Prosecution Delay Laches and
Antitrust
Prof Merges
4/29/08
35 U.S.C. 315 Appeal
(a) PATENT OWNER.- The patent owner involved in
an inter partes reexamination proceeding under
this chapter(b) THIRD-PARTY REQUESTER.- A third-party
requester(1) may appeal under the provisions of section 134,
and may appeal under the provisions of sections
141 through 144, with respect to any final decision
favorable to the patentability of any original or
proposed amended or new claim of the patent
(c) CIVIL ACTION.- A third-party requester whose
request for an inter partes reexamination results in
an order under section 313 is estopped from
asserting at a later time, in any civil action arising
in whole or in part under section 1338 of title 28,
the invalidity of any claim finally determined to be
valid and patentable on any ground which the
third-party requester raised or could have raised
during the inter partes reexamination proceedings.
This subsection does not prevent the assertion of
invalidity based on newly discovered prior art
unavailable to the third-party requester and the
Patent and Trademark Office …
Jerome Lemelson, 1923-1997
http://www.masslawblog.com/?page_
id=29
Mr. Lemelson, who died in 1997, was granted more than 500
U.S. patents, making him (from a patent-count standpoint,
anyway), one of the most prolific inventors in U.S. history.
Some have compared him with Edison (that patent count
again), but unlike Edison, most people would have difficulty
recognizing his name or what any of his inventions were. Ask
the dozens of companies he sued over the years for alleged
patent infringement, and observers of developments in
patent law, and they may tell you that Lemelson’s most
significant (and lucrative) invention was how to game the
U.S. patent system.
United States Patent 5,351,078 Lemelson * September
27, 1994 Apparatus and methods for automated
observation of objects
Apparatus and methods are disclosed for automatically
inspecting two- or three-dimensional objects or
subjects. A detector and the object are moved
relative to each other. In one form, a detector, such
as a camera or radiation receiver, moves around an
object, which is supported to be rotatable such that
the detector may receive electromagnetic energy
signals from the object from a variety of angles. The
energy may be directed as a beam at and reflected
from the object, as for visible light, or passed
through the object, as for x-ray radiation.
The detector generates analog image
signals resulting from the detected
radiation, and an electronic
computer process and analyzes the
analog signals and generates digital
codes, which may be stored or
employed to control a display.
Inventors: Lemelson; Jerome H. (Incline
Village, NV) Assignee: Lemelson Medical,
Education & Research Foundation
Limited Partnership (Incline Village, NV)
Filed: September 16, 1993
“Continuation Abuse”
MAJOR controversy over stringent PTO rules
limiting number of continuations that
patentee is allowed to file
Supreme Court of the United States.
WOODBRIDGE et al.
v.
UNITED STATES.
Decided Nov. 12, 1923.
Justice Taft
In this case we have a delay of 9 1/2 years in
securing a patent that might have been had
at any time in that period for the asking,
and this for the admitted purpose of making
the term of the monopoly square with the
period when the commercial profit from it
would be highest. Not until war or fear of
war came was there likely to be a strong
demand for rifled cannon and their
improvement.
Hence the inventor, having put his order
for the issue of a patent into the secret
archives of the Patent Office in 1852, sat
down and waited until after the Civil
War came on in 1861 before seeking to
avail himself of the patent, thus
postponing the time when the public
could freely enjoy it for nearly 10 years.
Meantime other inventors had been at
work in the same field and had
obtained patents without knowledge of
the situation with respect to
Woodbridge's invention.
This is not a case where evidence has to
be weighed as to the purpose of the
inventor. He avows his deliberate
intention. This is not a case of
abandonment. It is a case of forfeiting
the right to a patent by designed delay.
Defenses: Antitrust/Misuse
• Patents confer market power
• Market power can be abused
• When it has been, this may provide a defense
for an infringer
Antitrust/Misuse
• Centers on how the patentee deploys the
technology
• Numerous potential ways to abuse the
market power conferred by a patent
Examples
• Use of patents to mask or hide a cartel
– “Horizontal” abuse
• Use of patents to exert control over dealers or
customers
– “Vertical” abuse
Misuse/Antitrust Counterclaim
Plaintiff/Patentee
Defendant
Misuse/Antitrust Counterclaim
Defendant
Plaintiff/Patentee
Counterclaim
Misuse/Antitrust Counterclaim
Plaintiff/Patentee
Licensing
Agreement
Defendant
Misuse/Antitrust Counterclaim
Plaintiff/Patentee
Licensing
Agreement
Defendant
Defendant asserts
patent is unenforceable
due to anticompetitive
licensing agreement
Typical Counterclaims
• Anticompetitive acquisition of patent
– Walker Process Equipment , Inc . v . Food Machinery
Chemical Corp., 382 U . S . 172 (1965); Handgards, Inc . v .
Ethicon, Inc . 743 F . 2d 1282 (9th Cir . 1984)
• Illegal tie-in
– Morton Salt
Illinois Tool
Trident, a wholly-owned subsidiary of Illinois Tool Works,
is a manufacturer of printheads and owns U.S. Patent
No. 5,343,226 covering the technology. The ‘226 patent
discloses an ink jet device and a supply system with a
hand actuated peristaltic pump. Trident also
manufactures ink for use with the patented printheads.
Although the ink is not protected by any of Trident’s
patents, their standard license agreements grant the
right to “manufacture, use and sell… ink jet printing
devices…” to other printer manufacturers ONLY “when
used in combination with ink and ink supply systems
supplied by Trident.”
Misuse/Antitrust Counterclaim
Plaintiff/Patentee
Licensing
Agreement
Defendant
Defendant asserts
patent is unenforceable
due to anticompetitive
licensing agreement
Independent Ink also manufactures ink useable in
Trident’s patented printheads. Independent filed
suit in the Central District of California against
Trident and Illinois Tool Works alleging, among
other things, an illegal tying arrangement in
violation of section 1 of the Sherman Act. The
district court, however, dismissed the case on
summary judgment.
Illinois Tool – p. 1
“This presumption of market power, applicable
in the antitrust context when a seller
conditions its sale of a patented product (the
“tying” product) on the purchase of a second
product (the .tied. product), has its
foundation in the judicially created patent
misuse doctrine.”
How Did the Issue Arise?
“Independent filed suit against Trident [Illinois
Tool] seeking a judgment of noninfringement
and invalidity of Trident.s patents.1 In an
amended complaint, it alleged that
petitioners are engaged in illegal tying and
monopolization in violation of §§1 and 2 of
the Sherman Act. 15 U. S. C. §§1, 2.”
Sherman Act: Section One 15 U.S.C. § 1
Every contract, combination in the form of trust or
otherwise, or conspiracy, in restraint of trade or
commerce among the several States, or with foreign
nations, is declared to be illegal. Every person who
shall make any contract or engage in any
combination or conspiracy hereby declared to be
illegal shall be deemed guilty of a felony, and, on
conviction thereof, shall be punished by fine not
exceeding $10,000,000 if a corporation, or, if any
other person, $350,000, or by imprisonment not
exceeding three years, or by both said punishments,
in the discretion of the court.
Sherman Act: Section One 15 U.S.C. § 2
Every person who shall monopolize, or attempt to
monopolize, or combine or conspire with any other
person or persons, to monopolize any part of the
trade or commerce among the several States, or
with foreign nations, shall be deemed guilty of a
felony, and, on conviction thereof, shall be punished
by fine not exceeding $10,000,000 if a corporation,
or, if any other person, $350,000, or by
imprisonment not exceeding three years, or by both
said punishments, in the discretion of the court.
Theoretical basis
• “Leverage theory”
– Patents being improperly leveraged by various
licensing practices
• For example, a tie-in
Tie-in example
• If you want my patented machine, you must
buy (unpatented) materials used in the
machine
Morton Salt case
“[R]espondent is making use of its patent
monopoly to restrain competition in the
marketing of unpatented articles, the salt
tablets, for use with the patented machines .
. .”
-- P. 1351
Morton Salt
• Equity
• Relevant that illicit license is with 3rd parties,
not defendant/petitioner?
– No
Leverage theory
• “Leveraging” monopoly in machine into
(separate) market for salt
Chicago Critique
• No such thing as
“leverage”
• Cannot charge more for
[Tying + Tied] product
bundle than buyers are
willing to pay
More Chicago critique
• Look for more “positive” explanation of
licensing practices
– Patentees deserve a monopoly
• How might it be good for the patentee and
consumers?
“Metering” Concept
• Relates back to price discrimination idea
Why is it good to allow tie-ins?
• Allow seller to capture value of bacon for
consumers of bacon and eggs
• Prevent consumers from “substituting away”
from bacon when price of bacon is raised
Price Discrimination
Price
$5
$3
Total Revenue
D
100
170
Quantity Demanded (000s)
Total Revenue
High Price
Low Price
$500
(100 x $5)
$510
(170 x $3)
Price Discrimination
Price
“Consumer
Surplus” – lost
to seller
$5
$3
Total Revenue
D
100
170
Quantity Demanded (000s)
Price Discrimination
Price
Small canners
$5
$3
Large
canners
D
100
170
Quantity Demanded (000s)
Total Revenue
Without Price
Discrimination
With Price
Discrimination
$510
$710
(100 x $5) +
(70 x $3)
Solution: Metering by Tie-in
• Use salt sales to count how much buyer uses
canning equipment
• Achieve price discrimination: high volume
users will pay more for canning equipment
Precedent
Loew’s, International Salt.
These cases predate the Court’s articulation
These cases predate the Court’s articulation of
the market power requirement (ITS v. Kodak,
Jefferson Parish v. Hyde).
Morton Salt
Salt and Canning Equipment
Nonprice Vertical Restraints: GTE Sylvania
After reexamining the Schwinn rule, the U.S. Supreme Court
in the present case rejected that rule and held that all
nonprice vertical restraints of trade would be examined
using the rule of reason. Only vertical price fixing (or
resale price maintenance) would be examined using the
per se rule. The Supreme Court held that Sylvania’s
alleged restraint of trade in terminating Continental TV
was a nonprice vertical restraint of trade that was to be
examined using the rule of reason. The Supreme Court
affirmed the Court of Appeals decision in favor of GTE
Sylvania. Continental TV, Inc. v. GTE Sylvania, Inc., 433
U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977).
Limitations on Licensing
35 USC § 271(d)(5)
No patent owner otherwise entitled to relief for infringement
or contributory infringement of a patent shall be denied
relief or deemed guilty of misuse or illegal extension of the
patent right by reason of his having done one or more of the
following: . . . .
refused to license or use any rights to the patent; or
conditioned the license of any rights to the
patent or the sale of the patented product on
the acquisition of a license to rights in
another patent or purchase of a separate
product, unless, in view of the circumstances,
the patent owner has market power in the
relevant market for the patent or patented
product on which the license or sale is
conditioned.
Illinois Tool: District Court
• SJ for Accused Infringer
On appeal, the Federal Circuit reversed and remanded
the district court’s grant of summary judgment in
favor of Trident on the tying claim.
According to the Appellate Court, Trident’s licenses
are “explicit tying agreement[s]” because the sale
of a patented product is conditioned on the sale of
an unpatented one. Although the district court
required affirmative proof of market power from
the plaintiff, the Federal Circuit reiterated that the
Supreme Court has clearly established a
presumption of market power unique to patent and
copyright tying cases, it holds that this presumption
is rebuttable.
“Once the plaintiff establishes a patent tying agreement, it is the
defendant’s burden to rebut the presumption of market power
and consequent illegality that arises from patent tying.”
Rebuttal evidence requires expert testimony or “credible economic
evidence of the cross-elasticity of demand, the area of effective
competition, or other evidence of lack of market power.”
Furthermore, the Court admonishes the district court for not
following clearly established Supreme Court precedent and for
dismissing the High Court's holdings as “vintage.” Commenting
that it may be time to abandon the doctrine, a significant portion
of the opinion emphasizes that it is up to the Supreme Court or
Congress to expressly overrule its own precedent -- this
prerogative does not lie with the district courts.
Broad consensus that patents are property and are
not monopolies.
– USDOJ/FTC Antitrust Guidelines for Licensing of IP
(noting difference between patentee’s power IP to
exclude and market power)
– Patent Misuse Reform Act (35 U.S.C. § 271(d)(5))
(tying arrangement does not constitute patent misuse
in the absence of market power)
Evolution of Areeda/Hovenkamp treatise
Suggests that presumption of market power is not
warranted.
Illinois Tool
• "Any conclusion that an arrangement is unlawful
must be supported by proof of power in the
relevant market rather than by a mere presumption
thereof," the Court said
• "Congress, the antitrust enforcement agencies, and
most economists have all reached the conclusion
that a patent does not necessarily confer market
power upon the patentee . . . Today, we reach the
same conclusion, and therefore hold that, in all
cases involving a tying arrangement, the plaintiff
must prove that the defendant has market power in
the tying product."
Illinois Tool
The Supreme Court eliminated the presumption that a
patent provides market power in a licensing agreement
involving a tie-in
The Court has signaled a willingness to revisit old precedent
originating in the anti-patent era of the 1930s and 1940s
when Congress and scholarly opinion had turned
decisively against it
William O. Douglas