Competition

Competition legislation

What statutes set out competition law?

The Sherman Act, passed by Congress in 1890 and the FTC Act and Clayton Act, both passed in 1914, are the three core US federal antitrust laws in effect today. The Sherman Act prohibits unreasonable restraints of trade, monopolisation, attempts to monopolise and conspiracies to monopolise. The Clayton Act prohibits acquisitions that may substantially lessen competition, as well as certain other issues such as tying. The FTC Act, which is enforced solely by the Federal Trade Commission (FTC), prohibits unfair methods of competition as well as unfair or deceptive acts and practices. Though the FTC’s authority to challenge unfair methods of competition technically reaches beyond letter of the Sherman Act, the precise scope of the FTC’s ‘unfair methods of competition’ authority has been a subject of some controversy. The FTC has most often used its antitrust authority falling outside the scope of the Sherman and Clayton Acts to challenge invitations to collude, where no agreement forms. Beyond that, the FTC typically pursues claims for an unfair method of competition under the same standards federal courts apply to Sherman Act claims.

In addition to these federal statutes, most states have their own antitrust statutes – generally modelled after the federal antitrust laws – enforced by the state attorneys general or private plaintiffs.

IP rights in competition legislation

Do the competition laws make specific mention of any IP rights?

US antitrust statutes do not specifically mention IP rights. However, the Depatmetn of Justice (DOJ) and FTC have issued antitrust licensing guidelines (first in 1995, and most recently in 2017) and other guidance materials that outline the agencies’ antitrust enforcement policy towards the licensing of intellectual property and other conduct involving IP such as patent pools, bundled or package licensing arrangements and unilateral refusals to deal.

Review and investigation of competitive effects from exercise of IP rights

Which authorities may review or investigate the competitive effect of conduct related to exercise of IP rights?

The DOJ and FTC jointly enforce the federal antitrust laws. However, only the DOJ has the authority to bring criminal enforcement actions – though the FTC can refer matters to the DOJ for criminal enforcement. Additionally, under section 5 of the FTC Act, the FTC may bring civil challenges to conduct that violates section 5 of the FTC Act (which covers but is not limited to claims that could be brought under sections 1 or 2 of the Sherman Act) either in administrative proceedings or federal court.

Coordination between DOJ and FTC is governed loosely by an informal memorandum of understanding, which distributes enforcement authority by industry expertise and knowledge. For example, the FTC is typically responsible for industries including healthcare providers, pharmaceuticals, and food and retail. The DOJ is typically responsible for telecommunication, agriculture and insurance.

Competition-related remedies for private parties

Can a private party recover for competition-related damages caused by the exercise, licensing or transfer of IP rights?

Private parties can recover for competition-related damages from the exercise, licence or transfer of IP rights under either federal or state antitrust law. Under federal law, the Clayton Act creates a private right of action for parties to recover damages from injuries flowing from a violation of the antitrust laws. Damages are typically trebled and plaintiffs may also recover court costs and attorneys’ fees (15 USC, section 15(a)). Plaintiffs may also win an injunction requiring the defendant to end the offending conduct. To win relief, a plaintiff must establish antitrust injury, which requires that it suffered harm because of the restriction in competition that forms the basis for the violation. The alleged anticompetitive conduct must proximately cause the injury.

Forty years ago, the Supreme Court barred, with limited exceptions, indirect purchasers from seeking and recovering antitrust damages. Illinois Brick Co v Illinois, 431 US 720 (1977). Over half of US states have enacted ‘Illinois Brick repealer’ statutes allowing for indirect purchasers to recover. On 13 May 2019, the Supreme Court affirmed the Ninth’s Circuit’s decision that because Apple sold iPhone apps directly to consumers, Apple should be treated as a distributor and consumers as direct purchasers with standing to sue Apple for alleged monopolisation of the market for iPhone apps. Apple v Pepper, 139 S. Ct. 1514 (2019).

Competition guidelines

Have the competition authorities, or any other authority, issued guidelines or other statements regarding the overlap of competition law and IP?

The DOJ and FTC have issued joint guidance materials on federal antitrust enforcement policy relating to IP. In 2007, the agencies issued a report outlining agency enforcement policy on a range of competition issues involving IP, including unilateral refusals to license, the incorporation of patents into standards, patent pools, tying and bundling. For purposes of antitrust analysis, the agencies distinguished unconditional from conditional refusals to licence. Under US enforcement policy, unconditional unilateral refusals to license patents ‘will not play a meaningful part in the interface between patent rights and antitrust protections’. Conditional refusals to license, such as a licence that includes exclusivity provisions, may raise antitrust concerns if restrictions in the licence lead to competitive harm.

In 2017, the DOJ and FTC issued updated Antitrust Guidelines for the Licensing of Intellectual Property. The Guidelines incorporate the core principles from the 1995 Guidelines and remain consistent with the principles in the broader 2007 Antitrust IP Report. The 2017 Guidelines cover the antitrust treatment of licences involving patents, copyrights, or trade secrets. Although the Guidelines do not apply expressly to trademark agreements, ‘the same general antitrust principles that apply to other forms of intellectual property apply to trademarks as well.’

The 2017 Guidelines incorporate several key principles.

  • The agencies will apply the same antitrust principles to conduct involving IP as to conduct involving other forms of property.
  • IP rights do not create a presumption of market power under the antitrust laws.
  • IP licensing allows firms to combine complementary assets and is thus generally procompetitive.

 

The vast majority of restrictions in licensing arrangements are evaluated under the rule of reason and are not likely to harm competition if the restriction does not limit competition that would have existed in the absence of the licence.

Exemptions from competition law

Are there aspects or uses of IP rights that are specifically exempt from the application of competition law?

Courts have developed a number of exemptions and immunities from the antitrust laws, such as the state action doctrine or protection for the solicitation of government action (known as Noerr-Pennington immunity). These general exemptions apply equally to conduct involving IP rights. Noerr-Pennington immunity protects IP owners from antitrust liability for pursuing infringement claims unless the underlying claims are both objectively and subjectively baseless. Professional Real Estate Investors v Columbia Pictures Industries, 508 US 49 (1993). Petitioning immunity extends to conduct associated with seeking relief such as sending infringement notices or other marketplace communications relating to infringement. Some courts have recognised an exception to petitioning immunity where the IP owner files repeated lawsuits without regard to individual merit. USS-Posco Industries v Contra Costa County, 31 F.3d 800 (Ninth Circuit 1994).

The Federal Circuit has held that a mere unconditional unilateral refusal to license or share IP is lawful and cannot give rise to antitrust liability. In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322 (Federal Circuit 2000). One appellate court has held that although a refusal to license is presumptively lawful as a legitimate exercise of the statutory right to exclude, but the presumption can be overridden by evidence that the refusal was a pretextual effort to harm rivals. Image Technical Services, Inc v Kodak Co, 125 F.3d 1195 (Ninth Circuit 1997). However, in reversing a district court decision, the Ninth Circuit more recently held that patent owner has no antitrust duty to deal with rivals except in limited circumstances articulated by the Supreme Court. FTC v Qualcomm, 969 F.3d 974 (Ninth Circuit 2020), citing Verizon Communications Inc v Law Offices of Curtis v Trinko LLP, 540 US 398 (2004).

Copyright exhaustion

Does your jurisdiction have a doctrine of, or akin to, ‘copyright exhaustion’ (EU) or ‘first sale’ (US)? If so, how does that doctrine interact with competition laws?

The first sale doctrine is codified under section 109(a) of the Copyright Act. Under the first sale doctrine, a party that lawfully acquires the tangible embodiment of a copyright work, such as a book or a compact disc, may resell the item without violating the copyright. Efforts to control the price at which the acquiring party resells the product are evaluated under state and federal antitrust laws relating to resale-price maintenance. The first sale doctrine does not apply to computer software that is licensed rather than sold and thus the copyright owner can exert greater control over subsequent distribution by licensing rather than selling the tangible product. Vernor v Autodesk, 621 F.3d 1102 (Ninth Circuit 2010). The party asserting the first use defence bears the burden of proving ownership through lawful acquisition.

Import control

To what extent can an IP rights holder prevent ‘grey-market’ or unauthorised importation or distribution of its products?

An IP owner can challenge the unauthorised importation of infringing products by filing a complaint with the US International Trade Commission (ITC) under section 337 of the Tariff Act. Section 337 bars unfair methods of competition, including through importation of items that infringe US patent, copyright or trademark rights. The primary remedy in a 337 investigation is an exclusion order, which blocks entry of infringing items at the border. The ITC may also stop the sale of infringing items already in the US through a cease and desist order. A trademark owner may also file suit in federal court under section 42 of the Lanham Act. Relief under the Lanham Act may include injunction relief to stop infringing imports as well as monetary relief.

Jurisdictional interaction between competition laws and IP rights

Are there authorities with exclusive jurisdiction over IP-related or competition-related matters? For example, are there circumstances in which a competition claim might be transferred to an IP court to satisfy subject matter jurisdiction? Are there circumstances where the resolution of an IP dispute will be handled by a court of general jurisdiction?

US district courts have exclusive jurisdiction over claims brought under the patent and copyright acts. The Federal Circuit has exclusive jurisdiction to hear appeals in cases ‘arising under’ that patent laws. A case that involves both a patent and antitrust claim will be appealed to the Federal Circuit. However, the Federal Circuit will apply the law of the appropriate regional circuit to pure antitrust questions such as relevant market and competitive effects.

Antitrust enforcement occurs at both the state and federal level. Actions are brought by the FTC, DOJ, state attorneys general, as well as through private litigation. The FTC has sole authority to enforce the FTC Act, which it may do in federal court or in its own administrative tribunal. Administrative decisions are appealed to the Commission and may be ultimately reviewed by federal appellate courts.

Law stated date

Correct on

Give the date on which the information above is accurate.

10 January 2020.