Court limits claims of patent market power
on Mar 1, 2006 at 10:03 am
The Supreme Court ruled unanimously on Wednesday that a company does not automatically gain market power, for antitrust purposes, merely because it holds a patent on a product and ties to it the sales of another product that is not patented.. The challenger in such a situation, the Court said, must actually prove that the patent holder has market power in the tying product.
“Any conclusion that an arrangement is unlawful must be supported by proof of power in the relevant market rather than by a mere presumption thereof,” the Court said in the opinion written by Justice John Paul Stevens. The Court cast aside not only the notion that patent tie-ins are always illegal under the Sherman Act, but also the suggestion that there should be a rebuttable presumption that they are illegal.
“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,” Stevens wrote. “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.”
The ruling in Illinois Tool Works v. Independent Ink (04-1329) was the only decision of the day in an argued case. Justice Samuel A. Alito, Jr., did not join in the ruling, since it was argued before he joined the Court.
Stevens wrote that the Court’s strong disapproval in the past of tying arrangements, based on an assumption that they served no legitimate business purpose, has “substantially diminished” and has been replaced by requiring a showing of market power in the product that a customer may buy only if it agrees also to buy another.
A presumption that holding a patent gives a company market power, the opinion said, arose outside the antitrust context as part of the “patent misuse” doctrine that dates to a 1917 decision in Motion Picture Patents Co. v. Universal Film Mfg. Co. The connection has since eroded, and Congress has in fact eliminated the presumption of illegitimacy from the patent field. The Court on Wednesday moved to do so in the antitrust context.
The presumption that a patent confers market power as an antitrust doctrine originated in the Court’s 1947 ruling in International Salt Co. v. U.S. On Wednesday, the Court did not expressly overrule that decision, but it clearly abandoned it.
In the specific case before the Court, Independent Ink, Inc., had not offered any evidence to prove that Illinois Tool Works, Inc., had power within the market for a device used by manufacturers of printers for such things as bar codes or carton labeling. Illinois Tool Works had a patent on an ink-dispensing technology. Illinois Tool’s Trident system, involving a connection between printheads and single-use bottles containing printer ink, is patented. The license to use the patent bars anyone from refilling the ink bottles.
Ilinois Tool sued Independent Ink, claiming that Independent refilled empty ink bottles with its own ink, and thus violated its license to use the patented Trident system. Independent countered with a claim of an illegal tie-in under the Sherman Act, contending that Illiinois Tool’s patent on the Trident printhead system gave it market power, and that it had tied access to that system to purchases of Illinois Tool’s ink.
Independent won on that theory in the Federal Circuit, and Illinois Tool took the case on to the Supreme Court, challenging the assumption of market power through its hold on the Trident patent.
While ruling in Illinois Tool’s favor on that legal point, the Court gave Independent another chance, when the case returns to a lower court, to offer evidence to prove its claim of market power in the Trident system.
