Update: Antitrust-Intellectual Property Licensing Guidelines

19 September 2016 Manufacturing Industry Advisor Blog
Author(s): James T. McKeown

The Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) announced, on August 12, 2016, they are seeking public comments on the first update to the Antitrust Guidelines for the Licensing of Intellectual Property issued in 1995. The majority of the Proposed Guidelines update relevant authorities to reflect developments in court decisions, statutory law, the agencies’ practice, and the agencies’ guidance over the past 20 years, while leaving intact the main principles and substantive guidance of the 1995 Guidelines.

The agencies re-affirmed their commitment to three broad principles, namely that the agencies:

  • Apply the same antitrust analysis to conduct involving intellectual property as they apply to conduct involving other forms of property
  • Do not presume that intellectual property creates market power
  • Recognize that licensing intellectual property allows firms to combine complementary factors of production and is generally pro-competitive

The Proposed Guidelines confirm and clarify the agencies’ analytical framework for (1) horizontal and vertical transactions involving intellectual property licensing, and (2) “research and development markets,” a newly coined term in the Proposed Guidelines. What the Proposed Guidelines do not address include the agencies’ enforcement positions with respect to patent assertion entities, royalties for standard-essential patents and pay-for-delay patent settlements – significant topics on which FTC and DOJ guidance would be welcome and that may draw public comment.

Resale Price Maintenance

Perhaps the most significant proposed change concerns the Guideline’s discussion of minimum price restraints imposed by licensors on licensees’ downstream sales or re-sales of products that incorporate licensed technology. Consistent with the Supreme Court’s decision in Leegin Creative Leather Prod., Inc. v. PSKS, Inc., 551 U.S. 877 (2007), the agencies propose to modify the 1995 Guidelines from the position of presuming that such vertical price restraints are per se anticompetitive to analyzing the restrictions under the rule of reason. Although licensors imposing minimum downstream prices would not draw per se challenges under federal law, the agencies note that some states continue to treat such restraints as illegal per se under their state antitrust laws.

Refusal to License

The revisions also make explicit that the antitrust laws generally do not impose liability for a unilateral refusal to license intellectual property. In this respect, the Proposed Guidelines highlight the Supreme Court’s decision in Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) and advise that “the antitrust laws generally do not impose liability upon a firm for a unilateral refusal to assist its competitors, in part because doing so may undermine incentives for investment and innovation.” The agencies nonetheless temper this statement in other areas of the Proposed Guidelines, for example, by stating that while market power does not impose on the intellectual property owner an obligation to license the use of that property to others, the agencies may impose licensing requirements to remedy anticompetitive harm or to prevent the substantial lessening of competition as the result of a merger.

Research and Development Markets

The agencies plan to replace the concept of an “innovation market” with a “research and development” market. The agencies report that the proposed change is largely semantic and meant to reflect the agencies’ actual experience with this mode of analysis. The agencies distinguish technology markets from research and development markets, with the technology market focused on existing technologies. By contrast, a research and development market focuses on the “assets comprising research and development” that are related to innovation to identify a “commercializable product” or “directed to particular new or improved goods or processes.” The Proposed Guidelines provide that the agencies would only delineate a research and development market when the capabilities to engage in the relevant research and development can be associated with specialized assets or characteristics of specific firms.

In assessing whether a restriction or arrangement has anticompetitive effects, the agencies will consider whether the restriction or arrangement is likely to lessen competition and/or reduce the pace of the development of new products. Consistent with the 1995 Guidelines, a joint venture or merger that combines competing research and development operations is unlikely to draw a challenge by the agencies if there are at least four other independently controlled entities that possess comparable capabilities and incentives to undertake such research and development. In evaluating whether research and development by one entity is a close substitute for efforts by another entity, the agencies will consider a number of factors, including the nature, scope and magnitude of the research and development efforts, their access to financial support and skilled personnel or specialized assets and their ability to commercialize innovations successfully. The agencies also will consider whether restrictions or agreements among competitors as to research and development efforts will affect competition in markets for existing products.

The proposed changes update several other sections of the 1995 Guidelines but do not seek to address several intellectual property issues that recently caused considerable discussion. A more fulsome discussion of these items can be found here.  

What’s Next?

The agencies seek comment on the proposed changes from “interested parties, including attorneys, economists, academics, consumer groups and the business community.” Companies operating in the technology and intellectual property licensing arena should consider how the Proposed Guidelines might affect them – both as to changes proposed by the agencies and those areas in which the agencies declined to propose updates. The public comment deadline is September 26, 2016.

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