United States: Federal Circuit Presumes Patent Power Equals Market Power

Over the past two decades, there has been a general consensus that courts and antitrust agencies should not presume that a patent conveys market power under the Sherman Act. For instance, the U.S. Department of Justice stated in its Antitrust Guidelines for the Licensing of Intellectual Property that the "agencies will not presume that a patent, copyright, or trade secret necessarily conveys market power upon its owner." The Federal Circuit’s decision in Independent Ink, Inc. v. Illinois Tool Works, Inc., Case No. 04-1196 (Fed. Cir., Jan. 25, 2005) (Dyk, J.) marks a sharp reversal of the general consensus regarding market power and patents.

In Independent Ink, Trident Inc., a wholly-owned subsidiary of Illinois Tool Works, was the owner of U.S. Pat. No. 5,343,266 which disclosed an ink jet and an ink supply system for printing bar codes. Trident also sold ink. Trident insisted that a licensor could make, use and sell Trident ink jet printing devices only if the licensor purchased ink from Trident. Independent Ink, a competing manufacturer of ink, sued Trident seeking a declaratory judgment of non-infringement and invalidity of Trident’s patents and claiming that Trident tied its Trident device with Trident ink.

A tying claim requires a showing that a defendant has market power in the tying product, that there were two separate products involved, that the defendant conditioned the sale of the tying product on the purchase of the tied product and that there was an effect on interstate commerce. The district court granted summary judgment to Trident, finding Independent made no showing that Trident had market power in the tying market. On appeal, Independent argued that the district court erred in requiring the plaintiff to prove affirmatively market power.

The Federal Circuit first clarified that the antitrust consequences of patent tying was a question of federal circuit law, not regional circuit law.

Relying on two older Supreme Court decisions (International Salt Co. v. United States and United States v. Loew’s Inc.), the Federal Circuit held that Independent did not need to show that Trident had market power to defeat summary judgment. The Court held that a patent creates a presumption of market power in a tying claim. The Court held that this presumption could only be rebutted by expert economic testimony or other credible economic evidence showing cross-elasticity of demand.

The Independent Ink decision will likely reinvigorate patent tying claims in the federal courts. Given the presumption of market power that arises from owning a patent, patent owners need to be careful when licensing their intellectual property to ensure that the licensee is not forced to buy another product or license another patent as a condition of obtaining the underlying license.

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