GCR Know-How – IP & Antitrust 2017 - USA

Author:Ms Jessica Delbaum, David Higbee and Timothy J. Haney
Profession:Shearman & Sterling LLP
  1. Applicable rules

    Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?

    Yes. While patents and copyrights provide their holders with certain rights that allow the holders to exclude others (including competitors) from exploiting their inventions, intellectual property rights do not provide blanket immunity from the antitrust laws. Depending on the conduct involved, one or more of the following US antitrust laws apply to patent, copyright, trademark and trade secret - intellectual property (IP) - rights:

    Section 1 of the Sherman Act (15 U.S.C. § 1) prohibits agreements between two or more parties that unreasonably restrain trade. Section 2 of the Sherman Act (15 U.S.C. § 2) prohibits monopolisation, attempted monopolisation and conspiracies to monopolise, all of which require proof of, among other things, exclusionary conduct to acquire, enhance or maintain monopoly power. Section 7 of the Clayton Act (15 U.S.C. § 18) prohibits transactions that may substantially lessen competition or tend to create a monopoly. Other sections of the Clayton Act prohibit, with respect to tangible goods/commodities, certain price discrimination (15 U.S.C. § 3, known as the Robinson Patman Act), exclusive dealing (15 U.S.C. § 14) and tying arrangements (15 U.S.C. § 14). Section 5 of the FTC Act (15 U.S.C. § 45) prohibits unfair methods of competition and unfair or deceptive acts or practices. Many states have antitrust statutes that are generally modelled on, and interpreted similarly to, the federal antitrust laws. The modern trend in US jurisprudence and by the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) is to apply the same antitrust analysis to conduct involving IP issues as to conduct that does not, recognising that IP and antitrust laws are both intended to encourage innovation and competition.

    The DOJ and FTC jointly issued Antitrust Guidelines for the Licensing of Intellectual Property in 1995 (IP Guidelines). In January 2017, the DOJ and FTC updated the IP Guidelines with only minor changes, including inserting updated case law and statutory references. The IP Guidelines and courts generally consider the licensing of IP to be pro-competitive and the reasonableness of most IP licensing arrangements is judged under the rule of reason. Under the rule of reason, a detailed analysis of the circumstances and effects of the restrictions is necessary to determine whether competition has been unreasonably restrained. This is in contrast to restraints that are per se illegal (ie, those that always, or almost always, tend to restrict competition, and as such are presumptively condemned).

    In addition to general exemptions and immunities to the US antitrust laws (eg, the Noerr-Pennington doctrine, which immunises certain joint petitioning of the government by competitors from liability under the antitrust laws) and the "safety zones" or safe harbours laid out in the IP Guidelines (discussed further in the answer to question 5), there are limited exemptions to the applicability of antitrust law in the IP context. Certain conduct is explicitly authorised by US IP laws and, provided the IP holder does not exceed the scope of that authorisation, the holder's conduct will not be found to violate the antitrust laws. For example, a patent holder may exclude others from exploiting his invention as long there is no illegal tying, fraud before the US Patent and Trademark Office (USPTO) or sham litigation. But exploiting the patent beyond what is authorised by the patent laws to restrain trade or monopolise may violate the antitrust laws.

    For further discussion of the applicability of antitrust laws to obtaining IP rights from the USPTO, see the answer to question 4. For further discussion of the applicability of antitrust laws to the grant, transfer or licence of IP rights to competitors or other licensees, see the answer to question 5. For further discussion of the applicability of antitrust laws to the unilateral exercise of IP rights, see the answer to question 7.

    For further discussion of the applicability of antitrust laws to the acquisition of IP rights (other than the initial grant from the USPTO), see the answers to questions 9 and 10.

  2. Competent authorities

    Which authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?

    The FTC and the DOJ have authority to enforce the federal antitrust laws. The DOJ has exclusive federal governmental authority over the Sherman Act (including the ability to bring criminal prosecutions), but through the FTC Act the FTC can challenge unfair methods of competition, including conduct that violates sections 1 and 2 of the Sherman Act. Both the DOJ and the FTC may enforce the Clayton Act. State attorneys general can also bring cases under federal antitrust law in their parens patriae capacity and under their respective state antitrust laws. Remedies available to the government for violations of the antitrust laws include injunctions, fines, disgorgement, the divestiture or licensing of IP rights, and rescission. In 2015, in connection with a reverse payment settlement lawsuit, the FTC obtained a US$1.2 billion disgorgement settlement from Cephalon. In another reverse payment case, the FTC sought disgorgement from Endo (but ultimately agreed to a stipulated order that involved injunctive relief only), and continues to seek disgorgement from Watson and Allergan.

    Private civil litigation also plays an important role in US antitrust enforcement (the Clayton Act creates a private right of action under the Sherman, Clayton and Robinson-Patman Acts). Notably, successful private litigants, who may include a certified plaintiff class, can recover treble damages.

    Defendants in patent infringement actions frequently raise antitrust counterclaims. Even where certain conduct involving patents does not violate the antitrust laws, it might constitute patent misuse, an affirmative defence to patent infringement. The misuse doctrine says that anticompetitive conduct by a patent holder precludes enforcement of the patent.

    The United States Court of Appeals for the Federal Circuit has exclusive jurisdiction over appeals from any US district court where the original action included a claim arising under the patent laws. Therefore, the Federal Circuit often hears patent cases involving antitrust counterclaims.

  3. Market definition

    How are markets involving intellectual property rights defined?

    Contemporary antitrust analysis defines product and geographic markets involving IP rights using the same principles that apply to other forms of property or services. That is, for product markets, courts and antitrust agencies look to the reasonable interchangeability of use and the cross-price elasticity of demand between a product, service, IP right and potential substitutes. Courts and agencies define geographic markets by looking at the willingness and ability of suppliers to serve customers and the willingness and ability of customers to acquire substitute products outside of certain geographic limits.

    Where possible, relevant markets tend to be assessed by reference to the goods or services affected by the licensing conduct at issue. When IP rights are marketed independently from goods or services or when IP rights involve only research and development (R&D) (referred to in the IP Guidelines as technology and R&D markets respectively; until the 2017 update, the IP Guidelines referred to R&D markets as innovation markets), market definition may depend on whether other IP rights exist that can be purchased or licensed to, for example, produce a similar end product or use a similar manufacturing technique.

    While IP rights by their nature confer on their holder the power to exclude, modern antitrust law and policy recognises that the existence of an IP right does not necessarily equate to a relevant antitrust market. (See the answer to question 6.) If an IP right is desirable enough and no alternatives exist for prospective purchasers or licensees, then the IP right itself may be its own relevant market. More often, however, very similar alternatives exist for prospective purchasers or licensees.

    The market definition analysis is the same whether assessing a stand-alone IP right, a group of complementary IP rights, or an IP right that has become essential to an industry standard.

  4. Acquisition and sale

    Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?

    While the mere accumulation of patents granted by the USPTO is not in and of itself illegal, there are situations in which the US antitrust laws may apply to the obtainment, grant and transfer, or assignment of IP rights.

    Procuring a patent from the USPTO through fraud may form the basis for liability under section 2 of the Sherman Act or section 5 of the FTC Act, and, less commonly, under section 1 of the Sherman Act. For example, in what is known as a Walker Process antitrust claim, a defendant may violate the antitrust laws by enforcing a patent fraudulently procured from the USPTO if:

    the defendant was aware of the fraud when it initiated the infringement action; the patent would not have been granted absent the fraud; there is a dangerous probability of the patentee obtaining monopoly power in a relevant market; and the plaintiff has antitrust standing and has suffered damages. See Walker Process Equipment v. Food Machinery & Chemical Corp, 382 U.S. 172, 174, 176-77 (1965). While successful Walker Process claims are rare, likely because wilful fraud is a high bar, the Federal Circuit recently upheld both a finding of antitrust liability (under section 2 of the Sherman Act) for a claim alleging fraud on the USPTO...

To continue reading