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Full Circle: U.S. Supreme Court Invalidates Market Power Presumption in Antitrust Arena

The slow, but steady, demise of the presumption of market power by patent holders in the world of antitrust has reached its inevitable end. In an 8-0 decision issued in March 2006, the U.S. Supreme Court eliminated the judicial presumption that holders of patents have the necessary market power to restrain competition through the use of tying arrangements.

The slow, but steady, demise of the presumption of market power by patent holders in the world of antitrust has reached its inevitable end. In an 8-0 decision issued in March 2006, the U.S. Supreme Court eliminated the judicial presumption that holders of patents have the necessary market power to restrain competition through the use of tying arrangements.

A tying arrangement occurs when a seller conditions the sale or lease of a patented product (“tying” product) on the requirement that the purchaser buy a second, unpatented product or service (“tied” product). Historically, tying arrangements have been viewed as a means to suppress competition and create a monopoly over non-patented products. Therefore, courts have considered these types of arrangements aper se violation of the Sherman Antitrust Act.

Because of the disfavor surrounding tying arrangements, up to now, courts have applied a presumption that the holder of a patent of a tying product necessarily has market power with respect to the tied product as well.

The practical result of this presumption for litigants was a shift in the traditional burden of proof. . A plaintiff was not required to present actual evidence of market power within a relevant market to succeed in an antitrust claim, but was allowed to rely on the legal presumption that the tied product enjoyed the market power of the tying product. Under this legal dynamic, a defendant was precluded from presenting evidence that the tying arrangement had a legitimate, competitive purpose, because such an arrangement had already been determined to be a per se violation of the antitrust laws.

The landmark case which finally put the presumption to rest is Illinois Tool Works, Inc. v. Independent Ink, Inc. Illinois Tool Works manufactures and sells printing systems. The systems are composed of a patented ink jet printhead, a patented ink container and unpatented ink. Illinois Tool Works sells these systems to original equipment manufacturers (OEMs). The OEMs are allowed to buy the systems on the condition that they will only purchase their ink from Illinois Tool Works and that neither the OEMs nor their customers will refill the ink containers with any other ink. Independent Ink developed and marketed an ink which is similar to the unpatented ink used in the Illinois Tool Works’ printing systems and hoped to persuade customers to purchase their ink for use in the Illinois Tool Works printing system.

Independent Ink filed suit against Illinois Tool Works asking the district court to declare that it did not infringe on any of the patents of Illinois Tool Works and to further declare that certain of the Illinois Tool Works patents were not valid. Independent Ink also accused Illinois Tool Works of engaging in illegal tying and monopolizing the market, in violation of the Sherman Antitrust Act.

Independent Ink, relying on more than 50 years of Supreme Court precedent, argued that, because Illinois Tool Works had tied an unpatented product (the ink) to its patented product (the printing system), the Court should presume that Illinois Tool works had market power over both the patented and unpatented products.

Independent Ink concluded that, because it could be presumed that Illinois Tool Works had market power in the market for the tying product, the tying arrangement should be deemed a per se violation of the Sherman Act without the requirement that further evidence be presented.

The parties settled the patent infringement claims, but Independent Ink appealed the dismissal of its antitrust claims to the Supreme Court.

The Supreme Court in an opinion that set out the complete history of the application of the presumption of market power in the antitrust arena concluded that market power should not be presumed where tying arrangements involved patented products. The Supreme Court, reversing case law dating back many years, explained that “many tying arrangements, even those involving patents and requirements ties, are fully consistent with a free, competitive market.”

What is the practical impact on litigants?

Because the burden of showing market dominance has been shifted back to the plaintiff, to succeed on an antitrust claim with respect to a tying arrangement, a plaintiff will no longer be able to rely upon a presumption that the defendant enjoys market power over the tying and the tied products.

Now, the plaintiff will be required to identify the relevant market and then present proof that the patented product actually enjoys market power within that market. The result should give patent holders more flexibility in packaging the sale of patented products with unpatented but complementary goods and services.

  • Partner

    Christie practices in the area of white collar crime defense and complex commercial litigation, representing clients in health care, antitrust, securities, intellectual properties, RICO, and False Claims Act matters. She has ...

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