Bundling arrangements, such as requiring a purchaser of an inkjet printer
to also buy all paper and replacement ink cartridges from the printer's
manufacturer, may now be lawful for the first time under a major new U.S.
Supreme Court antitrust decision. . Want a car? You might be required
to buy all the oil, tires and other replacement parts from the car's
manufacturer. Maintenance of the car may have to be done at the manufacturer's
related dealership as well. These suggested bundling arrangements may
be on their way as the result of the Illinois Tool Works decision.
On March 1, 2006, the need for a decision collided at the intersection
of antitrust and intellectual property. As a result, in Illinois Tool
Works, Inc., et al. v. Independent Inc., No. 04-1329, the Supreme Court
of the United States threw out a near-half century old antitrust rule
which made it difficult for owners of patents and copyrights to tie sales
of their products to other products'' sales.
The old, now-abandoned rule created a presumption the patent holder had
"market power." "Market powers" presence is a major
hurdle for plaintiffs to overcome to prove a Sherman Act violation. See,
International Salt Co. v. United States, 68 SCt 12 (1947) (first U S Supreme
Court case holding patent tying violated Sherman Act); United States v.
Loews, 83 SCt 97 (1962) (established an express legal presumption of market
power exists when the original, or "tying," product is patented).
Under a series of decisions stretching back more than four decades, the
Court repeatedly held a patent or copyright created a presumption of market
power which prevented the maker of a patented or copyrighted product from
requiring its purchasers to buy another tied product. If a maker did so,
it violated § 1 of the Sherman Act. The Court's ruling in Illinois
Tool dropped the major parts of this presumption of market power, and
granted owners of intellectual property rights much more latitude to bundle
their products with other goods or services.
The Illinois Tool Works antitrust claim arose from a patent infringement
suit filed by a division of Illinois Tool Works. Illinois Tool Works manufactures
patented inkjet printers used by other companies to print bar codes on
cartons. The license agreement conditioned use of the product on the purchase
of replacement ink only from Illinois Tool Works.
Independent Ink, of California sells replacement ink that costs less than
Illinois Tool Works'' ink, and works in all Illinois Tool Works''
printers. In 1997, Illinois Tool Works'' sued Independent Ink
for patent infringement. Independent Ink's 1998 suit sought declaratory
judgment of non-infringement and invalidity of Illinois Tool Works''
patents. Independent Ink later added allegations that Illinois Tool Works
was engaged in a "tying" in violation of § 1 of the Sherman Act.
The Appeals Courts and Final Results
The U.S. Court of Appeals for the Federal Circuit begrudgingly found in
favor of Independent Ink noting it was bound by Supreme Court precedent.
The Supreme Court's unanimous Opinion, written by Justice John Paul
Stevens, indicated the underlying rationale for the presumption was a
desire to stop tying. However, in recent years, the Court repeatedly rejected
this negative view of tying.
The Court held: "Congress, the antitrust enforcement agencies and
most economists have all reached the conclusion that a patent does not
necessarily confer market power upon the patentee. Today, we have reached
the same conclusion, and therefore hold that, in all cases involving a
tying arrangement, the plaintiff must prove that the defendant has market
power in the tying product."
Risks in the Result
Although many may hail the Court's Opinion, there is concern whether
the Court went too far. The danger is without some type of presumption,
perhaps even a rebuttable presumption of antitrust activity, many smaller
companies cannot afford to vindicate their rights against antitrust violators.
For instance, Independent Inc., a 35-person firm, must now either drop
its lawsuit or wage an expensive uphill battle trying to prove Illinois
Tool Works has market power over industrial bar code printers. If Independent
Inc. elects not to continue, there will be no way for customers to get
the benefit of an unbundled marketplace for the ink and printing products
they need. Extended across the economy, this outcome threatens more consolidation
and far less far-market opportunity for small and independent businesses.