IP lawyers: 8 times when you should consult antitrust colleagues
Some of the most high-profile disputes involve the intersection of intellectual property and antitrust law. A wise IP lawyer understands the value of securing antitrust advice, especially when dealing with potential transactions or potential litigation, says David Balto, who has practiced antitrust law for more than 20 years in the Department of Justice, the Federal Trade Commission and in private practice. In a recent article in Landslide, a magazine published by the ABA Section of Intellectual Property Law, Balto outlined when IP lawyers should seek the advice of their antitrust colleagues.
- Entering into a merger, an acquisition or a joint venture. Commingling of patents, copyrights and trademarks can raise competitive concerns. The enforcement agencies — the Antitrust Division of the Department of Justice and the Federal Trade Commission in the United States and the European Commission — will scrutinize any acquisition in which there is substantial overlap or potential overlap in intellectual property.
- A rival company is entering into a merger or an acquisition. Patents are increasingly used offensively against competitors, and acquisitions of patents can be a sign of impending litigation or renewed patent litigation efforts. In these cases, a company’s best defense may be to raise antitrust concerns during the government’s regulatory review of a merger or an acquisition.
- Acquiring a company with a potentially competing product in research and development. Antitrust concerns can be raised by products in R&D that are not yet ready for market. This issue is raised when the acquiring company has near-complete or complete control of the market for a product and the target company is developing a product that is likely to compete.
- Enforcing IP rights. Private enforcement of IP rights typically does not raise antitrust concerns. But the Supreme Court, in Walker Process Equipment Inc. v. Food Machinery & Chemical Corp., held that the enforcement of a patent procured by fraud might form the basis of an antitrust violation. The court said such action constituted an attempt to restrain competition based on an invalid patent right.
Enforcement of an IP right that was validly obtained may still violate the antitrust laws if the owner now knows that the right is not valid, or knows that the alleged infringer is actually not infringing. In other words, the use of “bad faith” or “sham” litigation as a means of restraining competition may also violate antitrust laws.
- Buying intellectual property with attached commitments. A party that acquires patents subject to FRAND (fair, reasonable and nondiscriminatory) commitments can be subject to FTC action even if it did not make the FRAND commitments itself.
- Settling patent litigation. When settling patent litigation with actual or potential competitors, counsel must carefully consider whether the terms of the settlement raise competitive concerns. This is especially true in the pharmaceutical industry, where it has become common for a brand-name drug manufacturer to pay a generic manufacturer to settle a patent infringement suit on the condition that the generic manufacturer will not enter into the market for a specified time (called a “reverse payment settlement”).
The FTC is active in pursuing reverse payment settlement claims through both litigation and legislation. Therefore, it is important to be aware of these issues to avoid costly litigation or damages.
- Dealing with standards-setting organizations. Standard setting plays a critical role in high-tech industries where firms compete to establish the basis for compatibility between complementary products. Standards-setting organizations (SSOs) are primarily concerned with whether a particular technology is patented, and if it is patented, whether the patent holder will agree to commit that patent to FRAND terms.
An SSO may be held liable if it does not create sufficient safeguards against the abuse of the standards-setting process.
- Selling unpatented products or services in conjunction with intellectual property. In Eastman Kodak Co. v. Image Technical Services Inc., the Supreme Court held that a monopoly can exist in the copy machine servicing aftermarket even if there was no market power in the original market. This was based on the theory that customers could be “locked in” to a product due to high switching costs and therefore be subject to monopoly pricing for products later tied to that product. The court has since receded from this ruling in its decision of Illinois Tool Works Inc. v. Independent Ink Inc., which expressly ruled that the fact that a tying product is patented does not support a presumption of market power.
It is important to note that Kodak was never overruled. There is still a possibility of incurring antitrust liability for IP tying under a “lock in” or similar theory.
To read the full article, including four more reasons to consult an antitrust lawyer, click here.
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