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The sweeping charge that antitrust law is doctrinally ill-suited to the new economy was recently demolished in a speech by 7th U.S. Circuit Court of Appeals Judge Richard Posner, a leading antitrust scholar. It is undeniable, however, that the new economy poses significant antitrust challenges for the courts, agencies, lawyers, and clients. Increasingly, both intellectual property and scientific/technical issues pop up in antitrust disputes. In many cases, the very reasoning process that makes antitrust “supple enough, and � committ[ed] to economic rationality strong[ly] enough, to take in stride the competitive issues presented by the new economy” (to quote Judge Posner speaking at the Sept. 14 ALI-ABA conference) demands that antitrust examine IP questions closely. And the need to focus on such issues arises over and over again — in mergers, in standard-setting, in patent pooling, in licensing. Like antitrust disputes, IP questions, especially those involving patents, can raise complex technical matters — the architecture of a semiconductor, the design of software, the biology of tissue ablation, the insertion of genetic material into a cell, or the implementation of a digital compression standard, to take but a few examples. These are not areas of expertise for even above-average antitrust lawyers. So just as they learned in the late 1970s and early 1980s to work with economists and to bring them to meetings with agency staff, antitrust lawyers today are learning — some more rapidly than others — to work with patent attorneys and technical experts in framing positions and making arguments. At the same time, lawyers need to be cognizant of the enforcement agencies’ understandable reluctance to be forced to litigate a patent case within an antitrust case. Where possible, the agencies will want to frame the case to avoid taking the patent issues head-on. PATENT SURPRISE How did antitrust get to be like Russian nesting dolls that open up to reveal intellectual property inside? Perhaps the answer can most easily be found within the “Antitrust Guidelines for the Licensing of Intellectual Property,” written by the Department of Justice and the Federal Trade Commission. The heart of the 1995 guidelines — the part from which the most momentous consequences flow — has turned out to be the statement in Section 3.3 that “the Agencies ordinarily will treat a relationship between a licensor and its licensees, or between licensees, as horizontal when they would have been actual or likely potential competitors in a relevant market in the absence of the license.” To see what this means, consider the Summit Technology case settled by the FTC two years ago. Summit Technology and VISX were the only two companies legally able to market laser equipment to be used in the United States in a vision correction procedure known as photorefractive keratectomy, or PRK. According to the FTC’s August 1998 complaint, the two companies had placed their laser patents in a patent pool. Each time a laser produced by either one of the companies was used to perform PRK, a $250 licensing fee was passed on to the pool. Eventually, the proceeds were split between the two according to a predetermined formula. The result was that neither company had any incentive to turn around and charge a fee of less than $250 per procedure. Clearly, a key question that had to be answered was whether Summit and VISX “would have been actual or likely potential competitors in a relevant market in the absence of the license.” If, on the one hand, the two companies would have competed with each other absent the pool (or some other licensing arrangement), then the harm to competition engendered by the pool was as obvious as that of a price-fixing arrangement. On the other hand, if one or both company’s patents blocked the other’s products, then absent the pool, there would have been no competition to restrain. Thus, the scope and validity of the patents became central issues in the antitrust case: Were the patents valid? Did the patents of one read on the technology of the other? And how easy would it have been for a company blocked by the other’s patents to invent around those patents? INFRINGE OR MERGE Of course, finding a patent issue at the heart of an antitrust case is not limited to pooling arrangements. Recently, the DOJ considered two mergers that raised similar issues, but the outcomes were very different. In the first matter, the department challenged Miller Industries’ acquisition of Vulcan Equipment and Chevron, two of Miller’s three leading competitors in the design, manufacture, and sale of light-duty tow trucks and light-duty car carriers. The DOJ alleged, among other things, that Miller’s acquisition of Chevron eliminated an important competitor that was also a market innovator, as demonstrated by its having designed around a key Miller patent. But the question of whether Chevron had indeed designed around the Miller patent was the subject of infringement litigation between the parties (which became moot by virtue of the acquisition). Thus, part of the DOJ’s argument that Chevron was a viable competitor turned on the department’s conclusion — presumably with the assistance of patent lawyers or engineers, or both — that Miller’s infringement claim would have failed. (Miller and the DOJ agreed to a consent judgment on Feb. 17, 2000.) In contrast, the DOJ appears to have reached the opposite conclusion in permitting Gemstar Development’s acquisition of TV Guide this past summer. Gemstar and TV Guide were among the few competitors offering interactive electronic program guides (EPGs) to subscribers of cable and satellite television programming. Gemstar’s patent portfolio is especially broad, and its acquisition of TV Guide was part of a settlement of a patent infringement case against TV Guide. Given that subscribers to the TV Guide EPG totaled approximately 90 percent of all EPG subscribers and that subscribers to Gemstar’s EPG accounted for most of the rest of the market, the transaction between the two was virtually a merger to monopoly. Most remaining competitors or potential competitors were, at the time of the acquisition, defendants in other infringement suits filed by Gemstar — and many of them undoubtedly made their views about the acquisition known. Despite a lengthy DOJ review, the merger was not challenged. Although the precise reasons for this exercise of prosecutorial discretion have not been made public, one could fairly assume that the DOJ either concluded that TV Guide’s EPG infringed at least one claim of one valid Gemstar patent (and thus was not a viable competitor) or that the agency did not feel suitably equipped — in the context of a Section 7 case — to litigate issues of patent scope, validity, and enforceability. A lawyer who delves into these kinds of cases quickly finds that mastering the patent issues often requires mastering the technical issues. The Summit-VISX matter is a case in point. In the course of analyzing the Summit-VISX patent pool, the FTC found reason to believe that the one true blocking patent in the whole case was not only invalid (the issue at stake in the case), but procured by fraud or inequitable conduct in withholding prior art from the Patent and Trademark Office. Thus, after settling the pooling allegations, the FTC staff brought (but lost) a claim before an administrative law judge that VISX had violated Section 5 of the FTC Act by fraud under Walker Process (a 1965 Supreme Court decision) or inequitable conduct under American Cyanamid (a 1968 6th Circuit case). To litigate this claim required not just patent attorneys, but also ophthalmological and laser technology experts. Similarly, in evaluating the merger of Ciba-Geigy and Sandoz to form Novartis, the FTC staff delved deeply into the technological realm. The December 1996 “Analysis of Proposed Consent Order to Aid Public Comment” is replete with statements such as: The critical intellectual property rights for gene therapy held by Ciba/Chiron and Sandoz include a broad patent covering all ex vivo approaches used in gene therapy and the use of cytokines, a protein necessary for many ex vivo gene therapy applications that is used to increase the number of cells taken from a patient. The parties also have vital intellectual property rights in retroviral vectors, the only delivery vehicle for gene therapy that has been proven safe and relatively effective. One can well imagine the extensive discussions with scientists that went into such statements. Educating FTC or DOJ staff about the competitive relationship, or lack thereof, between parties in technology-rich industries is often akin to helping a judge construe patent claims in a Markman hearing. One may need to assist the agency in understanding relevant technology and essential principles of patent law. This may require employing both technical experts — to make accessible the otherwise foreign (to antitrust lawyers, at least) exercise of claim construction — and experts on patent law and PTO procedure — to educate agency staff about issues such as inequitable conduct, the doctrine of equivalents, and other possibly relevant issues. But increasingly, the agencies are showing up with their own experts. In the Gemstar merger review, for example, the DOJ retained a patent lawyer to assist in reviewing the relevant claim scope and, presumably, to help determine whether the claims of invalidity and inequitable conduct raised in the various pending cases had merit. STICK TO ANTITRUST At the same time, lawyers need to recognize that the agencies will want to avoid patent issues whenever reasonably possible. Consider the FTC’s March 2000 complaint against Hoechst Marion Roussel (now Aventis), a developer of new pharmaceuticals, and Andrx, a producer of generic drugs. The case challenges an agreement between Hoechst and Andrx, under which Hoechst would pay Andrx to refrain from selling a generic version of Hoechst’s branded drug pending the outcome of patent infringement litigation. Under the guidelines theory discussed earlier, we might argue that we can’t know whether any real competition between the two companies has been eliminated by the agreement unless we know the outcome of the patent suit. The FTC’s complaint avoided that issue, however, by challenging aspects of the agreement that allegedly were intended to keep noninfringing products off the market. This reluctance to evaluate an IP case within an antitrust case has also emerged in the DOJ’s review of patent pools pursuant to its “Business Review” procedure. One good example is the December 1998 letter issued to the first of two pools that licensed patents related to the manufacture of optical discs for the DVD-ROM and DVD-Video formats. As a condition of gaining Business Review clearance for their joint licensing of DVD patents, Philips, Sony, and Pioneer agreed to appoint an independent expert to review the patents proposed for inclusion in the pool. The expert’s task was to determine which of the proposed patents were truly “essential” — that is, which would unavoidably be infringed by the manufacture and sale of products that complied with standard DVD specifications. Although the DOJ was not prepared to trust the parties’ judgments on this issue, it was also not prepared to make these evaluations itself. Even today, few antitrust lawyers would seek to engage the enforcement agencies’ economists in a nuanced discussion of coefficients, “t” statistics, or adjusted R-squared values in a multiple regression analysis. Fewer still are equipped to expound on the significance of combining prior art references in discussing patent validity. Instead, antitrust lawyers representing clients in technology-rich industries should bring to the table those “technical resources” that Judge Posner observed are essential “to cope effectively with a very complex business sector that changes very rapidly.” Willard K. Tom and Scott A. Stempel are partners in the D.C. office of Morgan, Lewis & Bockius. From 1997 to 2000, Tom was deputy director of the Federal Trade Commission’s Bureau of Competition. Prior to joining the FTC, he was counselor to the assistant attorney general in charge of the Justice Department’s Antitrust Division, where he was a principal author of the DOJ-FTC “Antitrust Guidelines for the Licensing of Intellectual Property.” Stempel has guided numerous antitrust clients through the agency process, including in two matters discussed in this article.

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