Issue 05/6 | February 11, 2005
CAFC Says Market Power Is Presumed in Patent Tying Antitrust Cases

Market power in the tying product is a required element of an antitrust action for violation of Section 1 of the Sherman Act. When a patent license is conditioned upon the licensee's purchasing of unpatented supplies for the patented machine or process, the patent owner's market power in the tying (i.e., patented) product will be presumed.

The CAFC has resolved a clear split of authority among the regional circuit courts of appeals in Sherman Act patent tying (Sec. 1) cases. Good, if old (1947 and 1962), Supreme Court precedent holds that in a tying case, when the tying product is patented (or copyrighted), market power is presumed. This situation arises often in cases where a patent license for a patented device or machine is conditioned upon the licensee's purchase of unpatented supplies for use with the device or machine. Despite some more recent (1984 and 1985) dicta in other Supreme Court cases, and heavy criticism of the presumption by the likes of economics heavyweights Phillip E. Areeda, Herbert Hovenkamp and Richard A. Posner, it remains the law. The Sixth and Seventh Circuits decided in the mid-1980s to not follow the Supreme Court precedent, and began to require proof by the plaintiff of market power in the tying product. The Ninth and Second Circuits have stayed the course and have applied the rebuttable presumption (though rebuttal is apparently very difficult), and the Eleventh Circuit has most recently indicated its view that the presumption is irrebuttable.

In the recent case Independent Ink, Inc. v. Illinois Tool Works, Inc., Appeal No. 04-1196, slip op. (Fed. Cir. Jan. 25, 2005), the CAFC first holds that this aspect of Sherman Act antitrust law is governed by Federal Circuit, not regional circuit, law (and implies in a footnote that the same may be true for Clayton Act Sec. 3 law as well). The CAFC then holds that the older Supreme Court precedent is still binding and good law, unless and until the Congress or the Supreme Court itself chooses to modify it. Thus, in every Sherman Act tying case where the tying product is patented (or copyrighted), the defendant's market power in the tying product is rebuttably presumed and the burden of proving ("by expert testimony or other credible economic evidence of the cross-elasticity of demand, the area of effective competition, or other evidence of lack of market power") that there is an absence of market power shifts to the defendant.

Patent licensors must take care to avoid conditioning patent licenses on the licensee's purchase of unpatented supplies or raw materials for use in the patented machine or process. Proof of market power in the tying product has been a substantial obstacle to success in Sherman Act (Sec. 1) patent tying cases in certain regions of the country. The presumption of market power will now be applied uniformly in all federal courts.

To discuss this decision or its implications further, please feel free to contact the author Peter Schechter, (pschechter@darbylaw.com), at Darby & Darby P.C. in New York, NY, USA.

The information contained in this email is provided for informational purposes only and does not represent legal advice. Neither the APLF nor the author intends to create an attorney client relationship by providing this information to you through this message.

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