2021 was an action-packed year for US antitrust law. The Biden administration is poised to take more aggressive antitrust enforcement, nominating several reformers to key antitrust posts in the Department of Justice (DOJ) Antitrust Division and the Federal Trade Commission (FTC) (together, the Agencies), both of which have responsibility for enforcing the federal antitrust laws.2 These personnel changes come amidst a substantial groundswell of interest in reforming the nation's antitrust laws through policy and legislation.3A new administration brings major changes
With the end of the Trump administration, leadership at both the DOJ and FTC has changed hands. Antitrust star Lina Khan was first nominated to the FTC on 22 March 2021 and confirmed on 15 June. Shortly thereafter, Khan was tapped to ascend to the Chair, replacing acting chair Rebecca Kelly Slaughter. Khan rose to prominence after her Yale Law School student note, 'Amazon's Antitrust Paradox', became a scholarly rallying cry for the burgeoning 'New Brandeisian' school of antitrust thought.4 President Biden has also tapped noted Big Tech critic Jonathan Kanter to lead the Antitrust Division, signalling a significant shift in antitrust-IP policy.
During the prior administration, under the leadership of Makan Delrahim, the Antitrust Division pursued what Delrahim described as a 'New Madison' approach to the application of antitrust law to intellectual property rights (IPRs) that was aimed at ensuring patent holders have adequate incentives to innovate.5 Central to this approach was the view that antitrust law had been improperly expanded to curb power conferred by patents in favour of implementers who seek licences to practise patented technologies.6 Delrahim also voiced concerns that standard-setting organisations could cloak anticompetitive conduct behind IP policies that purport to increase competition.7
Under Delrahim, the DOJ withdrew its assent in 2018 to the 2013 Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary FRAND Commitments issued jointly with the US Patent and Trademark Office (PTO). In 2020, the DOJ further took the 'extraordinary step' of updating a prior business review letter to stress that injunctive relief is available under US law for patents encumbered with fair, reasonable and non-discriminatory (FRAND) commitments; the smallest saleable patent practising unit is not the only appropriate base for determining a reasonable royalty; and there is a risk of anticompetitive effects from 'hold out' by implementers as well as from 'hold up' by patentees.8
Under the Biden administration, the 2020 IEEE business review letter update was quietly moved from the business review section of the DOJ's website to its advocacy section. While acting Assistant Attorney General Richard A Powers stated that the move signified 'a return to previous practice that is consistent with existing department regulations', some suspected the move would signal a more significant departure to come from the Trump administration's approach to antitrust-IP intersection issues.9 This interpretation has at least been partially borne out, as the DOJ announced on 6 December 2021 a request for public comment on a new draft policy statement expressing its view that, 'as a general matter, consistent with judicially articulated considerations, monetary remedies will usually be adequate to fully compensate a standard-essential patent (SEP) holder for infringement' and that the issuance of injunctions to cease unlicensed practice of the SEP should be disfavoured.10
While new administration policy may be in flux, the general antitrust framework in which antitrust-IP intersection issues are analysed in the United States is not. Standard-setting and licensing activities are typically considered to be pro-competitive in the United States, but are not exempt from federal or state antitrust laws and cannot be used to cover up collusive conduct such as price-fixing or market allocation schemes.11 As in other areas, the Sherman Act applies to conduct implicating IP rights (IPRs), with Section 1 of the Sherman Act governing agreements alleged to unreasonably restrain trade, which may take place in the context of licensing, standard-setting activities, or other joint conduct.12 Section 2 of the Sherman Act governs unjustified exclusionary conduct used to obtain or maintain a monopoly, for example by procuring IPRs by fraud on the PTO or by wrongfully asserting IPRs beyond their scope to exclude a competitor from the market.13 Acquisitions of IPRs may also implicate Section 7 of the Clayton Act, which governs mergers and acquisitions that may substantially lessen competition or tend to create a monopoly.14 The FTC may further assert Section 5 of the Federal Trade Commission Act, which more broadly prohibits unfair or deceptive methods of competition.15
The most recent FTC and DOJ antitrust enforcement policies in this area are further outlined in the Antitrust Guidelines for the Licensing of Intellectual Property, last updated by the Agencies in 2017; the 2010 Horizontal Merger Guidelines; the 2020 Merger Remedies Guidance; and the Agencies' 2007 and 2011 reports on the intersection of antitrust and IP.16 The Agencies' general approach is to 'apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right'.17 The Agencies have recognised, however, that intellectual property does have some characteristics, such as ease of misappropriation, that distinguish it from other forms of property.18
Although facially anticompetitive agreements relating to IPRs may still be summarily struck down under what is known as the per se rule, the majority of agreements related to intellectual property are assessed under the mode of analysis known as the rule of reason. Under the rule of reason, a court will balance anticompetitive and pro-competitive effects and assess whether pro-competitive justifications asserted by a defendant could have been achieved through less restrictive alternatives. Absent contractual commitments to the contrary, owners of IPRs in the United States are generally free to choose whether or not to license their rights, to whom to license and at what price.19
Fundamentally, there is a tension inherent in the relationship between IPRs and antitrust law in that the former grants the right to exclude competitors from practising an invention and the latter prohibits a competitor from engaging in unjustified exclusionary conduct used to gain or maintain a monopoly. The two bodies of law, however, are increasingly viewed as serving the same complementary goals of incentivising innovation, promoting vigorous competition, and promoting consumer welfare, which flows from the creation of new technology.20 Although courts used to assume a patent granted the patentee monopoly power, this judicial inference has been replaced by a more sophisticated economic analysis appreciating that the right to exclude may be narrow or competitively insignificant where multiple products can compete effectively regardless of the rights at issue. Caution thus must be taken to delineate where a lawful right to exclude ends and anticompetitive exclusionary conduct subject to antitrust scrutiny begins. With the ever-growing importance of patented technologies to the economy, the prevalence of antitrust-IP intersection cases appears poised to continue to grow as well, offset only by the current trend in courts increasingly to hold breaches of FRAND commitments to be governed by contract law, rather than antitrust.
Year in review
Policy changes are likely on the horizon in the United States. In his 9 July 2021 Executive Order on Promoting Competition in the American Economy (the Executive Order on Competition), President Biden encourages several key areas for review in order to promote competition.21 Among these was his encouragement to the AG and Secretary of Commerce to review their 'position on the intersection of the intellectual property and antitrust laws, including by considering whether to revise the Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued jointly by the Department of Justice, the United States Patent and Trademark Office, and the National Institute of Standards and Technology on December 19, 2019'.
Khan's leadership so far has been defined by a willingness to lead policy reforms on contested issues, even over the objections of her colleagues in a divided three-to-two Democratic-majority Commission. One significant example is the Commission's June 2021 recission of the 1995 Prior Approval Policy Statement, which returns the FTC to the previous regime of requiring companies that had previously attempted mergers later found to be unlawful to seek and obtain pre-approval from the FTC for any future transaction in the same market for which the prior violation was alleged.22 In a similar move to enhance the FTC's enforcement muscle, Khan led a three-to-two vote to rescind the 2015 Statement of Enforcement Principles Regarding 'Unfair Methods of Competition' Under Section 5 of the FTC Act. The 2015 Statement announced the FTC's policy that it would analyse all Section 5 cases under 'a framework similar to the rule of reason' and would thus be less likely to raise a Section 5 claim 'if enforcement of the Sherman or Clayton Act is sufficient to address the competitive harms'.23 In a statement released on 1 July 2021 explaining the move, Chair Khan wrote that 'the Statement has doubled down on the Commission's long-standing failure to investigate and pursue “unfair methods of competition'”.24 Practitioners are watching closely to see if the FTC applies Section 5 of the FTC Act to cases relating to SEPs.
Perhaps the strongest signal of change at the Commission was the 15 September 2021 announcement that the FTC would withdraw its approval of the 2020 Vertical Merger Guidelines that had been issued jointly with the DOJ just a year prior.25 In September 2021, the FTC also announced an initiative to make the Second Request merger investigation process 'more streamlined and rigorous' by seeking a broader set of information from merging parties that would allow the Commission to 'factor in additional facets of market competition', including the proposed merger's impact on labour markets.26
Because acquiring parties commonly settle upon the grant of a preliminary injunction, it is noteworthy that the FTC undertook two administrative merger trials in 2021.27 Although the trials did not relate to the application of the antitrust laws to the use of intellectual property, they may signify an increased willingness to bring merger challenges to trial, which could impact future deals in this area going forward. The DOJ's Antitrust Division is also implementing aggressive enforcement policies. However, unlike the prior administration, the Biden DOJ thus far has had less of a focus on the application of the antitrust laws to the use of intellectual property. The DOJ has been focused instead, with limited success, on criminal indictments28 and two failed criminal trials in the area of restraints in labour markets.29 Both the FTC and the DOJ have also been busy pursuing monopolisation litigations in the tech sector against Meta (Facebook) and Google, respectively.30
Finally, in private litigation in 2021, the parties in Cont'l Auto. Sys., Inc. v. Avanci, presented oral argument in their blockbuster antitrust licensing case. By way of background, in 2020, the Northern District of Texas dismissed an action brought by Continental Automotive Systems against Avanci, a licensing platform, and Nokia and other patentees alleging defendants conspired to deprive Continental of FRAND licences for SEPs.31 The case was appealed to the United States Court of Appeals for the Fifth Circuit, which heard oral arguments in October 2021 and issued a decision (discussed below) in favour of Avanci in early 2022.32
Licensing and antitrust
Because patents confer the right to exclude others from practising an invention, licensing those rights is generally pro-competitive in that it increases the opportunities for others to make, sell, or use technology, thereby creating competition where none might otherwise exist, clearing blocking positions that could otherwise restrain innovation, thereby creating efficiencies in production and thus increasing consumer welfare.33 The Antitrust Guidelines for the Licensing of Intellectual Property reflect the Agencies' acknowledgement that licensing and cross-licensing frequently offer substantial pro-competitive efficiencies, promote innovation, and enhance competition.34i Anticompetitive restraints
To provide businesses with a degree of certainty and thus encourage pro-competitive licensing activities, the Agencies established an antitrust 'safety zone' pursuant to which they ordinarily will not challenge a restraint in an IP licensing arrangement if the restraint is not facially anticompetitive and the licensor and its licensees collectively account for no more than 20 per cent of each relevant market significantly affected by the restraint.35 Facially anticompetitive restraints generally include price-fixing, the allocation of markets or customers, agreements to reduce output, and certain group boycotts, which may merit condemnation under the per se rule without an elaborate inquiry into the restraint's likely anticompetitive effects.36 However, given the benefits and efficiencies created through licensing, licensing agreements are instead generally scrutinised under a rule of reason analysis.37
Nevertheless, the US Supreme Court has warned that licensors cannot hide behind these benefits to conceal anticompetitive conduct.38 If licensing terms are blatantly anticompetitive, have clear anticompetitive effects, or are not reasonably necessary to achieve the efficiencies, the agreement could be analysed as a per se restraint.39 The Agencies will assess whether licences impose horizontal or vertical restraints on competition, with heightened scrutiny where a licensor and licensee (or two or more licensees) would have been actual or likely horizontal competitors absent the challenged arrangement.40
Horizontal licensing arrangements may be challenged in the United States when they include output restraints, territorial restrictions, and field-of-use licensing.41 Territorial restraints, which assign exclusive territories or regions to each competitor, raise antitrust concerns when they involve competitors that possess market power in the aggregate or are a part of a larger scheme of restraints.42 As the Supreme Court held in US v. Sealy, territorial restrictions that are part of 'an aggregation of trade restraints including unlawful price-fixing and policing' are unlawful under Section 1 of the Sherman Act.43 Fitting into this framework, the recent in re Blue Cross Blue Shield Antitrust Litigation case likewise involved allegations of both territorial restraints and output restrictions. Plaintiffs alleged that Blue Cross Blue Shield (BCBS) imposed territorial restrictions in members' licensing agreements as well as rules limiting how much revenue each member could derive from other lines of business outside of those using BCBS's trademark (a form of output restriction). This effectively meant that while members could compete in others' territories with brands that did not include the BCBS trademark, there was a cap on the amount of business that could be generated this way, which plaintiffs alleged reduced competition among members. The Northern District of Alabama determined that BCBS's overall scheme, including the territorial and output restrictions, must be analysed under the per se rule, which precipitated a large settlement of US$2.67 billion.44
Vertical licensing arrangements, such as those that implicate tying and exclusive dealing, can also raise antitrust concerns in the United States. Tying may both violate the antitrust laws and constitute patent misuse when the licensor conditions the licensing of intellectual property on the purchase of another good, service, or IPR.45 Exclusive dealing may also raise antitrust concerns in certain circumstances where a licensing agreement prevents a licensee from selling, distributing, licensing, or using competing technologies from another licensor.46ii Refusals to license
Recently, several cases have focused on a licensor's decision to license exclusively at one level of the supply chain, particularly in the context of SEPs subject to FRAND commitments.47 In the United States, however, the Supreme Court has repeatedly held that competitors have no general antitrust duty to aid their rivals and can generally choose with whom to deal.48 In 2020, the Ninth Circuit explicitly extended this doctrine to the licensing context in FTC v. Qualcomm.49 The Ninth Circuit held that profit-seeking behaviour alone is insufficient to support antitrust liability.50 Indeed, absent contractual commitments to the contrary, a patentee may ordinarily set a royalty however high the market will bear, provided it is set unilaterally.51 Exclusive licensing arrangements, however, should be entered with care because numerous factors bearing on exclusivity may be considered, and the applicable rule of reason analysis is highly fact-specific. While exclusivity sometimes has recognised pro-competitive benefits, exclusive licensing may violate the antitrust laws, particularly where it substantially forecloses competition or access to markets or suppliers, raises competitors' costs of inputs, or facilitates anticompetitive pricing or other collusive conduct.52
The year 2021 saw a victory for global cellular technology leader Qualcomm in the lawsuit chiefly targeting its 'no-licence, no-chips' policy, under which Qualcomm refused to supply modem chips to any customers unless they also licensed, for allegedly above-FRAND rates, Qualcomm's SEPs.53 This dispute began with an action brought in January 2017 by the FTC, which sued Qualcomm alleging unfair competition in violation of the FTC Act and the Sherman Act. Follow-on consumer class actions were subsequently filed, alleging violations of state antitrust and consumer protection laws. The consumer class actions were consolidated (Stromberg v. Qualcomm Inc.) in the US District Court for the Northern District of California before the same judge presiding over the FTC action.54
The plaintiff class was comprised of cell phone purchasers, which alleged that Qualcomm maintained a monopoly in chips by:
- implementing the aforementioned 'no-licence-no-chips' policy;
- refusing to license its SEPs to rival chip suppliers; and
- entering exclusive dealing arrangements with Apple that prevented rival chip suppliers from competing with Qualcomm to supply Apple's chip demand.55
Plaintiffs argued that the consequently excessive royalty resulted in higher prices or reduced quality in mobile phones.56 The district court certified a damages class under Fed. R. Civ. P. 23(b)(3) and an injunctive relief class under Rule 23(b)(2).
A unanimous three-judge Ninth Circuit panel, on 29 September 2021, vacated the class certification order, ruling that the district court conducted an erroneous choice-of-law analysis.
While the full choice of law analysis is beyond the scope of this chapter, the ruling demonstrates the challenges associated with efforts to certify multi-state indirect purchase plaintiff classes. Additionally, while the Stromberg action has yet to be dismissed, the Ninth's Circuit's holding in the FTC v. Qualcomm action that 'Qualcomm's licensing practices did not violate the Sherman Act, and the exclusive dealing arrangements with Apple did not substantially close competition and were terminated years ago; thus, “there [was] nothing to be enjoined”' may set the stage for dismissal.57 In remanding the case, the Ninth Circuit instructed that the district court should determine whether the FTC decision 'defeats the class on Rule 23(a) grounds' and turn to Rule 23(b) analysis only if the FTC decision does not have this effect.58iii Unfair and discriminatory licensing
In February 2022, the Fifth Circuit issued its decision in the blockbuster Cont'l Auto. Sys., Inc. v. Avanci licensing case, after hearing oral argument in October 2021. The Court found that neither of Continental's two theories of injury-in-fact were adequate to confer Article III standing, let alone antitrust standing.59
As to Continental's theory that the possibility of Avanci and patent holders procuring non-FRAND licences from car manufacturer OEMs would lead to a risk of royalty rates being passed to Continental through indemnity agreements, the Court agreed with the district court that this articulated harm was 'not . . . actual or imminent' and was persuaded by defendants' argument that the alleged injury was 'doubly speculative'.60 For Continental to be harmed, the Court explained, OEMs would have to first accept non-FRAND licenses and then invoke their indemnification rights against Continental, and the pleadings did not establish these events.61 The claim 'depend[ed] on several layers of decisions by third parties' and was thus 'too speculative to confer Article III standing'.62
Second, Continental's theory of injury due to the alleged refusal by Avanci and patent-holder defendants to provide Continental with a licence on FRAND terms was also insufficient to establish standing. Continental admitted that the only agreement that it was relying upon for this claim was Avanci's with its patent holder licensors, and that agreement expressly permitted individual licensing by individual patent holder licensors outside of the Avanci platform.63 Moreover, the Court could not conclude that Continental was denied property to which it was entitled, as it was, at most, an incidental beneficiary under FRAND contracts between standard-setting organisations (SSOs) and SEP holders, as opposed to an intended beneficiary.64 As such, Continental lacked the right to enforce FRAND contracts between patent-holder defendants and SSOs. The Court explained: 'No evidence suggests that Patent-Holder Defendants and SSOs intended to require redundant licensing of third parties up the chain, which is unnecessary to effectuate the purpose of the FRAND commitments and reduce patent hold-up.'65 The Court went on to hold that even if Continental was such an intended third party beneficiary, it nonetheless had failed to plead any injury in fact, such as an actual or threatened infringement action or a demand by an OEM that Continental pay indemnification.66 Further, the Court clarified that the SEP holders in fact fulfilled their obligations with respect to Continental, as they were making SEP licenses available to Continental on FRAND terms, via Avanci and patent-holders 'actively licensing the SEPs to the OEMs'.67 As Continental did not need to license SEPs itself to operate its business, it had not been denied property to which it was entitled, and had thus failed to plead injury in fact.68iv Patent pooling
Patent pools, portfolios, and cross-licensing arrangements, which involve agreements with or between patent owners in order to license patents to one another or to third parties, are subjected at times to antitrust scrutiny in the United States.69 Pool and portfolio licensing have been repeatedly recognised by courts and the DOJ as pro-competitive due to the many benefits and efficiencies created by reducing transaction costs, creating economies of scale, integrating complementary technologies, and avoiding costly patent infringement litigation, and thus are typically analysed under the more permissive rule of reason.70 In extraordinarily rare circumstances, however, these arrangements may be subject to the per se rule where the 'only apparent purpose is naked price fixing'.71 Courts have repeatedly held that a patent pool or portfolio licence does not restrain trade in violation of the Sherman Act if the plaintiff had a realistic opportunity to license independently from individual owners of patent rights available through the pool because the pool licence in such a case merely provides an alternative competitive option.72v Software licensing
While intersection litigation frequently focuses on patents, antitrust scrutiny can also arise in the context of software and trademark licensing (see below). In the software industry, monopolisation is a significant antitrust concern because of network effects, a form of demand-side economies of scale by which the value of a piece of software (such as an operating system) rises with the number of end users which ultimately use the software.73vi Trademark licensing
In contrast, antitrust claims rarely arise in connection with trademark licensing because trademarks greatly differ from patents in that they only provide the right to use a particular designation (symbol, name, and so on) and thus are unlikely to confer monopoly or market power over a product.74
Standard-essential patentsi Injunctions
The early and mid-2010s were marked by overall governmental resistance towards injunctive relief for infringement of SEP-encumbered patents. The DOJ and PTO issued a joint statement in 2013, conveying concern that enjoining an alleged infringer from using FRAND-encumbered SEP may encourage patent hold-up, impeding competition.
While the Trump era was characterised by greater sympathy towards 'innovators' as compared to 'implementers' and endorsed traditional remedies without any special treatment in cases of SEP infringement, the Biden Administration's position harkens back to the immediate pre-Trump era, advocating greater restraint toward injunctive relief as a remedy for SEP infringements. On 6 December 2021, the DOJ, US National Institute of Standards and Technology, and PTO jointly issued a Draft Policy Statement of Licensing Negotiations and Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (the Draft Policy).75 The Draft Policy states: 'As a general matter, consistent with judicially articulated considerations, monetary remedies will usually be adequate to fully compensate a SEP holder for infringement.'76
These judicially articulated considerations included engagement with the Supreme Court's decision in eBay Inc. v. MercExchange, LLC, which focuses on the appropriateness of injunctive relief – ultimately concluding that the balance of factors typically weighs against injunctive relief in the case of SEP infringement. The Draft Policy instructs that prior to any litigation, parties should engage in good-faith negotiations to arrive at FRAND license terms, and the statement elaborates on a framework for what constitutes such good-faith negotiations.
Although the statement clarified that injunctions can be justified under particular circumstances – namely where an implementer is unwilling to enter into a FRAND licence or acts in bad faith – prospective licensees which trust that they are operating in a climate that is overall hostile to injunctions may have a bit more leverage than before in their negotiations.
The sympathy towards implementer concerns is also reflected in statements made by FTC Commissioner Rebecca Kelly Slaughter, who, in the autumn of 2021, called upon the FTC to use the 'full range of its authority' to stop SEP owners from engaging in anticompetitive conduct. 'When patent holders obtain market power by virtue of being included in standards, the way they exercise that market power is not immunised from the antitrust laws merely because patents are involved,' Slaughter explained. She emphasised the relevance of the antitrust laws to conduct by these players, despite the potential availability of private patent and contract remedies.ii Licensing under FRAND terms
In a victory for SEP owners, the Fifth Circuit recently affirmed a jury verdict that found that licensing offers made by Ericsson to HTC for Ericsson's SEPs complied with Ericsson's FRAND obligations.77 Failed negotiations surrounding the renewal by HTC of licensing of Ericsson's patents on 2G, 3G, and 4G technology prompted HTC to file suit.78 The jury returned a verdict finding that HTC had not proven a breach of FRAND obligations on Ericsson's part, though the jury did find that neither party negotiated in good faith. Separately, the district court granted Ericsson's motion for a declaratory judgment on its counterclaim – expressly relying, in its conclusion of law, on the facts as found by the jury – declaring that Ericsson had affirmatively complied with its FRAND obligations in its dealings with HTC.
HTC, challenging on appeal the exclusion of its requested jury instructions, contended that the jury should have been told to apportion the value of the patents from the non-patented features of HTC's phone – basing it on the smallest saleable patent-practicing unit rather than the net unit of the device – and that the jury should have been told that the non-discrimination requirement of FRAND 'serves to level the playing field among competitors' by requiring a patent holder to provide similar terms to similarly situated licensees.79
The Fifth Circuit, however, explained that HTC's requested instructions were not 'substantially correct' statements of law, as they relied on patent law, when they should have been based on breach-of-contract law.80 Further, the non-discrimination instruction HTC requested 'flatly contradict[ed] the agreement between Ericsson and [The European Telecommunications Standards Institute]', the latter being the relevant standard-setting organisation.81 Specifically, according to the court, the instruction would 'transform the non-discrimination element of FRAND into a most-favoured licensee approach, which would require Ericsson to provide identical licensing terms to all prospective licensees' – an approach purposefully rejected by the European Telecommunications Standards Institute.82
While the contours of FRAND commitments remain unclear in many ways, this decision sheds some light on what SEP holders and licensees can expect if they bring their licensing disputes to the courts – notably, in the decision's classification of FRAND disputes as sounding in contract, echoing the approach of other courts.83
Intellectual property and mergersI Transfer of IPRs constituting a merger
In the modern high-tech economy, IPRs can define the course and shape of markets. This has led antitrust authorities to view IP transfers as potential antitrust risks. The 2017 Antitrust Guidelines for the Licensing of Intellectual Property note that certain transfers of IPRs are most appropriately analysed by applying the principles and standards used to analyse mergers, namely the 2010 Horizontal Merger Guidelines. Specifically, the Agencies:
. . . will apply a merger analysis to an outright sale by an intellectual property owner of all its rights to that intellectual property and to a transaction in which a person obtains through grant, sale, or other transfer an exclusive license for intellectual property (i.e., a license that precludes all other persons, including the licensor, from using the licensed intellectual property).84
Such transactions may be assessed under Section 7 of the Clayton Act, Sections 1 and 2 of the Sherman Act, and Section 5 of the FTC Act. Notably, the FTC has asserted Section 5 of the FTC Act against several companies alleged to have repudiated FRAND commitments made by predecessor companies prior to acquisitions.85
Those acquiring IPRs should further note that all mergers and acquisitions in the United States, regardless of whether they include transfers of IPRs, must report transactions to the FTC and DOJ prior to consummation if they exceed minimum thresholds set forth pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976.86 Reportable transactions must adhere to a waiting period before closing to enable the Agencies to request further information or challenge the merger should they so choose. Failure to do so could result in a 'gun-jumping' violation where the acquiring entity impermissibly takes control of the target prematurely.87
In September 2020, the DOJ also released its latest Merger Remedies Guidance, which further explains that a 'critical asset may be intangible, such as when firms with alternative patent rights for producing the same final product are merging. In those cases, structural relief must provide one or more purchasers with rights to that asset, either by sale to a different owner or through a fully paid-up license'.88 As the Guidance explains:
[W]hen a patent covers the right to compete in multiple product or geographic markets, yet the merger adversely affects competition in only a subset of these markets, the Division will insist only on the sale or license of rights necessary to maintain competition in the affected markets. In some cases, this may require that the purchaser or licensee obtain the rights to produce and sell only the relevant product. In other circumstances, it may be necessary to give the purchaser or licensee the right to produce and sell other products (or use other processes), where doing so permits the realization of scale and scope economies necessary to compete effectively in the relevant market.89ii Remedies involving divestitures of intellectual property
In some instances, divestiture of certain intellectual property may be ordered with a required license-back.90 On 17 September 2020, Alden Abbott, the General Counsel to the FTC, delivered the keynote address to the IP Watchdog 2020 Virtual Conference. In his remarks Abbott discussed this issue, observing that:
[The] FTC may weigh whether the divestiture of particular IP and research and development functions would be beneficial in maintaining incentives to innovate. Because so many of the issues surrounding potential, nascent, and future competition relate to IP-intensive issues, including innovative technologies that are under development, [FTC] will inquire whether efforts to preserve future competition may also serve to discourage and chill venture capitalist activities in some industries.
Abbott's comments are consistent with the Agencies' increased focus on nascent competitor acquisitions more generally.91
Various other types of conduct can trigger enforcement action at the intersection of IP and antitrust, including sham or vexatious IP litigation, obtaining patents by fraud and even anticompetitive settlements.i Sham or vexatious IP litigation
Sham litigation, including sham agency petitioning, can be used as a basis for an antitrust claim if, in addition to showing the other elements of a Section 2 monopolisation claim, the plaintiff can show that the lawsuit or petitioning was both objectively and subjectively baseless, although that standard may be loosened somewhat if the plaintiff can show a series of such sham actions.92 A recent appellate case dealing with sham litigation issues was the AbbVie case where the Third Circuit considered appeals of sham litigation findings against both Teva and Perrigo, resulting in a split verdict demonstrating, again, that facts matter.93 As to the litigation against Teva, the court considered the complex patent issues involved in concluding that the district court erred in holding that the litigation had been objectively baseless.94 By contrast, the Third Circuit affirmed the finding that the litigation against Perrigo was objectively baseless (notwithstanding the settlement of that litigation) based on the patent doctrine of prosecution history estoppal.95 Having found objective baselessness, the Third Circuit went on to consider subjective baselessness, affirming the finding of the district court that subjective baselessness had been shown with respect to the case against Perrigo by circumstantial evidence of an intent to file litigation 'for an improper purpose (i.e., in bad faith)'.96
In the in re Lantus Direct Purchaser Antitrust Litigation, the First Circuit held that a failure to list relevant patents in the Orange Book can support an antitrust claim where the conduct is not objectively reasonable and is not a good faith attempt to comply with the Hatch-Waxman regulatory framework.97ii Misuse of the patent process
The doctrine of patent misuse is another basis for a potential antitrust claim, defined as conduct that either has the effect of broadening the claimed coverage of the patent either temporally or in substantive scope, or ties the use or purchase of the patented product or method to unpatented products or methods.98 Established in Princo Corp v. ITC, courts consider the 'key inquiry' under the patent misuse doctrine to be 'whether, by imposing the condition in question, the patentee has impermissibly broadened the physical or temporal scope of the patent grant and has done so in a manner that has anticompetitive effects'.99 Generally, a finding of patent misuse does not render the patent invalid, but precludes enforcement of the patent until the misuse has ceased.100 It is generally not considered patent misuse to base royalties on the sale of a product using a patented invention even if it contains unpatented components,101 nor is it patent misuse for parties to set up, for their mutual convenience, a multi-patent licence that requires payment of royalties on the sale of all products covered by any of the patents.102
A monopolisation claim may also be based in part on the enforcement of a patent that has been obtained by fraud on the Patent Office. Known as the Walker Process Doctrine, it stands for the principle that the enforcement of a patent obtained by fraud committed against the Patent Office is an unlawful exclusionary act.103 'Enforcement' can include acts such as filing infringement actions in court, threats to sue, refusals to license, using the patent as a market entry deterrent device, or communications to rivals' customers declaring infringement and threatening contributory infringement actions against them.104 However, not every imperfection in the patent application process can make a patent unenforceable. Instead, the Federal Circuit requires an actual intent to deceive and a showing of but-for 'materiality', meaning the Patent Office examiner would not have issued the patent had she known the truth.105 It is important to keep in mind, however, that mere fraud in obtaining the patent is not sufficient to state a viable antitrust violation. All the other prerequisites for a Section 2 monopolisation claim will still need to be met including, for example, that the defendant has monopoly power in a relevant market.106iii Anticompetitive settlements of IP disputes
Finally, anticompetitive settlements of intellectual property disputes such as 'reverse payment settlements' or 'pay-for-delay' cases typically involve the resolution of a patent infringement claim by means of a payment from the patent owner to the alleged infringer.107 FTC v. Actavis, Inc, the landmark US decision regarding reverse payments, established that these agreements are not presumptively unlawful and require a rule of reason analysis.108 But 'large and unjustified' reverse payments risk anticompetitive effects. In AbbVie, for example, the Third Circuit reversed the district court's dismissal of the FTC's 'reverse payment' theory, finding that while the Actavis standard was that the payment or other consideration be 'large and unjustified', a plaintiff could meet this pleading standard 'without describing in perfect detail the world without the reverse payment, calculating reliably the payment's exact size, or pre-empting every possible explanation for it'.109
Outlook and conclusions
With President Biden's election and the attendant personnel changes in top antitrust enforcement positions, all indications are that the 'New Madison' approach may be receding in favour of the 'New Brandeisian' approach characterised by the aggressive application of novel theories of antitrust harm. But while antitrust enforcement agencies enjoy latitude to determine what cases are brought, they must still contend with the boundaries of their statutory toolset and the case law that interprets it. Nevertheless, practitioners are closely watching for the release of updated guidelines concerning licensing of SEPs, which may be persuasive to district courts even though such guidelines do not constitute binding authority.
A popular focus on antitrust law may lead to new legislation or a test of the boundaries of current case law. Or it may lead to the stymied ambitions of reform-minded officials who face ever-changing winds if conservatives retake one or both houses of Congress. In any case, the private bar will have to remain nimble in the face of greater uncertainty as these broad shifts play out.