The Pendulum Swings: Patent Misuse and Antitrust – by Daryl Lim

February 28, 2014

Innovation Technology

Law Lady StatueThe U.S. Supreme Court’s decision in F.T.C. v. Actavis signaled a renewed willingness to scrutinize patent rights under the lens of the antitrust laws.  The Court reversed the U.S. Court of Appeals for the Eleventh Circuit, and held that “pay-for-delay” settlements between patent owning drug companies and their generic competitors could be anticompetitive even if these settlements were within the scope of the owners’ patent rights.  Actavis has been hailed as potentially one of the most important patent/antitrust rulings of all time, a recognition that its impact exceeded the narrow regulatory confines of the Hatch-Waxman Act. 

Actavis suggests that the pendulum is swinging toward a post-Chicagoan era of greater intervention under the antitrust laws. The true legacy of Actavis lies in the promise of catalyzing those from the patent and antitrust spheres into moving towards a realistic compromise on how the rules that affect them both should look like and function.  A measured revitalization may bring relief to antitrust defendants. Courts, wary of the treble damages and private litigation under antitrust laws, may prefer a more graduated response of temporary unenforceability under patent misuse.

In invoking the defense of patent misuse, defendants may accept that they have infringed another’s patents, whether by breach of a license agreement or in some other way.  At the same time, they temerariously argue that justice requires the courts to aid them by tempering the letter of the law, because the patentees had by their own conduct, reached beyond the boundaries of their patent grant in a manner contrary to public policy.  One way of looking at misuse is as a factor in determining whether a court should exercise its equitable powers in granting an injunction.  Patentees guilty of misuse could still have legal relief, but not equitable relief.  Misuse thus acts as a public injunction against abuses of the privilege granted under patent law, and balances public and private interests.

From its early roots to the present day, misuse shares a number of things in common with lichens. Like those hardy organisms, it has survived hostile environments.  Like lichens which are composed of algae and fungi, misuse subsists in a symbiotic relationship, between patent and antitrust law. It is concerned both with providing socially optimal incentives for the creation and dissemination of technology and with competition concerns underpinning the doctrine. The passage of time usually helps define the contours of a doctrine, but not so with misuse. While the formulaic statement for misuse at each point in its history may have been tolerably clear, its application has been muddied both by the shifting views of patents and the policies underlying both the patent and antitrust laws. Hence, it is perhaps the best known but least understood defense in patent law.

Shortly after Actavis was handed down, the U.S. Court of Appeals for the Ninth Circuit in Kimble v. Marvel Enterprises Inc. declared that an agreement requiring Marvel to pay royalties for patent license covering a Spider-Man “web” shooting toy beyond the patent term was unenforceable.  The Ninth Circuit did so “reluctantly,” expressing that it was bound by Brulotte v. Thys Co., a controversial precedent in the patent misuse canon.

The point that Kimble misses is this: unenforceability under patent misuse is triggered by an abuse of the patent system.  It is a matter of detail rather than necessity that market competition, and certainly market competition in the antitrust sense, is affected.  The Patent Act itself methodically first states in §154 of the Patent Act exclusive rights, and immediately proceeds to temporally circumscribe them. The Brulotte Court used the post-expiration date as a proxy for what would be considered illegal extensions of the patent right, much in the same way that the Actavis court used the quantum of payment relative to litigation costs as a proxy to determine an antitrust violation. Should parties wish to allocate their rights in a more sophisticated manner, they are no more burdened in splitting up those rights than copyright owners who have had to parse out a bundle of rights, a proposition which is uncontroversial.

We have come a long way in developing a better understanding of both patent misuse and the patent-antitrust interface. But we should regard the present not as a pinnacle of achievement, but a base to scale new heights.  Through debate, experimentation and refinement innate in the common law, future cases can craft pieces that will form a coherent analytical framework for the interface between the patent and antitrust laws. The effort must be supported by constituents clear-headed enough to look beyond traditional prejudices, who are able to translate economic insights into workable legal rules.

Daryl Lim photoDaryl Lim is Assistant Professor at the John Marshall Law School, where his courses include intellectual property law, patent and trade secret law, antitrust law and IP and antitrust law. He is the author of Patent Misuse and Antitrust: Empirical Doctrinal and Policy Perspectives, published by Edward Elgar in December 2013. 

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Also available as an eBook for subscribing libraries on elgaronline

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