SUPREME COURT UNTIES HANDS OF PATENT OWNERS
by John Jackson

On March 1, 2006, the United States Supreme Court reversed decades of precedent in ruling that, when combined with a "tying" agreement, ownership of a patent does not create a presumption that the patent owner possesses "market power" to control a relevant market in violation of federal antitrust laws.  A "tying" agreement requires the purchaser of a patented product to also purchase another unpatented "tied" product. 

The case, Illinois Tool Works, Inc. v. Independent Ink, Inc., involved a tying agreement wherein patentee ITW sold printing systems containing three components, two of which were patented, and a third (specially formulated ink) that was unpatented.  ITW sold its printing systems to Original Equipment Manufacturers (OEMs) who in turn incorporated the patented and unpatented components into printers which it sold to customers for the purpose of printing bar codes on cartons.  Pursuant to the licensing agreement, the OEMs agreed that both they and their customers would buy replacement ink from ITW and from no one else. 

It is this latter aspect of the tying agreement that was the subject of Independent Ink's anti-trust claim.  Independent Ink had developed replacement ink (the non-patented part of ITW's printing systems) that was compatible with the printing systems manufactured by ITW, and Independent Ink wanted to sell the replacement ink to ITWs customers.  The tying agreement prevented that.

Under the federal antitrust statutes, principally the Sherman Act, a plaintiff asserting an antitrust claim must prove, among other things, that the defendant possesses "market power" to "control prices or exclude competition" in interstate commerce.  For decades leading up to the Illinois Tool Works decision, Courts had applied the presumption that ownership of a patent carries with it the presumption that the patentee enjoys power to control the market to which the patent is directed. 

Over time, however, that view changed.  The American Bar Association, federal agencies that police antitrust allegations, and economists advocated that the court abandon the presumption of market power, because the presumption is outdated, inhibits innovation and encourages pointless litigation.  With respect to the latter, it had become all too common for those accused of infringing patents to counterclaim that the patentee used illegal tying agreements prohibited by the anti-trust laws.  Such counterclaims were often meritless and the legal costs to fight them were often staggering.  The patentee's prospects of having to pay legal fees to contest the anti-trust claims, and the potential of losing the anti-trust battle and having to pay treble damages and attorney's fees, put the patentee under tremendous pressure to settle his claims.

In rejecting the presumption of market power, the Supreme Court commented that tying arrangements may serve legitimate purposes such as providing "uniquely advantageous deals" to customers. Such arrangements, then, may actually promote competition. The court concluded that henceforth, anti-trust plaintiffs will have to establish, without the benefit of a presumption, that "the defendant has market power in the tying product." 

Without the presumption of market power, owners of intellectual property rights have much greater ability now to tie or bundle their patented or copyrighted products with other goods and services.  On the other hand, small companies like Independent Ink now face a much greater challenge in asserting antitrust claims arising from tying agreements against bigger competitors.

If you have any questions about this article or need additional information, please do not hesitate to contact a member of our Intellectual Property Law Group.