Distribution, Competition, and Antitrust / IP Law

SCOTUS Reaffirms that in Antitrust Cases, It Gives Less Deference to Precedent


(Photo credit: Wikipedia)

Yesterday, in Kimble v. Marvel Entertainment, LLC, the U.S. Supreme Court upheld the rule first announced in Brulotte v. Thys Co., 379 U.S. 29 (1964), that a patentee cannot collect royalties on sales made after expiration of the patent.

The patent law decision upholds a probably anticompetitive rule that from an economic perspective makes little sense. That said, the decision is not particularly surprising, resting as it does on stare decisis (settled law) grounds – though it is amusingly chock-full of references to Spiderman (Marvel Entertainment had licensed a Spiderman product from the plaintiff-patentee, who had a patent on a toy that lets children shoot “webs” from a device held in the palm of the hand). Somewhat disappointingly, the decision does not expressly address an important issue – whether, when a patent portfolio is licensed, license fees must decrease as patents expire.

Perhaps the most important portion of the decision is the following discussion of stare decisis and antitrust law:

If Brulotte were an antitrust rather than a patent case, we might [address the issues] as Kimble would like. This Court has viewed stare decisis as having less-than-usual force in cases involving the Sherman Act. See, e.g., Khan, 522 U. S., at 20–21. Congress, we have explained, intended that law’s reference to “restraint of trade” to have “changing content,” and authorized courts to oversee the term’s “dynamic potential.” Business Electronics Corp. v. Sharp Electronics Corp., 485 U. S. 717, 731–732 (1988). We have therefore felt relatively free to revise our legal analysis as economic understanding evolves and (just as Kimble notes) to reverse antitrust precedents that misperceived a practice’s competitive consequences. See Leegin, 551 U. S., at 899–900. Moreover, because the question in those cases was whether the challenged activity restrained trade, the Court’s rulings necessarily turned on its understanding of economics. See Business Electronics Corp., 485 U. S., at 731. Accordingly, to overturn the decisions in light of sounder economic reasoning was to take them “on [their] own terms.” Halliburton, 573 U. S., at ___ (slip op., at 9).

This is a strong reaffirmation of the Court’s ability to reshape antitrust law according to economic principles and new economic understandings – despite the traditional rule of stare decisis. In other words, for stare decisis principles, some animals really are more equal than others.

Update (06/26/15): I was quoted in Law360 about this (may be behind a paywall).

Is Antitrust Relevant for Startups, Emerging, and Non-Dominant Firms?

The answer is (surprise!) “yes.”

There are a number of ways in which antitrust law is relevant to emerging and non-dominant companies. Those firms may:

  • Need to deal with the dominant firms in their markets, including by (i) responding to threats or actions by dominant firms to foreclose access to products, services or markets, or (ii) negotiating to acquire or maintain access to needed IP;
  • Need access to standard-essential patents (“SEPs”) and to understand their rights to and under FRAND licenses;
  • Want to exploit and license their own IP and put restrictions on its use without triggering antitrust issues;
  • Want to collaborate with other firms – including (dominant) competitors – in producing products or delivering services (i.e., entering into joint ventures);
  • Want to merge with, acquire, or be acquired by another firm, including a dominant one;
  • Want to impose vertical price or non-price restraints, or offer different customers, dealers or distributors different prices; or
  • Need to respond to a government merger or conduct investigation as a third party.

All of the above issues (and more) require the consideration of antitrust law. This is not to say that, for example, every complaint by an emerging firm against a dominant firm is the nucleus of a valid antitrust claim. There are many considerations – including whether there is harm to competition, whether a party has antitrust standing, and the like – and often there is no claim, just the rough-and-tumble of normal business competition. But it’s always helpful to understand the legal landscape, and to consider whether Congress and the courts have struck the appropriate balance between robust competition and truly exclusionary conduct. And on the defensive end, it’s always a good idea to understand how far you can push restraints.

Pay-for-delay and the Rule of Reason

Last week, I co-authored an article in the Los Angeles/San Francisco Daily Journal on the California Supreme Court’s recent decision in the Cipro Cases.  There, the Court held that so-called “reverse payment” patent settlements are evaluated under a specific “structured” Rule of Reason analysis, and rejected plaintiffs’ arguments that settlement payments exceeding the costs of litigation or the value of services provided by a generic manufacturer are per se unlawful.

The article is behind a pay wall.  When I get clearance to republish it, I will do so here.

* Updated 06/08/2015: The article is attached. * FNL-Orrick (DJ-5.14.15)

Three Billy Goats Gruff

(You know . . .  the fairy tale about trolls.)

This summer, PwC published its 2014 Patent Litigation Study.  The tagline of the study is “[a]s case volume leaps, damages continue general decline.”

Some of they key findings — which are quite fascinating — are:

  • Median damages awards continue to trend down—to $4.3 million in recent years.
  • Damages awards for NPEs averaged more than triple those for practicing entities over the last four years.
  • The median jury award amounted to nearly 37.5 times the median bench award between 2010 and 2013.
  • NPEs have been successful 25% of the time overall, versus 35% for practicing entities, due to the relative lack of success for NPEs at summary judgment. However, both types of entities win about two-thirds of their trials.

You can read the whole thing at the link above.

A World Without Patents?

Patents are only for the old machine

(Photo credit: Alexandre Dulaunoy)

Planet Money’s recent podcast interviews two economists who advocate for the ultimate patent law reform: the abolition of patents.

They argue that patents inhibit innovation.  For example, the Wright Brothers supposedly secured a number of patents on their early airplane design — which didn’t work very well and which stalled (pun intended) airframe development in the U.S. for a number of years.  The industry migrated to France to avoid the U.S. patents.

What about pharma, you might ask (as did I?)  Are pharma companies really going to invest hundreds of millions of dollars into new drugs if there is no patent protection?

Even these economists seem to concede the answer is “no,” so they propose an alternative — the government would pay for initial R&D.  When the government finds a promising new molecule, it would put it out to bid to pharma companies.  The lowest bidder would pay for the expensive clinical trials but would then receive a royalty on all drug sales for some number of years.

It’s an interesting idea — although frankly it doesn’t sound that different from a patent.  Or at least it’s not much different from a patent associated with a duty to license at some fair and reasonable rate.

There’s another issue — not mentioned in the podcast: if the U.S. gets rid of patents, but other countries don’t, won’t that distort all the economics?  R&D may migrate elsewhere, and the supply and price of goods (those subject to foreign patents) in the U.S. may be adversely affected.

It’s an interesting idea to think about — but one that as a practical matter isn’t going to go anywhere.  At least not for many years.

UC Hastings — Antitrust and IP

I’m pleased to have spoken today to a group of law students at the University of California, Hastings College of the Law on the intersection of antitrust and IP law.  It was nice to see an almost-full lecture hall — lots of interest in the topic.

Hot Topics in Intellectual Property and Antitrust Law

I’ve posted my slides from my webinar presentation on hot topics in IP and antitrust law.  You can find them here.

Speaking on Hot Topics in Antitrust/IP Law

On February 19, 2014, I’ll be speaking on hot topics at the intersection of antitrust and IP law.  See this link for more information about the webinar.

Strategic Refusals to License IP — Slide Deck

I’ve uploaded my slide deck from the Advanced Antitrust U.S. conference (Feb. 6, 2014) on strategic refusals to license IP.  You can find a copy here.

“Anti-Patent Troll” Fails to Secure Dismissal of Amended Antitrust Complaint



No-Troll (Photo credit: Wikipedia)

Back in January, I covered the case of Cascades Computer Innovation LLC v. RPX Corp., 2013 U.S. Dist. LEXIS 10526 (N.D. Cal. Jan. 24, 2013), where Judge Yvonne Gonzalez Rogers dismissed – with leave to amend – Cascades’ antitrust complaint against RPX, Dell, HTC, LG Electronics, Motorola Mobility, and Samsung. On December 3, 2013, Judge Rogers refused to dismiss Cascades’ amended complaint. See 2013 U.S. Dist. LEXIS 170517.

Cascades is a non-practicing entity (“NPE”), accused by the defendants of being a “patent troll.” It holds the rights to a portfolio of patents relating to technology that optimizes the use of the Android mobile phone/tablet operating system. Dell, HTC, LG, Motorola Mobility, and Samsung (the manufacturing defendants) sell mobile devices, including those employing the Android operating system. Together, they allegedly sell more than 95% of all Android devices in the United States.

Cascades alleged that the manufacturing defendants, along with RPX, engaged in a group boycott to not license Cascades’ patents. RPX is a defensive patent aggregator – an “anti-troll” – formed to protect its members from NPEs. It frequently acts as an intermediary for its members for purposes of acquiring patents and negotiating licenses on behalf of its members.

In a nutshell, Cascades alleged that the manufacturing defendants, through or with RPX, refused to negotiate separately with Cascades for patent licenses, or at least refused to negotiate independently in a “serious” manner with Cascades, and that the defendants agreed not to license Cascades’ patents. Allegedly, the object of the conspiracy was to force Cascades to abandon its efforts to license and enforce its patents, accept a below market-value offer from RPX, or go out of business by virtue of expensive litigation. In this manner, defendants would allegedly obtain a monopsony position.

In granting defendants’ motions to dismiss the original complaint, the Northern District of California agreed that Cascades had not adequately alleged a conspiracy, had not properly defined a relevant market, and had not adequately alleged harm to competition. In its amended complaint,(*) Cascades provided much greater detail about the negotiation history with RPX. Those alleged facts were sufficient for the Court to conclude that Cascades had adequately alleged both a horizontal conspiracy – an agreement among manufacturers not to deal with Cascades except through RPX – and a vertical conspiracy, i.e., an agreement between each manufacturing defendant and RPX. “[W]hile the [amended complaint] alleges a written agreement between RPX and each Manufacturing Defendant which permits individual negotiation, it also suggests that in this instance each Manufacturing Defendant understood that it should refrain from exercising its right to negotiate individually with Cascades and instead deal with Cascades either through RPX or not at all.”

The Court also rejected various other arguments advanced by the defendants, including the argument that defendants did not want to deal with Cascades individually because Cascades had overpriced its patents. While that theory was “plausib[le],” the Court did “not find it so fully and convincingly explanatory as to render Cascades’ revised allegations implausible by comparison.” The Court also determined that the conspiracy alleged by Cascades “makes economic sense because it would permit potential licensees . . . to realize RPX’s publically stated promise of ‘wholesale’ pricing, provided they refrained from competitively bidding against each other and sent RPX to the market in their stead, where it would be the sole viable purchaser.”

Cascades raises novel issues involving the application of antitrust law to the activities of defensive patent aggregators. It will be interesting to see how the case develops after discovery is completed.

(*) Cascades voluntarily dismissed its claims against LG and did not name Dell as a defendant in its amended complaint.

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