Distribution, Competition, and Antitrust / IP Law

Can Trademark Abuse Constitute Monopolization?

English: Trademark

Trademark (Photo credit: Wikipedia)

As far as antitrust law is concerned, trademarks are the unwanted stepchildren of intellectual property. The conventional wisdom is that trademarks – whose exclusionary effect is very attenuated, if it exists at all – do not confer market power, so their use (or refusal to license) can’t support a Sherman Section 2 claim. But is there an argument against the conventional wisdom?

The answer may be: “yes, in unusual circumstances.”(*)

Fraudulently obtaining a trademark

Let’s start by considering other types of IP that present clearer issues.  When a patentee obtains a patent through fraud on the PTO, it engages in exclusionary conduct.  See Walker Process Equip., Inc. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177 (1965).  Of course if the patentee never enforces his patent, there is likely no injury; the injury occurs when the patentee enforces or attempts to enforce a fraudulently-obtained patent.

Courts have extended the reasoning of Walker Process to the fraudulent procurement of copyrights.  See, e.g., Knickerbocker Toy Co. v. Winterbrook Corp., 554 F. Supp. 1309, 1321 (D.N.H. 1982).  See also Michael Anthony Jewelers v. Peacock Jewelry, Inc., 795 F. Supp. 639, 647-48 (S.D.N.Y. 1992) (allegations of enforcement of fraudulently-obtained copyright and other conduct were sufficient to support a monopolization claim).

Fraudulent procurement of a trademark also might be exclusionary.  See, e.g., Northwestern Corp. v. Gabriel Mfg. Co., 1996 U.S. Dist. LEXIS 19275 (N.D. Ill. 1996) at *19 (“Trademark monopolization or attempted monopolization claims often fall into one of two general categories.  The first involves the use of an illegally obtained trademark and focuses on the power of the trademarked product to monopolize a relevant economic market solely as a consequence of its illegal registration.”); Caplan v. Am. Baby, Inc., 582 F. Supp. 869, 871 (S.D.N.Y. 1984) (denying motion to dismiss attempted monopolization counterclaim challenging an attempt to register an unenforceable trademark and to enjoin others from its use despite its cancellation).  See also G. Heileman Brewing Co. v. Anheuser-Busch, Inc., 676 F. Supp. 1436, 1473 (E.D. Wis. 1987) (test to be applied in determining whether a particular trademark constitutes a Section 2 violation is the same as in any other case where an unlawful monopoly or attempt to monopolize is alleged; Section 2 is violated only when the trademark owner’s “actions have led to or resulted in a dangerous probability that it will gain a monopoly over the relevant market”), aff’d, 873 F.2d 985 (7th Cir. 1989).

Note that fraud on the PTO is not itself actionable under the Sherman Act; a plaintiff must still plead and prove all the other elements of a Section 2 violation.  That is particularly true after Illinois Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 42-43 (2006), where the Supreme Court held that even patents do not presumptively confer market power.  Plaintiffs therefore cannot rely on the existence of IP to establish market power.  Nor does fraud on the PTO itself establish antitrust injury (i.e., harm to competition).  Nevertheless, PTO fraud can constitute the core of a Section 2 claim.

Market power?

That leaves the question of whether trademarks can confer market power. As a general rule, “[b]ecause trademarks, unlike patents, do not confer exclusionary power over products or services, excluding others from the use of a trademark will not support an attempt to monopolize claim.”  II Antitrust Law Developments (7th ed. 2012) at 1131. Still, as one court wrote:

There is no controlling case law addressing whether the attempted enforcement of a trademark can constitute an antitrust violation, but there is persuasive precedent which indicates that if a plaintiff could demonstrate the other elements of a violation of Section 2 of the Sherman Act, then the attempted enforcement of a trademark may constitute an antitrust violation. Specifically, Justice Blackmun noted in his concurring opinion in Vendo Co. v. Lektro-Vend Corp., that “the enforcement of restrictive provisions in a license to use . . . a trademark may violate the Sherman Act.”  Moreover, even the case upon which SnoWizard relies, Car-Freshner Corp. v. Auto Aid Mfg. Corp., states [“[t]here is no doubt that a trademark may be utilized in such a manner as to constitute a violation of antitrust laws,” and “trademark laws may not be used to monopolize with respect to a certain product.”  Although it is equally clear that the nature of a trademark, which does not in any way represent a monopoly conferred upon a particular product, will make it particularly difficult to establish that “the plaintiffs’ actions have led to or resulted in a dangerous probability that it will gain a monopoly over the product in issue.”  Nonetheless, such a claim is possible as a matter of law.

Southern Snow Mfg. Co. v. SnoWizard Holdings, Inc., 2013 U.S. Dist. LEXIS 22157 (E.D. La. Feb. 18, 2013) at *17-18 (footnotes omit.).

The question is whether a fraudulently-obtained trademark protects just the mark itself or some functional aspect of the product. (The PTO shouldn’t issue trademarks that cover the latter.) For example, in RJ Machine Co. v. Canada Pipeline Accessories Co., Case No. 1:13-cv-00579-SS (W.D. Tex. Nov. 22, 2013), the court dismissed antitrust claims predicated upon alleged trademark misuse – but left the door open to future claims based on similar conduct.  RJ Machine Co. involved flow conditioners in oil pipelines. The defendant had a patent on a type of flow conditioner which expired in 2011. The defendant also obtained a trademark registration for the terms “50E” and “CPA-50E” for certain flow conditioners. Additionally, the defendant allegedly claimed the design of its 50E flow conditioner comprised non-functional, distinctive, and protectable trade dress.

The plaintiff (a potential market entrant) claimed that the defendant threatened to sue if the plaintiff advertised or marketed a flow conditioner using the design taught in the expired patent or used the term “50E” to identify its flow conditioner, and brought antitrust and other claims. The court dismissed the antitrust claims because the defendant was allegedly enforcing registered trademarks, and the exercise and enforcement of those marks could not be a “sham” or in “bad faith” under a Noerr-Pennington (petitioning immunity) type analysis.  However, the court did not entirely agree with the defendant that enforcement of trademarks and claimed trade dress can never be considered an antitrust injury because the plaintiff “in order to escape the clutches of an alleged trademark monopoly” can just market its product under a different name. The court noted that

RJ Machine contends the term “50E”, based on the history and development of the market for this product, is the only term consumers associate with this flow conditioner. In addition, according to RJ Machine’s allegations, Canada Pipeline has been able to “lock in” consumers of 50E conditioners because they can only be replaced by flow conditioners with the same 50E design. The anticompetitive argument is even more persuasive when it comes to trade dress. If the 50E design is as functional as RJ Machine alleges, it would be difficult, if not impossible, for RJ Machine to compete in the flow conditioner market without using the same functional design Canada Pipeline is claiming to be its trade dress.

Id. at 7.

See also General Physiotherapy, Inc. v. Sybaritic, Inc., 2006 U.S. Dist. LEXIS 3796 (E.D. Mo. Feb. 1, 2006):

While the configurations of the massage head/applicators have always been represented to the public as functional, they were represented to the Patent and Trademark Office (“PTO”) as non-functional.  Defendants also claim Muchisky provided other false and/or misleading information to the PTO.  This, Defendants contend, indicates the trademark registrations were issued by the PTO based on Muchisky’s fraud and that the trademark registrations are not, and were never, entitled to trademark protection.  Defendants argue this evidence, and the evidence of Muchisky’s bullying tactics and intent to monopolize the market, supports a finding that antitrust laws have been violated and creates a genuine issue of material fact regarding General and Muchisky’s claim that they acted in good faith in asserting trademark rights. This Court agrees.  General and Muchisky’s motion for summary judgment on this ground will be denied.

Id. at *12 (footnote omit). Consider also the scenario where a fraudulently-obtained trademark is actually an important search term on the Internet.

So – there might be circumstances where a fraudulently-obtained trademark could be used in a way that violates Section 2. But proving a Section 2 violation based on trademark abuse may in practice be difficult to do.

(*) These are just some thoughts. There are responses and rejoinders. My disclaimer is: feel free to read, but I’m not necessarily endorsing this train of thought.

Is Copyright Misuse the Snipe of IP Law?

Copyright

The snipe is an actual type of bird, but if you’ve seen the Pixar movie “Up,” you’re familiar with the snipe as a mythical bird that is the object of a fool’s errand.

In this post, we take a detour from patent and competition law and consider whether copyrights can be misused in an anti-competitive way, and if so, how.

Copyright holders need not license their works at all. See 17 U.S.C. § 106. When they do license, they have broad rights to license as they wish. See, e.g., UMG Recordings, Inc. v. MP3.com, Inc., 92 F. Supp. 2d 349, 352 (S.D.N.Y. 2000) (copyright holders can, within broad limits, curb the development of a derivative market by refusing to license a copyrighted work or by doing so only on limited terms); see also Wall Data Inc. v. Los Angeles County Sheriff’s Dep’t., 447 F.3d 769 (9th Cir. 2006) (strictly enforcing per-computer license for software).

Indeed, while copyright owners may choose to simply exclude others from their work, i.e. not to transfer their rights, courts have long-held that copyright holders may also use their limited monopoly to leverage the right to use their work on the acceptance of specific conditions. See Apple, Inc. v. Psystar Corp., 658 F.3d 1150, 1159 (9th Cir. 2011), petition for cert. filed, Dec. 27, 2011 (citing Metro-Goldwyn-Mayer Distrib. Corp. v. Bijou Theatre Co., 59 F.2d 70, 77 (1st Cir. 1932) (if motion picture license is subject to condition that its exhibition must occur at specified times and places, licensee’s exhibition at other times and places constitutes infringement)).

So, as an example, a software licensing agreement “may reasonably restrict the use of the software as long as it does not prevent the development of competing products.” Psystar, 658 F.3d at 1159. The Ninth Circuit interprets the phrase “prevent the development” of competing products quite literally. In only one case (Practice Mgmt. Info Corp. v. American Med. Ass’n, 121 F.3d 516 (9th Cir. 1997), amended, 133 F.3d 1140 (9th Cir. 1998), cert. denied, 524 U.S. 952 (1998)), has it upheld a copyright misuse defense – where the copyright licensor actually contractually prevented the licensee from using any other competing product. See Psystar, 658 F.3d at 1157.

So anti-competitive copyright misuse is not exactly the mythical snipe.  It can in theory exist, but it is probably rare and confined to a very narrow habitat (contractual exclusive dealing).  I suggest that it also may make little sense to apply the doctrine unless the defendant has some sort of relevant market power.  Market power screens are used for tying and exclusive dealing claims generally, and in connection with patent claims in particular.  Why would courts relax the screen because copyrights — whose use, at least generally speaking, has fewer potential anti-competitive effects than patents — are involved?

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