Victory for Patent Holders, Potential Trouble for the Aftermarket Industry
On March 1, 2006, the United States Supreme Court handed a victory to patent holders in overruling long standing precedent regarding the presumption of the market power of patented products. The decision affects patent holders who “tie” the purchase of an unpatented product to the purchase of a patented product and are then sued by a manufacturer of the unpatented product for anti-trust violations.
In Illinois Tool Works, Inc. v. Independent Ink, Inc., 126 S.Ct.1281 (2006), Trident, Inc. and its parent, Illinois Tool Works, Inc., (collectively “Trident”) manufactured and marketed printing systems that included a patented printhead and ink container and unpatented ink. These products were sold to equipment manufacturers who agreed to purchase ink exclusively from Trident and that neither they nor their customers would refill the patented containers with any other kind of ink. Thus, the sale of the patented printhead and container was “tied” to the sale of the unpatented ink.
Independent Ink, Inc. (“Independent”) developed an ink with the same chemical composition as Trident’s ink. Trident then filed an infringement action against Independent that was dismissed. Independent turned around and filed suit against Trident seeking a judgment of non-infringement and invalidity of Trident’s patents on the ground that Trident was engaging in an illegal “tying” and monopolization in violation of the Sherman Antitrust Act. As a result of this illegal “tying” arrangement, Independent alleged that the market for its identical but cheaper ink was diminished.
In reaching its decision, the Supreme Court recognized the long standing precedent that if a product has a patent, it is presumed to have the requisite “market power” that makes it illegal to “tie” the sale of the patented product to another product. The Court, however, rejected this precedent, holding that in cases involving a “tying” arrangement, the plaintiff must prove that the patent holder has market power in the patented “tying” product.
The Court reasoned that over the years, the Court’s disapproval of “tying” arrangements has diminished as the Court moved from relying on assumptions to requiring a showing of market power in the “tying” product. The Court’s holding recognizes the reality of the modern marketplace: these days, merely having a patent does not necessarily ensure market power to a patent holder.
The Court also reasoned that, in 1988, Congress undermined the market power presumption when it amended the Patent Act to eliminate the presumption in patent misuse cases. In rejecting this presumption in the context of antitrust cases, the Supreme Court has effectively “tied” together antitrust and intellectual property law.
The practical effect of the Court’s decision is a victory for patent holders because they are no longer at a disadvantage when sued by competitors for antitrust violations. The decision, however, will have a negative affect on the aftermarket industry. For example, makers of auto parts may be harmed if patent holders attempt to require purchasers of automobiles to buy their parts. Generic pharmaceutical manufacturers may also suffer. Copyright holders may try to cash in by selling their blockbuster films to theater owners bundled together with less successful films.
In future litigation, companies bringing anti-trust challenges for illegal “tying” will need to be prepared to establish whether the patent holder actually has market power in the “tying” product, as the presumption of market power no longer exists.