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Microsoft Corp.’s antitrust fight with the government may be grabbing all the headlines. But a small company’s battle with copier giant Xerox Corp. may be the case that has the wider impact on antitrust and intellectual property laws. In a little-noticed move, the U.S. Supreme Court earlier this year decided not to review a decision by the U.S. Court of Appeals for the Federal Circuit that essentially said IP rights trump antitrust restrictions. Though it’s likely the Supreme Court will take the issue up some day, justices let stand a ruling that is causing an uproar among legal scholars and antitrust specialists. Under the Federal Circuit decision, companies can essentially use their intellectual property for any purpose they want — even if it creates an anti-competitive situation. Some contend the decision gives patent and copyright holders unfettered power over those who need access to their technology. Conflicts between antitrust and IP are nothing new — but they’ve heated up in the past two years as the business community has fought harder to protect its intellectual property and the government has stepped up antitrust enforcement. “In the last two years there has been an explosion of different cases on a lot of fronts,” said Mark Lemley, a professor at theUniversity of California, Berkeley’s Boalt Hall School of Law. It’s been sparked by the growing importance of IP rights, which has “coincided with renewed vigor of antitrust enforcement, particularly in high tech.” Though they came out on the losing end of the Xerox case, antitrust lawyers hope the issue is still up in the air. Though they were surprised the Supreme Court let the Xerox ruling stand, they point to a competing opinion from the 9th U.S. Circuit Court of Appeals that said IP rights are not absolute when antitrust issues are at play. “Put simply, patents are all about monopolies, and antitrust is all about monopolies are bad,” said William Atkins, managing partner of Pillsbury Winthrop’s Northern Virginia office. An IP attorney sympathetic to the antitrust side of the debate, Atkins chairs the antitrust committee of the IP law section of the American Bar Association. “The two areas of law are so disparate that whenever they get together sparks fly. “Antitrust attorneys say it’s tying up the market and IP attorneys say ‘what’s the big deal? If you have patents you can sell to whoever you want,’ ” Atkins said. XEROX’S ARGUMENT In CSU v. Xerox Corp., 99-1323, the Federal Circuit ruled that Xerox could refuse to sell its parts to CSU, a copier service company, though refusing such sales may have been an attempt to create a monopoly in the market. “Xerox’s refusal to sell or license its copyrighted works was squarely within the rights granted by Congress to the copyright holder and did not constitute a violation of the antitrust laws,” the Federal Circuit panel wrote. Before rejecting the case, the Supreme Court sought advice from the U.S. Solicitor General’s office. It advised the court to let the issue percolate for a while despite the split in the circuit courts. The 9th Circuit ruled in a 1996 case, Image Technical Services Inc. v. Eastman Kodak Co., 125 F.3d 1195, that Kodak acted improperly by refusing to sell spare parts to competing service providers. “Xerox’s argument was purely legalistic, [relying on] a section of the patent act that says patentees don’t have an obligation to license their property,” said Richard Gilbert, a professor of economics at UC Berkeley and deputy assistant attorney general for economics in the Clinton administration. “But if you are using a patent in a way that’s anti-competitive, then in my opinion and that of a lot of economists, you shouldn’t be able to shelter activity just because it’s a patent.” Such antitrust issues should be handled on a case-by-case basis, Lemley contends, “but some fear the Federal Circuit ruling opens the door up to dismissing antitrust arguments out of hand.” That’s a radical change from the way the law has been interpreted, and it reflects the change in the playing field between IP and antitrust that has been developing in the past few years. NOTHING IS PERMANENT Yet history has shown that nothing’s permanent when it comes to the conflict between the two. “Sometimes there have been cases where the courts said IP is almost immune from antitrust,” said Gilbert. At other times “the pendulum has swung the other way.” In the 1930s, for example, General Electric was accused of setting prices for light bulbs through its licensing policies. The courts took a relatively permissive stance, Gilbert said. Then in the 1960s “there were a number of cases that took the opposite approach and one had to be careful about patent pools and licensing restrictions.” The pendulum swung back to less regulation in the 1980s, but during the Clinton era, the Justice Department took a harder line. In 1995, Gilbert authored federal antitrust guidelines for the licensing of intellectual property. The guidelines were intended to provide reasonable antitrust policies given the importance of IP to the economy. And for some, balancing IP’s growing clout with antitrust enforcement simply makes sense. “The more modern view is that they’re complementary and both encourage innovation and competition,” said Howard Morse, who chairs the IP committee of the ABA’s antitrust section. Nevertheless, the courts have been rife with high-stakes battles pitting IP against antitrust. In its antitrust suit against Microsoft, the Justice Department cited the company’s licensing restrictions as an example of anti-competitive behavior. Microsoft argued that as the copyright holder, it could impose requirements in the licensing of its Windows operating system to original equipment manufacturers. But the U.S. Court of Appeals for the D.C. Circuit dismissed that argument in its June 28 order. “The company claims an absolute and unfettered right to use its intellectual property as it wishes,” the court said. “That is no more correct than the proposition that use of one’s personal property, such as a baseball bat, cannot give rise to tort liability.” Microsoft eventually relented on the issue in the proposed settlement with the Justice Department. But in another seminal case, the Federal Circuit tossed antitrust claims against Intel Corp. that accused the company of withholding technical information to coerce a competitor into surrendering its intellectual property. “The big debate is whether intellectual property is so special or unique that it has rights different than other kinds of property,” said William Jaeger, a partner at Townsend and Townsend and Crew who represented computer manufacturer Intergraph Corp. in the battle against Intel. “It will get up to the Supreme Court one of these days. Unfortunately, it didn’t get there in my case.” DRUG COMPANY DEALS High tech isn’t the only industry embroiled in the conflict. The pharmaceutical industry has added a different twist to the debate over patent rights. Several companies have been accused of paying generic companies not to bring competing drugs to market, sparking several lawsuits, investigations by the Federal Trade Commission and new legislation. In one key case, Hoechst Marion Roussel was sued by 16 states — including California — and the District of Columbia for allegedly paying Andrx Corp. $100 million to delay marketing its generic version of the heart drug Cardizem CD. The case, In re Cardizem CD Antitrust Litigation, 99-1278, is pending in Michigan federal court. Hoechst’s case is one in a string of such suits that attempts to resolve whether brand-name drug manufacturers can pay to keep competitors off the market once patents expire. One of those cases is a class action against Bayer Ag and several generic drug makers alleging they conspired to keep generic versions of anthrax antibiotic Cipro from coming to market. The suit, Samole v. Bayer AG, 316349, is pending in San Francisco Superior Court. “It’s a new twist on an old theme,” said Jennifer Abrams, an associate at Berman DeValerio Pease Tabacco Burt & Pucillo. Abrams represents third-party payers in litigation against Hoechst, and her firm represents plaintiffs in the Bayer suit. “Antitrust involves in general a conspiracy between two parties to maintain or fix prices. This is a new method of doing that.” Some attorneys contend, however, that agreements between pharmaceutical and generic companies may be justified. “At its extreme, a payment to keep someone off the market is clearly inappropriate,” said Morse, a partner at Drinker Biddle & Reath’s Washington, D.C., office. But he said that in settling a patent dispute where it is unclear whether one party or the other will prevail, an agreement between the two “may be a legitimate compromise.” The wheeling and dealing among drug companies has attracted the attention of Congress to the antitrust vs. IP issue. Sen. Patrick Leahy, D-Vt., introduced legislation in April that would require brand name and generic drug companies to notify the Justice Department and the FTC about agreements between each other. Rep. Henry Waxman, D-Calif., who co-authored the 1984 law that granted generic companies a period of market exclusivity, introduced a companion bill in the House. But members of Congress also are concerned that antitrust enforcement may impede the rights of IP owners. The House Judiciary Subcommittee on Courts, the Internet and Intellectual Property is looking at whether the courts are giving patent and copyright holders too little power. At a hearing last week, the Intellectual Property Owners Association advocated legislation to abolish the assumption that IP holders automatically have “market power.” That means companies are using their intellectual property in an anti-competitive way. It affects “how you can license or market your technology,” said Herbert Wamsley, the association’s executive director. Wamsley takes a very different view of the conflict between IP and antitrust. He sees intellectual property rights under attack. “We’re concerned about the incipient stage of the erosion of intellectual property rights,” Wamsley said, “or antitrust enforcement at the expense of IP rights.”

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