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Federal antitrust enforcers and the Federal Trade Commission made clear last week they are unlikely to pursue antitrust claims against firms for refusing to license their patents to competitors. That decision and other conclusions provide new and far-reaching guidance for intellectual property and antitrust attorneys that federal antitrust prosecutors are willing to tread lightly on intellectual property owners when it comes to potential antitrust violations. The insights came in a 200-page report by the U.S. Department of Justice and Federal Trade Commission (FTC) describing how the agencies will marry antitrust enforcement and intellectual property rights on a range of topics. Among its conclusions: the report states for the first time the agencies’ views that allowing a patent holder to collect royalties beyond the life of the patent is potentially good for consumers, and it found no economic basis for the 40-year-old U.S. Supreme Court precedent barring such action, Brulotte v. Thys Co., 379 U.S. 29 (1964). That analysis may bolster future court arguments seeking to upset the Brulotte precedent, according to Stephen Smith, co-chairman of Morrison & Foerster’s antitrust practice group from its Washington office. Surprise on royalties Collection of royalties beyond the patent’s life was perhaps the most surprising conclusion, Smith said. “It is one topic they have not commented on and was somewhat controversial,” he said. Judge Richard Posner has called the Brulotte decision into question in a 7th U.S. Circuit Court of Appeals decision, he said. The Posner camp argues that a patent has only so much value and it may be better to spread that amount over a longer time in smaller payments, Smith said. The economic reasoning behind it holds that spreading out the royalties into smaller payments will benefit consumers by lowering prices. The pro- Brulotte people say extending payments is using market power to control a product longer, he said. The report, “Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition,” took five years to complete and involved 24 days of hearings and 300 commentators. It immediately began drawing attention at the annual American Bar Association conference of 2,400 antitrust lawyers last week. It also concludes that negotiation of licensing terms by standards-setting organizations prior to adoption of an industry standard is not per se an antitrust violation. The potential for per se antitrust violation has concerned businesses that meet to evaluate and choose technologies to become an industry standard. “Thematically, what comes across from the report is that the agencies are going to focus very hard on recognition that, with few exceptions, use of intellectual property agreements can and do have benefits for consumers and competition,” Smith said. 9th Circuit criticized In the refusal-to-license area, the report criticized a 9th Circuit decision that allowed for broader potential antitrust liability, Image Technical Services Inc. v. Eastman Kodak Co., 125 F.3d 1195 (1997). But it embraced a diverging view by the Federal Circuit, In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322 (2000), that narrowly construed antitrust in refusal-to-license settings. The report found that subjecting patentholders to antitrust liability for “mere unilateral, unconditional refusals” to license patents to competitors would “compel firms to reach out and affirmatively assist rivals.” That position “gives further grist for private litigation but it is not the law,” said Eugene Crew, an antitrust litigator for 40 years with Townsend and Townsend and Crew in San Francisco. “As a private antitrust lawyer, I am somewhat delighted the Justice Department and FTC are giving the green light for patent monopolists to refuse to license patents to eliminate competition in other markets outside the patent’s reach,” Crew said. He criticized the report’s analysis of the 9th Circuit’s Kodak case. “The Kodak case balanced the tension between the intellectual property and antitrust law,” he said. Kodak presumes a defendant’s refusal to deal with a competitor is legitimate under patent protection, but the court made it a rebuttable presumption, if the plaintiff can show it is an intentional act of monopoly power. FTC Chairwoman Deborah Platt Majoras said in a statement that the FTC and Justice Department would analyze the vast majority of conduct involving intellectual property using the flexible “rule of reason” approach that weighs the economic efficiencies of an activity against the anti-competitive effects it may create.

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