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ASMP joins copyright groups in amicus brief

ASMP has joined with a number of other copyright owners’ groups in asking the Supreme Court to overturn an awkward decision from the U.S. Court of Appeals for the Federal Circuit. The case — Illinois Tool Works Inc. v. Independent Ink, Inc. — primarily involves patents, not copyrights, but to the extent that it becomes a precedent, it could make life a bit harder for all owners of intellectual property.

Update, March 1, 2006. The Supreme Court unanimously ruled in our favor. It held that "in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product." While the decision directly affects only patents, the same logic should extend to all forms of intellectual property, including copyrights.

ASMP’s fellow amici curiae are the Motion Picture Association of America, the Association of American Publishers, the Business Software Alliance, the Entertainment Software Association, the Independent Film & Television Alliance, the National Football League, and the Recording Industry Association Of America. Separately, the Intellectual Property Owners Association, the American Intellectual Property Lawyers Association and the American Bar Association have filed amicus briefs that also suggest the appeals court got it wrong.

The case. Trident Inc. is a subsidiary of Illinois Tool Works that makes inkjet print heads that are mainly used for putting bar codes on cartons. Bar-code printing is a high-speed, high-volume business, so Trident heads have a large ink supply. Controlling the ink flow in such a system is tricky, and Trident holds a patent on its ink-pump technology.

Trident also makes ink for use with its print head. This ink is not patented. Nevertheless, Trident’s standard OEM contract requires any vendor that want to use its print heads to use only this ink. In the law books, this is called a “tying agreement.”

Independent Ink Inc. makes a competing brand of ink. Believing that Trident’s tying agreement was illegal, it filed a lawsuit in Central California’s federal court. In the initial skirmishing, Trident claimed that the ink was covered by a patent, and Independent asked the court to declare Trident’s print-head patent invalid. The district court tossed out both of those assertions. So Independent amended its complaint to include violations of the Sherman Antitrust Act, which forbids various monopolistic business tactics. A patent (like a copyright) is a kind of monopoly, and tying is one of the forbidden tactics.

Because the facts of the case were not being contested, the court issued a summary judgment (that is, a ruling based solely on the law and the facts that the parties agreed on) holding that Trident was not violating the Sherman Act. The reason, it said, is that for patent tying to constitute a violation of the antitrust laws, the plaintiff must prove, not just the existence of a monopoly, but also that the monopoly gives the defendant enough market power to be able to afffect prices. Independent had submitted no evidence that Trident had market power, so it lost the case.

The appeal. Independent asked for a higher court review. Most appeals from California district courts go to the Ninth Circuit Court of Appeals. But certain subjects, including patents and antitrust, are handled nationwide by the Appeals Court for the Federal Circuit.

The appeal hinged on the following question: Is the practice of tying a patented product with an unpatented one always illegal? or is it illegal only when there’s proof that the seller has real market power? In cases that don’t involve intellectual property, it’s usually necessary to prove market power. But, said the appeals court, the Supreme Court’s decisions have always held that economic power can be presumed to exist where patents and copyrights are involved.

The court admitted that Trident had made a good counter-argument that the previous Supreme Court decisions were no longer good law. It pointed to various dissenting opinions in those cases, some divergent decisions from other circuit courts, and numerous academic articles that criticized the existing doctrine in this area. But that was not going to save the day, because Supreme Court precedents must be followed.

Even where a Supreme Court precedent contains many “infirmities” and rests upon “wobbly, moth-eaten foundations,” it remains the [Supreme] “Court’s prerogative alone to overrule one of its precedents.” … We conclude that the Supreme Court has held that there is a presumption of market power in patent tying cases, and we are obliged to follow the Supreme Court’s direction in this respect. The time may have come to abandon the doctrine, but it is up to the Congress or the Supreme Court to make this judgment.

The appeals court then ruled that the district court should have presumed that Trident did have market power because of its patent. That is, the burden of proof was on Trident to offer “expert testimony or other credible economic evidence of the cross-elasticity of demand, the area of effective competition, or other evidence of lack of market power.”

Trident appealed to the Supreme Court, which recently agreed to take the case. Oral arguments are scheduled for December 6, 2005, and a decision will come in early 2006.

ASMP’s position. ASMP and its fellow amici curiae have asked the Supreme Court to consider two aspects of antitrust law. One is whether the precedents that the appeals court obeyed (finding a presumption of economic power) were rightly interpreted. There are, after all, a number of other patent-tying cases where the Supreme Court did not look at the market-power question, deciding the case on different criteria. Seen in that light, the precedent that the appeals court relied on is really out of the mainstream of the Court’s own antitrust thinking.

The other is that the Supreme Court itself has said that any presumptions in antitrust cases should be well anchored in the market realities and in sound economic theory. In particular, there is little empirical support for saying that the mere existence of a patent or a copyright creates market power. Indeed, the marketplace is littered with vendors who have patents and copyrights, yet compete vigorously and have no ability to force prices upward.

Other groups filing briefs in this case have raised some of the same points. However, we are sure that the Court will get amicus arguments on the other side as well. It will be interesting to see what happens.

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