Supreme Court Vacates in Patent Tying Antitrust Case
March 1, 2006. The Supreme Court issued its opinion [20 pages in PDF] in Illinois Tool Works v. Independent Ink, a patent tying antitrust case in which the Court vacated the judgment of the U.S. Court of Appeals (FedCir) and remanded.
The Court of Appeals held in January of 2005 that "a rebuttable presumption of market power arises from the possession of a patent over a tying product". The Supreme Court concluded that "Congress, the antitrust enforcement agencies, and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee. Today, we reach the same conclusion, and therefore hold that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product."
Background. Trident, Inc., a subsidiary of Illinois Tool Works, holds U.S. Patent No. 5,343,226, which pertains to ink jet printer technology. Trident also makes ink. Moreover, its standard form licensing agreement allowing the OEMs to use its patented product requires the OEMs to purchase their ink for Trident systems exclusively from Trident.
The Supreme Court summarized the arrangement. The petitioners, Trident and Illinois Tool Works, "manufacture and market printing systems that include three relevant components: (1) a patented piezoelectric impulse ink jet printhead; (2) a patented ink container, consisting of a bottle and valved cap, which attaches to the printhead; and (3) specially designed, but unpatented, ink. Petitioners sell their systems to original equipment manufacturers (OEMs) who are licensed to incorporate the printheads and containers into printers that are in turn sold to companies for use in printing barcodes on cartons and packaging materials. The OEMs agree that they will purchase their ink exclusively from petitioners, and that neither they nor their customers will refill the patented containers with ink of any kind."
Independent Ink also makes ink with the same chemical composition, and competes with Trident.
Proceedings Below. Independent Ink filed a complaint in U.S. District Court (CDCal) against Trident and Illinois Tool Works. It sought a declaratory judgment of non-infringement and invalidity against Trident's patents. It also alleged that Trident was engaged in illegal tying and monopolization in violation of sections 1 and 2 of the Sherman Act, which are codified at 15 U.S.C. § 1 and § 2.
The District Court granted summary judgment in favor of Trident on both claims. The District Court held that for patent tying to constitute a violation of the antitrust laws, the plaintiff must affirmatively prove market power.
The U.S. Court of Appeals (FedCir) issued its opinion [PDF] on January 25, 2005, reversing the District Court. The Court of Appeals opinion is also reported at 396 F.3d 1342.
It held that "a rebuttable presumption of market power arises from the possession of a patent over a tying product". It further wrote that "Because no rebuttal evidence was submitted by the patent holder, we reverse the grant of summary judgment on the Sherman Act section 1 claim and remand for further proceedings. As to Independent’s Sherman Act section 2 claim, we affirm the district court’s grant of summary judgment."
Opinion of the Supreme Court. The Supreme Court noted that in 1988 the Congress amended the Patent Act to eliminate the market power presumption in patent misuse cases. Hence, it wrote that the "question presented to us today is whether the presumption of market power in a patented product should survive as a matter of antitrust law despite its demise in patent law". It concluded that "the mere fact that a tying product is patented does not support such a presumption".
Much of the Supreme Court's opinion is a review of the over 100 year history of the Courts' analysis of tying arrangements in the course of patent infringement litigation. The Supreme Court noted that "Over the years, however, this Court’s strong disapproval of tying arrangements has substantially diminished. Rather than relying on assumptions, in its more recent opinions the Court has required a showing of market power in the tying product."
The Supreme Court concluded that "tying arrangements involving patented products should be evaluated under the standards applied in cases like Fortner II and Jefferson Parish rather than under the per se rule applied in Morton Salt and Loew’s. While some such arrangements are still unlawful, such as those that are the product of a true monopoly or a marketwide conspiracy, ... that conclusion must be supported by proof of power in the relevant market rather than by a mere presumption thereof."
See, United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610 (1977); Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U. S. 2 (1984); Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488 (1942); and United States v. Loew's Inc., 371 U. S. 38 (1962).
The Supreme Court also rejected Independent Ink's (respondent) argument that there should be a rebuttable presumption that patentees possess market power when they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively from the patentee. Also, it rejected the argument that the Courts should "differentiate between tying arrangements involving the simultaneous purchase of two products that are arguably two components of a single product -- such as the provision of surgical services and anesthesiology in the same operation, ... or the licensing of one copyrighted film on condition that the licensee take a package of several films in the same transaction, ... and a tying arrangement involving the purchase of unpatented goods over a period of time, a so-called ``requirements tie.´´"
The Supreme Court reasoned that "Many tying arrangements, even those involving patents and requirements ties, are fully consistent with a free, competitive market. For this reason, we reject both respondent’s proposed rebuttable presumption and their narrower alternative."
Finally, the Supreme Court vacated and remanded, rather than reversed. It explained that Independent Ink (respondent) "reasonably relied on our prior opinions in moving for summary judgment without offering evidence defining the relevant market or proving that petitioners possess power within it. When the case returns to the District Court, respondent should therefore be given a fair opportunity to develop and introduce evidence on that issue, as well as any other issues that are relevant to its remaining §1 claims. Accordingly, the judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion."
See also, Supreme Court docket. This case is Illinois Tool Work, Inc. v. Independent Ink, Inc., Sup. Ct. No. 04-1329, a petition for writ of certiorari to the U.S. Court of Appeals for the Federal Circuit, App. Ct. No. 04-1196. The Court of Appeals heard an appeal from the U.S. District Court for the Central District of California, Judge Cormac Carney presiding.
Justice John Paul Stevens wrote the unanimous opinion of the Supreme Court. Justice Sam Alito, who just joined the Court, did not participate.
Illinois Tool Works was represented by Andrew Pincus of the Washington DC office of the law firm of Mayer Brown Rowe & Maw. Independent Ink was represented by Edward O'Connor of the law firm of O'Connor Christensen & McLaughlin, and Kathleen Sullivan of Stanford law school.
The Federal Trade Commission (FTC) and the Department of Justice's (DOJ) Antitrust Division filed a joint amicus curiae brief [41 pages in PDF], on the merits, urging reversal
A collection of leading trade groups that represent copyright industries, including the Motion Picture Association of America (MPAA), Recording Industry Association of America (RIAA), Business Software Alliance (BSA), Entertainment Software Association (ESA), Association of American Publishers (AAP), and others, filed an amicus brief [40 pages in PDF], on the merits, in which they urge the Supreme Court to "decline to presume that antitrust market power arises from the mere ownership of intellectual property rights, whether patents or copyrights."
See also, amicus brief [PDF] of the American Intellectual Property Law Association (AIPLA).
And see, story
titled "Supreme Court Grants Certiorari in Patent Tying Antitrust
Case" in TLJ Daily E-Mail Alert No.
1,158, June 21, 2005.