4-29_Antitrust_and_Prosecution_Delay_Laches

							Prosecution Delay Laches and
          Antitrust
         Prof Merges

           4/29/08
35 U.S.C. 315 Appeal

(a) PATENT OWNER.- The patent owner involved in
  an inter partes reexamination proceeding under
  this chapter-
(b) THIRD-PARTY REQUESTER.- A third-party
  requester-
(1) may appeal under the provisions of section 134,
  and may appeal under the provisions of sections
  141 through 144, with respect to any final decision
  favorable to the patentability of any original or
  proposed amended or new claim of the patent
(c) CIVIL ACTION.- A third-party requester whose
  request for an inter partes reexamination results in
  an order under section 313 is estopped from
  asserting at a later time, in any civil action arising
  in whole or in part under section 1338 of title 28,
  the invalidity of any claim finally determined to be
  valid and patentable on any ground which the
  third-party requester raised or could have raised
  during the inter partes reexamination proceedings.
  This subsection does not prevent the assertion of
  invalidity based on newly discovered prior art
  unavailable to the third-party requester and the
  Patent and Trademark Office …
Jerome Lemelson, 1923-1997
http://www.masslawblog.com/?page_
              id=29
Mr. Lemelson, who died in 1997, was granted more than 500
  U.S. patents, making him (from a patent-count standpoint,
  anyway), one of the most prolific inventors in U.S. history.
  Some have compared him with Edison (that patent count
  again), but unlike Edison, most people would have difficulty
  recognizing his name or what any of his inventions were. Ask
  the dozens of companies he sued over the years for alleged
  patent infringement, and observers of developments in
  patent law, and they may tell you that Lemelson’s most
  significant (and lucrative) invention was how to game the
  U.S. patent system.
United States Patent 5,351,078 Lemelson * September
  27, 1994 Apparatus and methods for automated
  observation of objects


Apparatus and methods are disclosed for automatically
  inspecting two- or three-dimensional objects or
  subjects. A detector and the object are moved
  relative to each other. In one form, a detector, such
  as a camera or radiation receiver, moves around an
  object, which is supported to be rotatable such that
  the detector may receive electromagnetic energy
  signals from the object from a variety of angles. The
  energy may be directed as a beam at and reflected
  from the object, as for visible light, or passed
  through the object, as for x-ray radiation.
The detector generates analog image
 signals resulting from the detected
 radiation, and an electronic
 computer process and analyzes the
 analog signals and generates digital
 codes, which may be stored or
 employed to control a display.
Inventors: Lemelson; Jerome H. (Incline
  Village, NV) Assignee: Lemelson Medical,
  Education & Research Foundation
  Limited Partnership (Incline Village, NV)
  Filed: September 16, 1993
        “Continuation Abuse”
MAJOR controversy over stringent PTO rules
 limiting number of continuations that
 patentee is allowed to file
Supreme Court of the United States.

       WOODBRIDGE et al.
               v.
         UNITED STATES.
      Decided Nov. 12, 1923.
Justice Taft
In this case we have a delay of 9 1/2 years in
  securing a patent that might have been had
  at any time in that period for the asking,
  and this for the admitted purpose of making
  the term of the monopoly square with the
  period when the commercial profit from it
  would be highest. Not until war or fear of
  war came was there likely to be a strong
  demand for rifled cannon and their
  improvement.
Hence the inventor, having put his order
 for the issue of a patent into the secret
 archives of the Patent Office in 1852, sat
 down and waited until after the Civil
 War came on in 1861 before seeking to
 avail himself of the patent, thus
 postponing the time when the public
 could freely enjoy it for nearly 10 years.
Meantime other inventors had been at
 work in the same field and had
 obtained patents without knowledge of
 the situation with respect to
 Woodbridge's invention.
This is not a case where evidence has to
 be weighed as to the purpose of the
 inventor. He avows his deliberate
 intention. This is not a case of
 abandonment. It is a case of forfeiting
 the right to a patent by designed delay.
    Defenses: Antitrust/Misuse

• Patents confer market power

• Market power can be abused

• When it has been, this may provide a defense
  for an infringer
           Antitrust/Misuse

• Centers on how the patentee deploys the
  technology

• Numerous potential ways to abuse the
  market power conferred by a patent
                        Examples

• Use of patents to mask or hide a cartel

   – “Horizontal” abuse


• Use of patents to exert control over dealers or
  customers

   – “Vertical” abuse
Misuse/Antitrust Counterclaim

Plaintiff/Patentee   Defendant
Misuse/Antitrust Counterclaim

Plaintiff/Patentee                  Defendant




                     Counterclaim
Misuse/Antitrust Counterclaim

Plaintiff/Patentee      Defendant




            Licensing
            Agreement
Misuse/Antitrust Counterclaim

Plaintiff/Patentee           Defendant




            Licensing   Defendant asserts
            Agreement   patent is unenforceable
                        due to anticompetitive
                        licensing agreement
           Typical Counterclaims

• Anticompetitive acquisition of patent
   – Walker Process Equipment , Inc . v . Food Machinery
     Chemical Corp., 382 U . S . 172 (1965); Handgards, Inc . v .
     Ethicon, Inc . 743 F . 2d 1282 (9th Cir . 1984)


• Illegal tie-in

   – Morton Salt
                    Illinois Tool
Trident, a wholly-owned subsidiary of Illinois Tool Works,
   is a manufacturer of printheads and owns U.S. Patent
   No. 5,343,226 covering the technology. The ‘226 patent
   discloses an ink jet device and a supply system with a
   hand actuated peristaltic pump. Trident also
   manufactures ink for use with the patented printheads.
   Although the ink is not protected by any of Trident’s
   patents, their standard license agreements grant the
   right to “manufacture, use and sell… ink jet printing
   devices…” to other printer manufacturers ONLY “when
   used in combination with ink and ink supply systems
   supplied by Trident.”
Misuse/Antitrust Counterclaim

Plaintiff/Patentee           Defendant




            Licensing   Defendant asserts
            Agreement   patent is unenforceable
                        due to anticompetitive
                        licensing agreement
Independent Ink also manufactures ink useable in
  Trident’s patented printheads. Independent filed
  suit in the Central District of California against
  Trident and Illinois Tool Works alleging, among
  other things, an illegal tying arrangement in
  violation of section 1 of the Sherman Act. The
  district court, however, dismissed the case on
  summary judgment.
            Illinois Tool – p. 1
“This presumption of market power, applicable
  in the antitrust context when a seller
  conditions its sale of a patented product (the
  “tying” product) on the purchase of a second
  product (the .tied. product), has its
  foundation in the judicially created patent
  misuse doctrine.”
       How Did the Issue Arise?
“Independent filed suit against Trident *Illinois
  Tool] seeking a judgment of noninfringement
  and invalidity of Trident.s patents.1 In an
  amended complaint, it alleged that
  petitioners are engaged in illegal tying and
  monopolization in violation of §§1 and 2 of
  the Sherman Act. 15 U. S. C. §§1, 2.”
 Sherman Act: Section One 15 U.S.C. § 1
Every contract, combination in the form of trust or
  otherwise, or conspiracy, in restraint of trade or
  commerce among the several States, or with foreign
  nations, is declared to be illegal. Every person who
  shall make any contract or engage in any
  combination or conspiracy hereby declared to be
  illegal shall be deemed guilty of a felony, and, on
  conviction thereof, shall be punished by fine not
  exceeding $10,000,000 if a corporation, or, if any
  other person, $350,000, or by imprisonment not
  exceeding three years, or by both said punishments,
  in the discretion of the court.
 Sherman Act: Section One 15 U.S.C. § 2
Every person who shall monopolize, or attempt to
  monopolize, or combine or conspire with any other
  person or persons, to monopolize any part of the
  trade or commerce among the several States, or
  with foreign nations, shall be deemed guilty of a
  felony, and, on conviction thereof, shall be punished
  by fine not exceeding $10,000,000 if a corporation,
  or, if any other person, $350,000, or by
  imprisonment not exceeding three years, or by both
  said punishments, in the discretion of the court.
            Theoretical basis

• “Leverage theory”

  – Patents being improperly leveraged by various
    licensing practices


• For example, a tie-in
            Tie-in example

• If you want my patented machine, you must
  buy (unpatented) materials used in the
  machine
Morton Salt case
“*R+espondent is making use of its patent
  monopoly to restrain competition in the
  marketing of unpatented articles, the salt
  tablets, for use with the patented machines .
  . .”

-- P. 1351
                 Morton Salt
• Equity

• Relevant that illicit license is with 3rd parties,
  not defendant/petitioner?

   – No
           Leverage theory

• “Leveraging” monopoly in machine into
  (separate) market for salt
             Chicago Critique
• No such thing as
  “leverage”

• Cannot charge more for
  [Tying + Tied] product
  bundle than buyers are
  willing to pay
        More Chicago critique

• Look for more “positive” explanation of
  licensing practices

  – Patentees deserve a monopoly


• How might it be good for the patentee and
  consumers?
          “Metering” Concept

• Relates back to price discrimination idea
    Why is it good to allow tie-ins?


• Allow seller to capture value of bacon for
  consumers of bacon and eggs

• Prevent consumers from “substituting away”
  from bacon when price of bacon is raised
            Price Discrimination
Price




  $5



  $3


        Total Revenue
                                   D
               100      170   Quantity Demanded (000s)
        Total Revenue
 High Price        Low Price




  $500             $510
(100 x $5)       (170 x $3)
            Price Discrimination
Price

                        “Consumer
                        Surplus” – lost
  $5                    to seller

  $3


        Total Revenue
                                     D
               100       170    Quantity Demanded (000s)
              Price Discrimination
Price




  $5                      Small canners

  $3    Large
        canners

                                   D
                  100   170   Quantity Demanded (000s)
         Total Revenue
Without Price       With Price
Discrimination    Discrimination



   $510              $710
                 (100 x $5) +
                   (70 x $3)
    Solution: Metering by Tie-in

• Use salt sales to count how much buyer uses
  canning equipment

• Achieve price discrimination: high volume
  users will pay more for canning equipment
                 Precedent
Loew’s, International Salt.

These cases predate the Court’s articulation
  These cases predate the Court’s articulation of
  the market power requirement (ITS v. Kodak,
  Jefferson Parish v. Hyde).
Morton Salt
Salt and Canning Equipment
Nonprice Vertical Restraints: GTE Sylvania

After reexamining the Schwinn rule, the U.S. Supreme Court
   in the present case rejected that rule and held that all
   nonprice vertical restraints of trade would be examined
   using the rule of reason. Only vertical price fixing (or
   resale price maintenance) would be examined using the
   per se rule. The Supreme Court held that Sylvania’s
   alleged restraint of trade in terminating Continental TV
   was a nonprice vertical restraint of trade that was to be
   examined using the rule of reason. The Supreme Court
   affirmed the Court of Appeals decision in favor of GTE
   Sylvania. Continental TV, Inc. v. GTE Sylvania, Inc., 433
   U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).
          Limitations on Licensing
                      35 USC § 271(d)(5)

No patent owner otherwise entitled to relief for infringement
  or contributory infringement of a patent shall be denied
  relief or deemed guilty of misuse or illegal extension of the
  patent right by reason of his having done one or more of the
  following: . . . .

refused to license or use any rights to the patent; or
conditioned the license of any rights to the
  patent or the sale of the patented product on
  the acquisition of a license to rights in
  another patent or purchase of a separate
  product, unless, in view of the circumstances,
  the patent owner has market power in the
  relevant market for the patent or patented
  product on which the license or sale is
  conditioned.
      Illinois Tool: District Court

• SJ for Accused Infringer
On appeal, the Federal Circuit reversed and remanded
  the district court’s grant of summary judgment in
  favor of Trident on the tying claim.

According to the Appellate Court, Trident’s licenses
  are “explicit tying agreement*s+” because the sale
  of a patented product is conditioned on the sale of
  an unpatented one. Although the district court
  required affirmative proof of market power from
  the plaintiff, the Federal Circuit reiterated that the
  Supreme Court has clearly established a
  presumption of market power unique to patent and
  copyright tying cases, it holds that this presumption
  is rebuttable.
“Once the plaintiff establishes a patent tying agreement, it is the
  defendant’s burden to rebut the presumption of market power
  and consequent illegality that arises from patent tying.”
Rebuttal evidence requires expert testimony or “credible economic
  evidence of the cross-elasticity of demand, the area of effective
  competition, or other evidence of lack of market power.”
Furthermore, the Court admonishes the district court for not
  following clearly established Supreme Court precedent and for
  dismissing the High Court's holdings as “vintage.” Commenting
  that it may be time to abandon the doctrine, a significant portion
  of the opinion emphasizes that it is up to the Supreme Court or
  Congress to expressly overrule its own precedent -- this
  prerogative does not lie with the district courts.
Broad consensus that patents are property and are
   not monopolies.
– USDOJ/FTC Antitrust Guidelines for Licensing of IP
   (noting difference between patentee’s power IP to
   exclude and market power)
– Patent Misuse Reform Act (35 U.S.C. § 271(d)(5))
(tying arrangement does not constitute patent misuse
   in the absence of market power)

Evolution of Areeda/Hovenkamp treatise
Suggests that presumption of market power is not
  warranted.
                 Illinois Tool
• "Any conclusion that an arrangement is unlawful
  must be supported by proof of power in the
  relevant market rather than by a mere presumption
  thereof," the Court said
• "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 reach 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."
                      Illinois Tool
The Supreme Court eliminated the presumption that a
  patent provides market power in a licensing agreement
  involving a tie-in

The Court has signaled a willingness to revisit old precedent
  originating in the anti-patent era of the 1930s and 1940s
  when Congress and scholarly opinion had turned
  decisively against it
William O. Douglas