Antitrust Update

consent_decree.html (last visited Nov. 7, 2010) [hereinafter MasterCard The Patent Misuse Defense and Statement]. Antitrust Violations: 25 See Visa Statement; MasterCard Statement. The Implications of Princo Corp. v.

26 See Visa Statement. International Trade Commission and U.S.

27 American Express Discussion of Philips Corp. Department of Justice Lawsuit By Charan Sandhu and Ausra Pumputis – Conference Call, at 2 (Oct. 4, 2010) available at http://about. americanexpress.com/news/ The Federal Circuit, sitting en of the patent power to impose docs/2010x/AXP-Transcript-2010- banc, has narrowed the scope over-broad conditions on the use 10-04T20_15.pdf (Ed Gilligan, Vice of the patent misuse defense. of the patent in suit that are not Chairman, American Express: “Let In Princo Corp. v. International within the reach of the monopoly me start by saying that we have Trade Commission and U.S. granted by the Government.”6 This no intention of settling this case.”) Philips Corp.,1 the Court was “patent leverage” test requires a [hereinafter American Express presented with the question of connection between the patent Statement]. whether an agreement between right and the misconduct in 28 Competitive Impact Statement, at 14, two collaborators to suppress question “such that the patent No. 1:10-cv-04496-NGG-CLP (E.D.N.Y. a competitive technology could in suit must itself significantly filed on Oct. 4, 2010). constitute patent misuse and thus contribute to the practice under 29 Press Release, Justice Department render their patent unenforceable attack. Patent misuse will not be Sues American Express, MasterCard during the period of misuse. found when there is ‘no connection’ and Visa to Eliminate Rules Restricting “Recognizing the narrow scope of between the patent right and the Price Competition; Reaches the [patent misuse] doctrine,”2 the misconduct in question... or no Settlement With Visa and MasterCard, Court found that the agreement ‘use’ of the patent.”7 at 2 (Oct. 4, 2010), available at http:// did not constitute patent misuse www.justice.gov/atr/public/press_ – a decision which, in the view of In Princo, the Federal Circuit releases/2010/262867.htm (last the dissent, “emasculate[d] the addressed the following question: visited Nov. 8, 2010) (“Until American doctrine so that it will not provide “When a patentee offers to license Express’s restraints on merchants a meaningful obstacle to patent a patent, does the patentee misuse are lifted, the many merchants that 3 that patent by inducing a third accept American Express, as well enforcement.” party not to license its separate, as Visa and MasterCard, will not be Patent misuse is a long-recognized 8 able to take full advantage of their competitive technology?” judicially created equitable The Court found that there new options under the proposed defense to an action of patent settlement....”). was no patent misuse in the infringement. The controlling circumstances of this case. 30 American Express Statement, at 3-4 inquiry is whether the patentee & 18-19. See also Visa U.S.A. Inc., “impermissibly broadened the Chief Judge Rader and Judges 344 F.3d at 240 (affirming the district ‘physical or temporal’ scope of the Newman, Lourie, Linn and Moore, court’s findings of market power by patent grant with anticompetitive concluded that the required Visa and MasterCard and noting that effect.”4 If a patent owner is found connection was missing between American Express only accounted for to have misused a patent, the the patents asserted against Princo 20% of the dollar volume of credit and charge card transactions in 1999). patent is unenforceable until such and the alleged misconduct. The Interestingly, Discover, the other major time as the misuse is corrected majority further concluded that 5 payment card network, was not sued or “purged.” The Federal Circuit Princo failed to carry its burden by DOJ for any merchant restraints in Princo explained that “what of demonstrating an “actual it imposes, presumably because of patent misuse is about, in short, adverse effect on competition in its smaller market share. See Compl. is patent leverage, i.e., the use the marketplace”9 because it did ¶ 66.

31 American Express Statement, at This article, in slightly different form, first appeared in part in the November 3 & 14. 2010 issue of The Intellectual Property Strategist.

Weil, Gotshal & Manges LLP Winter 2011 9 Antitrust Update

not show that the suppressed patent (which arguably read on because a patentee engages in technology had technical or part of the Raaymakers patent). some kind of wrongful commercial commercial prospects.10 Given The package licenses contained conduct, even conduct that may the Federal Circuit’s exclusive field-of-use limitations limiting the have anticompetitive effects.”13 appellate jurisdiction over patent use of all the patents to Orange Proof of an antitrust violation infringement cases, the decision Book-compliant disc production. does not even establish misuse of will likely serve to limit the the patent “unless the conduct in availability of misuse as a defense question restricts the use of that in such cases and have an impact Patent misuse is patent... outside the otherwise on patent licensing practices going not a defense to all broad scope of the patent grant.”14 forward. wrongful commercial The majority stressed that the conduct, even if there alleged misuse must be of the Background patent in suit, and as the patents in are anticompetitive suit are the Raaymakers patents, US Philips Corporation (“Philips”) effects. and Sony Corporation (“Sony”) not the allegedly suppressed collaboratively developed CD-R Lagadec patent, the alleged and CD-RW technology, which Princo Corporation (“Princo”), a misuse was not of the patent in allowed the public to create licensee, stopped paying licensing suit.15 Therefore, the alleged patent discs readable by CD players fees but continued to try to import misuse “is not patent misuse or CD-ROM drives. During the the patented CD-Rs and CD-RWs under any court’s definition of the course of development, the into the US, thus prompting Philips, term.”16 The Court rejected Princo’s companies encountered the the patent pool administrator, argument that Phillips’s use of problem of encoding “position to file suit with the International proceeds from the Raaymakers information” in writable discs. Trade Commission (“ITC”). licensing program to fund The engineers of both companies Although the administrative law royalty payments that allegedly tackled the problem, resulting in judge determined that Princo had induced Sony to enter into the two proposed solutions. Sony’s infringed claims of the six patents alleged agreement to suppress digital solution was set forth in its Philips asserted, relief was denied the Lagadec patent constituted “Lagadec patent,” while Philips’ because patent misuse rendered leveraging of the Raaymakers analog solution was set forth in the patents unenforceable. The patents.17 The Court explained that its “Raaymakers patents.” The next six years of subsequent because such use of funds does engineers of both companies proceedings at the ITC and not place any conditions on the reviewed the proposed solutions Federal Circuit leading up to the availability of Phillips’ patents to and agreed to use the Raaymakers Federal Circuit’s en banc review any potential licensees, it is not the solution which “was simple and centered on Princo’s patent misuse power of Philips’ patent right that is worked well” in comparison to defenses, including assertions that being misused. the Lagadec solution which “was Philips foreclosed competition prone to error and would have from an alternative standard built The Court further supported its been very difficult to implement.”11 around the Lagadec patent by “recogni[tion of] the narrow scope Thus, the Raaymakers approach including the Lagadec patent in of the doctrine” by arguing that was incorporated in the “Orange the patent pool and thus securing “Congress enacted section 271(d) Book” which codified the industry Sony’s adherence to the Orange [of the Patent Act] not to broaden standards for recordable CD-R and Book standard.12 the doctrine of misuse, but to cabin CD-RW technology. it.”18 Section 271(d) exempted five Federal Circuit categories of conduct (none of Philips and Sony, along with en banc Decision which were applicable in the case several other patent holders, at hand) from the patent misuse created a patent pool to license After reviewing the history of doctrine. patents that were essential to patent misuse law, the Court manufacture CD-R/RW discs in explained that the defense of The Court went on to discuss accordance with the Orange Book patent misuse is “not available that Princo failed to show the standards, including the Lagadec to a presumptive infringer simply requisite actual or prospective

Weil, Gotshal & Manges LLP Winter 2011 10 Antitrust Update

anticompetitive effects of doctrine. Arguing for a vigorous this position, the dissent cited the agreement as Princo misuse defense that would to the FTC’s amicus brief27 that did not provide evidence of include antitrust violations, argued that Princo did not have to the commercial viability of the dissent cited Illinois Tool prove commercial viability of the the Lagadec technology.19 Works for the proposition that Lagadec technology as “such a When examining whether a “it would be absurd... to provide showing is not an essential step in certain business practice is that the use of a patent that establishing that the [defendants’] anticompetitive, courts must merited punishment as a felony attempt to thwart its achievement evaluate whether the practice is an [under antitrust laws] would not was an unreasonable restraint of unreasonable restraint on trade. constitute misuse.”21 According trade.” (quoting FTC v. Ind. Fed’n of Some business practices, such as to the dissent, the majority’s Dentists).28 price-fixing, are considered “naked holding in effect protects restraints” and so inherently anticompetitive agreements that The dissent anticompetitive and lacking in suppress alternative technologies any redeeming virtue that they for the purpose of insulating a argued that the are conclusively presumed to be technology from competition.22 holding protects automatically illegal, or per se The dissent disagreed with the anticompetitive illegal. However, most business majority’s assessment that the agreements that practices can have procompetitive agreements to suppress the suppress alternative effects and are thus evaluated Lagadec technology were separate technologies. under a reasonableness standard, or collateral agreements as, in referred to as rule of reason, its view, the agreements were which requires an examination part and parcel of the same The dissent and the FTC both of a restraint’s actual effect on conduct designed to protect the appeared to focus more on an competition. Under a rule of reason Raaymakers patents.23 analysis of Philips’ and Sony’s analysis, the plaintiff has the conduct under the antitrust laws, The dissent’s view on the burden of showing anticompetitive while the majority viewed the case appropriate evidentiary burden effects in the relevant market. as more narrowly implicating the also departed from the majority’s The burden is shifted if the misuse defense strategy apart position that required Princo to practice is inherently suspect from the antitrust laws. with questionable procompetitive show anticompetitive effects. The dissent argued that as the effects. These practices Implications of Princo warrant an abbreviated “quick agreement between Sony and look” analysis of the business Philips was inherently suspect, The availability of patent misuse justifications for the restraint, it should be subject to a “quick as a defense in patent litigation placing the evidentiary burden on look” analysis which does not may be substantially constrained the defendant. require proof of actual competitive as a result of this decision. Motions effects.24 To support its position, to strike the defense may become The Court highlighted the the dissent cited American more common as infringement procompetitive effects of research Needle, a recent Supreme plaintiffs seek to avoid the joint ventures and standard setting Court decision which explains diversion and discovery involved in support of its use of the rule that anticompetitive ancillary in litigating a misuse defense. of reason analysis rather than a restraints of joint ventures are not The required finding that the “quick look” analysis which would justified simply because they are “patent leveraging” be such that have presumed competitive harm part of a joint venture that has it has an actual adverse effect on and thus shifted the burden to some procompetitive effects.25 competition in the marketplace Philips to show the justifications The dissent also criticized the and of “commercial viability” (of for the agreement.20 commercial viability test used any suppressed competition) may The dissent sharply criticized by the majority as a test that be difficult to prove in cases of the majority’s interpretation has no support in case law or nascent or developing technologies of the scope of the misuse antitrust policy.26 In support of where the required evidence may

Weil, Gotshal & Manges LLP Winter 2011 11 Antitrust Update

not yet be present. From a patent 6 Id. at 1331. 16 Id. at 1333. licensing perspective, although 7 Id. 17 Id. at 1332. the decision is obviously helpful in avoiding patent misuse claims, 8 Id. at 1331. 18 Id. at 1329-1330. patent owners should still be 9 Id. at 1338. 19 Id. at 1338-1339. mindful of potential antitrust claims and be cautious in entering 10 Id. at 1338-1339. 20 Id. at 1335. into any agreement that reduces 11 Id. at 1322. 21 Id. at 1341 (citing Illinois Tool Works actual or potential competition Inc. v. Indep. Ink, Inc., 547 U.S. 28, 42 12 Princo Corp. v. Int’l Trade Comm’n, 563 without careful review of the facts (2006)). and circumstances. F.3d 1301 (Fed. Cir. 2009) (rejecting patent misuse defenses based on 22 Id. at 1350. “tying” and improper imposition of 1 Princo Corp. v. Int’l Trade Comm’n, 616 23 Id. at 1348-1349. royalty on products which do not F.3d 1318 (Fed. Cir. Aug. 30, 2010). use the teaching of the patent, but 24 Id. at 1353-1354. 2 Id. at 1329. remanding on issue of “whether an 25 130 S. Ct. 2201 (2010). agreement that would prevent the 3 Id. at 1342. development of alternatives would 26 Id. at 1353-1354. 4 Princo, 616 F.3d at 1328 (citing constitute misuse”). 27 Id. at 1356. Windsurfing Int’l, Inc. v. AMF, Inc., 782 13 Id. at 1329. F.2d 995, 1001 (Fed. Cir. 1986)). 28 En Banc Br. of Amicus Fed. Trade 5 Morton Salt Co. v. G.S. Suppiger Co., 14 Id. at 1329. Comm’n at 23. 314 U.S. 493 (1942). 15 See id. at 1329, 1331. 29 476 U.S. 447, 461 (1986)

Recent Cases Caution Companies That Employment Practices May Be Scrutinized Under the Antitrust Laws By Caitlin Somerman

Introduction courts. Three recent cases provide that prevented them from soliciting cautionary tales not to give in to each other’s employees through Antitrust enforcement tends to such temptation.1 a process referred to as “cold focus on markets for goods and calling” restrained competition services, but three recent cases United States v. Adobe in labor markets in violation of remind us that the antitrust laws Systems, Inc. et al. also apply with equal force to Section 1 of the Sherman Act. labor markets. In markets where On September 24, 2010, in United On the same day, the DOJ filed a employees with specialized States v. Adobe Systems, Inc. et proposed final judgment with the skills are in high demand but al.,2 the Antitrust Division of the six companies which, if approved short supply, companies (buyers Department of Justice (“DOJ”) by the court, will prevent the of labor) may be tempted to sued six prominent high-tech companies from entering into or fix the terms and conditions of companies, Adobe Systems, Inc. enforcing any anticompetitive “no- employment of its labor force. (“Adobe”), Apple Inc. (“Apple”), solicitation” agreements.3 Although By conspiring to lower the price Google Inc. (“Google”), Intel Corp. the DOJ acknowledged that certain of labor, firms technically enter (“Intel”), Intuit, Inc. (“Intuit”), and narrowly tailored restraints on into a collusive monopsony, which Pixar (“Pixar”), alleging that the hiring would be subject to the may be found per se illegal by the companies’ bilateral agreements rule of reason, the proposed final

Weil, Gotshal & Manges LLP Winter 2011 12