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Publication

May 11, 2007Client Alert

Federal Agencies Address Impact of Antitrust Law on Intellectual Property Rights

The United States Department of Justice (DOJ) and the Federal Trade Commission (FTC) recently released a long-awaited joint report designed to advise businesses, owners of intellectual property rights, and others, of the agencies’ approach to the interface between antitrust law and intellectual property rights. The April 2007 report, titled “Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition,” follows twenty-four days of hearings over a period of 10 months, and testimony from more than 300 witnesses in the areas of biotechnology, computer software, the pharmaceutical industry, intellectual property and antitrust laws, and economics.

The Report addresses a variety of topics including refusals to grant patent licenses, collaborative standard-setting activity, patent pooling, tying and bundling of intellectual property rights, and patent-extending strategies through the exercise of market power.

In general, the Report suggests that most antitrust issues involving intellectual property rights will be analyzed under the “rule of reason,” which is a flexible approach that allows courts and regulators to consider the economic efficiencies and benefits of particular activity as well as any adverse anticompetitive effects that may result. According to the Report, this approach reflects a recognition that intellectual property law and antitrust law share the common goals of enhancing consumer welfare and promoting innovation. As stated in the Report, “Modern understanding of these two disciplines is that intellectual property and antitrust laws work in tandem to bring new and better technologies, products, and services to consumers at lower prices."

Specific conclusions in the report include the following:

  • Unilateral, unconditional refusals to license patents should not result in antitrust liability.
  • Conditional refusals to license patents will be subject to antitrust scrutiny if significant harm to competition results.
  • Members of standard-setting organizations who engage in joint negotiation of licensing terms, before a standard is set, will generally not be committing a per se violation of the federal Sherman Act. Instead, the agencies will likely apply the “rule of reason” analysis to evaluate the joint activity.
  • The competitive effects of cross-licenses and patent pools will be evaluated under the rule of reason framework articulated in the 1995 Antitrust-IP Guidelines.
  • Combining complementary patents within a pool is generally procompetitive.
  • The agencies will continue to analyze intellectual property “tying” and “bundling” arrangements under the 1995 Antitrust-IP Guidelines, which allows them to consider both anticompetitive effects and efficiencies.
  • Intellectual property licensing agreements, including non-assertion clauses, grantbacks, and reach-through royalty agreements, will generally be analyzed under the rule of reason.
  • Practices that extend beyond a patent’s expiration date will be evaluated under the agencies’ traditional rule of reason framework, unless the agencies find a particular practice to be a sham cover for naked price fixing or market allocation. Under the rule of reason, these practices will not generally be considered illegal unless the patent holder has obtained significant market power.
     
  • In some circumstances, collecting royalties beyond a patent’s statutory term should be allowed as it may permit licensees to pay lower royalty rates over a longer period of time and allow the patent holder to receive the full value of the technology which, in turn, should create incentives to develop new technology.

The full Report is available at http://www.usdoj.gov/atr/public/hearings/ip/222655.pdf.

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