Developments in Antitrust Law That Impact Intellectual Property Licensing Transactions

By Nelson, James D.; Pond, Victoria M. | Defense Counsel Journal, July 2011 | Go to article overview

Developments in Antitrust Law That Impact Intellectual Property Licensing Transactions


Nelson, James D., Pond, Victoria M., Defense Counsel Journal


INTELLECTUAL property law has always been in tension with antitrust law. Intellectual property law protects monopolies; antitrust law disfavors them. Since the early years of the Sherman Act, the pendulum of antitrust law has swung back and forth between treating patentees leniently and disfavoring them. In the early years under the Sherman Act, a patent was essentially a "get out of jail free card" as far as the Sherman Act was concerned; patent licensees openly leveraged their rights to evade antitrust restrictions. Then courts overcorrected and began to treat all patent holders with suspicion. That suspicion lasted from 1912 to at least the 1960s. During those decades, the law presumed every patentee enjoys market power, rendering a whole laundry list of license uses per se illegal.

Now the pendulum has swung back in favor of owners of intellectual property. Today, antitrust laws have relaxed considerably. In fact, there is even some question as to whether classic patent tying arrangements are still actually (not just technically) per se illegal. Federal courts, the Department of Justice, and the Federal Trade Commission now take a gentler, more nuanced approach to determining whether any particular intellectual property license triggers antitrust concerns.

This paper will provide a brief history of the tension between antitrust law and intellectual property law. It will then discuss how courts today treat a variety of intellectual property licenses.

1. A Brief History

There have been three major periods in the development of the relationship between antitrust law and intellectual property law. In the first period, lasting for the first two decades following the passage of the Sherman Act, patent holders who wanted to license their rights enjoyed virtual immunity from the antitrust laws. In Bement v. National Harrow Co., the Supreme Court stated "the general rule" of absolute freedom in the use or sale of rights under the patent laws of the United States. The very object of these laws is monopoly, and the rule is, with few exceptions, that any conditions which are not in their very nature illegal with regard to this kind of property, imposed by the patentee and agreed to by the licensee for the right to manufacture or use or sell the article, will be upheld by the courts. The fact that the conditions in the contracts" keep up the monopoly or fix prices does not render them illegal. (1)

In short, patents were the Sherman Act's kryptonite in those first two decades.

Or, to be more precise, it was not patents that allowed the dodge around the young Sherman Act, but rather, patent license pools that could cleverly leverage patents and extend them beyond their original purpose of protecting the commendable ingenuity of the inventor. Licensed and pooled, patent rights could be alienated from inventors and collected by corporations whose purpose was to abuse market power. One commenter describes these early license pools as "unconditional shelter for collusion." (2)

The Supreme Court caught on, however, and it put teeth in the Sherman Act in 1912 with Standard Sanitary Manufacturing. Standard Sanitary broke up a patent pool that required licensees to fix resale prices and to deal only with jobbers that sold to licensed manufacturers. In a dramatic reversal of its previous attitude of total deference to patent licenses, the Standard Sanitary court described the licenses as having "evil consequences." (3) The Court continued to crimp patent poolers' style with Morton Salt v. Suppiger Co., a patent misuse case, in 1942. Morton Salt involved a pool that required licensees of a canning invention to buy their unpatented salt from Morton Salt. (4) The Supreme Court held that Morton Salt was attempting "to secure an exclusive right or limited monopoly not granted by the Patent Office and which it is contrary to public policy to grant." (5)

There is nothing shocking about Morton Salt itself; it makes sense that no one should be able to leverage his rights in new technology to restrict commerce in salt, the world's most ancient and commonplace good.

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Developments in Antitrust Law That Impact Intellectual Property Licensing Transactions
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