert. denied, 510 U.S.

Teen en cll eaiannishaarsentubeersenmanee 6

Gulf States Steel Co. v. United States, 287 U.S.

a I Ta ne I od TB Ut ih 19

Hartford-Empire Co. v. United States, 323 U.S.

PD tliieiinienhesin tnsinihiseiniadgrninsinis onisinrmassecee...

trust Litigation, 964 F. Supp. 1479 (D. Kan.

vir ge She Eee

trust Litigation, No. MDL-1021 (D. Kan.

i ee eee ee 17,18

lumbia Pictures Industries, Inc., 508 U.S. 49

UII Nias aii)

Rohm & Haas Co. v. Dawson Chemical Co.,

557 F. Supp. 739 (S.D. Tex.), rev'd on other

grounds, 722 F.2d 1556 (Fed. Cir. 1983) ............ccceeeecee 9

SCM Corp. v. Xerox Corp., 645 F.2d 1195 (2d

Cir. 1981), cert. denied, 455 U.S. 1016

(ROTI rc eccesccntincenenntniimenbeinnnnsiniitiilaiiaiscnteinnend 6,9,18,19

Service & Training, Inc. v. Data General Corp.,

DGS Fi te OO Gee SOP iiccatschiciteerbevicbcinavescvnsiintanigioh 6

Servicetrends Inc. v. Siemens Medical Systems.,

Inc., 870 F. Supp. 1042 (N.D. Ga. 1994) ...000........ 6,11,15

Simpson v. Union Oil Co., 377 U.S. 13 (1964) .0.....c eee 7

Sony Corp. v. Universal City Studios, Inc., 464

STB G5 FCP niidbestedaitashienbetnliiectecteetabsbilcinnjuinbeieentanie 7

Stewart v. Abend, 495 U.S. 207 (1990) .........cceceeeesseeeeees 5,11

Tricom, Inc. v. Electronic Data Systems Corp.,

902 F. Supp. 741 (E.D. Mich. 1995) ................scccssscsesere 6

Twin Laboratories, Inc. v. Weider Health &

Fitness, 900 F.2d 566 (2d Cir. 1990) ................ssccssseeees 14

United States v. Citizens & Southern National

pn EE nr ee 14

United States v. Line Material Co., 333 U.S.

Be ROD. seennsvcstsiesiaciptanmnnitiiapsanbhlieaetiiclTilhpasahakecintiabens 10

United States v. Loew's, Inc., 371 U.S. 38

CRONE vcctali suiesisccheasdetachnbdileh Rlibiadiiaihachastitaatcheaniinielishisiasinaniapniesee 7

United States v. Paramount Pictures, Inc., 334

Se eae iihipcantinitlbadininnctiacinstnciviiieniis 7

United States v. Rock Royal Co-op, 307 U.S.

Se calcein itn hilaicsccmppisnesenntiinntes 12

United States v. Telectronics Proprietary, Ltd.,

oe me i es | aceon 7

United States v. United Shoe Machinery Co.,

yf 8 2). SERRE eeee er 7,10

United States v. Westinghouse Electric Corp.,

648 F.2d 642 (9th Cir. 1981) .............cscccsscssscssseseees 6,9,18

W.L. Gore & Associates, Inc. v. Carlisle Corp.,

RE Fe SO Ee Ts SITE seterchiintatiecbaciennnitvnininiatipinnioes 13

Willman v. Heartland Hospital East, 34 F.3d

605 (8th Cir. 1994), cert. denied, 514 U.S.

FOC a eR TERE a) A Sn See 14

Zenith Radio Corp. v. Hazeltine Research Inc.,

SOS Ss RD KovideninsednahacstMawtbtiicecdetsain- wlesaitcclents 5

CONSTITUTION AND STATUTES

sk es 4S OG Pie eee Tee ee 4,20

BS MR Sissi ceeded, bl tai oceans 3

EL df & MN Re eT Renr See ReT mae TR Ge gee Earn Et 3

SF OE COG aise ie to ee 5

55 CS i hicetntiiaih cate diet ee ae 5

et ts, Serene eee Ae he eh by 5,8 |

MISCELLANEOUS

3 Areeda & Hovenkamp, Antitrust Law (1996) .............-. 6,12

134 Cong. Rec. H10646, H10648 (Oct. 20,

Es Th Ae Oe ee 8

Hearings on H.R. 3760 Before Subcommittee

No. 3 of the House Committee on the Judi-

ciary, 82d Cong., Ist Sess., June 13, 14, and

AD, SOA CD sciciitvilihtleititlatisiisalibancedesniaiacent 8

United States Department of Justice and Fed-

eral Trade Commission Antitrust Guidelines

for the Licensing of Intellectual Property

(April 6, 1995), reprinted in 4 Trade Reg.

Teas CATS Te vithsisacccis bial tasatioried Scaicet 7

SRL aetna DAS. “tl ONS CS NY 1s Nae ERE ce BS

Supreme Gout of the Unites States

OCTOBER TERM, 1997

No. 97-1298

EASTMAN KODAK COMPANY,

Petitioner,

Vv.

IMAGE TECHNICAL SERVICES, INC., et al.,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Ninth Circuit

BRIEF FOR AMICUS CURIAE

INFORMATION TECHNOLOGY

INDUSTRY COUNCIL

IN SUPPORT OF PETITIONER

Amicus curiae Information Technology Industry Council

(ITI) respectfully submits this brief in support of petitioner. !

INTEREST OF AMICUS CURIAE

ITI represents the leading providers of information tech-

nology products and services in the United States. Its mem-

bers include computer, software, office equipment, semicon-

1 Letters of consent from all parties to the filing of this brief have been

filed with the Clerk. Pursuant to this Court’s Rule 37.6, ITI represents

that this brief was not authored in whole or in part by counsel for any

party, and that no person or entity other than ITI, its members, or its

counsel made a monetary contribution to the preparation or submission

of this brief. Petitioner is a member of ITI; a complete list of ITI’s

members is reproduced at App., infra, la.

ductor, communications equipment, and consumer electron-

ics companies. ITI’s member companies, which employ

more than a million and a half people in the United States,

are responsible for more than sixteen percent of all industri-

ally funded research and development and for more than half

of all information technology research and engineering.

The Ninth Circuit’s decision in this case is of critical im-

portance to all firms that invest resources in research and de-

velopment to create new or better products, processes, com-

puter programs, and mask works. As the court of appeals

acknowledged (Pet. App. 43A), this is the first case in which

antitrust liability was imposed upon an intellectual property

owner based on the mere exercise of its statutory rights to ex-

clude other persons from using its patented goods and copy-

righted works. ITI’s member companies, which annually in-

vest billions of dollars in research and development geared

toward the creation of legally protected intellectual property,

are concerned that the decision below exposes successful in-

novators to the risk of antitrust claims based on nothing more

than the exercise of the legal right to secure a competitive

advantage from their innovations.

STATEMENT

Petitioner manufactures, sells and services high-volume

photocopiers and micrographic equipment, as well as re-

placement parts for its machines. Petitioner competes in

supplying parts and service for its equipment with so-called

independent service organizations (ISOs), including respon-

dents. Respondents filed this antitrust suit to challenge peti-

tioner’s policies that restrict ISOs’ access to parts manufac-

tured by petitioner.

1. This Court previously granted certiorari in this case to

consider “the standard for summary judgment in an antitrust

controversy.” Eastman Kodak Co. v. Image Technical Serv-

ices, Inc., 504 U.S. 451, 454 (1992). The Court primarily fo-

cused on respondents’ claim that petitioner had instituted an

unlawful “tying” arrangement between replacement parts and

service. The Court held that respondents had presented suf-

ficient evidence that petitioner had the ability to act anticom-

petitively to survive summary judgment on respondents’

claims under Sections 1 and 2 of the Sherman Act (15 U.S.C.

§§ 1 & 2). See 504 US. at 477-79, 482-86.

2. On remand from this Court, respondents ultimately

withdrew their Section 1 tying and conspiracy claims. Pet.

App. 5A-6A. On the remaining Section 2 claims for mo-

nopolization and attempted monopolization, respondents’

principal theory was that petitioner had acted anticompeti-

tively by refusing to sell or license parts and software for

servicing its machines to ISOs. Although petitioner has 220

patents covering 65 parts, and all of its diagnostic and service

software is copyrighted, the district court instructed the jury

that petitioner’s mere refusal to sell parts or license software

to competitors would violate Section 2 if it “unnecessarily

excludes or handicaps competitors in order to maintain a

monopoly.” Pet. App. 24A. The court further instructed the

jury that “the fact that some of the replacement parts are pat-

ented or copyrighted does not provide [petitioner] with a de-

fense against any of the antitrust claims.” Pet. App. 37A.

3. The jury awarded respondents $71.8 million after treb-

ling. Pet. App. 6A. The Ninth Circuit affirmed the determi-

nation of antitrust liability and damages.

a. The court of appeals rejected the contention that a uni-

lateral refusal to deal can violate the antitrust laws “only

when the refusal involves something ‘essential’ to the sur-

vival of competitors.” Pet. App. 26A. The court concluded

that “exclusionary conduct can include a monopolist’s uni-

lateral refusal to license a patent or copyright, or to sell its

patented or copyrighted work.” Pet. App. 48A (brackets and

internal quotation omitted). The court also stated that an in-

tellectual property owner’s “desire to exclude others” from

exploiting its patented invention or copyrighted work “is a

presumptively valid business justification for any immediate

harm to consumers.” Jbid. The court accordingly held that

“the district court’s failure to give any weight to

[petitioner’s] intellectual property rights in the jury instruc-

tions constitutes an abuse of discretion.” Pet. App. 49A.

b. The Ninth Circuit concluded that the district court’s er-

roneous failure to instruct the jury on petitioner’s right to

exclude others from using its intellectual property was

“harmless.” Jbid. The court said that the presumption af-

forded patent and copyright holders “may .. . be rebutted by

evidence of pretext.” Pet. App. 51A. Based on its cursory

review of two isolated bits of evidence, the court found that

“it is more probable than not that the jury would have found

[petitioner’s] presumptively valid business justification re-

butted on the grounds of pretext.” Pet. App. 52A.

REASONS FOR GRANTING THE PETITION

The court of appeals acknowledged that it could “find no

reported case in which a court has imposed antitrust liability

for a unilateral refusal to sell or license a patent or copy-

right.” Pet. App. 43A. In fact, numerous courts have con-

cluded that a unilateral exercise of an intellectual property

owner’s right to exclude others from using its patents or

copyrights cannot form the basis for antitrust liability. The

court in this case, however, sustained a massive antitrust

judgment based on precisely such conduct by petitioner—

even though the district court had erroneously refused to in-

struct the jury regarding petitioner’s intellectual property

rights. That decision cannot be reconciled with the express

statutory right of intellectual property owners to the exclu-

sive use of their property or with well-settled law governing

the intersection of the antitrust and intellectual property laws.

I. Antitrust Liability Cannot Be Premised On A

Unilateral Refusal To Sell Or License Intellec-

tual Property

Exercising its constitutional authority to secure to authors

and inventors for a limited time the exclusive rights to their

inventions and writings (U.S. Const., Art. I, § 8, cl. 8), Con-

gress has granted intellectual property owners exclusive con-

trol over their patents and copyrights. The patent law grants

patentees the right to exclude all others from making, using,

or selling patented inventions. 35 U.S.C. §§ 154, 271(a).

Similarly, the copyright law grants copyright owners the ex-

clusive right to reproduce copyrighted works, make deriva-

tive works, and distribute copies of copyrighted works. 17

U.S.C. §§ 106(1)-(3).

1. The statutory rights granted to a lawful owner of pat-

ents and copyrights authorize the owner to exclude any and

all others—including competitors—from using its patented

goods and copyrighted works. The patent owner has a legal

“right to refuse to sell ... [its] patented products.” Ethyl

Gasoline Corp. v. United States, 309 U.S. 436, 457 (1940).

Indeed, as this Court has recognized, “the right to exclude

others from profiting by the patented invention” is “the es-

sence” of the patent grant. Dawson Chemical Co. v. Rohm &

Haas Co., 448 U.S. 176, 215 (1980); Zenith Radio Corp. v.

Hazeltine Research Inc., 395 U.S. 100, 135 (1969) (right to

exclude others from using invention is at “[t]he heart” of the

patent grant). Likewise, the copyright owner “may refrain

from vending or licensing and content himself with simply

exercising the right to exclude others from using his prop-

erty.” Fox Film Corp. v. Doyal, 286 U.S. 123, 127 (1932).

This Court recently reiterated a copyright holder’s exclusive

right under the Copyright Act to refuse to distribute its work.

Stewart v. Abend, 495 U.S. 207, 229 (1990) (“this Court has

held that a copyright owner has the capacity arbitrarily to re-

fuse to license one who seeks to exploit the work”).

Given that the ability to exclude all others from using the

protected inventions or works is the very essence of the pat-

ent and copyright owner’s right, it follows that an owner’s

unilateral refusal to allow others to use its lawfully acquired

intellectual property cannot violate the antitrust laws. As the

leading antitrust treatise observes, “while courts have con-

strued antitrust law to impose other constraints on patentee

behavior—such as prohibiting the use of tying arrangements

and similar practices—none of those instances involved

overriding an express patent law grant.” 3 Areeda & Ho-

venkamp, Antitrust Law ¥ 708d, at 190 (1996).

With the notable exception of the decision below, every

court of appeals to have considered the question has held that

an intellectual property owner’s refusal to license or sell its

protected works could not violate the antitrust laws. Miller

Insituform, Inc. v. Insituform of North America, Inc., 830

F.2d 606, 609 (6th Cir. 1987) (lawful patent owner “cannot

be held liable under Section 2 . . . by refusing to license the

patent to others” because “the holder of a patent retains the

power to exclude others from manufacturing, using, and

selling his inventions without running afoul of the antitrust

laws”), cert. denied, 484 U.S. 1064 (1988); SCM Corp. v.

Xerox Corp., 645 F.2d 1195, 1204, 1206 (2d Cir. 1981)

(“Where a patent holder ... merely exercises his ‘right to

exclude others from making, using, or selling the invention,’

by refusing unilaterally to license his patent for its seventeen-

year term, such conduct is expressly permitted by the patent

laws. ... [W]here a patent has been lawfully acquired, sub-

sequent conduct permissible under the patent laws cannot

trigger any liability under the antitrust laws”), cert. denied,

455 U.S. 1016 (1982); United States v. Westinghouse Elec-

tric Corp., 648 F.2d 642, 647 (9th Cir. 1981) (rejecting a

claim “that an antitrust violation may be found where a pat-

ent holder does precisely that which the patent laws author-

ize” because “[t}he right to license th{e] patent, exclusively

or otherwise, or to refuse to license at all, is the untrammeled

right of the patentee’’) (internal quotation omitted).?

2 See also Genentech, Inc. v. Eli Lilly and Co., 998 F.2d 931, 949

(Fed. Cir. 1993), cert. denied, 510 U.S. 1140 (1994); Service & Train-

ing, Inc. v. Data General Corp., 963 F.2d 680, 690 (4th Cir. 1992):

Beal Corp. Liquidating Trust v. Valleylab, Inc., 927 F. Supp. 1350 (D.

Colo. 1996); Tricom, Inc. v. Electronic Data Systems Corp., 902 F.

Supp. 741, 743 (E.D. Mich. 1995); Servicetrends Inc. v. Siemens Medi-

cal Systems, Inc., 870 F. Supp. 1042 (N.D. Ga. 1994); Advanced Com-

puter Services v. MAI Systems Corp., 845 F. Supp. 356 (E.D. Va.

This uniform line of decisions, with which the decision

below directly and irreconcilably conflicts, is plainly correct.

As this Court has recognized, “[t]he patent laws which give

a 17-year monopoly on ‘making, using or selling the inven-

tion’ are in pari materia with the antitrust laws and modify

them pro tanto.” Simpson v. Union Oil Co., 377 U.S. 13, 24

(1964); see Lucasarts Entertainment Co. v. Humongous En-

tertainment Co., 870 F. Supp. 285, 290 (N.D. Cal. 1993)

(given that the “essence of a copyright interest” is to

“exclude use of the copyrighted work,” the copyright laws

also are “in pari materia with the antitrust laws and modify

them pro tanto”). Thus, because the patent laws grant “the

right to exclude others from the use of the invention,” the

“exertion [of that right] within the field covered by the patent

law is not an offense against the Anti-Trust Act.” United

States v. United Shoe Machinery Co., 247 U.S. 32, 57

(1918). Given the “historic kinship between patent law and

464 U.S. 417, 439 (1984)), a unilateral refusal to license a

1994); United States v. Telectronics Proprietary, Ltd., 607 F. Supp.

753, 755 (D. Colo. 1983); Chisholm-Ryder Co. v. Mecca Bros., Inc.,

217 U.S.P.Q. 1322, 1388 (W.D.N.Y. 1982), aff'd, 746 F.2d 1489 (Fed.

Cir. 1984); GAF Corp. v. Eastman Kodak Co., 519 F. Supp. 1203,

1233 (S.D.N.Y. 1981).

3 In light of the similar origin and purpose of the patent and copyright

laws, this Court has relied on the logic of patent cases in assessing the

lawfulness of refusals to grant copyright licenses. See United States v.

Loew’s, Inc., 371 U.S. 38, 46-47 (1962); United States v. Paramount

Pictures, Inc., 334 U.S 131, 158 n.12 (1948). As the federal antitrust

authorities have recognized, “the governing antitrust principles are the

same” for patent and copyright. United States Department of Justice

and Federal Trade Commission Antitrust Guidelines for the Licensing

of Intellectual Property (April 6, 1995), reprinted in 4 Trade Reg. Rep.

(CCH) ¥ 13,132.

Lest there be any doubt about the correctness of the deci-

sions discussed above, Congress has expressly provided that

“[njo patent owner . . . shall be . .. deemed guilty of misuse

or illegal extension of the patent right by reason of having

... refused to license or use any rights to the patent.” 35

U.S.C. § 271(d)(4). By its terms, this statute precludes a

finding of antitrust liability as an “illegal extension of the

patent right”—the very basis of the Ninth Circuit’s deci-

sion—based on a patentee’s unilateral refusal to license or

sell a patented invention. Section 271, like the uniform line

of decisions it codifies, prohibits a finding of antitrust liabil-

ity based on the refusal of the patent holder to license or sell

its patented inventions. As one court has correctly ob-

4 When Section 271 was amended in 1952 to cover “illegal exten-

sion[s]” of patent rights, it was recognized that the effect of the new

language “might be to carve out an area in which the antitrust laws

would not operate. ... The proponents of the bill indicated that such a

result [was] contemplated in the language of [what became Section

271).” Hearings on H.R. 3760 Before Subcommittee No. 3 of the

House Committee on the Judiciary, 82d Cong., 1st Sess., June 13, 14,

and 15, 1951, Serial No. 9 at 207. When Section 271 was amended

again in 1988 to make clear that refusal to license a patented invention

was not an illegal extension of the patent right, Representative Kasten-

meier cited cases holding that such a refusal to license did not violate

the antitrust laws and stated that “codification of the ‘refusal to use or

license’ as not constituting patent misuse is consistent with the current

caselaw and makes sense as a matter of public policy.” 134 Cong. Rec.

H10646, H10648 (Oct. 20, 1988). The Ninth Circuit said that Section

271 does not preclude antitrust liability for unilateral refusals to license

protected works because it “merely codified existing law.” Pet. App.

39A n.7. Of course, the “existing law” at the time the statute was

amended in 1988 uniformly held that an antitrust action could not be

maintained for conduct that was permissible under the patent laws.

Although the Copyright Act does not contain a similar express ex-

clusion, the great majority of cases involving this issue have concerned

patents. Because Section 271 was amended to codify existing case law,

no negative inference can be drawn from the fact that Congress has

thus far seen no need to similarly amend the copyright statutes.

served, “it would be superfluous to sanction and protect ac-

tivity within one area of the law and concurrently prohibit

and expose a patentee to damages by reason of another body

: of law.” Rohm & Haas Co. v. Dawson Chemical Co., 557 F.

Supp. 739, 835 (S.D. Tex.), rev'd on other grounds, 722 F.2d

; 1556 (Fed. Cir. 1983).

i 2. Given the overwhelming body of authority holding

that an intellectual property owner cannot be held liable un-

der the antitrust laws for refusing to license its patents or

copyrights, the district court’s refusal in this case even to in-

struct the jury on petitioner’s intellectual property nghts was

clearly, as the court of appeals held, an abuse of discretion.

Equally erroneous, however, was the Ninth Circuit’s conclu-

; sion that the jury’s verdict could nevertheless stand.

Although the court of appeals acknowledged that “the

right of exclusive dealing is reserved from antitrust liability”

(Pet. App. 43A), and recognized that cases such as Miller

; Insituform, Westinghouse, and SCM had refused to premise

| antitrust liability on the refusal of an intellectual property

owner to license its protected inventions, the court refused to

apply those principles in this case. The sole bases for that

refusal were footnote 29 of this Court’s Kodak decision,

which the Ninth Circuit construed to mean that “the Court in

Kodak supposed that intellectual property rights do not con-

fer an absolute immunity from antitrust claims” (Pet. App.

43A), and the decision in Data General Corp. v. Grumman

Systems Support Corp., 36 F.3d 1147 (1st Cir. 1994).

a. The Kodak footnote on which the court of appeals re-

lied states that “power gained through some natural and legal

advantage such as a patent, copyright, or business acumen

can give rise to liability if a seller exploits his dominant po-

sition in one market to expand his empire into the next.” 504

US. at 480 n.29 (internal quotation omitted). It is, of course,

true that otherwise unlawful business conduct is not immu-

nized from antitrust scrutiny simply because it involves intel-

lectual property. An intellectual property owner remains

subject to the antitrust laws for conduct that is outside the

scope of the patent and copyright laws—for tying a patented

product to an unpatented one, say, or for a price-fixing con-

spiracy involving copyrighted works. See United States v.

Line Material Co., 333 U.S. 287, 308 (1948) (“possession of

a valid patent or patents does not give the patentee any ex-

emption from the provisions of the Sherman Act beyond the

limits of the patent monopoly”).

The Kodak Court made it clear, however, that it was do-

ing nothing more than rejecting a broad immunity from tying

claims. 504 U.S. at 479 n.29. Each of the antitrust cases that

the Court cited in support of the quoted language involved

otherwise unlawful conduct, such as tying or price fixing,

rather than the unilateral exercise of the right to refuse to li-

cense intellectual property. Thus, footnote 29 stands only for

the unexceptional proposition that “concerted and contractual

behavior that threatens competition is not immune from anti-

trust inquiry simply because it involves the exercise of

At trial, respondents abandoned the tying claims that are

the subject of footnote 29; their only remaining claims are

Section 2 claims based on Kodak’s unilateral refusal to deal.

The Kodak footnote simply did not address this conduct. See

In re Independent Service Organizations Antitrust Litigation,

964 F. Supp. 1479, 1489-90 (D. Kan. 1997) (“The Court’s

statement [in footnote 29] simply is not applicable where a

patent holder, exercising his unilateral right to refuse to li-

cense or use his invention, acquires a monopoly in two sepa-

rate relevant antitrust markets”). Rather, such conduct is

specifically addressed and authorized by the intellectual

property laws, and antitrust liability therefore cannot attach.

United Shoe Machinery, 247 U.S. at 57. Contrary to the

court of appeals’ interpretation, this Court in Kodak’s foot-

note 29 did not purport to change that well-established rule.

b. The court of appeals relied on Data General for the

proposition that the patent and copyright laws create a

“rebuttable presumption” that an intellectual property

owner’s refusal to license its protected works is a “valid

aoe

business justification” for its conduct. See Pet. App. 48A.

With respect to patents, this conclusion squarely conflicts

with Data General: The First Circuit expressly recognized

that unilateral refusals to license patented inventions do not

violate the antitrust laws. 36 F.3d at 1186.

The Data General court did hold that a copyright owner’s

desire to exclude others from exploiting its copyrighted

works was merely a presumptively valid business justifica-

tion. Jd. at 1187. Although the First Circuit stressed that the

presumption could be overcome only in “rare cases” (id. at

1187 n.64), the court’s analysis, like the Ninth Circuit’s, was

fundamentally flawed in this regard. The cases discussed

above conclusively establish that, in the absence of invalidity

or misuse, the holder of an intellectual property nght—patent

or copyright—can refuse to license its protected works with-

out even implicating the antitrust laws. See Servicetrends,

870 F. Supp. at 1057 n.8 (because defendant, as a matter of

law, was not required to sell its patented components, no in-

quiry need be made into business justifications).

A refusal to allow others to use a patented invention or

copyrighted work is justified not only by “business” consid-

erations, but by explicit statutory allowance. This Court has

recognized that an intellectual property owner can arbitrarily

refuse to license its property to anyone. Stewart, 495 U.S. at

229 (copyrights); Hartford-Empire Co. v. United States, 323

U.S. 386, 432-33 (1945) (patents). Thus, the intellectual

property owner by definition need not provide “valid busi-

ness reasons” for its conduct. Such reasons must be articu-

lated only when the exclusionary conduct would otherwise

be unlawful. Kodak, 504 U.S. at 483.

Il. An Intellectual Property Owner’s Subjective

Motivation in Refusing to License Its Patents or

Copyrighted Works Is Irrelevant

After concluding that an intellectual property owner’s

statutory right of exclusion creates only a presumptively

valid business justification for refusing to license its patents

or copyrighted works to competitors, the court of appeals

simply asserted, without any citation of authority, that “(t]he

presumption may ... be rebutted by evidence of pretext.”

Pet. App. 51A. That is wrong.

1. This Court has never held that the lawfulness of an in-

tellectual property owner’s exercise of its statutory rights

turns on its motivation in refusing to license protected works.

On the contrary, the Court has explicitly stated that intent is

irrelevant: “As to the suggestion that competitors were ex-

cluded from the use of the new patent, we answer that such

exclusion may be said to have been of the very essence of the

right conferred by the patent, as it is the privilege of any

owner of property to use or not use it, without question of

motive.” Continental Paper Bag Co. v. Eastern Paper Bag

Co., 210 U.S. 405, 429 (1908) (emphasis added); see United

States v. Rock Royal Co-op, 307 U.S. 533, 560 (1939)

(statutorily authorized conduct does not violate antitrust laws

regardless of defendants’ “ulterior motive”); Professional

Real Estate Investors, Inc. v. Columbia Pictures Industries,

Inc., 508 U.S. 49, 64 (1993) (“[T]o condition a copyright

upon a demonstrated lack of anticompetitive intent would

upset the notion of a copyright as a ‘limited grant’ of

‘monopoly privileges’ intended simultaneously ‘to motivate

the creative activity of authors’ and ‘to give the public ap-

propriate access to their work product”) (quoting Sony, 464

US. at 429).

2. There is nothing in either the patent or the copyright

laws that conditions an intellectual property owner’s right to

exclude others from using its patented inventions or copy-

righted works on the owner’s subjective state of mind.

Courts and commentators alike have concluded that the

“search for an overriding ‘antisocial’ motivation” will often

be, in the words of the First Circuit, “unilluminating.” Data

General, 36 F.3d at 1189. See also 3 Areeda & Hovenkamp,

Antitrust Law 4 705(b), at 156 (“Making antitrust liability

turn on [motivation] invites juries to make meaningless char-

acterizations,” rarely or never provides a guide to determin-

ing liability and “greatly chills pro-competitive behavior’).

This conclusion is founded both on business reality and

common sense, recognizing that “no commercial firm in-

vents except with the hope of prevailing over its rivals” and

no one applies for a copyright or patent “without knowingly

intending to acquire the legal power to exclude.” Jbid. It is

thus unsurprising that courts uniformly have “regard[ed] as

irrelevant” the defendant’s motive in licensing (or refusing to

license) its protected works. See W.L. Gore & Associates,

Inc. v. Carlisle Corp., 529 F.2d 614, 623 (3d Cir. 1976).

Under the law, an intellectual property owner has the ab-

solute right to refuse to allow others to use its protected

works. Because the patent or copyright holder alone has “the

right to exclude others from profiting from the patented in-

vention” (Dawson Chemical, 448 U.S. at 215) or copyrighted

work, it can make no legal difference that its executives

might have had the company’s bottom line, rather than its

statutory intellectual property rights, in mind when they de-

cided to exclude others from profiting from the company’s

protected works. On the contrary, ensuring profits by pro-

tecting innovation is precisely what Congress intended in

granting the exclusive right to license, or refuse to license,

patents and copyrights. See, e.g., Kewanee Oil Co. v. Bicron

Corp., 416 U.S. 470, 480 (1974).

Ill. A Refusal To Supply Rivals Is Not Unlawful

Where Such Dealing Is Not Essential to Compe-

tition

The decision below penalizes petitioner for declining to

sell or license its intellectual property to its competitors, ef-

fectively mandating such sale or licensing. But even where

intellectual property rights are not implicated, courts do not

casually require firms to deal with rivals. As this Court has

observed, “[t]he central message of the Sherman Act is that a

business entity must find new customers and higher profits

through internal expansion—that is, by competing success-

fully rather than by arranging treaties with its competitors.”

United States v. Citizens & Southern National Bank, 422

U.S. 86, 116 (1975). Requiring firms to help their com-

petitors tends to diminish the competition that otherwise

would exist between them and thus undercuts, rather than

promotes, the purposes of the antitrust laws.

The court of appeals sustained a jury instruction under

which petitioner could be held liable for monopolization if

its refusal to supply its competitors “unnecessarily excludes

or handicaps competitors in order to maintain a monopoly.”

Pet. App. 24A. The court rejected the contention that a duty

to deal may exist only where supplying competitors is essen-

tial to competition. In this regard, the Ninth Circuit’s deci-

sion conflicts with a large body of case law that holds that

dealings with competitors may be mandated, if at all, only

where cooperation among competitors is essential for com-

petition to exist at all. See, e.g., MCI Communications Corp.

v. American Telephone & Telegraph Co., 708 F.2d 1081,

1132-33 (7th Cir.), cert. denied, 464 U.S. 891 (1983) (access

to a competitor’s assets may be mandated only based on (1) a

monopolist’s control of an essential facility; (2) competitors’

inability practically or reasonably to duplicate the essential

facility; (3) denial of the use of the facility to a competitor;

and (4) the feasibility of providing the facility); see also

Willman v. Heartland Hospital East, 34 F.3d 605, 613 (8th

Cir. 1994), cert. denied, 514 U.S. 1081 (1995); City of Ana-

heim v. Southern California Edison Co., 955 F.2d 1373,

1380 (9th Cir. 1992); Laurel Sand & Gravel, Inc. v. CSX

Transportation, Inc., 924 F.2d 539, 544 (4th Cir.), cert. de-

nied, 502 U.S. 814 (1991); Twin Laboratories, Inc. v. Weider

Health & Fitness, 900 F.2d 566, 570 (2d Cir. 1990).

The court of appeals based its rejection of the “‘essentia-

lity” requirement on an erroneous reading of Aspen Skiing

Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985),

where this Court concluded that a business’s “right” not to

sell ordinary goods is not “unqualified.” Jd. at 601-02. Al-

though this Court did not use the “essential facilities” label,

Aspen involved access to facilities—mountains in Aspen,

Colorado—that could not be replicated by competitors, no

matter how enterprising. The Court based the duty to deal on

the indispensability of the plaintiff's access to the mountains

to effective competition in the sale of ski lift tickets. See

Olympia Equipment Leasing Co. v. Western Union Tel. Co.,

797 F.2d 370, 377 (7th Cir. 1986) (Aspen “is like the essen-

tial-facility cases in that the plaintiff could not compete with

the defendant without being able to offer its customers access

to the defendant’s larger facilities”), cert. denied, 480 U.S.

934 (1987); Servicetrends Inc. v. Siemens Medical Systems.,

Inc., 870 F. Supp. 1042, 1053 (N.D. Ga. 1994) (“‘essential

facilities’ doctrine underlay” the Aspen decision).°

The requirement of essentiality is necessary to ensure that

courts do not extinguish competition between rivals by re-

quiring the first party to develop a marketable facility, prod-

uct, or service to sell or license it to competitors. Even if this

case did not involve intellectual property, it cannot be

enough for a plaintiff to show that it would be easier to deal

with a rival than to compete; the plaintiff must show that

competition would not exist without compulsory access to

the rival’s goods. Yet the decision below disregards the set-

tled legal standard that requires competitors to rely on their

own resources and not those of their rivals, requiring only

that a plaintiff demonstrate that a unilateral refusal to deal

“unnecessarily excludes or handicaps competitors.”

The court of appeals’ holding is particularly troubling in

the context of intellectual property because, as demonstrated

above, the right of patentees and copyright holders to refuse

to license is unqualified. But the standard sanctioned by the

court is troubling even outside this context. The Ninth Cir-

5 Similarly, in Otter Tail Power Co. v. United States, 410 U.S. 366

(1973), where the Court also required a supplier to sell to competitors,

the defendant controlled a natural monopoly over the distribution of

electric power, by definition an essential facility that could not be du-

plicated.

cuit’s standard is vacuous because of its inherently subjective

nature, making the outcome of a Section 2 case the legal

equivalent of a roulette spin. Such a standard is also ex-

tremely overbroad because it punishes companies for realiz-

ing the fruits of their investments.

Companies invest in research and development precisely

because they can gain a competitive advantage as a result. If

they are successful, their rivals will suffer a competitive dis-

advantage—a “handicap”—in competing with them. If this

were enough to support a monopolization case, successful

innovators would be stripped of their rights over their inven-

tions and works at the whim of a jury. Yet under the Ninth

Circuit’s approach, the likelihood of an antitrust violation

based on the exercise of the exclusive right to use one’s own

property increases with the significance of an innovation, be-

cause competitors will more likely be “handicapped” by

having to develop their own alternatives. The court of ap-

peals thus ignored the fundamental principle that “the lawful

monopolist should be free to compete like everyone else;

otherwise the antitrust laws would be holding an umbrella

over inefficient competitors.” Olympia Equipment Leasing

Co., 797 F.2d at 375. Indeed, in this case the court sanc-

tioned the imposition of liability for failing to supply rivals

who were able to compete successfully without such com-

pulsory access.

Ironically, the court of appeals’ approach ultimately will

decrease competition by reducing the incentive of third par-

ties to develop competing substitutes for products that they

cannot obtain by sale or license. By dispensing with the es-

sentiality requirement, the decision below encourages com-

petitors to use the antitrust laws to free-ride on successful in-

novations while collecting treble damages to boot. This

Court should not allow the antitrust laws to be interpreted in

a way that defeats their very purpose.

IV. Review By This Court Is Warranted To Correct

The Court Of Appeals’ Erroneous Construction

Of The Antitrust And Intellectual Property Laws

1. The decision below represents a significant departure

from long-settled principles applicable to the interplay be-

tween antitrust law and the intellectual property laws. The

court of appeals erroneously abandoned the traditional rule

that an intellectual property owner’s exercise of its statutory

right to refuse to license or sell its protected works cannot

serve as the predicate for antitrust liability, in favor of a

vague “presumption” that reliance on the patent and copy-

right statutes constitutes a “business justification” for exclu-

sionary conduct. The court compounded that error by aban-

doning the common-sense notion that an intellectual property

owner’s motivations for invoking its statutory rights to pre-

clude others from using its protected works is irrelevant,

concluding instead that the presumption can be rebutted by

some undefined (and undefinable) showing that a unilateral

refusal to deal was “pretextual.” And the court of appeals ef-

fectively required petitioner to deal with its rivals without

requiring any showing that such compulsory access was es-

sential to competition. As demonstrated above, the Ninth

Circuit’s conclusions squarely conflict with numerous deci-

sions of this Court and of other courts that have considered

these issues. Review is warranted for that reason alone.

2. The conflict between the decision below and the

weight of authority is graphically illustrated by a recent de-

cision involving Xerox Corporation. Jn re Independent

Service Organizations Antitrust Litigation, No. MDL-1021

(D. Kan. Dec. 22, 1997) (Xerox).6 Like petitioner, Xerox

manufactures photocopiers and was sued by ISOs who con-

tended that its restrictive parts policy constituted exclusion-

in the Federal Supplement, it is reproduced for the convenience of the

Court at App., infra, 2a-25a.

ary conduct that violated the antitrust laws. Unlike this case,

however, the district court granted summary judgment for

Xerox on the ground that its refusal to sell or license patents

and copyrights could not result in antitrust liability, and the

Federal Circuit denied the ISOs’ request to take an interlocu-

tory appeal on that issue. CSU Holdings, Inc. v. Xerox

Corp., 129 F.3d 132 (Fed. Cir. 1997) (Table).

After the Ninth Circuit’s decision in this case, the ISOs in

the Xerox litigation asked the district court to reconsider its

ruling. In a thorough and well-reasoned opinion, the court

“decline[d] to follow the Ninth Circuit’s holding in Kodak.

Rather, we find that where a patent or copyright has been

lawfully acquired, subsequent conduct permissible under the

patent or copyright laws cannot give rise to any liability un-

der the antitrust laws.” App., infra, 6a.

The Xerox court rejected the notion that an intellectual

property owner must provide a “business justification” for

refusing to license its protected works, recognizing that such

conduct “is expressly authorized by patent law and therefore

immune from antitrust scrutiny. This result is compelled by

the holdings of SCM, Miller Insituform, and Westinghouse.”

App., infra, 20a (emphasis added); see also id. at 24a.

The Xerox court also rejected the proposition that the mo-

tivation for excluding competitors is relevant. The court rec-

ognized that “[t]he standard articulated by the Ninth Circuit

in Kodak makes it very difficult for a jury, a judge, or even

the patent holder, to distinguish between a permissible re-

fusal to deal (based on a desire to profit from and protect

patent mghts) and an impermissible refusal to deal

(apparently based on a desire to obtain a competitive advan-

tage by excluding competitors).” App., infra, 19a.

The directly contrary results in Xerox and the decision

below highlight the conflict the Ninth Circuit has created

with established law: On nearly identical facts involving

manufacturers’ unilateral refusals to license patented and

copyrighted products to ISOs, one ITI member (Kodak) has

been ordered to pay $71.8 million while another ITI member

(Xerox) has been granted summary judgment. Such an ir-

reconcilable interpretation of the antitrust and intellectual

property laws cannot be allowed to stand uncorrected.’

3. The decision below creates tremendous confusion in an

area where certainty is critical. Companies, including ITI’s

members, spend billions of dollars developing intellectual

property. The decision below, however, by recognizing anti-

trust liability for refusing to license intellectual property, will

deter innovation by impairing the exclusive rights of patent

and copyright holders. See SCM, 645 F.2d at 1206 (“If the

threat of treble damage liability for refusing to license were

imbedded in the minds of potential patent holders as a likely

prospect incident to every successful commercial exploita-

tion of a patented invention, the efficacy of the economic in-

centives afforded by our patent system might be severely

diminished”). Moreover, “it is unclear from the Kodak

opinion exactly what documented reason would be sufficient

to justify a refusal to deal. Accordingly, patent holders

could rarely refuse to sell their patented products with any

comfort that they are in compliance with the law.” App., in-

fra, 20a n.4 (emphasis added).

7 Although Xerox is a district court decision, ITI submits that the

conflict between the decision below and Xerox warrants this Court's

intervention given the importance of the questions presented. See Mas-

sachusetts v. United States, 435 U.S. 444, 453 (1978). Moreover, the

Federal Circuit has already declined to hear an interlocutory appeal

from the grant of summary judgment to Xerox, indicating that it agrees

with the district court's reasoning. Cf Ivan Allen Co. v. United States,

422 U.S. 617, 623-24 (1975). The Court should grant review at this

time rather than await the inevitable intercircuit conflict that will result

when Xerox or a similar case is decided by another court of appeals.

Cf. Gulf States Steel Co. v. United States, 287 U.S. 32 (1932). In any

event, the Ninth Circuit, by issuing a decision that is at odds with vir-

tually all prior opinions in this area, has “so far departed from the ac-

cepted and usual course of judicial proceedings . . . as to call for an ex-

ercise of this Court's supervisory power.” See this Court's Rule 10(a).

Inconsistent decisions in intellectual property cases create

uncertainty among inventors, investors, manufacturers, and

other participants in the markets for patented inventions and

copyrighted works. Such uncertainty can deter innovation,

frustrating the Framers’ directive that Congress “promote the

Progress of Science and useful Arts.” U.S. Const., Art. L

§ 8, cl. 8; see Fogerty v. Fantasy, Inc., 510 U.S. 517, 527

pose of enriching the general public through access to crea-

tive works, it is peculiarly important that the boundaries of

man v. Westview Instruments, Inc., 517 U.S. 370, 390 (1996)

(“increased uniformity would strengthen the United States

patent system in such a way as to foster technological growth

and industrial innovation”) (internal quotation omitted).

The creation of intellectual property is a multibillion-

dollar segment of our Nation’s economy, and many intellec-

tual property owners choose to exercise their statutory rights

not to sell or license patented inventions or copyrighted

works to competitors. As the Ninth Circuit recognized,

“{ujnilateral conduct is the most common conduct in the

economy.” Pet. App. 46A-47A. Review is warranted to en-

sure that the court of appeals’ derogation of intellectual

property rights does not open a floodgate of antitrust litiga-

tion based on conduct that is expressly authorized by law.

CONCLUSION

The petition for a writ of certiorari should be granted.

Respectfully submitted.