Federal Circuit Clarified Intersection of Patent Misuse and Antitrust

En Banc Court Finds Block Licensing Of Essential and Non-Essential Patents Does No Provide Patent Misuse Defense

In Princo Corp. v. Int’l Trade Comm’n, 2010 U.S. App. LEXIS 18101 (Fed. Cir. August 30, 2010) (en banc), Sony and Philips own patents related to CD-R/RW technology as defined in a standard, the Orange Book standard.  In arriving at this standard, there were competing methods of encoding position information on the disc: The Philips approach, which is outlined in the “Raaymakers patents,” and the Sony approach, which is outlined in the “Lagadec patent.”  Eventually, both Sony and Philips decided on using the Philips approach for the Orange Book standard since the Sony approach was difficult to implement and prone to error.  In order to provide a convenient mechanism for licensing the necessary patents to conform to the Orange Book standard, Philips managed block license packages.   The block license packages included both the Raaymakers patents and the Lagadec patent. Continue reading

Supreme Court Finds NFL Not Single Entity for Purposes of Antitrust Analysis of IP Licensing

In American Needle Inc., v. National Football League et al., 2010 U.S. LEXIS 4166, 94 U.S.P.Q.2D 1673 (2010), the appellee American Needle Inc. (Needle) sued defendants including the National Football League (NFL), the NFLP, and Reebok for violations of §1 and 2 of the Sherman Act.  Between 1963 and 2000, the NFLP granted nonexclusive licenses to various vendors including Needle.  In 2000, the teams authorized the NFLP to grant exclusive licenses.  The NFLP granted a 10 year exclusive license to Reebok, and declined to renew Needle’s nonexclusive license.

The district court and the court of appeals believed the main issue in the case was “whether with regard to the facet of their operations respecting exploitation of intellectual property rights, the NFL and its 32 teams are, in the jargon of antitrust law, acting as a single entity.” American Needle Inc. v. New Orleans LA. Saints, 496 F. Supp. 2d 941, 943 (2007).  Both the district court and the court of appeals held that “in the facet of their operations they have so integrated their operations that they should be deemed a single entity rather than joint ventures cooperating for a common purpose.” Id.

The Supreme Court believed that the key issue was much narrower.  The main issue here was whether the alleged “contract, combination… or conspiracy” is concerted action that joined together separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decision-making. Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 at 773 (1984).

The NFL teams do not possess unitary decision-making quality.  Each team is a substantial, independently owned, and independently managed business.  Teams compete with one another, not only on the playing field, but to attract fans, for gate receipts, and for contracts with managerial and playing personnel. Brown v. Pro Football Inc., 518 U.S. 231, 249.

When each NFL team licenses its intellectual property, it is not pursuing the common interest of the whole league but is instead pursuing interests of each corporation itself. Copperweld, 467 U.S. at 770.  A firm making hats, the Saints and the Colts, for example, are two potentially competing suppliers of valuable trademarks.  As such, the NFL does not constitute a single entity for purposes of antitrust laws.

While not a single entity, when restraints on competition are essential if the product is to be available at all, the per se rules of illegality are inapplicable, and instead the restraint must be judged according to the flexible Rule of Reason. NCAA, 468 U.S., at 109. n. 39.  The NFL is such an organization.  Football teams need to cooperate to survive and are thus not trapped by antitrust law.  The special characteristics of this industry may provide a justification for many kinds of agreements. Brown v. Pro Football, Inc., 518 U.S. 231 at 252 (Stevens, J., dissenting).  The Supreme Court said that the fact that NFL teams share an interest in making the entire league successful and profitable, and that they must cooperate in the production and scheduling of games, provides a perfectly sensible justification for making a host of collective decisions.

Finally, NFLP’s licensing decisions are made by 32 potential competitors, and each of them actually owns its share of the jointly managed assets. United States v. Sealy, Inc., 388 U.S. at 352-354.  Thirty-two teams operating independently through the NFLP are not like the components of a single firm that act to maximize the firm’s profits.  At the same time, this need for concerted action was noted as being “an interest that may well justify a variety of collective decisions by the teams” that might weigh favorably in the rule of reason analysis.  However, the Supreme Court declined to definitively state that the specific arrangement was clearly an antitrust violation, and instead remanded to the lower courts to perform a proper rule of reason analysis.

Report On FTC Hearing on the Evolving IP Marketplace Held December 5, 2008

By James G. McEwen[1]

Introduction

On December 5, 2008, the Federal Trade Commission (FTC) conducted its first of multiple hearings to explore the continuing evolution of intellectual property marketplace and the effect of this marketplace on competition.  Entitled The Evolving IP Marketplace, the hearings are a continuation of the FTC work first published in To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy A Report by the Federal Trade Commission (October 2003) (hereinafter the “2003 FTC Report”), and to revise its findings in light of changes in law since 2003.  Of special interest, according to William Kovacic, Chairman, Federal Trade Commission, is to ensure that the FTC is able to obtain empirical solutions to IP marketplace issues as they affect competition law, and to determine the extent to which the theory meets practice in regards to optimizing the interface between IP and competition law.  As such, the December 5, 2008 hearing is only one of multiple planned sessions.  All materials presented, including transcripts and slide show presentations, are available on the FTC website at http://www.ftc.gov/bc/workshops/ipmarketplace/. Continue reading

DC Circuit Finds Failure to Disclose Patents to Standard Setting Organization Did Not Present an Antitrust Injury

In Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir 2008), Rambus appealed the finding of the Federal Trade Commission (FTC) that Rambus engaged in an unfair method of competition and unfair or deceptive acts or practices prohibited by § 5(a) of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. § 45(a).  Specifically, the FTC had found that Rambus had engaged in unfair competition by deceptively failing to disclose its patents and patent applications relating to standards being set by a standard setting organization (SSO) in relation to synchronous dynamic random access memory (SDRAM): the Joint Electron Device Engineering Council (JEDEC).

Rambus had participated in the JEDEC in developing the standard, but had withdrawn prior to finalization of the standard.  The rules of the JEDEC required participating members to disclose intellectual property encompassing the standards being developed.  During this participation, Rambus did not disclose the existence of various patent applications related to the standard under discussion as the claims at the time of participation did not cover the standard.  However, after withdrawal, Rambus presented new claims in the pending application which did encompass the standard.  After the standard was finalized, Rambus asserted that compliance with the SDRAM standard would infringe its patent rights relating to the undisclosed inventions.

The FTC filed a complaint under § 5(b) of the FTC Act, 15 U.S.C. § 45(b), charging that Rambus engaged in unfair methods of competition and unfair or deceptive acts or practices in violation of the Act.  See 15 U.S.C. § 45(a).  Specifically, the FTC alleged that Rambus’ failure to disclose its intellectual property violated the JEDEC disclosure requirements, and resulted in Rambus’ ability to monopolize the SDRAM market through unfair means.  Rambus had contended that it had complied with the specific JEDEC rules in regards to what intellectual property was required to be disclosed and, therefore, did not engage in the type of deceptive behavior needed to show unfair competition under 15 U.S.C. § 45(b).

After conducting a trial before an administrative law judge (ALJ), the ALJ issued an Initial Decision agreeing with Rambus.  Specifically, the ALJ found that any failure to disclose was due to the specific JEDEC policies not requiring such disclosure and therefore Rambus’ non-disclosure was not in violation of the JEDEC policies.  However, after appealing to the Commission, the Initial Decision was reversed and Rambus was found to have engaged in deceptive behavior.  Specifically, the Commission found that the JEDEC policies and rules, while not a model of clarity, at least impliedly required the disclosure and such was presumed by the members.  Moreover, the deceptive intent provided for the monopolization because, had JEDEC been aware of the patent applications, JEDEC either would have excluded the patented technologies from the standard or at least required Rambus provide assurances of “reasonable and nondiscriminatory” license fees.  As a remedy, the Commission ordered that the patented technology be made available for license at a preset license rate, depending on the type of JEDEC compliant DRAM involved.

On appeal, Rambus challenged the finding that the JEDEC rules required disclosure of the patent applications in question.  Also, Rambus challenged that there was an antitrust violation because there was insufficient evidence that the JEDEC either would have excluded the patented technologies from the standard or at least required Rambus provide assurances of “reasonable and nondiscriminatory” license fees.  In regards to the license fees, Rambus argued that the required license would not have been an antitrust violation, and there was insufficient evidence that JEDEC would have simply excluded the patented technology.

The D.C. Circuit noted that not all monopolies are illegal as only those acquired by unlawful means are considered anticompetitive.  In defining what constitutes unlawful acquisition of a monopoly, the DC Circuit relied upon its prior decision in United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc) (per curiam) in defining the test.  Under this test, there needs to be a finding on the following:

First, “to be condemned as exclusionary, a monopolist’s act must have ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” Microsoft, 253 F.3d at 58; see also Trinko, 540 U.S. at 407; Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 224 (1993); Covad Commc’ns. Co. v. Bell Atlantic Corp., 398 F.3d 666, 672 (D.C. Cir. 2005). Second, it is the antitrust plaintiff—including the Government as plaintiff—that bears the burden of proving the anticompetitive effect of the monopolist’s conduct.

While criticizing the Commission’s findings of fact on the issue of whether disclosure was necessary, the D.C. Circuit accepted the Commission’s conclusion that the failure to disclose the patent applications was in violation of the JEDEC rules for purposes of appeal.  The D.C. Circuit then found that, even assuming the disclosure was required, the Commission improperly assumed that the anticompetitive effect existed for both likely outcomes had the patent applications been properly disclosed (i.e., preventing JEDEC from excluding the patented technology or requiring a license).  Moreover, the Commission had specifically found that the FTC had not provided sufficient evidence that JEDEC would have excluded the patented technology from the standard, which the D.C. Circuit found would have been an antitrust effect harmful to competition.  As such, the only viable antitrust effect was that JEDEC would have been required Rambus to provide the license.

The D.C. Circuit then found that, whereas in the Microsoft case there was evidence of an effect caused by Microsoft’s deceptive intent (i.e., tricking developers in working on proprietary Java applications when the developers were intending to work on platform independent Java applications), the only competitive harm resulting from Rambus’ deceptive actions was a raise in prices.  However, relying on NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998), the D.C. Circuit found that the mere raising of prices was not an anticompetitive effect.  Specifically, even assuming Rambus had disclosed the patents, this disclosure would also have resulted in a price increase such that there was no discernable injury.  As such, the D.C. Circuit vacated the Commission’s ruling due to the failure to find evidence of an anticompetitive effect due to Rambus’ failure to disclose the patent applications in question.