VOICES FROM THE INDUSTRY: Patent-tying accusations get more difficult to prove

Earlier this month, the U.S. Supreme Court clarified the boundaries between patent and antitrust law in Illinois Tool Works Inc. v. Independent Ink Inc.

This decision has important implications for all companies that use the patent system to protect their intellectual
property rights. It raises both the legal and financial stakes for businesses that wish to use the antitrust laws as a weapon to break into a market dominated by a competitor’s patented product.

The case involved a claim of “tying,” which occurs when a seller conditions the sale of one product (the tying product) on the purchase of a second product (the tied product). Not all forms of tying are illegal. For a tying arrangement to violate the antitrust laws, the seller must possess “market power” in the market for the tying product.

Market power is defined by the courts as the power to force a purchaser to do something that he or she would not do in a competitive market, such as purchase a tied product he or she either does not want or may have preferred to purchase elsewhere on different terms.

Illinois Tool Works involved a form of tying known as “patent tying” because the alleged tying product was patented.

The issue before the Supreme Court was whether a patent holder should be presumed to have market power in the market for its patented product merely because it possesses a patent-a form of legal monopoly.

An affirmative answer would have made tying claims against patent holders less difficult to prove, thus opening the door for many more antitrust claims involving patented products. Fortunately for patent holders, however, the Supreme Court said no.

The parties

Illinois Tool Works held several patents relating to ink cartridges for use in ink-jet printers. ITW sold its ink cartridges filled with an unpatented ink. ITW licensed its customers to incorporate the cartridges into printers for sale to end users. The terms of the license, however, required ITW’s customers to purchase ink exclusively from ITW and prohibited any refilling of the patented cartridges.

Independent Ink Inc. developed an ink that was chemically identical to ITW’s ink and therefore usable in ITW’s ink cartridges. Likely in an effort to acquire an additional share of the ink market, Independent sued ITW in federal district court, alleging that ITW’s tying arrangement was a form of tying prohibited by the antitrust laws.

The district court found that ITW’s practices satisfied each element required for an antitrust violation, except the marketpower requirement. Independent argued
that ITW’s patents, standing alone, were sufficient to establish a presumption that ITW possessed market power.

Accordingly, Independent did not offer any evidence relating to the products at issue, their substitutes, or a definition of the relevant market. The district court rejected Independent’s argument as inconsistent with existing law.

On appeal

On appeal, the U.S. Court of Appeals for the Federal Circuit reversed the district court’s decision. After examining several U.S. Supreme Court precedents, the Federal Circuit concluded that the Supreme Court’s prior holdings mandated a presumption of market power in patent-tying cases.

The Federal Circuit noted that the “time may have come to abandon the doctrine, but it is up to the Congress or the Supreme Court to make this judgment.”

The Supreme Court accepted the Federal Circuit’s invitation, ruling that a claim of patent tying must be supported by actual proof of market power.

What it means to businesses

By imposing the burden to prove market power on the party asserting a tying claim against a patent holder, such claims will be more expensive to assert because better evidentiary support will be required.

The benefits of a successful tying claim can be substantial, often in the form of large fines imposed on a competitor, a disruption of a competitor’s business, and a reduction of a competitor’s market share.

Antitrust litigation, however, is often complex and expensive. Much of this expense-attorneys’ fees, experts’ fees, and lost productivity-is attributable to the costs of gathering, reviewing, and analyzing evidence.

By requiring a stronger body of evidence to prove tying claims, Illinois Tool Works modifies the cost-benefit calculus for businesses contemplating such claims by placing several more (potentially large) numbers in the cost column.

On the other hand, because tying claims are now more onerous to prove, patent holders such as ITW now have what amounts to an additional layer of legal protection against antitrust liability.

While this latest guidance from the Supreme Court certainly will not bring a stop to claims of patent tying, it clearly changes the legal and financial landscape for businesses everywhere.