"It Shoulda Been Me": The Patent Monopolist and Antitrust Allegations, Contributed by Stacey P. Slaughter, Robins, Kaplan, Miller & Ciresi L.L.P.
A patent holder’s legal right to prohibit others from using a patented technology occasionally intersects with the prohibitions against harming competition contained in state and federal antitrust laws. This article will discuss where patent and antitrust law intersect, the common arguments raised when competition and invention meet, and give examples from case law explaining when and how the two legal disciplines interact.
Antitrust & Patent: Different Sides of the Monopoly Coin
A monopoly exists when a particular good or commodity has a single supplier and that supplier has the power to exclude other competitors.1 As a general rule the Sherman Act, the cornerstone of federal antitrust law, prohibits unlawful monopolization and attempted monopolization.2 Most states also have laws in place which correspond to federal antitrust law.3
To succeed, a claim of monopolization or attempted monopolization must meet specific elements developed over time through case law. Proof of a monopoly that violates the Sherman Act requires a showing of possession of monopoly power in the relevant market, as well as the willful acquisition or maintenance of that power by means of exclusionary conduct, as distinguished from growth or development as “a consequence of a superior product, business acumen, or historic accident.”4 In addition, the plaintiff in an antitrust case must demonstrate injury resulting from the wrongfully gained monopoly. A claim of attempted monopolization has similar requirements, which include proof of:
- A specific intent to destroy prices or competition;
- Predatory or anticompetitive conduct to accomplish the monopolization;
- Dangerous probability of success;
- Antitrust injury; and
- Market power.
Each element must be established and failure to prove any one element defeats a claim of attempted monopolization.5
Patent law creates an exception to the limitations on monopolies enunciated in the Sherman Act and related state laws. A patent grant from the U.S. Patent and Trademark Office confers “the right to exclude others from making, using, or selling the invention.”6 The limited-monopoly patent law establishes acts as a legal counterpoint to the illegal monopolies and attempted monopolies the Sherman Act prohibits.7
Usually, these two sides of the monopoly coin can co-exist peaceably. But, in certain limited circumstances, a patent monopoly may find itself in a head-or-tails confrontation with antitrust laws and the limitations it places on excluding competitors and harming competition. Which side wins? The answer, it turns outs, often depends upon the purpose behind the claim of antitrust law violation.
Using Antitrust Laws to Defeat Patent Law Claims
Claims of antitrust violations resulting from a patent holder’s monopoly often arise as a potential defense against an allegation of patent infringement. Challenging the patent’s validity on antitrust grounds provides alleged and potential infringers an opportunity to escape liability for the accused infringement while offering them the chance, as an antitrust plaintiff, to make their own claim for treble damages.8 Though turning the defense of a patent infringement action into a successful offensive antitrust claim is difficult, it is possible.9
For example, alleged infringers can challenge claimed patent rights by arguing that the patent infringement action constitutes sham litigation. Sham litigation claims must clear several procedural and proof hurdles before they can provide a viable defense against a claim of patent infringement. First, the allegations must overcome the Noerr-Pennington doctrine, which immunizes a party from antitrust liability for petitioning the government even if the party seeks to advance anticompetitive laws.10 Noerr-Pennington immunity will not apply if the party making the allegation of sham litigation can prove that the disputed litigation was “objectively meritless” and that the “litigant’s subjective motivation” was an unlawful intent to “interfere directly with the business relationship of a competitor.”11
In the patent arena, sham litigation claims that survive Noerr-Pennington must then make the showing enunciated in Handgards, Inc. v. Ethicon, Inc.12 Handgards requires proof that the patent owner has attempted to enforce a patent it knows to be invalid and that all necessary elements of the claimed antitrust violation exist.13 Federal Circuit law governs antitrust claims premised on the abuse of patent rights and will be used to determine whether the patent holder has made an inappropriate attempt to enforce its patent.14 For example, in Rolite, Inc. v. Wheelabrator Environmental Sys., Inc.,15 a competitor adequately pled a Handgards claim against the holder of a patent for recycling ash residue by alleging all elements of attempted monopolization and facts which showed that the patent holder claimed patent rights in the marketplace, though it had deliberately failed to renew its patent.16
Alleged infringers may also bring a so-called Walker Process claim, which removes the usual immunity from Section 2 of the Sherman Act granted by the patent laws, if the patent holder has attempted to enforce a patent procured by knowing and willful fraud upon the USPTO.17 Like Handgards claims, Walker Process claims require that all elements of the alleged antitrust violation also be established.18 In addition, the successful Walker Process claimant must plead and prove all elements of common law fraud.19 These multiple showings make success on Walker Process claims difficult, but not impossible to achieve.20 In Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc.,21 a competitor obtained a jury verdict on its Walker Process claim after showing that the subject patent application replicated a system for preparing and browning pre-cooked meats that a competitor had previously demonstrated to the patent holder on multiple occasions.22 The jury’s verdict was ultimately affirmed on appeal.23
In limited circumstances, alleged infringers can also turn to antitrust policy to support allegations of patent misuse.24 Antitrust analysis applies because misuse claims can only succeed by proving that the challenged behavior had anticompetitive effects.25 Typical misuse claims involve tying—conditioning the purchase of a patented product on the purchase of an accompanying product—or attempting to illegally extend the duration of the patent grant.26 But recent case law from the Federal Circuit restricts the instances when patent misuse can serve as a defense to patent infringement.27 In Princo v. ITC,28 the Federal Circuit found that misuse is a doctrine to be applied and interpreted narrowly and held that the defense of patent misuse requires a direct connection between the patents-in-suit and the alleged misconduct, even if the claimed misconduct has a clear anticompetitive effect.29 Should a defense of patent misuse remain viable under Princo’s exacting standards, a finding of misuse will still not invalidate the patent at issue or allow a claim for antitrust damages. Instead, it will render the patent unenforceable during the time of the misuse, excusing infringers from liability.30
Using Antitrust Laws to Protect Claimed Patent Rights: “It Should Have Been Me”
Attempts to protect actual or asserted patent rights under the antitrust laws are less common—due, no doubt, to the fact that those claims have to-date proved uniformly unsuccessful. Patent holders who have tried to claim antitrust injuries are generally attempting to regain the competitive advantage their invention was supposed to bestow. They claim that their named defendant’s anticompetitive conduct caused their loss and thus seek redress in antitrust. But, because the patent holder can usually only demonstrate an injury to themselves and not to competition as a whole, these claims are doomed to fail. Two cases illustrate difficulties of trying to enforce patent rights with antitrust laws.
A historical example comes from the decision in Brunswick Corp. v. Riegel Textile Corp.31 In the case, plaintiff Brunswick invented a process for making an antistatic yarn. Brunswick, which was not a textile manufacturer, chose to disclose the invention to defendant Riegel, which was. Riegel allegedly agreed to keep the invention a secret, but then applied for its own patent on it. Though Brunswick filed its own patent application first, the USPTO issued the patent to Riegel. The USPTO discovered its error and commenced patent reexamination proceedings. While those proceedings were still pending, Brunswick brought a separate antitrust action, claiming Riegel’s conduct constituted illegal attempted monopolization. The district court dismissed the action on the pleadings, finding Brunswick’s complaint failed to state an antitrust cause of action.32
Writing for the Seventh Circuit on appeal, Judge Posner affirmed. Judge Posner found that Brunswick’s claim failed to meet any of the three conditions necessary for an alleged patent fraud to violate § 2 of the Sherman Act. The requisite conditions Judge Posner stated are:
- Market share;
- The invention sought to be patented is not patentable and, but for the fraud perpetrated on the PTO, no patent would have issued to anyone; and
- The patent must have some colorable validity conferred, for example, by the patentee’s efforts to enforce it.33
Though Brunswick’s complaint could not adequately plead any of these conditions, the patentability of its invention caused the greatest impediment to its claims of an antitrust violation. According to Judge Posner, if the invention at issue is patentable, it does not matter “what skullduggery the defendant may have used to get the patent issued or transferred to him. The power over price that patent rights confer is lawful, and is no greater than it otherwise would be just because the person exercising the rights is not the one entitled by law to do so.”34 Thus, even the outright theft of a perfectly valid patent has no antitrust significance because it merely shifts a lawful monopoly into different hands. Though this harms the lawful owner, it does not exact harm on competition or consumer interests beyond that made in the initial grant of patent. What the inventor/plaintiff truly seeks then, is the return of that monopoly to him. But, according to Judge Posner, “[i]t is not the purpose of antitrust patent laws to confer patents or to resolve disputes between rival applicants for a patent.”35
Another recent effort by a patent holder to resolve a patent licensing dispute using the antitrust laws proved similarly unsuccessful.36 In Digital Sun v. The Toro Co.,37 Digital Sun, the patent holder of a wireless sprinkler system, alleged that Toro had engaged in illegal attempted monopolization after failed negotiations for Toro to purchase Digital Sun. During the course of negotiations, Toro had loaned Digital Sun money. When Digital Sun was unable to repay the loans, Toro agreed to take an exclusive license of Digital Sun’s patents for use on golf course and sports fields, and a non-exclusive license in all other areas in exchange for debt forgiveness. Toro subsequently terminated the negotiations to acquire Digital Sun, and Digital Sun brought suit.
Digital Sun claimed that Toro’s conduct, when combined with its acquisition of another wireless sprinkler company, showed an illegal attempt to monopolize. Toro argued that Digital Sun had failed to state a plausible claim for relief and moved to dismiss.38 Granting the motion, the district court found that Digital Sun had failed to establish the necessary elements of an attempted monopolization claim. Agreeing with Brunswick, the court held that the licenses involved could not serve as evidence of predatory conduct because they did nothing more than transfer Digital Sun’s monopoly into Toro’s hands—an event that “has no antitrust significance.”39 Furthermore, Digital Sun could not show any true antitrust injury, as its chief complaint of injury stemmed from the fact that the exclusive license allowed Toro to replace it in the areas where it once had monopoly rights under the patent. Quoting Columbia River People’s v. Portland General Elec.,40 the district court observed, “if the plaintiff’s only claim is of the nature ‘I, rather than the defendant, was entitled to be the monopolist of this market,’ then the plaintiff is not a victim of antitrust injury.”41 While the court dismissed the complaint with leave to amend, it cautioned that “judicially-noticed documents and Plaintiff’s own arguments leave the Court with doubts as to whether these claims can be resurrected”, and indeed, no amendment occurred.42
Brunswick and Digital Sun represent an interesting cul de sac in the already complex landscape that marks the intersection of antitrust and patent laws. Patent holders contemplating using antitrust laws as a possible source of recourse when a patent monopoly is in dispute are well-advised to consider them fully before proceeding. Together, the decisions show that, so far, the antitrust laws remain immune to claims that the wrong monopolist holds the power.
Litigants in disputes involving patents may view antitrust laws as a way to gain an upper hand. Given the right mix of factual circumstances, those seeking to escape liability for infringement or potential infringement may be able to obtain that advantage. But, because antitrust is concerned with redressing harm to competition, inventors who need help regaining or obtaining the monopoly rights conferred by patent must look somewhere other than antitrust to find the relief they seek.
Stacey P. Slaughter is a partner in the Minneapolis office of Robins, Kaplan, Miller & Ciresi L.L.P. A trial attorney practicing in the area of business litigation, Ms. Slaughter provides representation for complex business litigation cases including matters involving antitrust, trade regulation, and the intersection of the laws regarding intellectual property and competition. Ms. Slaughter can be reached at email@example.com and her full biography is available online at: http://www.rkmc.com/Stacey_Slaughter.htm.
This document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. Bloomberg Finance L.P. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
© 2011 Bloomberg Finance L.P. All rights reserved. Bloomberg Law Reports ® is a registered trademark and service mark of Bloomberg Finance L.P.