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Should a patent be presumed to create market power? That question will be squarely before the U.S. Supreme Court in Illinois Tool Works Inc. v. Independent Ink Inc., No. 04-1329, cert. granted, 2005 WL 770269 (June 20, 2005). The legal issue in Independent Ink involves the criteria for finding an antitrust violation when a patent holder compels a party to take a product that it does not want in order to obtain a patented product that it does want. The coercive coupling is known as “tying.” Tying is only unlawful if the seller has sufficient market power in the market for the desired product (the patented product) to coerce the sale of the unpatented product (the tied product). REBUTTABLE PRESUMPTION OF MARKET POWER FROM PATENT In the decision being reviewed, the U.S. Court of Appeals for the Federal Circuit held that, in the case of tying, a rebuttable presumption of market power arises from the possession of a patent. Independent Ink Inc. v. Illinois Tool Works Inc., 396 F.3d 1342 (Fed. Cir. 2005). Although the court did not define the effect of this rebuttable presumption of market power, such presumptions do not constitute evidence. The effect of rebuttable presumptions ranges from an enhanced burden of proof to a mere shifting in the obligation to initially come forward with evidence as defined in Rule 301 of the Federal Rules of Evidence. As a result, the rebuttable presumption of market power appears to mean that an antitrust plaintiff does not need to offer evidence of market power unless the defendant patentee first offers sufficient evidence to rebut the presumption that market power exists. The Federal Circuit relied primarily on the 1947 Supreme Court opinion in International Salt Co. v. U.S., 332 U.S. 392, and the 1962 decision in U.S. v. Loew’s Inc., 371 U.S. 38, in deciding that Supreme Court precedents require a presumption that a patent confers market power. The Federal Circuit explained the Supreme Court’s directive as follows: “[T]he Court made clear that, where the tying product is patented or copyrighted, market power may be presumed rather than proven. Loew’s involved the tying of less popular films to popular copyrighted films by movie distributors in their licenses to television stations.” Even the majority opinion in the more recent Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984), suggested a presumption that a patent confers market power. Based on Jefferson Parish, the Federal Circuit further found that this presumption was rebuttable: “‘[I]f the Government has granted the seller a patent or similar monopoly over a product, it is fair to presume that the inability to buy the product elsewhere gives the seller market power.’ 466 U.S. at 16. … It would stretch the language of ‘fair to presume’ beyond the breaking point to say that such a presumption is irrebuttable.” As the Federal Circuit itself acknowledged in Independent Ink, much case law and academic literature is contrary to its decision, instead supporting the view that a presumption of market power from a patent makes no economic sense. The Federal Circuit felt, however, that it had to follow Supreme Court precedent establishing a legal presumption that market power is conveyed by a patent. The Federal Circuit’s holding undoubtedly makes it easier for a plaintiff to bring an antitrust action for tying. Under the Federal Circuit’s standard, a plaintiff would merely need to allege a tying arrangement, market power would be presumed, and no initial proof of market power would be required. The relative ease of pleading patent tying would likely lead to an increase in antitrust tying claims in patent litigation that probably would not be amenable to a motion to dismiss. The increase in such claims would in turn likely lead businesses to steer clear of tying arrangements, if for no other reason than to avoid the legal and expert fees needed to rebut such a claim. There may be debate over whether such a bias against tying would be good or bad, but it would almost certainly exist under the rebuttable-presumption standard. Petitioner Illinois Tool Works sought review of the Federal Circuit’s Independent Ink decision primarily on two grounds. First, it argued that the circuits were divided on the issue of whether market power can be presumed from the existence of intellectual property, such as a patent or copyright. Second, it argued that the Federal Circuit erred because such a presumption of market power was contrary to a strong and growing recognition by commentators, other courts and even sitting members of the Supreme Court that patents do not inherently give market power. The petitioner’s quest for review was further supported by amici filings by the American Bar Association, the American Intellectual Property Law Association, the Intellectual Property Owners Association and Pfizer Inc., all of which were resoundingly critical of the Federal Circuit’s decision. Additionally, a speech by then-Assistant Attorney General for Antitrust R. Hewitt Pate recognized that “there is still some debate in [the] courts” over the question presented in Independent Ink and indicated that a grant of certiorari would “provide a good opportunity to settle the question once and for all.” Competition and Intellectual Property in the U.S.: Licensing Freedom and the Limits of Antitrust (June 3, 2005). The Supreme Court has agreed to review the case. Regardless of whether the Federal Circuit’s rebuttable presumption is good or bad policy, the law will benefit from review. Not only is there a split among circuits, but dichotomies exist even within the Federal Circuit between the presumption of market power in an antitrust tying claim and the lack of such a presumption in a monopolization claim and a patent-misuse defense. Contrary to the decision by the Federal Circuit, several circuits have recognized that a “patent monopoly” is not necessarily a commercial monopoly of any relevant market. For example, the 6th Circuit in A.I. Root Co. v. Computer Dynamics Inc., 806 F.2d 673 (6th Cir. 1986), analyzed patent tying as follows: “[W]e find the pronouncement in Loew’s which states ‘[t]he requisite economic power is presumed when the tying product is patented or copyrighted’ to be overbroad and inapposite to the instant case. Accordingly, we reject any absolute presumption of market power for copyright or patented product.” The 7th Circuit has also mentioned in dicta that “not every patent confers market power.” USM Corp. v. SPS Technologies Inc., 694 F.2d 505 (7th Cir. 1982). Similarly, in the 5th Circuit, while acknowledging that a patent is “usually enough to create a presumption of market power,” district courts have held that a patent did not compel a finding of market power when the plaintiff failed to offer evidence that the patents actually did affect the market. See, e.g., Klo-Zik Co. v. General Motors Corp., 677 F. Supp. 499 (E.D. Texas 1987); Rockbit Indus. U.S.A. Inc. v. Baker Hughes Inc., 802 F. Supp. 1544 (S.D. Texas 1991). Moreover, the U.S. Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual Property, which set forth the government’s approach to enforcement of antitrust issues related to IP, state that DOJ and FTC would not presume market power arising from patents, copyrights or trade secrets, and note the lack of clarity in the law surrounding the presumption of market power. AFFIRMATIVE TYING ACTION VS. PATENT-MISUSE DEFENSE As noted above, even within the Federal Circuit there is a dichotomy between the antitrust cause of action for tying and the defense of patent misuse. The patent statute, 35 U.S.C. 271(d), requires a showing of market power for a patent-misuse defense based on tying — no presumption of market power exists for misuse. Under current Federal Circuit law, it would be easier to bring an antitrust claim for tying (with the possibility of treble damages) than it would be to assert a defense of patent misuse based on tying (which would merely render the patent unenforceable). Similarly, there is a dichotomy between the presumed market power from a patent in a tying claim and proof required for a monopolization claim. The Federal Circuit specifically commented in Independent Ink that the presumption of market power for tying does not apply to a monopolization case involving patents: “The patent tying cases do not create any presumption that market power over the tying product confers the degree of market power over the tied product necessary to establish a monopolization or attempted monopolization claim. … In �2 cases, the plaintiff bears the burden of defining the market and proving defendant’s power in that market.” The debate over whether a patent or other types of IP should be presumed to give market power has gone on for several decades. Commentators and courts alike have stated that it makes little sense to presume that a patent gives market power since the reality is that in the vast majority of circumstances no such market power exists. The Federal Circuit’s decision in Independent Ink stands in stark contrast to this trend. It seems likely that the Supreme Court will use its review of this decision to abolish the presumption and bring this area of law into accord with current economic thinking. At the very least, review of the Federal Circuit’s Independent Ink decision should bring much needed clarity to this area of the law. Janet L. McDavid and Bruce Chapman are partners at Washington’s Hogan & Hartson. McDavid is an antitrust lawyer and was formerly chair of the ABA Section of Antitrust Law. Chapman is a registered patent lawyer specializing in patent litigation.

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