By David Caves
Public comments are now closed for the proposed update to the Antitrust Guidelines for the Licensing of Intellectual Property, a joint effort by the Department of Justice (DOJ) and Federal Trade Commission (FTC). These guidelines are important because they guide businesses and legal counsel in crafting licensing arrangements that do not run afoul of antitrust and competition laws. Many businesses, large and small, are parties to licensing agreements, so these guidelines are important even where anticompetitive issues are not immediately on the horizon. A redline version of the proposed guidelines showing proposed changes to the prior version (last updated in 1995) and submitted public comments are available on the DOJ's website.
The proposed guidelines do not seek to substantively change applicable law. Instead, the goal is to incorporate legal changes that have occurred over the past 20 years into the guidelines. The three general principles of the guidelines are largely unchanged:
- For purposes of antitrust analysis, the DOJ and FTC apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right;
- The DOJ and FTC do not presume that intellectual property creates market power in the antitrust context; and,
- The DOJ and FTC recognize that intellectual property licensing allows businesses to combine complimentary factors of production and is generally pro-competitive.
Although the overall approach remains the same, there have been important changes to competition law over the past 20 years that have implications for intellectual property owners and licensees. A few of these changes are discussed below.
Resale Price Maintenance
The largest change in the proposed guidelines is in regard to minimum resale price maintenance (RPM), a type of vertical price restraint. Resale price maintenance is the practice whereby a manufacturer and its distributors agree that distributors will sell the manufacturer's product at certain prices, either above a price floor or below a price ceiling. A landmark U.S. Supreme Court case from 2007, Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), held that the "rule of reason" approach would apply to analysis of vertical price restraints—a more lenient analysis than the prior approach of holding vertical price restraints illegal per se. In practice, this means that an intellectual property license can more easily specify pricing terms for a licensee.
Another change incorporates a U.S. Supreme Court case from 2006, Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006), which held that a patent does not presumptively confer market power on a patent holder. The updated guidelines propose to apply that holding to other intellectual property rights, including copyrights and trade secrets. This is important because ownership of an intellectual property asset does not, by itself, confer market power for antitrust purposes.
The proposed guidelines also recognize the new federal Defend Trade Secrets Act of 2016 (DTSA), which creates a federal cause of action for the misappropriation of trade secrets. The prior guidelines stated that trade secret protection was solely a matter of state law.
Many businesses do not recognize the risk of violating competition laws when licensing, assigning, or otherwise transferring intellectual property assets. Yet this concern should be considered, particularly where one party has market power separate and apart from its intellectual property.
Although the public comments have closed, it is possible that there will be yet more revisions to the guidelines before the final version is published. The public comments included requests for further clarification of the revisions, suggestions that the DOJ and FTC implement some of their past statements regarding patents into the guidelines, and arguments regarding the applicability of antitrust analysis to research and development markets. Some of the proposals from public comments may be implemented.
We plan to update this blog when the updated guidelines are finalized. If you have any questions regarding these issues, please contact David Caves at firstname.lastname@example.org or Jeremiah Junker at email@example.com. The above information is not legal advice and does not create an attorney-client relationship.
Categories: Business Law, Intellectual Property
Tagged As: Antitrust Guidelines, Bradley & Riley, Bradley & Riley PC, David Caves, Department of Justice, Federal Trade Commission, Intellecutal Property