Thursday, March 02, 2006

Patents, Misuse, and Market Presumption

In a unanimous opinion yesterday, delivered by Justice Stevens, the Supreme Court held that amendments made to the Patent Act in 1988 led to the conclusion that the mere fact that a product subject to a tying arrangement is patented does not support a presumption of market power for antitrust purposes, Illinois Tool Works Inc. v. Independent Ink, Inc. The Court did observe, however, that its previous strong disapproval of tying arrangements "has substantially diminished." Indeed, it noted that some tying arrangements have been held to be procompetitive.

The origin of the presumption that a patent (and perhaps copyright) confers market power arose outside of antitrust law, in the patent misuse area, specifically in Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917), and later Morton Salt Co. v. G.S. Suppinger Co., 314 U.S. 488 (1942). Two years later, the Court decided Mercoid Corp. v. Mid-Continental Investment Co., 320 U.S. 661 (1944). Mercoid, by the way, led to the statutory patent provision on staple article of commerce that has dogged copyright since its questionable adoption by the Court in the 1984 Sony decision. Those who wonder about the appropriateness of that adoption might fruitfully retrace those earlier steps.

In 1988, Congress amended 35 USC 271(d)(5) , by stating, in relevant part, that injunctive relief should not be denied or misuse found "unless, in view of the circumstances, the patent owner has market power in the relevant market for the patent or patented product in which the license of sale is conditioned." The Supreme Court yesterday held that this passage indicated "Congress did not intend the mere existence of a patent to constitute the requisite 'market' power,'" even though the amendment did not expressly refer to antitrust law.

The only reference in the opinion to copyright is to the 1995 guidelines issued jointly by the DOJ and FTC, which state that for prosecution purposes, they "will not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner." While there is no corresponding statutory provision in the Copyright Act to the patent misuse defense, the defense has been raised in a number of cases. The merits of such a defense were not reached in yesterday's decision, but the circumstances in which it will be raised may have shrunk. The MPAA, RIAA, NFL and other copyright owners had submitted amicus briefs favoring the ultimate result. MPAA's Dan Glickman is quoted in today's Hollywood Reporter as saying that "This is good news for all creators and innovators." Theatre and video distribution owners, concerned (rightly or not) about block booking and tie-ins, were less thrilled.


Mark Jaffe said...

The Supreme Court opinion was not surprising. The presumption of market power in an IP right was doomed, if not by logic and policy than certainly by statute.
So what do you think of the status as to copyright? Perhaps a misguided judge will decide that Independent Ink doesn’t change the status quo as to copyrights, and will hold that a copyright carries a presumption of market power. There’s no equivalent statute for copyright that assumes no market power.
That would be logically absurd, don’t you agree? To find market power in every tie-in arrangement of a movie, or an album, or two songs?

William Patry said...

I would guess by the movie studios' reaction that the consensus is the opinion is applicable to copyright