Supreme Court: NFL collective licensing of trademarks not immune from Section 1 antitrust scrutiny

Monday the Supreme Court unanimously held the NFL's practice of collectively licensing the trademarks of all 32 individual teams is not immune from antitrust scrutiny under Section 1 of the Sherman Act.  The NFL argued that because the marks are all licensed through a single entity, NFL Properties, there was no "contract, combination, . . . or conspiracy" under § 1, and therefore there could be no antitrust problem.

The Court disagreed.  The Court first observed the question of whether there is a "single enterprise" is not dependent on the specific legal structure of the entities.  As stated by the Court (internal citations omitted):

The relevant inquiry, therefore, is whether there is a "contract, combination . . . or conspiracy" amongst "separate economic actors pursuing separate economic interests," such that the agreement "deprives the marketplace of independent centers of decisionmaking," and therefore of "diversity of entrepreneurial interests," and thus of actual or potential competition.

Applying this framework, the Court held the existence of NFL Properties was not sufficient to prevent a "contract, combination . . . or conspiracy" and therefore avoid § 1 scrutiny.  The teams are "sparately controlled, potential competitors with economic interests that are distinct from NFLP's financial well-being." 

Despite holding the NFL's actions were subject to review under § 1, the Court did not pass on the merits, and noted some aspects of the NFL may provide a sufficient justification of its licensing practices under the Rule of Reason.  Ultimately, it will be up to the district court to address the merits of the case and determine whether there is a § 1 violation.

Click below for more detail of American Needle, Inc. v. National Football League and links to media coverage of the case.

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En banc Federal Circuit to address potential patent misuse issues in license practices

The Federal Circuit has agreed to hear en banc an interesting issue with regard to the potential for patent misuse in licensing.  The case is Princo Corp. v. ITC.  At issue is the patent pool related to the technology used for CD-R and CD-RW discs.  The alleged infringer, Princo, admitted infringement before the ITC, but asserted the patents unenforceable due to patent misuse.  The ITC originally rejected this defense, but a divided panel of the Federal Circuit held additional factual determinations were necessary to assess the defense.  

Currently-available CD-R and CD-RW discs use analog technology to assist the recording device in determining where on the disc the recording laser is located at any given time.  Another potential alternative (that has not been implemented in the marketplace) is using digital technology to make this determination.  According to the defendant, the digital alternative was never commercialized because of an agreement between Sony and Philips (two of the owners of patents in the relevant patent pool) not to license a Sony patent covering this digital alternative for this purpose.  According to the defendant, this amounted to a type of horizontal price fixing, and was therefore patent misuse.  The ITC disagreed, and held no misuse occurred.

A divided panel of the Federal Circuit disagreed, and remanded the case to the ITC for further factual development.  The court stated the precompetitive benefits sometimes seen in the context of patent pools are completely absent in the context of an agreement not to license patents covering a potentially competing technology.  The panel majority held this was at least potentially an antitrust violation under the rule of reason.

The en banc Federal Circuit has now agreed to address this issue, with the briefing cycle to be completed shortly after the new year.  Oral argument is not yet set (update, see below), but the case has the potential to provide some clarity on when an arguably anticompetitive licensing practice crosses over into patent misuse.

Click here for the order granting rehearing en banc.

Update (10/29):  The Federal Circuit has set oral argument in the case for March 3 at 2:00 PM.

Click below for a full summary of the panel decision in Princo Corp. v. Int'l Trade Comm'n.

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Ninth Circuit: Sufficient evidence of fraud to defeat summary judgment on Walker Process claim

In a recent decision, the Ninth Circuit addressed the antitrust implications of so-called "reverse payments" between brand name and generic pharmaceutical companies.  A health care provider brought suit against the two companies, alleging their agreement to delay the introduction of a generic pharmaceutical (which involved payment to the generic manufacturer of $4.5 million per month) was a violation of antitrust laws that caused the provider to have to pay substantially more to obtain the pharmaceutical.  The provider also alleged the brand name pharmaceutical company filed for and obtained patents it knew were invalid and engaged in sham litigation to unlawfully extend its patent monopoly over the pharmaceutical.  The provider lost on both counts at the district court.  A jury found the agreement between the two providers had not caused a delay in the introduction of the generic, and the district court granted summary judgment on the attempted monopolization claim based on fraudulent filings.

The Ninth Circuit affirmed and reversed in part.  The court affirmed the jury's verdict on the unlawful restraint of trade (§ 1 of the Sherman Act) claim, holding the district court's evidentiary decisions were not an abuse of discretion.  As to the summary judgment on the monopolization claim under § 2, the court agreed there was insufficient evidence that the brand-name manufacturer's litigation to prevent the introduction of the generic was a sham.  But, the Ninth Circuit held there was sufficient evidence to overcome summary judgment that one of the patents asserted in those cases was obtained by fraud, and remanded the case for further consideration of the § 2 claim under Walker Process.

More on Kaiser Found. Health Plan, Inc. v. Abbot Labs., Inc. after the jump.

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Second Circuit: Copyright license of indeterminate term improperly read to be perpetual

In this appeal from the United States District Court for the Northern District of New York, the Second Circuit reversed the dismissal of a copyright claim based on ambiguity in a contract, but affirmed dismissal of the antitrust claims because the plaintiff's proposed market definition was not plausible.

The district court dismissed the copyright claims based on a contract granting the defendants the right to copy the plaintiff's materials with no time limit.  The district court held this was unambiguous, and granted a perpetual license to the defendants.  The Second Circuit held the contract ambiguous, in part because under New York law "contracts which are vague as to their duration generally will not be construed to provide for perpetual performance."  As a result, the court remanded the case for the district court to determine the duration of the license granted by determining the parties' intent.

The Second Circuit agreed with the district court that the plaintiff defined the relevant market in an implausible manner, and affirmed the dismissal of the antitrust claims.  The plaintiff's proposed market definition did not encompass all interchangeable substitute products, even under the facts in the light most favorable to the plaintiff, and therefore dismissal was proper.

More detail of Chapman v. New York State Div. for Youth after the jump.

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If no anticompetitive effect outside exclusionary zone of patent, reverse payment OK in ANDA cases

In a recent decision, the Federal Circuit upheld the district court's grant of summary judgment in an antitrust case.  At issue was whether reverse payments (from the patentee to the accused infringer) in the context of the Hatch-Waxman Act violated antitrust laws.  The Federal Circuit observed that "[t]he essence of the inquiry is whether the agreements restrict competition beyond the exclusionary zone of the patent," and that "in the absence of evidence of fraud before the PTO or sham litigation, the court need not consider the validity of the patent in the antitrust analysis of a settlement agreement involving a reverse payment."  Based on this standard, the Federal Circuit affirmed the district court's grant of summary judgment of no antitrust violation.

More detail of In re Ciprofloxacin Hydrochloride Antitrust Litig. after the jump.

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Second Circuit: MLB collective trademark licensing does not violate Sherman Act

In a recent decision, the Second Circuit affirmed a district court's summary judgment to the defendant in an antitrust case regarding trademark licensing.  The case involved the collective licensing setup of Major League Baseball Properties ("MLBP").  The plaintiff was a licensee of MLBP.  The court held the centralized licensing agent for all Major League Baseball teams did not violate § 1 of the Sherman Act.  

The plaintiff argued the agreement should be either per se illegal or subject to "quick look" rule of reason analysis.  The court rejected both of these contentions, instead applying traditional rule of reason analysis.  The court's lengthy opinion held that MLBP does not depress any collectibles market or violate antitrust provisions through its centralized licensing structure and equal apportionment of licensing revenue to each baseball club.

More on Major League Baseball Props., Inc. v. Salvino, Inc. after the jump.

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Third Circuit: Patentee's intentional falsehood to standards body can support antitrust claim

Maybe it's time for Qualcomm to rethink how it approaches standard-setting organizations.  In a decision today, the Third Circuit reversed in part a district court's dismissal of rival Broadcom's antitrust claims, finding that Broadcom had adequately pleaded actions by Qualcomm that, if true, would constitute an antitrust violation.

The facts of the case are similar to those in a recent case in California federal court (blogged about here), in that they deal with Qualcomm's interactions with standard-setting groups.  In this case, Qualcomm allegedly made intentional misrepresentations to a standard-setting group that led to a standard being adopted that arguably infringed Qualcomm patents.  Once the standard was adopted, Qualcomm changed its stance regarding the terms on which it would license the patented technology.  As stated by the court (after describing other cases of similar conduct where antitrust violations were found):

We hold that (1) in a consensus-oriented private standardsetting environment, (2) a patent holder’s intentionally false promise to license essential proprietary technology on FRAND [Fair, Reasonable, And Non-Discriminatory] terms, (3) coupled with an SDO’s [Standards Determining Organization's] reliance on that promise when including the technology in a standard, and (4) the patent holder’s subsequent breach of that promise, is actionable anticompetitive conduct. This holding follows directly from established principles of antitrust law and represents the emerging view of enforcement authorities and commentators, alike. Deception in a consensus-driven private standard-setting environment harms the competitive process by obscuring the costs of including proprietary technology in a standard and increasing the likelihood that patent rights will confer monopoly power on the patent holder.

As a result, if the allegations are true, Qualcomm could be subject to antitrust liability for these actions under § 2 of the Sherman Act for unlawful monopolization.  The court also held that Broadcom stated a claim for attempted monopolization, but the dismissal of other claims was affirmed.  All in all, it's been a bad month for Qualcomm in its legal wrangling with Broadcom.

To read the full decision in Broadcom Corp. v. Qualcomm Inc., click here.

Supreme Court: vertical retail price maintenance no longer per se violation of antitrust law

Overruling a nearly century old decision, the Supreme Court Thursday held that a manufacturer may, in some instances, enter into a vertical agreement with its retailers to set minimum retail prices for the manufacturer's goods.  The court overruled the venerable decision in Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), which held that such agreements were a per se violation of Section 1 of the Sherman Act.

Instead, the Court, in a 5-4 decision, overruled Dr. Miles, and held that such agreements are subject to "rule of reason" analysis.  The justification for doing so was that such arrangements can have both procompetitive effects as well as anticompetitive ones, and as a result should not be illegal in all cases as mandated by the per se rule.

In dissent, Justice Breyer, joined by Justices Stevens, Souter, and Ginsburg, did not think Dr. Miles should have been overruled.  This was in part because of the rule of stare decisis and in part because of the expense and difficulty of using the rule of reason analysis to "separate the beneficial sheep from the antitrust goats." 

Interesting tidbit:  Justice Kennedy, who wrote the majority opinion, was in the majority of all of the Supreme Court's 5-4 decisions this term, and only dissented in 2 of the 71 cases in which he participated. 

To read the full decision in Leegin Creative Leather Prods., Inc. v. PSKS, Inc., click here.

Further commentary from various sources:

Antitrust & Competiton Policy Blog

Law.com

Wall Street Journal  

Wall Street Journal law blog

University of Chicago Faculty law blog

ACS Blog

Update (7/6):  Law.com offers this piece regarding the tough Supreme Court term for antitrust plaintiffs.

Dippin' Dots: brought to you by inequitable conduct, but not an antitrust violation

Dippin' Dots

What do Dippin' Dots, the little beads of ice cream sold at fairs, stadiums, and malls, have to do with patent and antitrust law? For the Federal Circuit, they presented the "close case" where a patent holder can be found to have engaged in inequitable conduct during prosecution of the patent but is not liable for a Walker Process antitrust claim by an infringement defendant. This is possible based on the differing standards of proof required by the infringement defendant, as explained by the Federal Circuit in the case. While both inequitable conduct and a Walker Process antitrust claim require proof that the patent holder either misrepresented or failed to disclose to the patent office something material to patentability and that it was done with intent to deceive. However, if evidence of one is scant, an inequitable conduct claim can still be proven if evidence of the other is strong; not so with a Walker Process claim. More details of the case after the jump.

 

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Walker Process antitrust claim reinstated: threats to sue competitor's customers sufficient

In Hydril Co. v. Grant Prideco, Inc., the Federal Circuit reinstated a Walker Process antitrust claim the lower court had dismissed. A Walker Process claim can arise when a patent holder, knowing that its patent was obtained through fraud, still attempts to enforce the patent. This type of claim is named after the Supreme Court case where it was first described as a valid claim under United States antitrust laws.

Because this case was appealed after a motion to dismiss, the court was required to accept the allegations Hydril asserted in its complaint as true. In order to prove a Walker Process antitrust claim, the party must show the elements of common law fraud, which are (1) a representation of a material fact, (2) that the representation was false, and (3) either intent to deceive or acting with reckless disregard for the consequences of the representation.

Here, the court found that the allegations in the complaint, if true, satisfied these three requirements. Hydril asserted that Grant Prideco fraudulently obtained its patent by failing to disclose material prior art to the patent office of which it was aware, and that the patent would not have issued had the omissions not have been made. Further, Hydril alleged that these omissions were done knowingly and deliberately. The court held that these allegations, if true, would constitute the necessary fraud to support a Walker Process claim.

In addition to the fraud, however, there must be some act by the patent holder to attempt to enforce the patent. Hydril did not allege that Grant Prideco had ever threatened it with enforcement of the patent, just the Grant Prideco had threatened some of Hydril's customers with enforcement. The district court found that because Grant Prideco never asserted the patent against Hydril, Hydril had no claim.

The Federal Circuit disagreed, specifically stating that "a valid Walker Process claim may be based upon enforcement activity against the plaintiff's customers." This is because enforcement against a supplier's customers will have the same net effect as enforcement against the supplier itself: the supplier's market share will suffer if its customers stop dealing with it based on a threat of patent infringement.

Judge Mayer dissented, and would have found no valid antitrust claim. Judge Mayer noted that there was no allegation of enforcement of the patent in the United States, and as a result, there could be no reasonable apprehension that Grant Prideco would enforce its patent against Hydril or its customers. Because of this territorial issue (not addressed by the majority), Judge Mayer would have affirmed the dismissal.

This case illustrates the minimum pleading requirements for a Walker Process antitrust claim, and also serves as a reminder for the dire consequences that can arise if a patent is obtained through fraud. Violations of antitrust laws can result in the violator having to pay treble (triple) damages as well as the plaintiff's legal fees.

To read the full decision in Hydril Co. v. Grant Prideco LP, click here.

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