Wednesday, January 26, 2005

CAFC delves into antitrust in Independent Ink v. Illinois Tool Works

In the case (2005 U.S. App. LEXIS 1205 ), Independent Ink, Inc. appealed from the judgment of the United States District Court for the Central District of California in a patent tying antitrust action. The CAFC held that a rebuttable presumption of market power arises from the possession of a patent over a tying product (here a printhead, with ink the tied product)

As to a Sherman Act section I claim, the CAFC found that once an antitrust plaintiff establishes the presence of a patent tying agreement, market power by the patentee-defendant is (rebuttably) presumed, and it is the burden of the patentee-defendant to rebut the presumption of the presence of market power and consequent illegality of the tying agreement.

In this case, because the patent holder did not present evidence rebutting the presumption of market power, a grant of summary judgment was reversed and the case remanded. The CAFC noted that if no adequate rebuttal evidence were presented, the antitrust plaintiff should be granted partial summary judgment as to the section 1 claim.

The patent in question was US 5,343,226 to Trident/Illinois Tool Works. An issue in the case was the tying of an unpatented product (ink) with the sale of a patented product (printhead covered by '226 patent).

The legal issue concerned Jefferson Parish, 466 US 2. The CAFC wrote the following:

The district court held that for patent tying to constitute a
violation of the antitrust laws, the plaintiff must affirmatively prove market power. Indep. Ink, 210 F. Supp. 2d at 1162. The district court, in a footnote, dismissed several Supreme Court cases holding to the contrary as "vintage." Id. at 1165 n.
10. Addressing the Supreme Court's more recent decision in Jefferson
Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 16, 80 L. Ed. 2d 2, 104 S. Ct. 1551 (1984), it declined to follow the rule announced by the majority in that case that "the sale or lease of a patented item on condition that the buyer make all his purchases of a separate tied product from the patentee is unlawful." Instead, relying on the concurring opinion in Jefferson Parish, the
dissent from a denial of certiorari by two members of the Jefferson Parish majority, n2 and academic criticisms of the presumption of market power, the district court dismissed the majority opinion of Jefferson Parish as dictum that should not be followed. Indep. Ink, 210 F. Supp. 2d at 1164-65. The district court found that
Independent submitted no affirmative evidence defining the relevant
market nor proving Trident's power within it, and therefore could not prevail in either antitrust claim. Id. at 1173-77.

Of "which law to follow (CA9 or CAFC)", the CAFC cited Nobelpharma, 141 F3d 1059, and used CAFC law. We have previously held that where an affirmative antitrust claim or antitrust misuse defense is based on "procuring or enforcing a patent," the central antitrust question is a matter governed by Federal Circuit law. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1067-68 (Fed. Cir. 1998) (en banc in relevant part). We conclude that the antitrust
consequences of patent tying likewise is a question governed by our
law. n3

The CAFC discussed International Salt.
The Court's treatment of tying cases when the tying product is
patented or copyrighted, however, has been more consistent. In the 1947 International Salt case, the defendant held patents over "machines for utilization of salt products." 332 U.S. at 394. It leased these machines on the condition that the
lessee purchase from the defendant "all unpatented salt and salt
tablets consumed in the leased machines." Id. The Supreme Court held that this arrangement violated the Sherman Act, holding that "the patents confer no right to restrain use of, or trade in, unpatented salt." Id. at 395-96.

Also, of market power, the CAFC said:
In United States v. Loew's, Inc., 371 U.S. 38, 9 L. Ed. 2d 11, 83 S. Ct. 97 (1962), relying on International Salt, the Court made clear that, where the tying product is patented or copyrighted, market power may be presumed rather than proven.

Footnote 7 stated: n7 It is noteworthy that Congress has declined to require a showing of market power for affirmative patent tying claims as opposed to patent misuse defenses
based on patent tying. Proof of actual market power is required to
establish a patent misuse defense based on patent tying. Act of Nov. 19, 1988, Pub. L. No .100-703, § 201, 102 Stat. 4674, 4676 (codified at 35 U.S.C. § 271(d)(5) (2000) ).

The patentee-defendant prevailed on the section 2 claim.


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