United States: GCR Know-How – IP & Antitrust 2017 - USA

1.Applicable rules

Does competition law apply to the obtainment, grant, acquisition, exercise and transfer of intellectual property rights?

Yes. While patents and copyrights provide their holders with certain rights that allow the holders to exclude others (including competitors) from exploiting their inventions, intellectual property rights do not provide blanket immunity from the antitrust laws. Depending on the conduct involved, one or more of the following US antitrust laws apply to patent, copyright, trademark and trade secret – intellectual property (IP) – rights:

  • Section 1 of the Sherman Act (15 U.S.C. § 1) prohibits agreements between two or more parties that unreasonably restrain trade.
  • Section 2 of the Sherman Act (15 U.S.C. § 2) prohibits monopolisation, attempted monopolisation and conspiracies to monopolise, all of which require proof of, among other things, exclusionary conduct to acquire, enhance or maintain monopoly power.
  • Section 7 of the Clayton Act (15 U.S.C. § 18) prohibits transactions that may substantially lessen competition or tend to create a monopoly.
  • Other sections of the Clayton Act prohibit, with respect to tangible goods/commodities, certain price discrimination (15 U.S.C. § 3, known as the Robinson Patman Act), exclusive dealing (15 U.S.C. § 14) and tying arrangements (15 U.S.C. § 14).
  • Section 5 of the FTC Act (15 U.S.C. § 45) prohibits unfair methods of competition and unfair or deceptive acts or practices.
  • Many states have antitrust statutes that are generally modelled on, and interpreted similarly to, the federal antitrust laws.

The modern trend in US jurisprudence and by the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) is to apply the same antitrust analysis to conduct involving IP issues as to conduct that does not, recognising that IP and antitrust laws are both intended to encourage innovation and competition.

The DOJ and FTC jointly issued Antitrust Guidelines for the Licensing of Intellectual Property in 1995 (IP Guidelines). In January 2017, the DOJ and FTC updated the IP Guidelines with only minor changes, including inserting updated case law and statutory references. The IP Guidelines and courts generally consider the licensing of IP to be pro-competitive and the reasonableness of most IP licensing arrangements is judged under the rule of reason. Under the rule of reason, a detailed analysis of the circumstances and effects of the restrictions is necessary to determine whether competition has been unreasonably restrained. This is in contrast to restraints that are per se illegal (ie, those that always, or almost always, tend to restrict competition, and as such are presumptively condemned).

In addition to general exemptions and immunities to the US antitrust laws (eg, the Noerr-Pennington doctrine, which immunises certain joint petitioning of the government by competitors from liability under the antitrust laws) and the "safety zones" or safe harbours laid out in the IP Guidelines (discussed further in the answer to question 5), there are limited exemptions to the applicability of antitrust law in the IP context. Certain conduct is explicitly authorised by US IP laws and, provided the IP holder does not exceed the scope of that authorisation, the holder's conduct will not be found to violate the antitrust laws. For example, a patent holder may exclude others from exploiting his invention as long there is no illegal tying, fraud before the US Patent and Trademark Office (USPTO) or sham litigation. But exploiting the patent beyond what is authorised by the patent laws to restrain trade or monopolise may violate the antitrust laws.

For further discussion of the applicability of antitrust laws to obtaining IP rights from the USPTO, see the answer to question 4. For further discussion of the applicability of antitrust laws to the grant, transfer or licence of IP rights to competitors or other licensees, see the answer to question 5. For further discussion of the applicability of antitrust laws to the unilateral exercise of IP rights, see the answer to question 7.

For further discussion of the applicability of antitrust laws to the acquisition of IP rights (other than the initial grant from the USPTO), see the answers to questions 9 and 10.

2.Competent authorities

Which authorities are responsible for the application of competition law to intellectual property rights? What enforcement powers do they have? Are there any special procedures for conduct that concerns intellectual property rights?

The FTC and the DOJ have authority to enforce the federal antitrust laws. The DOJ has exclusive federal governmental authority over the Sherman Act (including the ability to bring criminal prosecutions), but through the FTC Act the FTC can challenge unfair methods of competition, including conduct that violates sections 1 and 2 of the Sherman Act. Both the DOJ and the FTC may enforce the Clayton Act. State attorneys general can also bring cases under federal antitrust law in their parens patriae capacity and under their respective state antitrust laws. Remedies available to the government for violations of the antitrust laws include injunctions, fines, disgorgement, the divestiture or licensing of IP rights, and rescission. In 2015, in connection with a reverse payment settlement lawsuit, the FTC obtained a US$1.2 billion disgorgement settlement from Cephalon. In another reverse payment case, the FTC sought disgorgement from Endo (but ultimately agreed to a stipulated order that involved injunctive relief only), and continues to seek disgorgement from Watson and Allergan.

Private civil litigation also plays an important role in US antitrust enforcement (the Clayton Act creates a private right of action under the Sherman, Clayton and Robinson-Patman Acts). Notably, successful private litigants, who may include a certified plaintiff class, can recover treble damages.

Defendants in patent infringement actions frequently raise antitrust counterclaims. Even where certain conduct involving patents does not violate the antitrust laws, it might constitute patent misuse, an affirmative defence to patent infringement. The misuse doctrine says that anticompetitive conduct by a patent holder precludes enforcement of the patent.

The United States Court of Appeals for the Federal Circuit has exclusive jurisdiction over appeals from any US district court where the original action included a claim arising under the patent laws. Therefore, the Federal Circuit often hears patent cases involving antitrust counterclaims.

3.Market definition

How are markets involving intellectual property rights defined?

Contemporary antitrust analysis defines product and geographic markets involving IP rights using the same principles that apply to other forms of property or services. That is, for product markets, courts and antitrust agencies look to the reasonable interchangeability of use and the cross-price elasticity of demand between a product, service, IP right and potential substitutes. Courts and agencies define geographic markets by looking at the willingness and ability of suppliers to serve customers and the willingness and ability of customers to acquire substitute products outside of certain geographic limits.

Where possible, relevant markets tend to be assessed by reference to the goods or services affected by the licensing conduct at issue. When IP rights are marketed independently from goods or services or when IP rights involve only research and development (R&D) (referred to in the IP Guidelines as technology and R&D markets respectively; until the 2017 update, the IP Guidelines referred to R&D markets as innovation markets), market definition may depend on whether other IP rights exist that can be purchased or licensed to, for example, produce a similar end product or use a similar manufacturing technique.

While IP rights by their nature confer on their holder the power to exclude, modern antitrust law and policy recognises that the existence of an IP right does not necessarily equate to a relevant antitrust market. (See the answer to question 6.) If an IP right is desirable enough and no alternatives exist for prospective purchasers or licensees, then the IP right itself may be its own relevant market. More often, however, very similar alternatives exist for prospective purchasers or licensees.

The market definition analysis is the same whether assessing a stand-alone IP right, a group of complementary IP rights, or an IP right that has become essential to an industry standard.

4.Acquisition and sale

Does competition law apply to the obtainment or grant and transfer or assignment of intellectual property rights?

While the mere accumulation of patents granted by the USPTO is not in and of itself illegal, there are situations in which the US antitrust laws may apply to the obtainment, grant and transfer, or assignment of IP rights.

Procuring a patent from the USPTO through fraud may form the basis for liability under section 2 of the Sherman Act or section 5 of the FTC Act, and, less commonly, under section 1 of the Sherman Act. For example, in what is known as a Walker Process antitrust claim, a defendant may violate the antitrust laws by enforcing a patent fraudulently procured from the USPTO if:

  • the defendant was aware of the fraud when it initiated the infringement action;
  • the patent would not have been granted absent the fraud;
  • there is a dangerous probability of the patentee obtaining monopoly power in a relevant market; and
  • the plaintiff has antitrust standing and has suffered damages. See Walker Process Equipment v. Food Machinery & Chemical Corp, 382 U.S. 172, 174, 176-77 (1965).

While successful Walker Process claims are rare, likely because wilful fraud is a high bar, the Federal Circuit recently upheld both a finding of antitrust liability (under section 2 of the Sherman Act) for a claim alleging fraud on the USPTO and the award of trebled attorney's fees to pursue the claim (as part of the damages). See TransWeb, LLC. v. 3M Innovative Properties Co., 812 F.3d 1295 (Fed. Cir. 2016). Parties colluding to prevent prior art from coming to the USPTO's attention is an example of fraudulent procurement that could serve as the basis for section 1 liability. The Sixth Circuit has stated in dicta that an author who enlists retailers to boycott competitors of the author to enforce non-existent copyright claims could violate the antitrust laws. See Klinger v. Conan Doyle Estate, Ltd., 761 F.3d 789, 792 (6th Cir. 2014).

An acquisition or assignment of patents may constitute a violation of the Sherman or FTC Acts if the acquisition or assignment constitutes unlawful monopolisation or if it is an agreement that unreasonably restrains trade. For example, older federal court cases have held that the acquisition, non-use, and enforcement of all relevant patents in a particular field with the goal of eliminating competition, together with other anticompetitive acts, could serve as the basis for a violation of section 2  of the Sherman Act.

See the answers to questions 9 and 10 for a discussion of potential violations of Clayton Act section 7 from transferring patents, copyrights and exclusive licences to patents or copyrights.


How does competition law apply to technology transfer and licensing agreements?

Licensing IP is generally considered to be pro-competitive (see, eg, IP Guidelines) and therefore most licensing arrangements are analysed under the rule of reason. The IP Guidelines create antitrust safety zones where, absent extraordinary circumstances, the DOJ and FTC will not challenge a restraint in an IP licensing arrangement provided: the restraint is not facially anticompetitive (ie, it is not naked horizontal price-fixing or market allocation); and the licensor and licensee collectively account for no more than 20 per cent of the relevant goods market affected by the restraint. Where there is not sufficient data to define a goods market (which consists of products or services that may be substitutable), the IP Guidelines also have safety zones for technology markets (which consist of licensed IP and technology that may be substitutable) and R&D markets (which consist of R&D for a good or process, and close substitutes). As with the goods market safety zone, the restraint cannot be facially anticompetitive; in addition, there must be four or more independent technologies or R&D efforts, for technology and markets respectively, that are close substitutes.

Generally, restraints contained in vertical licences (with customers, rather than competitors) are less risky and are more likely to yield pro-competitive benefits than restraints contained in horizontal licences (with competitors). For example, field-of-use or territorial exclusivity may give a licensee an incentive to invest in the commercialisation of a patented good without risk that those investments will be susceptible to free-riding by other licensees. Further, patent law provides certain additional protections against antitrust risk associated with vertical licensing. For example, under the Patent Act, a patent holder may put certain territorial restrictions on a licensee. However, that protection is extinguished or exhausted, after the first sale of the patented product, so that the original patent holder cannot dictate the terms of subsequent sales of the products. In a recent patent case outside of the antitrust context, the Supreme Court held that a patentee's decision to sell a product exhausts all of its patent rights regardless of any restrictions that the patentee tries to impose. Impression Products, Inc. v. Lexmark Int'l, Inc., 137 S. Ct. 1523 (2017).

Just as with restraints outside of the IP context, certain vertical restraints in the IP context may be found anticompetitive under sections 1 or 2 of the Sherman Act, section 5 of the FTC Act, section 3 of the Clayton Act, to the extent the IP rights involve tangible goods, and/or state antitrust laws. Potentially problematic vertical restraints include tying arrangements (eg, licensee must purchase unpatented good to receive the patent licence), certain exclusive dealing (eg, where licensee is restrained from using competing technologies; see also the answer to question 14), bundling (eg, licensor offers discounts or rebates conditioned on licensee paying for multiple licences), and resale price maintenance (RPM) (rule of reason treatment under federal law, but minimum RPM is still per se illegal under some state laws). Except for limited situations (eg, tying where the licensor has market power and resale price maintenance under some state laws), most vertical restraints are analysed under the rule of reason (see the answer to question 1 for a discussion of the rule of reason).

Restraints contained in horizontal licences (with competitors or potential competitors) are analysed under the rule of reason if they are ancillary to a pro-competitive collaboration, but can be per se illegal if they are naked restrictions on competition. Cross-licences without a further restraint are not considered problematic, and actually may be pro-competitive where the patents involved are blocking patents or otherwise complementary. But cross-licences that contain price restrictions to customers or certain output limitations may be per se illegal. Patent pools (where cross-licences are combined into a joint venture) generally are unlikely to violate antitrust law where the pools do not have market power or where the contributed patents are complementary or blocking instead of substitutes or competitive. In their 2007 Joint Report on Antitrust and IP, the DOJ and FTC laid out their primary focus in evaluating patent pools: whether the horizontal coordination could reduce price competition in downstream products or competing technologies, and whether the patent pool will harm innovation. Whether pool members retain the right to license patents individually can be an important factor in assessing whether the pool harms innovation. Courts apply a rule of reason analysis to patent pools in assessing reasonably ancillary restrictions.

Whether a territorial restriction in a licence may violate the antitrust laws depends on the specific circumstances, for example, if a patent holder who practises a patent grants a licensee the right to exploit the patent in certain territories and reserves others to itself, that restraint will be judged under the rule of reason. But a per se violation may be found to exist where competing downstream licensees allocate territories among themselves.

Concerted refusals to license (ie, group boycotts in the licensing context) may violate section 1 of the Sherman Act. In its 2010 American Needle, Inc. v. National Football League decision, the Supreme Court clarified that a concerted refusal to license will be judged under the rule of reason, where, for example, the restraint is necessary for the product to exist. 560 U.S. 183, 203 (2010) (but a naked boycott in other circumstances may still be condemned as per se illegal). Concerted refusals to license may apply to both upstream and downstream behaviour; ie, concerted refusals of manufacturers to license from a particular IP owner (as in SD3 v. Black & Decker, 801 F.3d 412 (4th Cir. 2015)) as well as to concerted refusals of IP owners not to license their intellectual property to a downstream licensee (as in American Needle).

US antitrust law does not specify a royalty rate for licensing patents, but Georgia-Pacific Corp. v. US Plywood Corp laid out a 15-factor test for determining a reasonable royalty under the patent laws that is frequently used as at least a starting point. 318 F. Supp. 1116, 1119-20 (S.D.N.Y. 1970), modified by 446 F.2d 295 (2d Cir. 1971). To the extent that the royalty rate relates to a standard-essential patent (SEP) or a patent for which the holder has given a FRAND commitment (a commitment to license on fair, reasonable and non-discriminatory terms), the FTC has said that competition may be harmed, for example, when a holder of a SEP demands a royalty payment reflecting the standardisation of the technology, rather than the economic value of the technology itself. See In re Robert Bosch GmbH, 77 Fed. Reg. 71,593 (FTC Dec. 3, 2012) (Statement of the Federal Trade Commission). More recent federal circuit court cases have also addressed how to calculate royalty rates in the FRAND context. See, eg, Ericsson, Inc. v. D-Link Systems, Inc., 773 F. 3d 1201, 1232 (Fed. Cir. 2014) (echoing the FTC that the royalty rate on a FRAND encumbered patent should be based on the incremental value the patented invention adds to the product, not the value added by the standardisation of the technology); Microsoft Corp. v. Motorola Inc.,  795 F.3d 1024 (9th. Cir. 2015) (upholding the lower court's FRAND rate determination based on modified Georgia-Pacific factors); Commonwealth Scientific and Industrial Research Organisation v. Cisco Systems, Inc., 809 F.3d 1295 (Fed. Cir. 2015) ("reasonable royalties for SEPs generally – and not only those subject to a RAND commitment– must not include any value flowing to the patent from the standard's adoption").

In 2015, the DOJ addressed royalty rates in a business review letter. A leading developer of industry standards, the IEEE, changed its patent policy including by defining a reasonable rate to consider the "smallest saleable patent-practising unit" and to exclude the value resulting from the patent's inclusion in the standard, but otherwise did not mandate any specific royalty rates or calculation methods. The DOJ noted that its role was not to assess whether the IEEE's policy choices were right but did state that the additional clarity provided by the changed policy could speed licensing negotiations, limit litigation and lead to increased competition among technologies for inclusion in the group's standards.

For additional information on royalty rates, see the answer to question 7, and for additional information on potential antitrust issues implicated in the standard-setting process, see the answers to questions 11, 12, 13 and 14.

6.Market power and dominance

In what circumstances is the possession of intellectual property rights deemed to confer substantial market power on the holder such that the rules on unilateral conduct will apply?

IP rights will be found to confer substantial market power, known as monopoly power in the US, when, as with any other form of property, the owner of the IP right is able to profitably maintain prices above (or output below) competitive levels for a significant period of time in a properly defined relevant market. There is no longer a presumption that holding IP rights alone confers monopoly power upon the holder. (See, eg, IP Guidelines § 2.2.; Illinois Tool Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 45-46 (2006).)

Similarly, inclusion of an IP right in a standard by a standard development organisation does not necessarily confer monopoly power upon the owner of that IP right. The existence of an IP right and its inclusion in a standard are just two of the many factors used by the DOJ, FTC and courts to assess whether there are insufficient realistic substitutes available to consumers such that a price increase (or output reduction) would be profitable and durable.

7.Unilateral conduct

In what circumstances may unilateral conduct involving the exercise of intellectual property rights be deemed to be anticompetitive (monopolisation, abuse of dominance, etc)?

In the US, possessing monopoly power and charging monopoly prices are not in and of themselves illegal. A finding of antitrust liability for unilateral conduct involving the exercise of IP rights requires the rights holder to have engaged in exclusionary conduct that harmed competition. There is no longer a presumption that an IP right by itself confers market power. Furthermore, certain exclusionary conduct is explicitly permitted in the grant of IP rights. Accordingly, there are limited situations where unilaterally exercising IP rights will violate the US antitrust laws. As discussed in the answer to question 4, fraudulently acquiring a patent from the USPTO may be the basis for an attempted monopolisation claim. As discussed in the answers to questions 11, 12, 13 and 14, where a patentee has made a FRAND commitment (commitment to license on fair, reasonable, and non-discriminatory terms) as part of a standard-development process and then discriminates against licensees, at least some courts and agencies have found that discrimination may serve as the basis for a monopolisation or FTC Act section 5 claim.

Even where an IP owner has monopoly power, charging "excessive" royalties for IP is legal under the antitrust laws. The Supreme Court has held, however, that charging royalties after the expiration of a patent is not only per se unlawful under the patent laws but also may constitute patent misuse (meaning that it could be an affirmative defence in any infringement action or contract action to collect royalties). Charging different prices to different IP licensees (outside of the standard-setting, FRAND context) is not an antitrust violation, as it could be if tangible commodities were involved. There are some older cases (from the 1960s) that suggest that a discriminatory licensing scheme may violate section 2 of the Sherman Act where there is an adverse effect on competition, but no recent court has followed these holdings.

Absent exceptional circumstances, an IP owner, even one with monopoly power, has no duty to license to others and a unilateral refusal to license generally will not be a basis for an antitrust violation. The updated IP Guidelines include explicit language that "[t]he antitrust laws generally do not impose liability upon a firm for a unilateral refusal to assist its competitors, in part because doing so may undermine incentives for investment and innovation" (emphasis added). The Federal Circuit has held that in the absence of illegal tying, fraud on the USPTO, and sham litigation, a patent holder may enforce its right to exclude without incurring liability under the antitrust laws. See, for example, In re Indep. Serv. Orgs. Antitrust Litig. (CSU, L.L.C. v. Xerox Corp.), 203 F.3d 1322, 1327 (Fed. Cir. 2000). This high value on the right to refuse to license competitors and customers is consistent with Supreme Court jurisprudence on refusals to deal generally, but the right is not unqualified. A refusal to license that terminates a voluntary and profitable course of dealing, forsaking short-term profits to achieve an anticompetitive end, may result in antitrust liability. Note that if the refusal to deal is not unilateral, but done in concert with competitors, then that conduct, as discussed above in the answer to question 5, might violate section 1 of the Sherman Act.

Some courts have found that a pharmaceutical industry practice known as product hopping either does or could violate the antitrust laws. For example, in New York v. Actavis PLC (also known as the Namenda decision), the Second Circuit held that "the combination of withdrawing a successful drug from the market and introducing a reformulated version of that drug, which has the dual effect of forcing patients to switch to the new version and impeding generic competition, without a legitimate business justification [a practice known as product hopping] violates section 2 of the Sherman Act." 787 F.3d 638, 659 (2015). The behaviour is known as "product hopping." The court called the conduct undertaken by the defendant a "hard switch" or a "forced switch", because the defendant effectively withdrew the old product. In a "soft switch", a drug company makes efforts to transition patients to the new drug product while the old one is still on the market. The court implied that a soft switch would not have been a violation of section 2. Key to the court's finding was that Actavis withdrew entirely its older product without a legitimate business justification (preventing "free riding" was not a legitimate business purpose, because in this context, "free riding" is the explicit goal of state substitution laws) and denied generic companies a fair opportunity to compete using state substitution laws. This implies that in the pharmaceutical context, a patent holder, at least in the Second Circuit, may have a limited duty to assist its generic competitors. 

The Third Circuit, however, recently distinguished Namenda, and upheld a decision by a lower court that the product hopping behaviour at issue did not violate the antitrust laws. Mylan Pharm. Inc. v. Warner Chilcott Pub. Ltd. Co., 838 F.3d 421 (3d Cir. 2016). The court stated that the defendant had strong non-pretextual reasons for the product change.  Namenda was further distinguished on the basis that there was consumer coercion and there was no generic competition (in Mylan, there was already generic competition). The Third Circuit said that liability might exist in the future if there were insignificant changes to the product combined with coercive conduct.

8.Patent settlements

In what circumstances may patent settlements be deemed to infringe competition law?

While the US legal system generally encourages settling disputes, patent settlements may violate the US antitrust laws in certain circumstances. The primary antitrust concern in this area relates to settlements between actual or potential competitors that unreasonably restrain trade. A patent settlement likely infringes the antitrust laws where there is no bona fide dispute (ie, the litigation is a "sham" to create the opportunity for an anticompetitive agreement); or it includes an anticompetitive agreement that is outside the scope of the dispute (eg, market division in a product area unrelated to the disputed patent). Where the settlement appears to be a reasonable business decision based on the expense and uncertainty of patent litigation, but an aspect of the settlement (eg, a cross-licensing arrangement) potentially diminishes or eliminates competition between actual or likely competitors, the settlement also may be found to violate the antitrust laws. Similarly difficult situations arise when an aspect of a settlement may have some anticompetitive effects, but it is not clear whether the settlement would have greater anticompetitive effects than some of the possible outcomes of the litigation (eg, a finding of patent validity that completely excludes one party from a given product market).

Antitrust concerns frequently arise in pharmaceutical "reverse payment" settlements (or "pay-for-delay"), which can include monetary payment from the branded manufacturer/plaintiff to the prospective generic entrant/alleged infringer to delay market entry until some point after it may have been authorised under the relevant regulatory framework (the Hatch-Waxman Act), but before the expiration of the patent. The FTC, DOJ, private plaintiffs and some federal courts of appeals had taken the position that these reverse payment settlements are presumptively unlawful, unless the settling parties establish the contrary. Settling parties, and some federal appeals courts, took the contrary position – unless the settlement is outside the scope of the patent or it is a sham, it is presumptively lawful. In its 2013 Actavis decision, the Supreme Court resolved the appellate court split, holding that such settlements should be judged under the rule of reason. The Court declined, however, to specify how such an inquiry should be structured, leaving the lower courts to sort out that task. The opinion did provide some guidance, indicating that settlements that include "large and unjustified" payments that exceed the branded company's avoided litigation costs and/or do not reflect fair value for any ancillary services to be provided by the generic manufacturer (eg, marketing assistance) are likely illegal.

Ramifications of the Supreme Court's Actavis decision continue to play out in federal district and appellate courts and state courts. For example, the First and Third Circuits have held that the Supreme Court's Actavis decision is not limited to cash payments to the generic supplier, but can also include other types of consideration. The California Supreme Court also has recently held that pharmaceutical patent settlements can be challenged under the Cartwright Act, California's state antitrust law (even though the validity of patents themselves is a federal matter). Pharmaceutical reverse payment settlements continue to be a hotly contested area.

9.Merger control (jurisdiction)

In what circumstances will the transfer of intellectual property rights constitute a merger for the purposes of competition law?

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (HSR Act), certain mergers or acquisitions must be reported to the DOJ and FTC before consummation to provide the agencies an opportunity to investigate the potential anticompetitive effects of the transaction prior to closing. Generally, a transaction is reportable if, as a result of the transaction:

  • at least one of the parties is engaged in an activity affecting US commerce;
  • the size of the transaction is valued at more than US$80.8 million; and
  • in cases where the transaction is valued over US$80.8 million but no more than US$323 million, the size of the parties satisfies certain threshold requirements. These are the current, 2017, thresholds; they are adjusted annually based on the change in the US gross national product, generally in February.

Patents and other IP are considered to be "assets" under the HSR Act. Therefore, to the extent that the HSR filing thresholds are met, and no exemption to filing applies, the acquisition of IP potentially requires pre-notification under the HSR Act. Across all industries, the grant of an exclusive licence to "make, use and sell" a patent is treated as an acquisition of the underlying IP assets and therefore potentially reportable under the HSR Act. Within the pharmaceutical industry, the FTC has taken the view that the right to manufacture is less important than the right to commercialise. Therefore, the transfer of exclusive rights to a patent (or a part of a patent) is a reportable asset transfer under the HSR Rules if it allows only the recipient of the exclusive patent rights to use the patent in a particular therapeutic area (or specific indication within a therapeutic area) even if the recipient is not manufacturing the product.

Even where IP transfers are not reportable under the HSR Act, the DOJ and FTC have jurisdiction to investigate potential violations of section 7 of the Clayton Act; both agencies routinely investigate non-reportable transactions. A non-reportable transaction may come to the attention of the agencies where the transaction is the subject of media attention, is in an industry in which the agencies are particularly vigilant, or where customers or (sometimes) competitors complain to the agencies.

10.Merger control (substantive)

In what circumstances will a merger involving intellectual property rights be deemed anticompetitive? Are there any special considerations for mergers involving intellectual property rights or innovation markets?

Mergers involving IP rights are considered anticompetitive under the same circumstances as mergers that do not involve IP rights – that is, when they may substantially lessen competition or tend to create a monopoly. In essence, the question is whether the transaction is likely to result in increased prices, decreased product or service quality or a decreased rate of technological innovation or product improvement for any identifiable group of customers. Standard horizontal merger analysis looks to whether a transaction may result in unilateral effects through the loss of head-to-head competition between the merging parties, or coordinated effects by creating or enhancing the likelihood of coordination between the remaining players in the space. Vertical merger analysis looks at whether the merged firm will have the ability and incentive to foreclose downstream competitors from obtaining key inputs (ie, input foreclosure); whether the transaction will deny a competitor access to a key customer (ie, customer foreclosure); and/or whether the transaction will provide the merged entity with competitively sensitive information that may facilitate collusion in either the upstream or downstream product market. These same concerns apply to mergers involving IP rights. In the context of mergers involving IP rights, the agencies pay particular attention to perceived exclusionary effects (eg, when an acquirer may have greater incentives to use acquired IP rights to exclude rivals) as well as potential anticompetitive effects in R&D markets. The IP Guidelines note that the FTC and DOJ will take into account all relevant evidence in assessing the competitive significance of current and potential participants in an R&D market, including buyers' and market participants' assessments of the competitive significance of R&D market participants.


How, in general, does competition law treat the development of standards in standard-development organisations (SDOs), and the exercise of intellectual property rights for technology that may be essential to a standard?

Courts and the antitrust agencies recognise that standard-setting is generally beneficial and pro-competitive as it facilitates interoperability, ensuring products from different suppliers work together efficiently, thereby reducing costs for consumers and producers and promoting innovation. However, there are two potential antitrust concerns involving standard-setting:

  • concerted activity during the standardisation process that may violate section 1 of the Sherman Act or section 5 of the FTC Act (see question 12); and
  • the use of the standard-setting process to obtain monopoly power in violation of section 2 of the Sherman Act or section 5 of the FTC Act (see question 13).

Recognising the general pro-competitive nature of SDOs (or standard-setting organisations, SSOs), Congress passed the Standards Development Organization Advancement Act of 2004, a federal law that provides that conduct by SDOs during the standard development process is not illegal per se and is not subject to treble damages (15 U.S.C. §§ 4302, 4303). This protection is available only to organisations that give the government prior notice; it is not available to the participating individuals.

While outside the scope of this treatment, other legal theories besides antitrust have been used in disputes between SEP owners subject to FRAND commitments and implementers of standards, including fraud, breach of contract, and promissory estoppel. See, for example, Microsoft Corp. v. Motorola Inc., 795 F.3d 1024 (9th Cir. 2015), a breach of contract action, which (i) held that the evidence supported the lower court's jury verdict that Motorola breached its FRAND commitment through its overall course of conduct, including injunction-related activity and (ii) noted that a patentee subject to a FRAND commitment may have difficulty establishing the irreparable harm needed for injunctive relief, as payment of a FRAND rate would eliminate any such harm.  

12.Standardisation and anticompetitive agreements

How do competition law rules on agreements, concerted practices, etc, apply to the standardisation process?

SDOs often include competitors that work together to develop a technical standard, typically for safety or interoperability reasons. Deciding on a certain standard may harm another competitor's product, or exclude a certain technology. However, courts and the antitrust agencies have said that interoperability is a pro-competitive effect of standardisation. Recognising that standard-setting generally has pro-competitive benefits, courts generally apply the rule of reason analysis to conduct by SDOs and their members.

That said, despite the often pro-competitive benefits of standardisation, certain joint conduct by SDO members may run afoul of the antitrust laws. Types of conduct in the SDO context that remain per se illegal include, for instance, an agreement by SDO members to fix their downstream prices (ie, the price of the products competing members sell) or a bid-rigging agreement among SDO members that are competing to supply a certain technology for the standard (eg, an agreement to set the prices at which they will offer the technology to the SDO). However, SDO policies encouraging the voluntary ex ante disclosure by members of their most restrictive terms for licensing patents that prove essential to a standard have been reviewed under the rule of reason and accepted by the DOJ as lawful.

To minimise the risk that a competitor whose technology is not adopted into the standard can or will raise an antitrust issue, SDOs can design and implement policies that encourage openness and fairness by participants. Such policies should decrease the likelihood that the process is susceptible to hijacking, and the likelihood of later claims that certain members' economic interests biased the standard-setting.

13.Standardisation and unilateral conduct

How do competition rules on unilateral conduct apply to the exercise of intellectual property rights for technology that may be essential to a standard?

If a single firm uses the standard-setting process to obtain or maintain monopoly power, it may violate section 2 of the Sherman Act or be challenged by the FTC under section 5 of the FTC Act. A common fact pattern in such cases involves the "ambush" problem, in which a firm participates in a standard-setting process but does not reveal that it holds patents that are essential to the standard. Afterwards, if the firm refuses to license the SEP or agrees to license it only on unreasonable terms, then the firm faces risk of a suit under section 2, or from the FTC under section 5 of its Act. Many SDOs address this issue by requiring that participants in the standard-setting process disclose any SEPs, and agree to voluntarily license such patents on FRAND terms.

The US Supreme Court has held that a breach of a duty to deal does not violate US antitrust law unless, inter alia, the duty to deal is imposed by antitrust law, as opposed to a different statute or a contract. One federal court of appeals has held, however, that a breach of a FRAND licensing commitment may be actionable under US antitrust law if, inter alia, the maker of the commitment intended not to comply with the commitment when made, and the SDO relied on the commitment in adopting a standard incorporating the company's patents. Broadcom Corp. v. Qualcomm Inc., 501 F. 3d 297 (2007). In In re: Motorola Mobility, the FTC issued a controversial complaint under section 5 of the FTC Act, over the dissent of one FTC Commissioner and the separate statement of another, against a company that allegedly failed to comply with a FRAND commitment made by another company from which it purchased the patent at issue. The FTC and the company settled the action without the company admitting liability, and the FTC's theory of liability has not been tested in any US court. With the support of only two of the then four FTC Commissioners (with one dissent and one abstention), the FTC issued a complaint against Robert Bosch GmbH under section 5 of the FTC Act for seeking injunctive relief against infringement of a patent subject to a FRAND commitment. This complaint was also settled by the FTC and the company without the company admitting liability, and the FTC's theory of liability has likewise not been tested in court.  As discussed further in section 14 below, the FTC recently filed suit, and survived a motion to dismiss at the district court level, in a case with similar facts to those in Broadcom (FTC v. Qualcomm).

The DOJ, FTC and USPTO have noted their respective views that there are only limited circumstances in which injunctive relief will be an appropriate remedy for FRAND-encumbered SEP. In 2015, in response to a business review letter request from the IEEE, the DOJ stated that it had no present intention to challenge IEEE's proposed revisions to its patent policy, which included a rule preventing a SEP owner that submits a letter of assurance from seeking an injunction or exclusion order unless the standard "implementer fails to participate in, or to comply with the outcome of an adjudication, including an affirming first-level appellate review [...] by one or more courts that have the authority to determine Reasonable Rates and other reasonable terms and conditions". The DOJ, however, said that policy change went beyond its own guidance that there may be limited instances where an exclusion order or injunction would still be an appropriate remedy. Courts have also recognised that a patent holder bound by a FRAND commitment will find it difficult (although not impossible) to obtain injunctive relief, because the patent holder will have difficulty establishing irreparable harm, as payment of a FRAND rate would eliminate any such harm. See, eg, Microsoft Corp. v. Motorola Inc., 795 F.3d 1024 (9th Cir. 2015).

14.Recent cases and other developments

Noteworthy recent developments at the intersection of IP and antitrust law include:

  • FTC v. Qualcomm Inc.: In January 2017, days before the end of the Obama administration and the resignation of then FTC Chair Edith Ramirez, in FTC v. Qualcomm Inc., the FTC sued Qualcomm in federal district court under section 5 of the FTC Act alleging that the company used anticompetitive tactics to maintain its monopoly position as the world's dominant supplier of baseband processors – devices used to manage cellular communications in mobile phones. The complaint alleges, among other things, that Qualcomm unlawfully: maintains a "no license, no chips" policy under which it will only supply its baseband processors to handset manufacturers on the condition that they agree to Qualcomm's preferred licence terms; refuses to license SEPs on FRAND terms to competing baseband processor suppliers, which the complaint calls an anticompetitive "tax" on OEMs that use rivals' processors; and entered into an exclusive baseband processor supply contract with Apple, in exchange for reduced patent royalties. Although only one of the two current FTC commissioners voted for the complaint (then Commissioner Ohlhausen dissented), the FTC has continued to prosecute the case thus far. In June 2017, the Northern District of California rejected Qualcomm's motion to dismiss. Notably, the district court held that the FTC stated a claim under sections 1 and 2 of the Sherman Act, even though the FTC brought the case under its FTC Act section 5 authority. This ruling seems to indicate another exception to the general rule that that there is no duty to deal with competitors, and in this aspect is also similar to Broadcom v. Qualcomm. This case also illustrates that the FTC can adequately allege a FRAND violation without engaging in a complicated technical valuation of Qualcomm's SEPs.
  • FTC PAE Study: In October 2016, the FTC released a much-anticipated report on patent assertion entities (PAEs), firms that "acquire patents from third parties and then try to make money by licensing or suing accused infringers". The FTC categorided PAEs into two types: Litigation PAEs and Portfolio PAEs. Litigation PAEs typically sue potential licensees with the goal of speedy settlements, while Portfolio PAEs tend to negotiate licences for their portfolios of intellectual property. The study results indicate that litigation PAEs are responsible for 96 percent of all patent infringement lawsuits, but only 20 per cent of total reported PAE revenues. Ninety-three per cent of the patent licensing agreements held by Litigation PAEs were the result of litigation – the same figure for Portfolio PAEs was just 29 per cent. The FTC suggests that the typical royalties yielded by Litigation PAE licences were less than early-stage litigation costs, which is consistent with nuisance litigation where defendant companies decide to settle based on the cost of litigation rather than any actual infringement. The FTC proposed recommendations to patent litigation to curb these abuses: promote practices that take account of asymmetry in the discovery burden between Litigation PAEs and alleged infringers (which is arguably addressed in the recent amendments to Federal Rule of Civil Procedure 26(b), which says that discovery should be "proportional to the needs of the case"); amend Federal Rules of Civil Procedure 7.1 to expand financial relationships that must be reported; encourage district courts to stay infringement suits against end users pending resolution of an action against the manufacturer, because manufacturers typically have a better understanding of a disputed technology (this "customer-suit" exception has been followed by some courts but is rarely invoked); and that, as courts apply the plausibility standard of pleading in patent cases, they ensure that complaints provide sufficient notice to accused infringers. Notably, the PAE study rarely mentions competition, which may indicate that the FTC believes that PAEs typically should be dealt with by the patent laws and not by the antitrust laws.
  • Fresenius Kabi USA, LLC v. Par Sterile Products, LLC: In February 2017, the federal District Court for New Jersey denied Par's motion to dismiss Fresenius's case alleging that sellers of a life-saving antidiuretic drug (Intravenous Vasopressin Injection, or IVI) had engaged in unlawful exclusive dealing with active pharmaceutical ingredient (API) suppliers, a group boycott, and had engaged in monopolisation, attempted monopolisation, and conspiracy to monopolise (as well as other state law claims). No. 16-4544, D.I. 41 (D.N.J. Feb. 10, 2017). Fresenius alleged that through Par's exclusive deals with two of the three available drug master file holders for the API in IVI, Par attempted to lock up the sources of API in order to prevent competitors from entering the IVI market. The court found that Fresenius's allegations were sufficiently well-pled to survive the motion to dismiss.

Originally published by Global Competition Law Review.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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