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By its very nature, a patent grants its holder the right to exclude others from the market. But antitrust law seeks to curb the exploitation of such power. How should the tension between these well-established maxims of American law be reconciled? That is the question the U.S. Supreme Court will tackle in the upcoming fall term. In a 1962 decision, United States v. Loew’s, Inc., 371 U.S. 38, the Court held that a patent creates a presumption that its owner holds enough power over the marketplace to be guilty of illegal tying under �1 of the Sherman Act. A tying arrangement occurs when a seller conditions the purchase of one product with an obligation to purchase a second, tied, product. The 43-year-old precedent casts light on the inconsistencies that sometimes arise when two separate areas of law collide. “There has always been tension between antitrust and IP law,” said Theresa Gillis, an intellectual property partner at Jones Day’s New York office. “A patent gives you a right to exclude people, which by its definition is anti-competitive.” The Court precedent has faced growing criticism in recent years from bar groups and others who call it an anachronistic rule unfit for today’s fast-paced economy driven by technological change. The American Bar Association, for one, stated that “the market power presumption … is contrary to economic reality, derived from outdated doctrines … , and inadequate for sensible application to real cases.” In the case now under appeal, Illinois Tool Works v. Independent Ink, 396 F.3d 1342, the Court will review its precedent. FEDERAL CIRCUIT RULING Illinois Tool Works held a patent for a device used to print bar codes on cartons. Its contracts required purchasers of its printers to use the ink it manufactured exclusively. Unlike the printers, the ink was not patented. Independent Ink, a competitor manufacturing ink usable with Illinois Tool’s printers, sued, claiming these contracts amounted to a tying arrangement. The U.S. Court of Appeals for the Federal Circuit, in a February opinion by Judge Timothy Dyk, joined by Judges Raymond Clevenger III and Sharon Prost, held that “patent and copyright tying, unlike other tying cases, do not require an affirmative demonstration of market power.” Citing the Supreme Court’s Loew’s decision, the court ruled that the necessary market power to establish a violation of the law was presumed. THE IMPACT This presumption, although rebuttable, almost always acts as an insurmountable barrier, Gillis said, because it would be very costly and expensive to overcome this presumption during litigation. “Who has to go forward first [during a trial] is very important,” she said, referring to the burden of proof a patent holder would have to overcome if sued for anti-competitive tying. As a result, she said, “people have been steering clear of patent tying arrangements,” even if the patent holder lacks market power. “It’s very hard to rebut the presumption,” said Elai Katz, an antitrust partner at Cahill Gordon & Reindel. The process often involves costly economic analysis and expert fees and is normally heavily litigated, he said. One other problem, Gillis said, may arise when patent holders are involved in antitrust and intellectual property cases because of the inconsistencies these bodies of law pose. In a patent violation case, a patent holder will argue that it has strong market power to boost damage claims, Gillis said. In an antitrust suit, this litigation strategy means “you’ve argued against yourself,” Gillis said, in that a patent holder will try to show insufficient — rather than strong — market power. Although the two types of cases do not overlap perfectly, she said, such inconsistencies can leave a patent holder in an awkward position. THE CONTROVERSY The Federal Circuit acknowledged some of the criticisms lodged against the doctrine. The U.S. Supreme Court’s precedent, Judge Dyk acknowledged, “has been subject to heavy criticism” by academics and other circuits. Despite the justified criticism, the appellate panel explained that its hands were tied. “The fundamental error in all of defendants’ arguments is that they ignore the fact that it is the duty of a court of appeals to follow the precedents of the Supreme Court until the Court itself chooses to expressly overrule them,” Dyk wrote on behalf of the Federal Circuit panel. Many of these critics have asked the Court, which granted certiorari to hear the case, to do just that. The American Intellectual Property Law Association urged the Court to overturn the Federal Circuit in an amicus brief filed in May. “[T]he presumption that patents nearly always define a market unto themselves and provide sufficient power to raise prices or restrict output is not based on actual experience,” wrote the co-authors, association president William Rooklidge, and Patrick Coyne of Finnegan, Henderson, Farabow, Garrett & Dunner, based in Washington, D.C. The association, which includes 16,000 members, concluded that because “the presumption does not reflect market realities, the Court should reject it.” The American Bar Association, speaking on behalf of its antitrust and intellectual property units, which together hold 28,000 lawyers, also beseeched the Court to overturn the Federal Circuit. In an amicus brief filed in May, it wrote: “There is no basis in economic reality or legal policy for any presumption that the existence of a patent implies market power.” In other types of tying arrangements, a claimant must show that a defendant possesses substantial market power to win an antitrust claim, said John Harkrider of Axinn, Veltrop & Harkrider. Few if any groups have voiced an opposing opinion within the legal community. The Department of Justice and Federal Trade Commission jointly issued guidelines 10 years ago stating that the agencies would not presume market power from ownership of a patent or copyright, thereby also agreeing with the bar groups. The appellate courts in the 6th and 7th circuits have rejected the Federal Circuit’s interpretation of the 43-year-old precedent, but the Federal Circuit, as the main appellate body reviewing patent cases, is the most influential court on the topic. “The time may have come to abandon the doctrine,” Dyk wrote, “but it is up to … the Supreme Court to make this judgment.” In its next term, the Court will have the opportunity to do just that.

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