1. IP MISUSE and ANTITRUST LAW Eugene L. Chang January 9, 2009

2. Competition vs. Innovation: Finding The Right Balance Patent Laws Promote Innovation And Encourage Public Disclosure Antitrust Laws Maximize Consumer Welfare By Promoting Competition Both Patent Law And Antitrust Law Seek To Prevent Harm Caused By Invalid Patents Or Improper Extension Of Valid Patents

3. Antitrust Law Is... Sherman Act § 1 - Bars Unreasonable Agreements In Restraint Of Trade Sherman Act § 2 - Prohibits Monopolization (Acquisition Or Maintenance Of Market Power Through Exclusionary Conduct) Clayton Act § 7 - Prohibits Acquisitions That Will Reduce Competition Or Create A Monopoly Federal Trade Commission Act § 5 - Prohibits Unfair Methods Of Competition And Unfair Or Deceptive Trade Practices

4. Antitrust Law Is... (Continued) Some Activities Are Illegal Per Se (E.g., Horizontal Price Fixing) Others Evaluated Under Rule Of Reason Examine Whether Restraint Is Likely To Have Anticompetitive Effects If So, Examine Whether The Restraint Is Reasonably Necessary To Achieve Procompetitive Benefits That Outweigh Those Anticompetitive Effects Most Arrangements Involving IP Are Evaluated Under The Rule Of Reason

5. DOJ GUIDELINES (1995) Underlying Principles LICENSING ARRANGEMENTS GENERALLY ARE PROCOMPETITIVE INTELLECTUAL PROPERTY IS COMPARABLE TO ANY OTHER FORM OF PROPERTY IP NOT PRESUMED TO CREATE MARKET POWER * MARKET POWER = ABILITY TO PROFITABLY MAINTAIN PRICES ABOVE, OR OUTPUT BELOW, COMPETITIVE LEVELS FOR A SIGNIFICANT TIME PERIOD

6. ANALYTICAL TOOLS PER SE RULE v. RULE OF REASON HORIZONTAL v. VERTICAL RESTRAINTS

7. PER SE PLUS DOJ will challenge under per se rule if: THERE IS NO EFFICIENCY-ENHANCING INTEGRATION OF ECONOMIC ACTIVITY AND IF THE TYPE OF RESTRAINT IS ONE THAT HAS BEEN ACCORDED PER SE TREATMENT.

8. DOJ GUIDELINES IN GENERAL, LICENSING ARRANGEMENTS PROMOTE SUCH EFFICIENCY-ENHANCING INTEGRATION OF ACTIVITY LICENSES FACILITATE THE COMBINATION OF COMPLEMENTARY FACTORS

9. RULE OF REASON 1)RESTRAINT IS LIKELY TO HAVE ANTICOMPETITIVE EFFECTS AND, IF SO, 2) IS RESTRAINT REASONABLY NECESSARY TO ACHIEVE BENEFITS THAT OUTWEIGH THOSE EFFECTS

10. DOJ GUIDELINES ANTITRUST CONCERNS HARMING COMPETITION AMONG COMPETITORS IN A RELEVANT MARKET RESTRAINTS AMONG ENTITIES IN A HORIZONTAL RELATIONSHIP CLASSICAL CONCERNS: MARKET DIVISION PRICE FIXING

11. DOJ GUIDELINES Market Analyses GOODS MARKETS TECHNOLOGY MARKETS (I.P.) INNOVATION MARKETS (R&D)

12. THE NINE NO-NOs Licensing Provisions to Watch For 1. TIE-INS

13. TIE-INS DOES A PATENT GIVE RISE TO MARKET POWER IN TYING PRODUCT? International Salt (1942) – Market power in patented tying product is presumed Independent Ink (2006) – Market power in patented tying product must be proven

14. U.S. v. MICROSOFT RULE OF REASON ANALYSIS PLATFORM SOFTWARE PRODUCTS FIRST CLOSE-UP LOOK AT THE TECHNOLOGICAL INTEGRATION OF ADDED FUNCTIONALITY INTO SOFTWARE THAT SERVES AS A PLATFORM FOR THIRD-PARTY APPLICATIONS

15. U.S. v. MICROSOFT NOT ALL TIES ARE BAD SPELL CHECKERS IN WORD PROCESSORS JEFFERSON PARISH SEPARATE PRODUCTS TEST A POOR PROXY UBIQUITY OF BUNDLING IN SOFTWARE INDUSTRY NEW EFFICIENCIES MAY EXIST IN MARKET

16. THE NINE NO-NOs Licensing Provisions to Watch For 1. TIE-INS 2. GRANTBACKS 3. RESALE RESTRICTIONS 4. RESTRICTIONS ON FREEDOM TO DEAL OUTSIDE SCOPE OF PATENT 5. LICENSEE VETO OVER OTHER LICENSES

17. THE NINE NO-NOs Licensing Provisions to Watch For 1. MANDATORY PACKAGE LICENSING

18. Philips v. ITC (Fed. Cir. 2005) Patent Pool Allegedly Contained Essential And Nonessential Patents No Finding Of Patent Misuse – Licensees Were Not Being Charged For Nonessential Patents – Licensees Were Not Forced To Use The Nonessential Technology, Unlike Patent-To-Product Tying

19. THE NINE NO-NOs Licensing Provisions to Watch For 1. MANDATORY PACKAGE LICENSING 2. CONDITIONING ROYALTY PAYMENTS ON UNPATENTED ITEMS 3. RESTRICTION ON PRODUCTS MADE BY A PATENTED PROCESS 4. PRICE RESTRICTIONS

20. HATCH-WAXMAN ISSUES Settlements with Generic Drug Cos. GENERAL CONSTRUCT GENERIC DRUG COMPANY INITIATES PATENT CHALLENGE SETTLEMENT PRIOR TO TRIAL, DROPPING PATENT CHALLENGE GENERIC COMPANY AGREES NOT TO MARKET PRODUCT FOR SOME OR ALL OF REMAINING PATENT TERM BRAND COMPANY PAYS GENERIC COMPANY

21. HATCH-WAXMAN ISSUES ANTITRUST VIOLATION? YES Cardizem (6th Cir.) Terazosin (S.D. Fla.) NO Ciprofloxacin (Fed. Cir.) Schering-Plough (11 th Cir.) Tamoxifen (E.D.N.Y.) Asahi Glass (E.D. Pa.)

22. HATCH-WAXMAN ISSUES Analytical Tools Per se Cardizem Rule of Reason Ciprofloxacin Existence of patent is important 11 th Circuit factors (Terazosin, Schering-Plough) Evaluation of exclusionary scope of patent Evaluation of likely outcome of patent suit Whether settlement represented a reasonable implementation of patent protections

23. IP - BUYING, HOLDING, SUING Antitrust Problems? ACQUISITION OF PATENTS Generally not an antitrust violation REFUSALS TO LICENSE Intergraph v. Intel In re Independent Svc. Org. BAD FAITH LITIGATION Handgards Actions WALKER PROCESS CLAIMS

24. Noerr-Pennington Immunity FIRST AMENDMENT IMMUNITY PETITION GOVERNMENT VIA LAWSUIT THAT IS NOT A SHAM PRE CASE DEFINES SHAM LITIGATION

25. PRE TEST FOR SHAM LITIGATION OBJECTIVELY BASELESS SUIT NO REASONABLE LITIGANT COULD REALISTICALLY EXPECT SUCCESS NO SHAM IF SUIT IS REASONABLY CALCULATED TO LEAD TO FAVORABLE OUTCOME AND SUBJECTIVE BAD FAITH INTERFERENCE WITH COMPETITOR

26. CAFC APPLICATION OF PRE HANDGARDS – PRE APPLIES Q-PHARMA BIO-TECHNOLOGY GENERAL WALKER PROCESS - NO PRE Q-PHARMA NOBELPHARMA

27. APPLICATION OF PRE Pre-Litigation Threats? Yes(?) – 1 st, 2d, 5 th, 11 th Circuits No – 10 th Cir. Hydril (Fed. Cir.) – Walker Process claims Administrative Proceedings? Yes – 2d Cir. Unocal – Yes, if quasi-legislative Orange Book Patent Listings? Yes – Organon (D.N.J.) No – Buspirone (S.D.N.Y.) Standard-Setting Organizations? No – Rambus (F.T.C.) No – Broadcom (3d Cir.)

28. TRADEMARK ISSUES MISUSE MISUSE IS A DEFENSE 15 U.S.C. 15 APPLIES EVEN TO INCONTESTABLE REGISTRATIONS NO AFFIRMATIVE ACTION FOR MISUSE

29. TRADEMARK ISSUES TYING IS THE TIED PRODUCT ESSENTIAL TO BE PURCHASED FROM THE TRADEMARK OWNER NO – CHICKEN DELIGHT COOKING EQUIPMENT, FOOD MIXES, PACKAGING YES – BASKING ROBBINS ICE CREAM

30. COPYRIGHT LAW MISUSE VALID DEFENSE NAPSTER (9 th Cir. 2001) DSC COMM. (Fed. Cir. 1999) LASERCOMB (4 th Cir. 1990) NOT A DEFENSE ALLEN-MYLAND (E.D. Pa. 1990) – Most courts have held it is not a valid defense

31. Thank you Eugene L. Chang Willkie Farr & Gallagher LLP New York, New York echang@willkie.com