Ebook Antitrust law and intellectual property rights: Part 1

Antitrust Law and
Intellectual Property
Rights


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Antitrust Law and
Intellectual Property
Rights
CASES AND MATERIALS

CHRISTOPHER R. LESLIE

1


1
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______________________________________________
Library of Congress Cataloging-in-Publication Data
Leslie, Christopher R.
Antitrust law and intellectual property rights : cases and materials / Christopher R. Leslie.
p. cm.
Includes bibliographical references and index.
ISBN 978-0-19-533719-8 ((hardback) : alk. paper)
1. Intellectual property—United States. 2. Antitrust law—United States. I. Title.
KF3116.L47 2010
346.7304'8—dc22
2010020812
______________________________________________
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Printed in the United States of America on acid-free paper
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For Tony


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CONTENTS

Preface and Acknowledgments

xix

part one:
the foundations of the intersection between
antitrust law and intellectual property rights
1

2

1

A Primer on Intellectual Property Law

3

A. Patents

5

B. Copyrights

11

C. Trademarks

14

D. Trade Secrets

18

E. Other Forms of Intellectual Property

19

Comments and Questions

19

Bibliography of Additional Resources

21

A Primer on Antitrust Law

23

A. Sherman Act (1890)

25

Section One of the Sherman Act

25

Section Two of the Sherman Act
Monopolization

27
28

vii


viii Contents
Attempted Monopolization
Conspiracies to Monopolize
B. Clayton Act (1914)

33

Tying Arrangements

33

Mergers

34

Other Aspects of the Clayton Act

35

C. Federal Trade Commission Act (1914)

35

Remedies

3

31
32

35

Comments and Questions

36

Bibliography of Additional Resources

37

The Tension Between Antitrust and Intellectual
Property

39

A. A Brief History on the Relationship Between Antitrust
Law and Intellectual Property Rights

39

Atari Games Corp. v. Nintendo of America, Inc.

44

Comments and Questions

46

B. The Relationship Between Intellectual Property
and Market Power

46

DOJ-FTC Antitrust Guidelines for the Licensing of
Intellectual Property, Sec. 2.2

47

Illinois Tool Works v. Independent Ink, Inc.

47

Comments and Questions

54

Bibliography of Additional Resources

56

C. Antitrust Law and the Misuse of Intellectual Property

56

1. Patent Misuse
County Materials Corp. v. Allan Block Corp.
Comments and Questions

57
57
60

2. Copyright Misuse
Lasercomb America, Inc. v. Reynolds
Comments and Questions

61
61
64

3. Trademark Misuse

66

Bibliography of Additional Resources

67


Contents ix
D. Economic Concepts
1. Price Discrimination
Note on the Robinson-Patman Act
Comments and Questions

68
70
71

2. Efficiency
Thomas O. Barnett, Interoperability Between
Antitrust and Intellectual Property
Comments and Questions

72

3. Networks Effects
U.S. v. Microsoft Corp.
Comments and Questions

73
73
83

Bibliography of Additional Resources

84

part two:
the antitrust implications of unilateral
conduct by intellectual property owners
4

68

72
73

87

Enforcement of Intellectual Property Rights

89

A. Enforcement of a Fraudulently Procured Patent

89

Walker Process Equipment v. Food
Machinery & Chemical Corp.
Comments and Questions

89
92

Dippin’ Dots, Inc. v. Mosey
Comments and Questions

94
99

Brunswick Corp. v. Riegel Textile Corp.
Comments and Questions

100
103

Bibliography of Additional Resources

104

B. Sham Litigation

104

CVD, Inc. v. Raytheon Co.

Comments and Questions

104
110

Note on the Noerr-Pennington Doctrine

111

Professional Real Estate Investors v. Columbia
Pictures
Comments and Questions

113
118

Note on Filmtec Corp. v. Hydranautics

120


x Contents

5

Primetime 24 Joint Venture v. National Broadcasting Co.
Comments and Questions

123
128

Bibliography of Additional Resources

129

Tying Arrangements and Intellectual Property
U.S. Dep’t of Justice & Federal Trade Commission, Antitrust
Enforcement and Intellectual Property Rights: Promoting
Innovation and Competition (2007)

131

DOJ-FTC Antitrust Guidelines for the Licensing
of Intellectual Property, Sec. 5.3

131

A. Tying Arrangements and Patented Products

132

International Salt Co. v. United States
Comments and Questions

132
135

B. Antitrust Implications of Block-Booking
of Copyrighted Works

139

United States v. Paramount Pictures, Inc.
Comments and Questions

139
140

United States v. Loew’s, Inc.
Comments and Questions

141
145

Outlet Communications, Inc. v. King
World Productions, Inc.
Comments and Questions

147
149

C. Copyrighted Software and Tying
Digidyne Corp. v. Data General Corp.
Comments and Questions
D. Trademarks and Tying

6

131

149
149
153
154

Siegel v. Chicken Delight, Inc.
Comments and Questions

154
157

Krehl v. Baskin-Robbins Ice Cream Co.
Comments and Questions

158
162

Tominaga v. Shepherd
Comments and Questions

162
165

Bibliography of Additional Resources

165

Unilateral Refusals to License or Deal
DOJ-FTC Antitrust Guidelines for the Licensing of Intellectual
Property, Sec. 2.2

167
167


Contents xi
Data General Corp. v. Grumman Systems Support Corp.
Comments and Questions
Image Technical Serv. v. Eastman Kodak
Comments and Questions
In re Independent Service Organizations
Antitrust Litigation (Xerox)
Comments and Questions

178
189
190
195
199

Note on the Digital Millennium Copyright Act

200

Intergraph Corp. v. Intel Corp.

203

Comments and Questions

212

Design Changes and Predatory Innovation
Berkey Photo, Inc. v. Eastman Kodak Co.
Comments and Questions
Foremost Pro Color, Inc. v. Eastman Kodak Co.

213

215
215
227
231

Comments and Questions

235

C.R. Bard, Inc. v. M3 Systems, Inc.

236

Comments and Questions

240

Automatic Radio Manufacturing Co. v. Ford Motor Co.
Comments and Questions
Abbott Laboratories v. Teva Pharmaceuticals USA, Inc.
Comments and Questions

Bibliography of Additional Resources

8

176

Note on Market Power in Aftermarkets

Bibliography of Additional Resources

7

167

Deceptive Conduct before Standard-Setting
Organizations
In the Matter of Dell Computer Corp.

243
245
245
253
255

257
257

Comments and Questions

261

Broadcom Corp. v. Qualcomm Inc.

262

Comments and Questions

273

Rambus, Inc. v. FTC
Comments and Questions

274
282


xii Contents
Note on Section 5 of the Federal Trade Commission Act

284

Bibliography of Additional Resources

287

part three:
the antitrust implications of horizontal
agreements involving intellectual property
9

Price Fixing and Intellectual Property
A. Patents and Cartels

289
291
291

United States v. United States Gypsum Co.
Comments and Questions

291
298

Addamax Corp. v. Open Software Foundation, Inc.
Comments and Questions

300
305

B. Patent Pooling and Price Fixing

305

DOJ-FTC Antitrust Guidelines for the Licensing of
Intellectual Property, § 5.5 Cross-licensing and pooling
arrangements

305

Standard Oil Co. v. United States

Comments and Questions

307
311

Matsushita Electrical Industrial Co. v. Cinram
Comments and Questions

316
321

Federal Trade Commission In the Matter
of Summit Technology
Comments and Questions

323
327

C. Blanket Licensing of Copyrighted Works

327

Broadcast Music, Inc. v. CBS
Comments and Questions

327
336

Note on Agreements to Fix a Maximum Price

338

D. Standard-setting Organizations

339

U.S. Dep’t of Justice & Federal Trade Commission, Antitrust
Enforcement and Intellectual Property Rights:
Promoting Innovation and Competition (2007)

340

Sony Electronics, Inc. v. Soundview Technologies, Inc.
Comments and Questions

340
345

Bibliography of Additional Resources

349


Contents xiii

10

Market Allocation and Intellectual
Property Rights
A. Patents and Market Allocation

Hartford-Empire Co. v. United States
Comments and Questions
B. Trademarks and Market Allocation

351
351
355
355

Timken Roller Bearing Co. v. United States
Comments and Questions

355
356

United States v. Sealy
Comments and Questions

357
362

United States v. Topco Associates, Inc.
Comments and Questions

362
369

Palmer v. BRG of Georgia, Inc.
Comments and Questions

369
371

Clorox Co. v. Sterling Winthrop, Inc.
Comments and Questions

371
377

C. Copyrights and Market Allocation
Auwood v. Harry Brandt Booking Office, Inc.
Comments and Questions

378
378
380

D. International Intellectual Property Regimes
and Market Allocation

381

Metro Industries, Inc. v. Sammi Corp.
Comments and Questions

381
385

E. DOJ-FTC Antitrust Guidelines for the Licensing of
Intellectual Property, Sec. 5.1

11

351

Pharmaceutical Settlements and
Reverse Payments
In re Cardizem CD Antitrust Litigation
Comments and Questions
Schering-Plough Corp. v. F.T.C.
Comments and Questions
C. Scott Hemphill, An Aggregate Approach to Antitrust:
Using New Data and Rulemaking to Preserve Drug
Competition, 109 COLUMBIA LAW REVIEW 629 (2009)

385

387
387
393
394
410

412


xiv Contents
In re Tamoxifen Citrate Antitrust Litigation
Comments and Questions
Bibliography of Additional Resources

12

Agreements to Buy and Sell Intellectual
Property as an Antitrust Violation
A. Acquisition of IP as a Conspiracy to Restrain Trade

13

413
427
431

433
433

United States v. Singer Manufacturing, Co.
Comments and Questions

433
442

B. Agreements to Acquire Intellectual Property and
Merger Law

444

DOJ-FTC Antitrust Guidelines for the Licensing of
Intellectual Property § 5.7

444

Antitrust Modernization Commission: Report and
Recommendations (2007)

444

A Note on Technology and Innovation Markets

449

DOJ-FTC Antitrust Guidelines for the Licensing
of Intellectual Property §3.2

449

Federal Trade Commission In the Matter
of Ciba-Geigy Ltd.
Comments and Questions

450
458

Group Boycotts and Concerted Refusals to
Deal or License

459

A. Antitrust Treatment of Concerted Refusals to Deal

459

Fashion Originators Guild of America v. Federal Trade
Commission
Comments and Questions
B. Concerted Refusals to Deal with a Patentee
Jones Knitting Corp. v. Morgan
Comments and Questions
C. Group Boycotts and Copyrights

459
462
462
462
465
465

Primetime 24 Joint Venture v. National Broadcasting Co.
Comments and Questions

465
467

The Movie 1 & 2 v. United Artists Communications, Inc.
Comments and Questions

468
472

Contents xv

part four:
the antitrust implications of vertical
agreements involving intellectual property
14

Vertical Price Restraints and
Intellectual Property

475

A. The Foundation of Antitrust’s Treatment of Vertical
Price Restraints

475

Dr. Miles Medical Co. v. John D. Park & Sons Co.
Comments and Questions
B. General Electric and the Ability of Patent Owners
to Set Resale Prices
United States v. Line Materials Co.
Comments and Questions
C. Vertical Price Fixing and Copyrighted Works

475
479
480
480
486

489

United States v. Paramount Pictures, Inc.
Comments and Questions

489
491

LucasArts Entertainment Co. v. Humongous
Entertainment Co.
Comments and Questions

492
495

A Note on the First Sale Doctrine

495

D. Resale Price Maintenance and Trademarked Goods

496

U.S. v. Frankfort Distilleries

496

Hudson Distributors, Inc. v. Eli Lilly & Co.
Comments and Questions

497
500

E. The Demise of Dr. Miles
Leegin Creative Leather Products, Inc. v. PSKS, Inc.
Comments and Questions

15

473

Non-price Licensing Restrictions

500
500
509

511

DOJ-FTC Antitrust Guidelines for the Licensing
of Intellectual Property, § 2.3

511

B. Braun Med., Inc. v. Abbott Labs

512

Comments and Questions

515

A Note on Exhaustion Doctrine

515


xvi Contents
United States v. Studiengesellschaft Kohle
Comments and Questions

527

Transparent-Wrap Machine Corp. v. Stokes & Smith Co.

528
531

Bibliography of Additional Resources

534

The Antitrust Implications of
Structuring Royalties

535

Automatic Radio Manufacturing v. Hazeltine Research
Comments and Questions
Brulotte v. Thys Co.

Comments and Questions
Zenith Radio Corp. v. Hazeltine Research, Inc.

535
538
539
541
543

Comments and Questions

548

Scheiber v. Dolby Laboratories, Inc.

549

Comments and Questions

552

Bibliography of Additional Resources

part five:
injury, remedies, jurisdiction and
procedural issues
17

527

DOJ-FTC Antitrust Guidelines for the Licensing of Intellectual
Property, Examples of Licensing
Comments and Questions

16

517

Standing and Antitrust Injury
A. Competitor Standing

553

555
557
557

Handgards, Inc. v. Ethicon, Inc.
Comments and Questions

557
559

Bourns, Inc. v. Raychem Corp.
Comments and Questions

560
564

B. Consumer Standing

In re Ciprofloxacin Hydrochloride Antitrust Litigation

564
564


Contents xvii
Molecular Diagnostics Laboratories v. Hoffmann-La
Roche Inc.
Comments and Questions
Bibliography of Additional Resources

18

Remedies
U. S. v. Glaxo Group Ltd.
Comments and Questions
Bibliography of Additional Resources

19

Jurisdiction and Procedural Issues

565
567
567

569
569
573

576

577

Christianson v. Colt Industries Operating Corp.

578

Holmes Group, Inc. v. Vornado Air Circulation Systems, Inc.

583

Comments and Questions

585

Hydranautics v. FilmTec Corp.

586

Comments and Questions

587

Bibliography of Additional Resources

appendices

588

589

Appendix A: Statutory Supplement

591

Appendix B: Antitrust Guidelines for the Licensing of
Intellectual Property

617

Appendix C: Microeconomic Analysis and Graphs

647

Table of Cases
Index

659
669


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PREFACE AND ACKNOWLEDGMENTS

Typically, courses in intellectual property law focus primarily on the philosophy behind protecting intellectual property rights, how to secure and enforce the
rights, and the scope of such intellectual property rights. Patents, copyrights, and
trademarks are characterized by the range of exclusionary rights associated with

each body of law. Intellectual property rights can, in some circumstances, confer considerable market power upon their owners. Such firms sometimes exercise
this power in ways that exceed the legitimate bounds of their intellectual property
rights. While substantive IP law defines the scope of the exclusionary rights, it is
antitrust law that often provides the most important consequences when IP owners inappropriately exercise their rights in a way that harms consumers or illegitimately excludes competitors. Antitrust law defines the limits of what intellectual
property owners can do with their IP rights.
This book’s primary focus is doctrinal antitrust law, as applied to issues involving intellectual property rights. Aside from the introductory primer on intellectual
property rights in the first chapter, the book does not concentrate on substantive
intellectual property law. Instead it focuses on what conduct firms can and cannot
engage in while acquiring and exploiting their intellectual property rights. This
casebook explores those aspects of antitrust law that are necessary for both antitrust practitioners and intellectual property attorneys, involved in either litigation
or transactions, to understand.
This book is the culmination of a decade of work and the input of many talented colleagues and students. I have taught my course on Antitrust Law and Intellectual Property Rights at New York University School of Law, University of Texas
School of Law, the University of Illinois College of Law, and my former home
institution, the Chicago-Kent College of Law. My interactions with the students
helped considerably in developing this casebook. Several students—Inya Baiye,
xix


xx Preface and Acknowledgements
Karin Hessler, Ben Kleinman, and Kate Stutt—provided line edits and other useful
suggestions.
I owe special thanks to three of my former students from New York University
School of Law—Jason Adler, Cedric Logan, and Jonathan Salzberger. I had the
pleasure of teaching them in my seminar Antitrust Law and Intellectual Property
Rights, after which each of them helped research and write some of the Comments
and Questions following the case excerpts.
Several law professors provided invaluable feedback and suggestions after either
teaching from a draft version of the book or reviewing a draft manuscript. These
included Tom Cotter, Dan Crane, Carol Handler, Mark Lemley, Barak Orbach,
and Tony Reese. The book is much improved because of their input.

My faculty assistant, Lisa Payne, provided excellent assistance in making the
graphs in the Economics Appendix.
Finally, this casebook would not exist but for the hard work of Lori Wood
who shepherded the proposal through Oxford University Press and provided both
guidance and encouragement.
Christopher R. Leslie
Irvine, California


PART ONE

the foundations of the
intersection between
antitrust law and intellectual
property rights


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CHAPTER 1

A Primer on Intellectual
Property Law

In many ways, property rights provide one of the critical foundations of modern
capitalist society. Free market economies assume the ownership of real estate and
moveable objects that can be voluntarily traded for the mutual gain of both buyers
and sellers. Capitalism could not exist without property rights.
Intellectual property (IP) refers to “[a] category of intangible rights protecting

commercially valuable products of the human intellect. The category comprises
primarily trademark, copyright, and patent rights, but also includes trade-secret
rights, publicity rights, moral rights, and rights against unfair competition.”1 The
fact that intellectual property is intangible distinguishes it from physical property.
The consumption of physical goods is generally rivalrous. One person’s consumption of a physical good depletes the supply for others. For example, two people
cannot each eat the entirety of the same apple. In addition, physical property is
generally appropriable. The owner of physical property can exclude others from
using the property by securing it (in the case of goods or chattels) or by preventing
trespass (in the case of land or other real estate) by, for example, building walls.
In contrast, the consumption of the subjects of intellectual property is generally nonrivalrous because one person’s use of an invention does not diminish
another person’s ability to exploit that invention by making a copy. The nonrivalrous aspect of intellectual property has both positive and negative attributes. On
the positive side, sharing and distribution often entails a relatively low cost. Once
a disease-curing drug has been invented, it can be manufactured at a low cost and
made affordable to low-income individuals afflicted with the particular disease.
One person’s enjoyment of a work of authorship, such as a song, does not prevent
1

Black’s Law Dictionary (8th ed. 2004).

3


4 Antitrust Law and Intellectual Property Rights
other people from also enjoying that same song. In addition, it is usually difficult
for inventors and authors to exclude other people from the benefits of their creations, at least if the creators want to exploit their economic value, which generally requires disclosing the creations to the public. Once an invention or work of
authorship is disclosed, it can be difficult to keep others from copying it.
The difficulty of excluding others from the economic benefits of intellectual
creations has a negative side. Invention generally requires a significant investment
of time and labor. New products and ideas often result from an arduous process of
trial and error—combined with both ingenuity and luck. In contrast, conversion

is substantially quicker than creation. Reverse engineering—the process of taking a
product apart to see how it is built in order to reconstruct one’s own version of the
product—is often cheaper than invention from scratch. Similarly, writing a novel
often takes years; copying it may take minutes. The copier can generally undersell
the innovator because the copier does not have to recoup the costs of creating and
developing the work and instead bears only the cost of producing the copies (costs
that the original creator also faces in producing her own copies for sale). In many
instances, products that are protected by intellectual property have relatively high
fixed costs (the cost of creation) but have relatively low marginal costs (the cost of
manufacturing each additional unit of output of a patented invention or a printed
volume of copyrighted work). This makes copying an attractive competitive strategy because the copier incurs none of the high fixed costs of creation and, thus, can
sell the product at a relatively low price.
However, if one’s ideas or inventions can be readily misappropriated by others,
then a creator has less incentive to invest in creating new products or authoring
new works. Firms and individuals would be less willing to invest their resources
into research and development if they feared the result of their efforts could be
appropriated by their competitors, who could undersell them since the copier has
fewer costs to recoup. If competitors in a particular market all wait for their rivals
to do the heavy lifting of creation, no firm would engage in meaningful research
and development. All firms and consumers would be worse off. Similarly, many
artists—be they writers, painters, choreographers, or moviemakers—would be less
likely to invest their time and energy creating works of authorship—and many
commercial entities would be less likely to invest in the dissemination of such
works—if they suspected their efforts could be readily copied.
Intellectual property law attempts to solve this problem by granting exclusionary rights to inventors and authors. Protecting physical property is relatively
straightforward. Moveable objects can be put under lock and key, while real estate
(and large immovable objects) can be fenced off. (Of course, some forms of physical property may be difficult to protect against trespass, such as vast tracts of land
in remote locations.) If physical barriers fail, property owners can sue for trespass
or conversion.
Physical exclusion is trickier with intellectual creations. Once an idea or artistic

work becomes public, it can be hard for an inventor to exclude others from using or
copying it. Intellectual property law addresses this problem by affording IP owners