An extract from The Intellectual Property and Antitrust Review, 5th Edition

Licensing and antitrust

Licensing intellectual property can help lead to efficient combinations of inputs and thereby benefit both licensees and consumers, who gain access to new products and less costly goods and services. Notwithstanding its pro-competitive virtues, the process of licensing intellectual property can, however, also be exploited to harm competition; for instance, by eliminating actual or potential competitors who would have existed if not for a restrictive licensing arrangement. While the Agencies and courts have held that a firm's unilateral refusal to license IP to a competitor is not by itself a violation of the antitrust laws (noting that such a rule could sharply diminish the incentives firms have to invest in ex ante research and development), IPR holders are not exempt from the application of the antitrust laws and thus must avoid engaging in conduct that may have anticompetitive effects.

As noted, the DOJ and FTC issued a modest refresh to their original Guidelines in early 2017 to reflect intervening developments in statutory and case law. The Guidelines emphasise that, in evaluating licensing agreements, the Agencies adopt an effects-based framework with a focus on the actual or likely effects the licence will have on competition. Since licensing is generally viewed as pro-competitive, most restrictions in licensing arrangements are evaluated under the 'rule of reason' (simplified, a balancing between the pro-competitive and anticompetitive effects of the alleged conduct), rather than the 'per se' rule (under which the conduct at issue is deemed anticompetitive without proof that the conduct had an adverse effect on competition). Perhaps the most notable change in the 2017 Guidelines was to reflect the Supreme Court's June 2007 holding in Leegin Creative Leather Products v. PSKS that minimum resale price maintenance, the practice of setting a minimum price at which a good can be resold, is not per se illegal (as had been reflected in the 1995 Guidelines), but must instead be analysed under the rule of reason.

The 2017 Guidelines also clarified the parameters of the antitrust 'safety zone', a doctrine intended to aid business planning. The safety zone provides that, in the absence of 'extraordinary circumstances', the Agencies will not challenge a restraint contained in an IP licence provided that the restraint is not anticompetitive on its face (for instance, one that facilitates price-fixing or output restrictions), and that the licensor and the licensee's combined shares for the relevant affected market is below 20 per cent. Practitioners should be aware that, while particular licence conditions or restraints may not necessarily run afoul of the antitrust laws, these licence provisions must also be evaluated under other doctrines such as the judicial doctrine (in the case of patents) or the statutory provisions (in the case of copyright) governing exhaustion.