ANTITRUST ENFORCEMENT AND

INTELLECTUAL PROPERTY RIGHTS:

Promoting Innovation and Competition

ISSUED BY THE

U.S. DEPARTMENT OF JUSTICE

AND THE

FEDERAL TRADE COMMISSION

APRIL 2007
 
ANTITRUST ENFORCEMENT AND

INTELLECTUAL PROPERTY RIGHTS:

Promoting Innovation and Competition

ISSUED BY THE

U.S. DEPARTMENT OF JUSTICE

AND THE

FEDERAL TRADE COMMISSION

APRIL 2007
This Report should be cited as:

U.S. DEP’T OF JUSTICE & FED. TRADE COMM’N, ANTITRUST ENFORCEMENT AND INTELLECTUAL

PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION (2007).

This Report can be accessed electronically at:

www.usdoj.gov/atr/public/hearings/ip/222655.pdf 

www.ftc.gov/reports/index.shtm 
iii

TABLE OF CONTENTS

INTRODUCTION ............ ............ ............ ............ ............ ..... 1

CHAPTER 1: THE STRATEGIC USE OF LICENSING: UNILATERAL REFUSALS TO

LICENSE PATENTS ............ ............ ............ ............ . 15

I. Introduction ............ ............ ............ ............ ......... 15

II. The Kodak and CSU Decisions ............ ............ ............ ...... 16

A. The Basic Facts and Holdings of the Cases ............ ...... 16

B. Panelist Views on Kodak ............ ............ .......... 17

C. Panelist Views on CSU ............ ............ ........... 18

D. Ambiguity as to the Scope of the Patent Grant ............ . . 19

III. Policy Issues Relating to Unilateral Refusals to License ............ ....... 20

A. Should Antitrust Law Accord Special Treatment to Patents? . . 21

B. Should Market Power Be Presumed with Patents? ........... 22

C. If an Antitrust Violation Were Found, Would There

Be Workable Remedies for Unconditional, Unilateral

Refusals to License Patents? ............ ............ ...... 22

D. What Would Be the Effect of Liability for Refusals to

License Patents on Incentives to Innovate? ............ ...... 23

E. Competitive Effects of Refusals to License Patents ........... 24

IV. Legal Analysis of Unilateral Refusals to License Patents ............ ....... 25

A. Does Section 271(d)(4) of Title 35 of the U.S. Code Create

an Immunity for Unilateral Refusals to License Patents? ...... 25

B. When Do Refusals to License Patents Violate the

Antitrust Laws? ............ ............ ............ ..... 27

V. Conclusion ............ ............ ............ ............ .......... 31

CHAPTER 2: COMPETITION CONCERNS WHEN PATENTS ARE INCORPORATED

INTO COLLABORATIVELY SET STANDARDS ............ ........... 33

I. Background and Introduction ............ ............ ............ ...... 33
iv TABLE OF CONTENTS

II. Hold Up in the Context of Joint Standard Setting ............ ............ . 37

III. Factors Other Than SSO Rules That May Mitigate Hold Up ............ .... 40

IV. Current SSO Methods to Avoid or Mitigate Hold Up ............ .......... 42

A. Use of Disclosure Rules to Deter Hold Up ............ ...... 42

1. Benefits and Costs of SSO Disclosure

Policies ............ ............ ........... 42

2. FTC Challenges to Hold Ups Based on the

Failure to Disclose IP Rights ............ ..... 43

B. Use of Licensing Rules to Deter Hold Up ............ ....... 45

1. Use of RAND Licensing ............ ......... 46

2. Royalty-Free Licensing Standards ............ 47

V. Using Ex Ante Licensing Negotiations to Mitigate Hold Up ............ .... 49

A. Practical Reasons for the Lack of Ex Ante Licensing

Negotiations ............ ............ ............ ........ 50

B. Antitrust Concerns About Ex Ante Licensing Negotiations .... 50

1. Naked Restraints of Trade by Intellectual

Property Holders or SSO Members ........... 50

2. Group Buying Power ............ ........... 52

VI. Agency Policy Conclusions About Antitrust Concerns Associated with 

Ex Ante Licensing Negotiations ............ ............ ............ .... 53

 CHAPTER 3: ANTITRUST ANALYSIS OF PORTFOLIO CROSS-LICENSING 

AGREEMENTS AND PATENT POOLS ............ ............ ........ 57

I. Introduction ............ ............ ............ ............ ......... 57

II. Portfolio Cross Licenses ............ ............ ............ .......... 59

A. Efficiencies ............ ............ ............ ......... 59

B. Competitive Concerns ............ ............ ........... 61

C. Analysis ............ ............ ............ ........... 62

III. Patent Pools ............ ............ ............ ............ ......... 64

A. Efficiencies ............ ............ ............ ......... 64

B. Competitive Concerns ............ ............ ........... 66

C. Existing Agency Guidance on Patent Pools ............ ..... 66

1. U.S. Department of Justice Business

Review Letters ............ ............ ..... 68

2. The Summit-VISX Pool ............ ......... 73

D. Specific Issues of Competitive Concern ............ ......... 74

1. Substitutes Within a Patent Pool ............ . 74

2. Exclusive and Nonexclusive Licensing ........ 78

3. Grantbacks ............ ............ ........ 80

4. Access to Information ............ .......... 81
TABLE OF CONTENTS v

5. Royalties for the Pool’s Patents ............ ... 82

6. Requests for Partial-Pool Licenses ............ 83

IV. Conclusion ............ ............ ............ ............ .......... 84

CHAPTER 4: VARIATIONS ON INTELLECTUAL PROPERTY

LICENSING PRACTICES ............ ............ ............ ........ 87

I. Introduction ............ ............ ............ ............ ......... 87

II. Non-Assertion Clauses ............ ............ ............ ............ 88

A. Efficiencies of Non-Assertion Clauses ............ .......... 89

B. Competitive Concerns Regarding Non-Assertion Clauses .... 90

III. Grantbacks ............ ............ ............ ............ .......... 91

A. Efficiencies of Grantbacks ............ ............ ........ 92

B. Competitive Concerns Associated with Grantbacks .......... 92

IV. Reach-Through Licensing Agreements ............ ............ .......... 93

A. Efficiencies of Reach-Through Licensing Agreements ........ 94

B. Competitive Concerns About Reach-Through

Licensing Agreements ............ ............ ........... 95

V. Perspectives on Antitrust Analysis of Licensing Practices ............ ...... 97

VI. The Agencies’ Competitive Concerns and Analyses ............ ........... 99

VII. Conclusion ............ ............ ............ ............ ......... 102

CHAPTER 5: ANTITRUST ISSUES IN THE TYING AND BUNDLING OF

INTELLECTUAL PROPERTY RIGHTS ............ ............ ....... 103

I. Introduction ............ ............ ............ ............ ........ 103

II. Legal Analyses of Tying and Bundling ............ ............ ........ 105

III. Tying and Bundling Involving Intellectual Property ............ ......... 106

A. The Economics of Bundling Involving Intellectual

Property ............ ............ ............ .......... 107

B. Legal Issues Relevant to Intellectual Property Bundling ..... 108

C. Practical Issues Regarding Intellectual Property Bundling ... 111

D. Suggested Approaches to Improving the Law on

Intellectual Property Bundling ............ ............ ... 112

IV. Conclusion ............ ............ ............ ............ ......... 114
vi TABLE OF CONTENTS

CHAPTER 6: COMPETITIVE ISSUES REGARDING PRACTICES THAT

EXTEND THE MARKET POWER CONFERRED BY A PATENT

BEYOND ITS STATUTORY TERM ............ ............ ........... 115

I. Collecting Royalties Beyond the Statutory Term ............ ............ . 116

II. Long Term Contracts Involving Exclusivity ............ ............ ..... 119

III. Bundling Patents with Trade Secrets ............ ............ ........... 120

IV. The Agencies’ Analysis ............ ............ ............ .......... 122

APPENDICES

A. Hearings Participants ............ ............ ............ ............ 125

B. Hearings Submissions ............ ............ ............ ........... 147

C. Public Comments ............ ............ ............ ............ ... 161

D. Hearings Transcripts ............ ............ ............ ............ 167

E. United States Code ............ ............ ............ ............ . . 171

F. Cited Cases and Supporting Documents ............ ............ ........ 179

G. Publications Cited ............ ............ ............ ............ ... 187

INDEX ............ ............ ............ ............ ............ ............ . 199

ACKNOWLEDGMENTS ............ ............ ............ ............ ......... 210
1

INTRODUCTION

Over the past several decades,

antitrust enforcers and the courts have

come to recognize that intellectual

property laws and antitrust laws share

the same fundamental goals of enhancing

consumer welfare and promoting

innovation. This recognition signaled a

significant shift from the view that

prevailed earlier in the twentieth century,

when the goals of antitrust and

intellectual property law were viewed as

incompatible: intellectual property law’s

grant of exclusivity was seen as creating

monopolies that were in tension with

antitrust law’s attack on monopoly

power. Such generalizations are

relegated to the past. Modern

understanding of these two disciplines is

that intellectual property and antitrust

laws work in tandem to bring new and

better technologies, products, and

services to consumers at lower prices. 

Intellectual property laws create

exclusive rights that provide incentives

for innovation by “establishing

enforceable property rights for the

creators of new and useful products,

more efficient processes, and original

works of expression.”1 These property

rights promote innovation by allowing

intellectual property owners to prevent

others from appropriating much of the

value derived from their inventions or

original expressions. These rights also

can facilitate the commercialization of

these inventions or expressions and

encourage public disclosure, thereby

enabling others to learn from the

protected property. 

Antitrust laws, in turn, ensure that

new proprietary technologies, products,

and services are bought, sold, traded, and

licensed in a competitive environment. In

today’s dynamic marketplace, new

technological improvements are

constantly replacing those that came

before, as competitors are driven to

improve their existing products or

introduce new products in order to

maintain their market share. Antitrust

laws foster competition by prohibiting

anticompetitive mergers, collusion, and

exclusionary uses of monopoly power.

Yet, it is well understood that exercise of

monopoly power, including the charging

of monopoly prices, through the exercise

of a lawfully gained monopoly position

will not run afoul of the antitrust laws.2

1

 U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N,

ANTITRUST GUIDELINES FOR THE LICENSING OF

INTELLECTUAL PROPERTY § 1 (1995), reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,132, available at

http://www.usdoj. gov/atr/ public/guidelines/

0558.pdf[hereinafter ANTITRUST-IP GUIDELINES].

2

 Verizon Commc’ns Inc. v. Law Offices of Curtis V.
2 PROMOTING INNOVATION AND COMPETITION

The same principle applies to monopoly

power that is based on intellectual

property rights. As Judge Posner has

explained, “It is not a violation of [the

antitrust] laws to acquire a monopoly by

lawful means, and those means include

innovations protected from competition

by the intellectual property laws.”

3

Although some intellectual property

rightsmay create monopolies, intellectual

property rights do not necessarily (and

indeed only rarely) create monopolies

because consumers may be able to

substitute other technologies or products

for the protected technologies or

products. Therefore, antitrust doctrine

does not presume the existence of market

power from the mere presence of an

intellectual property right.4

Consequently, antitrust and

intellectual property are properly

perceived as complementary bodies of

law that work together to bring

innovation to consumers: antitrust laws

protect robust competition in the

marketplace, while intellectual property

laws protect the ability to earn a return on

the investments necessary to innovate.

Both spur competition among rivals to be

the first to enter the marketplace with a

desirable technology, product, or service.

Although there is broad consensus

that the basic goals of antitrust and

intellectual property law are aligned,

difficult questions can arise when

antitrust law is applied to specific

activities involving intellectual property

rights that do create market power. That

may happen when, for instance, a

standard of manufacture for an entire

industry or the only treatment for a

particular disease incorporates patented

technology, or when the research and

development (“R&D”), invention,

manufacture, or distribution of a product

or process without good substitutes

involves the licensing of protected

technology. The Antitrust Division of the

U.S. Department of Justice and the U.S.

Federal Trade Commission (the

“Agencies”) frequently address complex

antitrust questions related to conduct

involving the exercise of intellectual

property rights in enforcement actions,

reports, testimony, reviews of proposed

business conduct, and amicus curiae or

“friend of the court” briefs filed in the

federal courts of appeals and the Supreme

Court. In doing so, the Agencies must

apply antitrust principles to identify

illegal collusive or exclusionary conduct

while at the same time supporting the

incentives to innovate created by

intellectual property rights. Condemning

efficient activity involving intellectual

property rights could undermine that

incentive to innovate, and thus slow the

engine that drives much economicgrowth

in the United States. However, failure to

challenge illegal collusive or exclusionary

conduct, involving intellectual property

as well as other forms of property, can

have substantial negative consequences

for consumers.

Trinko, LLP, 540 U.S. 398, 407 (2004).

3

 Richard A. Posner, Antitrust in the New Economy, 68

ANTITRUST L.J. 925, 930-31 (2001).

4

 Ill. Tool Works Inc. v. Indep. Ink, Inc., 126 S. Ct. 1281,

1284 (2006) (“[T]he mere fact that a tying product is

patented does not support [a market power]

presumption.”); ANTITRUST-IP GUIDELINES § 2.2 (“The

Agencies will not presume that a patent, copyright, or

trade secret necessarily confers market power upon

its owner.”).
Introduction 3

Recognizing that both robust

competition and intellectual property

rights are crucial to a well-functioning

market economy, the Agencies conducted

a series of Hearings, beginning in

February 2002, designed to develop a

better understanding ofthe questions that

arise when antitrust law is applied to

conduct involving intellectual property

rights and to examine the Agencies’

approachtoward analyzing suchconduct.

The Hearings, entitled “Competition and

Intellectual Property Law and Policy in

the Knowledge-Based Economy,”

assembled business people from large

and small firms, academics, and legal

practitioners. During the Hearings, the

Agencies heard a wide range of views

from more than 300 panelists and

received more than 100 written

comments.5 In conjunction with the

Hearings, the Agencies also reviewed the

scholarly literature addressing issues on

the cutting edge of legal doctrine and

economic theory, concerning how best to

reward innovation while encouraging

competition.

6

 This Report synthesizes

many of the views expressed during the

Hearings, in the written submissions, and

in the literature, and draws conclusions

where appropriate on the proper analysis

for evaluating certain activities involving

intellectual property rights, as well as the

key considerations that should inform the

Agencies’ analysis.7 

Many ofthese key considerations are

found within the framework of the

Antitrust Guidelines for the Licensing of

Intellectual Property (“Antitrust-IP

Guidelines”). The Agencies’ review of

intellectual property and antitrust law

and policy illustrates that the Antitrust-IP

Guidelines remain an integral part of the

Agencies’ analysis of intellectualproperty

and antitrust issues. For over a decade,

the Agencies have relied on the sound

principles of these guidelines to aid their

analysis of complex licensing agreements.

Those principles will continue to guide

the Agencies as they consider new and

challenging antitrust questions that

involve intellectual property rights.

The general principles articulated in

section 2 of these Guidelines provide a

solid foundation for this analysis. First,

the Guidelines state that agreements

involving intellectual property can be

analyzed using the same antitrust rules

applied to agreements involving any

other property.8 During the Hearings,

former Deputy Assistant Attorney

General Richard J. Gilbert explained that

5

 Hearings information and materials can be accessed

on the Agencies’ websites. DOJ/Antitrust,

Competition and Intellectual Property Law in the

Knowledge-Based Economy,

http://www.usdoj.gov/atr/hearing.htm; Federal

Trade Commission, Competition and Intellectual

Property Law in the Knowledge-Based Economy,

http://www.ftc.gov/opp/ intellect.

6

 For a complete list of the scholarly literature cited

by the Agencies, see Appendix G.

7

 In October 2003, the FTC issued a report, based on a

portion of the Hearings record, which made a series

of recommendations for reform of the patent system

designed to maintain a proper balance between

competition and intellectual property policies. 

FEDERAL TRADE COMM’N, TO PROMOTE INNOVATION:

THE PROPER BALANCE OF COMPETITION AND PATENT

LAW AND POLICY Executive Summary, at I-V (2003),

available at http://www.ftc.gov/ os/2003/10/

innovationrpt.pdf.

8

 ANTITRUST-IP GUIDELINES § 2.1 (“The Agencies

apply the same general antitrust principles to conduct

involving intellectual property that they apply to

conduct involving any other form of tangible or

intangible property.”).
4 PROMOTING INNOVATION AND COMPETITION

“[w]hat this mean[s is] not that

intellectual property is the same as other

forms of property. It clearly is not the

same. . . . [B]ut in terms of how to analyze

intellectual property issues, the same

[antitrust] principles apply.”9 Second, the

Guidelines state that an intellectual

property right does not necessarily create

market power. Rather, the Agencies

determine whether substitutes for the

protected technology or product prevent

the intellectual property right holderfrom

exercising market power.10 Third, the

Guidelines state that intellectual property

licensing is generally procompetitive

because it allows firms to combine

intellectual property rights with other

complementary factors of production

such as manufacturing and production

facilities and workforces.11

As the Antitrust-IP Guidelines

suggest, many of the difficult questions

that the Agencies encounter in the

application of antitrust principles to

intellectual property stem from

differences between the characteristics of

intellectual property and other forms of

property. Intellectual property is more

easily misappropriated than many other

forms of property in that it is often easier

to copy and may be used without

interfering with the ability of others also

to use it. The fixed costs of creating

intellectual property can be high, while

the marginal costs of using intellectual

property are often low. Moreover, the

boundaries of intellectual property rights

are often uncertain and difficult to define,

so that neither the intellectual property

holder nor competitors know the precise

extent of protection afforded by the

intellectual property right without a

decision from a court or binding arbiter.

The value of intellectual property

typically depends more on its

combination with other factors of

production, such as manufacturing and

distribution facilities, workforces, or

complementary intellectual property,

than does tangible property. Finally, the

duration of some, but not all, intellectual

property rights is limited.12 The

application of antitrust law to intellectual

property requires careful attention to

these differences. 

This Report discusses how these

principles are applied to particular

activities involving intellectual property

rights. The first two chapters of this

Report focus on certain methods that an

9

 Feb. 6, 2002 Hr’g Tr., Welcome and Overview of

Hearings at 85 (Gilbert), http://www.ftc.gov/opp/

intellect/020206ftc.pdf [hereinafter Feb. 6 Tr.]. For

example, the Agencies analyze acquisitions of

intellectual property pursuant to the Horizontal

Merger Guidelines, examining whether the

acquisitions are likely to substantially lessen

competition. U.S. DEP’T OF JUSTICE & FEDERAL TRADE

COMM’N, HORIZONTAL MERGER GUIDELINES (1992, rev.

ed. 1997), reprinted in 4 Trade Reg. Rep. (CCH) ¶

13,104, available at http://www.usdoj.gov/atr/

public/guidelines/hmg.pdf.

10 ANTITRUST-IP GUIDELINES § 2.1.

11

 Id. § 2.3.

12 Patents are valid for a term of twenty years from

the date on which the application for the patent was

filed. 35 U.S.C. § 154(a)(2) (2000). Most copyrights

are valid for the life of the author plus seventy years

or ninety-five years after the work is first published if

the creator is a corporation. 17 U.S.C. § 302(a), (c)

(2000). Trade secrets enjoy perpetual protection

provided the secret information is not disclosed. 1

ROGER M. MILGRIM, MILGRIM ON TRADE SECRETS §

1.05[1], at 1-197 (2005). Trademarks are protected as

long as the mark continues to indicate a specific

source or quality and is not abandoned by the owner. 

1 J. THOMAS MCCARTHY, MCCARTHY ON TRADEMARKS

AND UNFAIR COMPETITION § 6.8, at 6-11 to -12 (4th ed.

2005).
Introduction 5

individual holder of intellectual property

rights might employ to maximize the

benefits it receives from its intellectual

property. Chapter 1 addresses the

antitrust consequences for apatent holder

that unilaterally and unconditionally

refuses to license its patent. Chapter 2

addresses collaboratively set standards

and “hold up,” or the ability of an

intellectual property holder to extract

more favorable licensing terms after a

standard is set. 

The remaining chapters of this

Report focus directly on intellectual

property licensing practices. Chapter 3

addresses patent pools and crosslicensing arrangements and analyzes

licensing structures used to lower the risk

that patent-pooling agreementswill cause

competitive harm. Chapter 4 considers

the procompetitive and anticompetitive

effects of specific types of restrictions in

intellectual property licenses, including

non-assertion clauses, grantbacks, and

reach-through royalty agreements. The

antitrust consequences of tying and

bundling of intellectual property rights

are assessed in Chapter 5. Finally, in

Chapter 6, the Report addresses the

competitive significance of restrictions

that attempt to extend the temporal reach

of patents. The Agencies’ conclusions

regarding these topics are summarized in

this introduction. 

CHAPTER 1: THE STRATEGIC USE OF

LICENSING: UNILATERAL

REFUSALS TO LI CENSE

PATENTS

Although intellectual property law

and antitrustlaware complementary, two

divergent appellate decisions, Image

Technical Services, Inc. v. Eastman Kodak Co.

(“Kodak”)13 and In re Independent Service

Organizations Antitrust Litigation (CSU),14

illustrate the potential for conflict

regarding unilateral refusals to license

patents. Panelists explored the

circumstances, if any, under which courts

should impose antitrust liability for a

refusal to license a patent. Panelists

agreed that neither Kodak nor CSU

provide sufficient guidance on potential

antitrust liability for a refusal to license.

Most panelists rejected the approach of

the U.S. Court of Appeals for the Ninth

Circuit in Kodak, which impracticably

focused on the subjective intent of the

patent holder that had refused to license

its patent. As one panelist noted, Kodak

presents a standard that is out of step

with the modern focus of antitrust

analysis, which is on objective economic

evidence. Panelists also criticized the

decision of the U.S. Court of Appeals for

the Federal Circuit in CSU, which, in

dictum, narrowly construed the

circumstances in which antitrust liability

can arise for a refusal to license. These

circumstances—illegal tying, fraud on the

U.S. Patent and Trademark Office, and

shamlitigation—providedlittle guidance,

according to panelists, because they are

independent bases for antitrust liability.

13 125 F.3d 1195 (9th Cir. 1997).

14 203 F.3d 1322 (Fed. Cir. 2000).
6 PROMOTING INNOVATION AND COMPETITION

Other panelists feared the CSU decision

would be interpreted broadly to

encompass conduct beyond the unilateral

refusal to license, to instances in which

the patentee attaches conditions to a

license. 

Most panelists concluded, consistent

with the Antitrust-IP Guidelines, that

antitrust laws should be applied in the

same manner to intellectual property as

they are to other property. Panelists

offered differing views on other issues,

however, such as whether challenging

refusals to license would have significant

chilling effects oninnovation, the possible

competitive effects of refusals to license,

and whether compulsory licensing is a

workable remedy for an antitrust

violation. Although some panelists

favored the possibility of antitrust

liability for refusals to license in narrow

circumstances, others favored a

categorical exemption from antitrust

liability for unilateral, unconditional

refusals to license. Panelists agreed that

conditional refusals to license, whichhave

the potential to cause competitive harm,

can and should be treated as an antitrust

violation in appropriate circumstances.

The Agencies’ Conclusions:

• Section 271(d)(4) of the Patent Act

does not create antitrust immunity

for unilateral refusals to license

patents. 

• Statements in Supreme Court

jurisprudence support the

traditional understanding that the

unilateral right to refuse to grant a

patent license is a core part of the

patent grant.

• Antitrust liability for mere

unilateral, unconditional refusals to

license patents will not play a

meaningful part in the interface

between patent rights and antitrust

protections. Antitrust liability for

refusals to license competitors

would compel firms to reach out

and affirmatively assist their rivals,

a result that is “in some tension

with the underlying purpose of

antitrust law.”15 Moreover, liability

would restrict the patent holder’s

ability to exercise a core part of the

patent—the right to exclude.

• Conditional refusals to license that

cause competitive harm are subject

to antitrust liability.

CHAPTER 2: COMPETITION CONCERNS

WHEN PA T E NTS AR E

I N C ORPORATED INTO

COLLABORATIVELY SET

STANDARDS

Industry standards are widely

acknowledged to be one of the engines of

the modern economy. Standards can

make products less costly for firms to

produce and more valuable to consumers.

They can increase innovation, efficiency,

and consumer choice; foster public health

and safety; and serve as a “fundamental

building block for international trade.”16

Standards make networks, such as the

Internet and telecommunications, more

15

 Trinko, 540 U.S. at 407-08 (setting forth three

sources of that tension).

16 Amy A. Marasco, Standards-Setting Practices: 

Competition, Innovation and Consumer Welfare (Apr. 18,

2002 Hr’g R.) at 3-4, http://www.ftc.gov/opp/

intellect/020418marasco.pdf.
Introduction 7

valuable to consumers by allowing

products to interoperate. 

Businesses can collaborate to

establish industry standards by working

though standard-setting organizations

(“SSOs”). During the standard-setting

process, SSO members often jointly

evaluate and choose between substitute

technologies. This process can raise

antitrust concerns, and indeed, some

collaborative standard-setting activities

have been challenged under the antitrust

laws. Unique antitrust issues arise when

the standards adopted involve, as they

frequently do, intellectualpropertyrights.

If a technology lacks effective substitutes

because an SSO chose to include it in a

standard, and the costs associated with

switching to an alternative standard are

high, the owner of patents on that

technology may be able to hold up firms

wishing to implement the standard by

setting higher royalties and less favorable

licensing terms than it could have done

before the standard was set. 

To mitigate the potential for hold up,

many SSOs have required participants to

disclose the existence of intellectual

property rights that may be infringed by

a standard and to commit to licensing on

reasonable and nondiscriminatory

(“RAND”) terms. Panelists agreed that

intellectual property disclosure rules can

help avoid hold up by informing SSO

members early about relevant intellectual

property rights that may be asserted by

thoseparticipating in the standard-setting

process. Those rules can be successful in

preventing hold up, however, only if

participants comply. At the Hearings,

panelists also noted the potential costs

associated with disclosure requirements,

including slowing the adoption of a

standard and deterring wide-spread

participation in the SSO. 

Some SSOs and SSO members would

like to further mitigate the potential for

hold up by requiring patent owners to

commit to licensing terms before the SSO

will select the patented technology as part

of a standard. Panelists addressed how ex

ante licensing discussions could alleviate

hold up. There was general consensus

among panelists that a more transparent

process for setting licensing terms would

be desirable, but many expressed concern

that such discussions could increase the

risk of an antitrust challenge. Further, the

increased administrative costs and delays

associated with that transparency led

many panelists to disfavor including ex

ante discussions in the standard-setting

process for practical reasons that were

independent of antitrust concerns. 

The Agencies’ Conclusions:

• Ex ante consideration of licensing

terms by SSO participants can be

procompetitive. 

• Joint ex ante consideration of

licensingterms by SSO participants

is unlikely to constitute a per se

antitrust violation. The Agencies

will usually apply the rule of

reason when evaluating joint

activities that mitigate hold up by

allowing potential licensees of the

standard to negotiate licensing

terms with IP holders. Such ex ante

negotiations of licensing terms are

most likely to be reasonable when

the adoption of a standard will
8 PROMOTING INNOVATION AND COMPETITION

create or enhance market power for

a patent holder.

• An intellectual property owner’s

unilateral announcement of

licensing terms does not violate

section 1 of the Sherman Act.

• An intellectual property owner’s

unilateral announcement of price

terms, without more, does not

violate section 2 of the Sherman

Act.

• Bilateral ex ante negotiations about

licensing terms that take place

between an individual SSO

member and an individual

intellectual property holder outside

the auspices of the SSO are unlikely

(without more) to require any

special antitrust scrutiny because

intellectual property rights holders

are merely negotiating individual

terms with individual buyers.

• The Agencies take no position as to

whether SSOs should engage in

joint ex ante discussion of licensing

terms. 

CHAPTER 3: ANTITRUST ANALYSIS OF

P O R TFOL I O C R O S S -

LICENSING AGREEMENTS

AND PATENT POOLS

In many industries, the patent rights

necessary to commercialize a product are

frequently controlled by multiple rights

holders. This fragmentation of rights can

increase the costs of bringing products to

market due to the transaction costs of

negotiating multiple licenses, and greater

cumulative royalty payments. Portfolio

cross licenses and patent pools can help

solve the problems created by these

overlapping patent rights, or patent

thickets, by removing the need for patentby-patent licensing, thus reducing

transaction costs for licensees. In

addition,patent-pooling agreements may

mitigate royalty stacking and hold-up

problems that can occur when multiple

patent holders individually demand

royalties from a licensee. At the same

time, portfolio cross licenses and patent

pools preserve the financial incentives for

inventors to commercialize their existing

innovations and undertake new,

potentially patentable R&D. 

Although both cross-licensing and

patent-pooling agreements have the

potential to generate significant

efficiencies, they also may generate

anticompetitive effects if the

arrangements result in price fixing,

coordinated output restrictions among

competitors, or foreclosure of innovation.

For instance, horizontal coordination

among the pool’s licensors could lead to

a reduction in price competition between

technologies or downstream products.

Moreover, 

a pooling arrangement that

requires members to grant licenses

to each other for current and

future technology at minimal cost

may reduce the incentives of its

members to engage in research

and development because

members of the pool have to share

their successful research and

development and each of the

members can free ride on the
Introduction 9

accomplishments of other pool

members.17

Pooling agreements typically warrant

greater antitrust scrutiny than do crosslicensing agreements due to the collective

pricing of pooled patents, greater

possibilities for collusion, and generally a

larger number of market participants. 

Hearing panelists discussed several

topics, including the similarities and

differences between pooling and crosslicensing agreements, the potential

procompetitive benefits an d

anticompetitive effects of pools and cross

licenses, and the safeguards that have

been proposed through the Department’s

business review procedures to help

ensure that patent pools do not harm

competition. Panelists generally agreed

that the Agencies’ existing guidance in

this area has been instructive and helpful.

The Agencies’ Conclusions:

• The Agencies will continue to

evaluate the competitive effects of

cross licenses and patent pools

under the framework of the

Antitrust-IP Guidelines. Given the

cognizable benefits and potential

anticompetitive effects associated

with both of these licensing

practices, the Agencies typically

will analyze both types of

agreements under the rule of

reason. 

• Combining complementarypatents

within a pool is generally

procompetitive. 

• Including substitute patents in a

pool does not make the pool

presumptively anticompetitive;

competitive effects will be

ascertained on a case-by-case basis.

• The competitive significance of a

pool’s licensing terms will be

analyzed on a case-by-case basis

considering both their

procompetitive benefits and

anticompetitive effects. 

• The Agencies will not generally

assess the reasonableness of

royalties set by a pool. The focus of

the Agencies’ analysis is on the

pool’s formation and whether its

structure would likely enable pool

participants to impair competition.

CHAPTER 4: V ARIATIONS O N

INTELLECTUAL PROPERTY

LICENSING PRACTICES

Because the Agencies recognize that

most business transactions involving the

use, distribution, transfer, or exchange of

intellectual property rights are

procompetitive, they most commonly

evaluate the competitive impact of such

transactions under the rule of reason. For

restraints in intellectual property licenses,

this approach means inquiring “whether

the restraint is likely to have

anticompetitive effects, and, if so,

whether the restraint is reasonably

necessary to achieve procompetitive

benefit s that outweigh those

anticompetitive effects.”18 The analysis of

a particular licensing restraint inquires

17 ANTITRUST-IP GUIDELINES § 5.5. 18

 Id. § 3.4.
10 PROMOTING INNOVATION AND COMPETITION

whether the restraint “harms competition

among entities that would have been

actual or likely potential competitors” in

the absence of the license.19 Restraints

that encourage licensees to develop and

market the licensed technology or that

reduce the transaction costs of licensing

the technology are more likely to be

found reasonable. When assessing

licensing restraints, the Agencies will not

search for unrealistic least restrictive

alternatives for the restraint.20 The

Agencies will, however, treat as unlawful

per se those restraints that courts have

found plainly anticompetitive, such as

price fixing and market division among

horizontal competitors, because they

always, or almost always, tend to raise

prices or reduce output.21

Hearings panelists discussed several

specific licensing practices that are

analyzed using the framework of the

Antitrust-IP Guidelines: non-assertion

clauses, grantbacks, and reach-through

royalty agreements. Panelists considered

when these practices might be

procompetitive , und er wha t

circumstances they might be

anticompetitive, and whether the

Antitrust-IP Guidelines provide adequate

guidance for evaluating the antitrust

implications of these arrangements.

Panelists generally agreed that the basic

principles set forth in the Antitrust-IP

Guidelines are preferable to bright line,

per se rules that affirmatively approve or

condemn a specific licensing practice

without regard to the circumstances in

which these rules are applied. 

The Agencies’ Conclusion:

• TheAgencies will continue to apply

the flexible rule of reason analysis

of the Antitrust-IP Guidelines to

assess intellectual property

licensing agreements, including

non-assertion clauses, grantbacks,

and reach-through royalty

agreements.

CHAPTER 5: ANTITRUST ISSUES IN THE

TYING AND BUNDLING OF

INTELLECTUAL PROPERTY

RIGHTS

A tying arrangement occurs when,

through a contractual or technological

requirement, a seller conditions the sale

or lease of one product or service on the

customer’s agreement to take a second

product or service. A “requirements tiein” sale occurs when a seller requires

customers who purchase one product

from the seller (e.g., a printer) also to

make all their purchases of another

product from the seller (e.g., ink

cartridges). Such tying allows the seller

to, for example, charge customers

different amounts depending on their

product usage. A bundled sale typically

refers to a sale in which the products are

sold only in fixed proportions (e.g., one

pair of shoes and one pair of shoe laces, or

a newspaper, which can be viewed as a

bundle of sections, some of which may

not be read at all by individual

customers). 

Intellectual property bundling can

take various forms and labels, depending

19

 Id. § 3.1.

20

 Id. § 4.2.

21

 Id. § 3.4.
Introduction 11

on whether the product linked to the

intellectual property also embodies

intellectual property, whether one price

or separate prices are charged, and

whether the linkage is accomplished

contractually or technologically. Classic

“contractual” patent tying occurs when

the tying product is patented (such as a

mimeographmachine), the tied product is

a commodity used as an input for the

tying product (such as ink or paper), and

the sale of the patented product is

conditioned on the purchase of the

unpatented product. A “technological

tie” may be defined as one in which “the

tying and tied products are bundled

together physically or produced in such a

way that they are compatible only with

each other.”22 Multiple intellectual

property rights may themselves be

combined into bundles or licensed in

packages, such as the “block booking” of

motion pictures or television shows.

Economic theory can identify both

procompetitive and anticompetitive

effects when two or more products are

tied or bundled together and at least one

of these products involves intellectual

property rights. In spite of this, under

current antitrust case law, tying

arrangements, including those involving

intellectual property, continue to be per se

illegal if the seller has market power in

the tying product and certain other

conditions are met.23 However, the

application of the per se rule to tying has

evolved to incorporate a market

analysis.24

One Hearing panel discussed how

the Agencies and the courts could best

analyze IP tying and bundling, both to

reach the right answers in particular cases

and to give private parties a reasonable

ability to predict how their licensing

practices will be treated under the

antitrust laws. Several panelists

recognized the efficiencies potentially

associated with the tying and bundling of

intellectual property rights and panelists

were generally in favor of a more flexible

application of the antitrust laws to

intellectual property tying and bundling.

The Agencies’ Conclusion:

• The Antitrust-IP Guidelines will

continue to guide the Agencies’

analysis of intellectual property

tying and bundling. Pursuant to

the Antitrust-IP Guidelines, the

Agencies consider both the

anticompetitive effects and the

efficiencies attributable to a tie, and

would be likely to challenge a tying

arrangement if: “(1) the seller has

market power in the tying product,

(2) the arrangement has an adverse

effect on competition in the

relevant market for the tied

product, and (3) efficiency

justifications for the arrangement

d o n ot outweigh th e

22

 1 HERBERT HOVENKAMP, MARK D. JANIS & MARK A.

LEMLEY, IP AND ANTITRUST: AN ANALYSIS OF ANTITRUST

PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY LAW §

21.5b2, at 21-104 (2002). An example would be a

razor and razor blade cartridge.

23

 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2,

9 (1984); Ill. Tool, 126 S. Ct. at 1284. 

24

 Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of the

Univ. of Okla., 468 U.S. 85, 104 n.26 (1984) (“[W]hile

the Court has spoken of a ‘per se’ rule against tying

arrangements, it has also recognized that tying may

have procompetitive justifications that make it

inappropriate to condemn without considerable

market analysis.”).
12 PROMOTING INNOVATION AND COMPETITION

anticompetitive effects.”25 If a

package license constitutes tying,26

the Agencies will evaluate it

pursuant to the same principles

they use to analyze other tying

arrangements.

CHAPTER 6: C OMPETITIVE I SSUE S

REGARDING PRACTICES

THAT EXTEND THE MARKET

POWER CONFERRED BY A

PATEN T BE YOND IT S

STATUTORY TERM

A portion of the Hearings focused on

the competitive impact of practices that

firms may use to extend the reach of a

patent beyond the expiration of a patent’s

statutoryterm, such as collecting royalties

beyond the statutory term, the use of

exclusive contracts that deprive rivals or

potential entrants of a source of supply or

access to customers, or bundling trade

secrets with patents. Of course, these

efforts do not have the potential to cause

competitive concern unless the patent in

questionis associated with market power,

i.e., when the patent holder can profitably

“maintain prices above, or output below,

competitive levels for a significant period

of time.”27 Moreover, although some of

these practices may have the potential to

extend the ability to exercise the market

power conferred by a patent, many

practices do not actually do so, and as

panelists observed, they may, in fact, offer

efficiencies. Accordingly, panelists

identified the fundamental question for

assessing competitive harm that may

result from such practices to be whether

the patent holder is exercising market

power arising from the patent beyond its

statutory term to prevent expansion by

those already in the market or to deter the

entry of substitute products or processes

into the market. 

The Agencies’ Conclusions:

• The starting point for evaluating

practices that extend beyond a

patent’s expiration is analyzing

whether the patent in question

confers market power. 

• Standard antitrust analysis applies

to practices that have the potential

to extend the market power

conferred by a patent beyond its

expiration. 

• Collecting royalties beyond a

patent’s statutory term can be

efficient. Although there are

limitations on a patent owner’s

ability to collect royalties beyond a

patent’s statutory term,28 that

practicemay permit licensees to pay

lower royalty rates over a longer

period of time, which reduces the

deadweight loss associated with a

patent monopoly and allows the

patent holder to recover the full

value of the patent, thereby

preserving innovation incentives.

25 ANTITRUST-IP GUIDELINES § 5.3 (footnotes omitted).

26 The Antitrust-IP Guidelines describe package

licensing as “the licensing of multiple items of

intellectual property in a single license or in a group

of related licenses,” which “may be a form of tying

arrangement if the licensing of one product is

conditioned upon the acceptance of a license for

another, separate product.” Id.

27

 Id. § 2.2. 28

 See Brulotte v. Thys Co., 379 U.S. 29 (1964).
Introduction 13

Holding the Hearings and

developing this Report has improved the

understanding of the Agencies regarding

issues at the intersection of antitrust and

intellectual property law. Listening to the

differing perspectives of the panelists,

and reviewing the submissions and the

literature, has helped hone the Agencies’

analysis of compelling issues at the

intellectual property-antitrust interface

that will continue to arise as we move

further into the twenty-first century. The

Hearings confirmed that the rigorous

economic analysis introduced into

competition law in the 1980s, which the

Agencies continue to apply today, is

robust enough to tackle unexplored

questions that lie ahead. This analysis

focuses on preserving incentives for

creativity and innovation, and avoids

applying intellectual property-specific

rules that may undermine creativity and

innovation. The Hearings further

confirmed the continuing vitality of the

principles espoused in the Antitrust-IP

Guidelines in guiding the Agencies’

consideration of challenging antitrust

questions in this area. The Agencies will

continue to identify those circumstances

under which it may be necessary for the

Agencies to intervene in order to prevent

practices that are harmful to competition

or innovation. Using our improved

understanding of intellectual property,

the Agencies better can ensure that

intellectual property and antitrust laws

continue to achieve their common goals

of “encouraging innovation, industry and

competition.”29

29

 See Atari Games Corp. v. Nintendo of Am., Inc., 897

F.2d 1572, 1576 (Fed. Cir. 1990); Feb. 6 Tr. at 11-12

(James).

15

CHAPTER 1

THE STRATEGIC USE OF LICENSING:

UNILATERAL REFUSALS TO LICENSE PATENTS

I. INTRODUCTION

The appropriate application of the

antitrust laws to unilateral refusals to

license patents is the subject of much

debate. Differing resolutions of that

debate at this particular intersection of

antitrust and patent law may explain

divergent decisions from the courts of

appeals. In Image Technical Services, Inc. v.

Eastman Kodak Co. (“Kodak”),1 the United

States Court of Appeals for the Ninth

Circuit affirmed Sherman Act liability

relating to a unilateral refusal to license

intellectual property. Yet in In re

Independent Service OrganizationsAntitrust

Litigation (CSU),2 the United States Court

of Appeals for the Federal Circuit

affirmed summary judgment for a

defendant under similar circumstances.

As a part of the Hearings, attorneys

and economists explored the

circumstances, if any, under which courts

should impose antitrust liability for a

refusal to license patents.3 Panelists

critiqued the Kodak and CSU decisions;

discussed the likely economic effects of

permitting, and prohibiting, antitrust

liability for unilateral refusals to license

patents; and debated the proper legal

1

 125 F.3d 1195 (9th Cir. 1997).

2

 203 F.3d 1322 (Fed. Cir. 2000). 

3

 The May 1, 2002 Hearing panelists included:

Ashish Arora, Visiting Associate Professor of

Economics, Stanford University, Associate Professor

of Economics and Public Policy, Carnegie Mellon

University; Jonathan I. Gleklen, Partner, Arnold &

Porter; Paul F. Kirsch, Partner, Townsend and

Townsend and Crew LLP; Benjamin Klein, Professor

of Economics, University of California, Los Angeles;

Jeffrey K. MacKie-Mason, Arthur W. Burks Professor

of Information and Computer Science, Professor of

Economics and Public Policy, University of Michigan;

A. Douglas Melamed, Partner, Wilmer, Cutler &

Pickering; Carl Shapiro, Transamerica Professor of

Business Strategy, Haas School of Business; Director

and Professor of Economics, Institute of Business and

Economic Research, University of California,

Berkeley; Christopher J. Sprigman, Counsel, King &

Spalding; Mark D. Whitener, Antitrust and General

Counsel, General Electric; John Shepard Wiley, Jr.,

Professor of Law, University of California, Los

Angeles. This session was moderated by thenDeputy Assistant Attorney General R. Hewitt Pate,

Antitrust Division, U.S. Department of Justice; Pam

Cole, Attorney, Antitrust Division, U.S. Department

of Justice; Suzanne Majewski, Economist, Antitrust

Division, U.S. Department of Justice; Gail Levine,

then-Deputy Assistant General Counsel for Policy

Studies, Federal Trade Commission; and C. Edward

Polk, Jr., then-Associate Solicitor, U.S. Patent and

Trademark Office. May 1, 2002 Hr’g Tr., The

Strategic Use of Licensing: Is There Cause for

Concern About Unilateral Refusals to Deal? at 2-3,

http://www.ftc.gov/opp/intellect/020501xscript.pdf

[hereinafter May 1 Tr.].
16 PROMOTING INNOVATION AND COMPETITION

analysis of unilateral refusals to license.

II. THE KODAK AND CSU

DECISIONS

Panelists indicated that neither Kodak

nor CSU provides sufficient guidance on

potential antitrust liability for unilateral

refusals to license patents. Moreover, the

divergence in approaches taken by the

two decisions makes it difficult to

determine the contours of potential

liability for refusals to license patents and

thereby creates uncertainty for licensors

and licensees.

A. The Basic Facts and Holdings of the

Cases

The panelists framed the debate

about imposing antitrust liability for

unilateral refusals to license patents

around the Kodak and CSU opinions,

which raise many of the key issues.

Plaintiffs in both cases were independent

service organizations (“ISOs”) that sued

original equipment manufacturers

(“OEMs”), alleging the OEMs violated

section 2 of the Sherman Act by refusing

to sell patented parts and to license

patented and copyrighted software.4

Plaintiffs’ theory in both cases was that

section 2 was violated because the

defendants each had a monopoly in a

relevant parts market and, by refusing to

supply parts to the ISOs, they were

extending their monopolies into the

servicing of their equipment.

In Kodak, the Ninth Circuit held that

a “reluctance to sell . . . patented or

copyrighted parts was a presumptively

legitimate business justification,” but the

“presumption may also be rebutted by

evidence of pretext.”5 The court also held

that there was sufficient evidence of

pretext because the defendant refused to

sell both patented and unpatented parts

and was not even thinking about its

patent rights when it did so.6 

In contrast, the Federal Circuit in

CSU declined to consider the “patentee’s

subjective motivation for refusing to sell

or license its patented products,” in effect

making the presumption of a legitimate

business justification conclusive.

7

 In

much discussed dictum, the court added

that a “patent holder may enforce the

statutory right to exclude others . . . free

from liability under the antitrust laws” in

4

 In Kodak, the defendant’s refusal to deal did not

distinguish among parts on the basis of patent rights. 

The Kodak court found that the defendant had

monopoly power in an “all parts” market, including

many parts not protected by patent rights. Kodak, 125

F.3d at 1219-20. In CSU, plaintiffs likewise alleged

refusals to deal extending to items not protected by

patent rights. The district court initially granted

summary judgment for the defendant for the refusal

to license patented parts, while explicitly reserving

judgment on the refusal to sell unpatented parts. In re

Indep. Serv. Orgs. Antitrust Litig., 964 F. Supp. 1479,

1490 & n.8 (D. Kan. 1997). Before the case went to the

Federal Circuit, plaintiffs conceded that they could

not prove antitrust injury only from the refusal to sell

unpatented parts, so the court granted summary

judgment on all antitrust claims. Order, In re Indep.

Serv. Orgs. Antitrust Litig., No. MDL-1021 (D. Kan.

Jan. 8, 1999). Consequently, the only issue before the

Federal Circuit was whether the unilateral refusal to

sell or license patented parts could violate the

antitrust laws.

5

 Kodak, 125 F.3d at 1219.

6

 Id. at 1219-20.

7

 CSU, 203 F.3d at 1327; May 1 Tr. at 19-26 (Gleklen);

Jonathan I. Gleklen, Antitrust Liability for Unilateral

Refusals to License Intellectual Property: Xerox and Its

Critics (May 1, 2002 Hr’g R.) at 2-4,

http://www.ftc.gov/opp/intellect/020501gleklen.

pdf [hereinafter Gleklen Submission].
Unilateral Refusals to License Patents 17

the “absence of any indication of illegal

tying, fraud in the Patent and Trademark

Office, or sham litigation.”8

B. Panelist Views on Kodak

Panelists almost uniformly found

problematic Kodak’s subjective intent

standard. One panelist found it

“fundamentally flawed” because it would

permit a refusal to deal motivated by a

desire to protect return on research and

development (“R&D”) investment but

prohibit a refusal to deal motivated by the

practically indistinguishable desire to

maximize profit by excluding

competition.9 This panelist also argued,

and others agreed, that there is no

limiting principle to the subjective

motivation inquiry.10 Another panelist

argued that Kodak’s focus on subjective

motivation is out of step with modern

antitrust analysis’s focus on objective

economic aspects of conduct, rather than

on motive.11 Yet another noted the

practical problems associated with an

intent-based test: “From a counseling

standpoint, the NinthCircuit’s distinction

between legitimate and ‘pretextual’

assertions of patent rights is both

unworkable in practice and very difficult

to explain to business people who want to

know how to ensure that their activities

are lawful.”12 And one panelist asserted

that the subjective motivation standard

would dramatically increase the costs of

enforcing intellectual property rights,

because intellectual property holders

facing refusal to license claims would not

be able to win motions to dismiss.13

One panelist suggested reading the

Kodak decision to reject Kodak’s proffered

business justification as feeble and

belated.14 Kodak’s staunchest defender on

the panel noted that other predatory

conduct is often associated with refusals

to license.

15 He argued that the Kodak

rule, augmented by a detailed analysis of

the market, is better than that in CSU,

because theKodak rule does not immunize

patentees from antitrust liability when

they act anticompetitively; rather, it

balances the patent owner’s interests in

getting a return on innovation and the

public interest in competition. Moreover,

he asserted, refusal to license claims

would not wreak havoc in the business

world because it is difficult to prove

market power and anticompetitive

intent.16

8

 203 F.3d at 1327. 

9

 May 1 Tr. at 152-53 (Shapiro).

10

 Id. at 152-54 (Shapiro); see also id. at 181-82

(MacKie-Mason); id. at 223-24, 228-31 (Whitener).

11 A. Douglas Melamed & Ali M. Stoeppelwerth, The

CSU Case: Facts, Formalism and the Intersection of

Antitrust and Intellectual Property Law, 10 GEO. MASON

L. REV. 407, 426-27 (2002); see also May 1 Tr. at 246-47

(Melamed) (proposing objective test for analyzing

refusals to deal that examines whether conduct made

“economic sense” but for its tendency to exclude a

rival).

12 Mark D. Whitener, Statement (May 1, 2002 Hr’g R.)

at 6, http://www.ftc.gov/opp/intellect/

020501whitener.pdf [hereinafter Whitener

Submission].

13

 See May 1 Tr. at 38 (Gleklen).

14

 Id. at 201-02 (Sprigman).

15 Paul F. Kirsch, Refusals to License IP – The

Perspective of the Private Plaintiff (May 1, 2002 Hr’g R.)

(slides) at 3, http://www.ftc.gov/opp/intellect/

020501kirsch.pdf [hereinafter Kirsch Presentation].

16 May 1 Tr. at 134-35, 137, 200-01 (Kirsch); see also

Kirsch Presentation at 7. 
18 PROMOTING INNOVATION AND COMPETITION

As noted above, some have read

Kodak as giving undue weight to

defendant-patentees’ subjective intent. To

be sure, reliance on a defendant’s

subjective intent to determine whether a

refusal to license violates antitrust law

establishes a framework that is difficult to

administer.17 Some commentators state

that finding a firm’s motive or intent

through employees’ statements is “both

impossible and meaningless, for the

documentaryevidence of every large firm

will almost always provide ample

examples suggesting both kinds of

intent,” i.e., the intent to protect

intellectual property rights and the intent

to create or maintain a monopoly.18 Such

a situation would be untenable, and the

Agencies do not believe the Ninth Circuit

should be read to have reached this

result. Accordingly, the Agencies’ “focus

is upon the effect of [the] conduct, not

upon the intent behind it.”1 9

“[K]nowledge of intent may help [courts]

to interpret facts and to predict

consequences.”20 

C. Panelist Views on CSU

Two panelists interpreted CSU to

stand for the proposition that a refusal to

license is the exercise of the statutory

right to exclude others from making,

using, or selling a patented invention and

therefore cannot be deemed exclusionary

conduct.21 Nevertheless, these panelists

were uneasy about the Federal Circuit’s

opinion.

22 They interpreted the dictum

quoted above23 to identify three

exceptions to the purported general right

of a patent owner unilaterally to refuse to

license—illegal tying, fraud on the Patent

and Trademark Office, and sham

litigation.24 One panelist criticized these

exceptions as providing insufficient

guidance because they identify potential

sources of antitrust liability that are

unrelated to unconditional, unilateral

refusals to license.25

Another panelist argued that CSU’s

holding could protect anticompetitive

refusals to deal, citing a hypothetical

17

 See, e.g., May 1 Tr. at 152 (Shapiro); id. at 181

(MacKie-Mason); id. at 229-30 (Whitener); R. Hewitt

Pate, Acting Assistant Attorney Gen., U.S. Dep’t of

Justice, Antitrust and Intellectual Property, Remarks

at the American Intellectual Property Law

Association 2003 Mid-Winter Institute 14 (Jan. 24,

2003) (criticizing the Ninth Circuit’s decision to

permit subjective inquiry into the intellectual

property holder’s motivations for refusing to deal),

available at http://www.usdoj.gov/atr/ public/

speeches/200701.pdf. But see May 1 Tr. at 133-35

(Kirsch) (endorsing Ninth Circuit’s intent test). 

18 3 PHILLIP E. AREEDA & HERBERT HOVENKAMP,

ANTITRUST LAW: AN ANALYSIS OF ANTITRUST

PRINCIPLES AND THEIR APPLICATION ¶ 709b2, at 222

(2d ed. 2002). 

19

 United States v. Microsoft Corp., 253 F.3d 34, 59 (D.C.

Cir. 2001) (en banc); see also R. Hewitt Pate, Refusals to

Deal and Intellectual Property Rights, 10 GEO. MASON L.

REV. 429, 440 (2002); Michelle M. Burtis & Bruce H.

Kobayashi, Why an Original Can Be Better than a Copy: 

Intellectual Property, the Antitrust Refusal to Deal, and

ISO Antitrust Litigation, 9 SUPREME CT. ECON. REV.

143, 166 (2001) (noting the relevance of a patent

holder’s intent in certain refusal to deal cases

involving patented and unpatented parts).

20

 Chi. Bd. of Trade v. United States, 246 U.S. 231, 238

(1918).

21 May 1 Tr. at 29-30 (Gleklen); id. at 231-35

(Whitener).

22

 Id. at 25-26 (Gleklen); Gleklen Submission at 8-9,

15; Whitener Submission at 7-9 & n.14. 

23

 Supra note 8 and accompanying text.

24 May 1 Tr. at 25-26 (Gleklen); see id. at 232

(Whitener); CSU, 203 F.3d at 1327 n.7.

25

 See May 1 Tr. at 25-27 (Gleklen); Gleklen

Submission at 8-9.
Unilateral Refusals to License Patents 19

based on AT&T’s attempt to prevent MCI

from connecting to its network in the

1970s. He argued that, had AT&T

patented an interface necessary for its

competitors to interconnect with its

network, AT&T might not have been

obliged to open its network under CSU.

26

Inthis panelist’s view, CSU is inconsistent

with the trend of antitrust laws’ “move[]

away from the rigidities of formalism . . .

in favor of a fact-based analysis that

applies rigorous economic principles to

distinguish anticompetitive from

procompetitive conduct.”27

A panelist also expressed concern

that CSU might be applied too broadly,

allowing a patent holder to attach

conditions to a license on the theory that

doing so was less restrictive than not

licensing at all.28 A source of such

concerns was Townshend v. Rockwell

International Corp., a patent infringement

case involving the technology for the 56K

modem.29 In assessing the defendant’s

antitrust counterclaim, the court reasoned

that “[b]ecause a patent owner has the

legal right to refuse to license his or her

patent on any terms, the existence of a

predicate condition to a license agreement

cannot state an antitrust violation.”30

Concerns about such a lesser-included

rights rationale were expressed by many

panelists, including some who thought it

appropriate to grant antitrust immunity

to unconditional refusals to license.31

Panelists also argued that conditional

refusals to license deserve antitrust

scrutiny because they can create

anticompetitive incentives that cannot be

created through unconditional refusals to

license.

32 Consequently, they argued, the

CSU decision combined with such a

lesser-included rights analysis could

effectively extend antitrust immunity to

all manner of restrictions, such as

exclusive dealing, cross-licensing

requirements, exclusive grantbacks, tying,

selective licensing, or even pricefixing—clearly an undesirable result.33

D. Ambiguity as to the Scope of the

Patent Grant

The Kodak and CSU opinions

recognized that the application of

antitrust law to unilateral refusals to

license sometimes requires a

determination of the scope of those

intellectual property rights. As the Ninth

Circuit put it, “the right of exclusion [does

not] protect an attempt to extend a lawful

monopoly beyond the grant of apatent.”34

26 May 1 Tr. at 248-52 (Melamed); see also Melamed &

Stoeppelwerth, 10 GEO. MASON L. REV. at 424.

27 Melamed & Stoeppelwerth, 10 GEO. MASON L. REV.

at 425; see also May 1 Tr. at 252 (Melamed).

28 May 1 Tr. at 45 (Sprigman).

29 2000-1 Trade Cas. (CCH) ¶ 72,890, 2000 WL 433505

(N.D. Cal. 2000).

30

 Id. ¶ 72,890, at 87,634, 2000 WL 433505, at *8.

31 May 1 Tr. at 66-67 (Gleklen) (identifying price

fixing as beyond the statutory grant); see also id. at

232-34 (Whitener) (acknowledging that conduct other

than “pure” unilateral, unconditional refusals to deal

should not be treated as categorically legal). 

32

 Id. at 155 (Shapiro); see also id. at 204 (MacKieMason) (asserting that distinguishing between

conditional and unconditional refusals is not always

easy).

33

 See id. at 154-57 (Shapiro); id. at 45 (Sprigman); see

also 3 AREEDA & HOVENKAMP, ANTITRUST LAW ¶ 709c,

at 232-34 (identifying price-fixing, market division,

exclusive dealing, and reciprocity as categories of

suspect conditional refusals).

34

 Kodak, 125 F.3d at 1216; see also CSU, 203 F.3d at

1327. But see Melamed & Stoeppelwerth, 10 GEO.
20 PROMOTING INNOVATION AND COMPETITION

TheKodak and CSU courts agreed that the

scope of the patent grant is not

coterminous with the bounds of the

relevant market, so the right to exclude

may permit a patent holder to maintain a

monopoly over not just the market for the

patented parts but possibly also over

closely related markets.35 Neither court,

however, defined the scope of the patent

grant.36 This omission led some panelists

to speculate about the appropriate

definition.

One panelist suggested that “outside

the statutory patent grant” may mean

that the refusal to license has innovation

effects that would prevent competition

after the patent has expired.37 Another

suggested that so long as there is only a

refusal to allow others to make, use, offer

to sell, or sell something within the claims

of the patent, the patentee acts within the

statutory grant.38 A third panelist

asserted that formal definitions are not

particularly illuminating and that the

phrase should mean nothing more than

that the patent owner can exploit

whatever power is lawfully obtained

through the intellectual property laws so

long as the owner does not sacrifice

profits for the strategic objective of

gaining more than the lawfully obtained

power.39 Another panelist respondedthat

to make this determination someone

would have to decide how much return

firms should be able to get on their

intellectual property, but economics

provides no basis for doing so.40

III. POLICY ISSUES RELATING TO

UNILATERAL REFUSALS TO

LICENSE

Panelists at the Hearing frequently

addressedfour basic policy issues relating

to antitrust liability in the context of the

licensing of patents: Should antitrust law

accord special treatment to patents, or is

conventional antitrust analysis

sufficiently sensitive to the issues raised

by patents? Should a patent holder be

MASON L. REV. at 425-26 (arguing that there are “a

number of problems” with using the scope of the

patent grant to define a safe harbor for unilateral

refusals to license, e.g., making it difficult to define a

market involving a patented product and its

components, creating incentives to avoid otherwise

efficient vertical integration, and being inconsistent

with the contributory infringement patent doctrine).

35

 Kodak, 125 F.3d at 1217 (“Parts and service here

have been proven separate markets in the antitrust

context, but this does not resolve the question [of]

whether the service market falls reasonably within

the patent . . . grant for the purpose of determining

the extent of the exclusive rights conveyed.”) (internal

quotation marks omitted); CSU, 203 F.3d at 1327 (“[A]

patent may confer the right to exclude competition

altogether in more than one antitrust market.”); id. at

1328 (“We answer the threshold question of whether

Xerox’s refusal to sell its patented parts exceeds the

scope of the patent grant in the negative.”); see also

May 1 Tr. at 179 (MacKie-Mason) (“[T]here is no

really good reason to believe the patent scope is the

same as the relevant antitrust market.”); Pate, 10 GEO.

MASON L. REV. at 441 (“A patent holder can lawfully

acquire more than one economic monopoly by

exercising the exclusionary power of a single patent,

and should not be found liable for exercising its

unilateral right to refuse to license or use its invention

in the markets where he holds these monopolies. 

There is no unlawful extension of monopoly power

when a patent holder merely exercises its rights

inherent in the patent grant.”).

36

 See May 1 Tr. at 25 (Gleklen) (“The Federal

Circuit’s decision focuses on whether [intellectual

property] was used to obtain monopoly power

outside the statutory grant without actually saying

. . . what is the statutory grant.”); Kodak, 125 F.3d at

1217 (discussing, but not defining, the concept of

patent scope).

37 May 1 Tr. at 65 (Sprigman).

38

 Id. at 66 (Gleklen).

39

 Id. at 69-70 (Melamed).

40

 Id. at 180 (MacKie-Mason).
Unilateral Refusals to License Patents 21

presumed to possess market power? Is

compulsory licensing a workable remedy

for a unilateral refusal to license patents?

And would prohibiting unilateralrefusals

to license have a significant ill effect on

incentives to invest in innovation?

Panelists also offered some new

perspectives on the possible competitive

effects of unilateral refusals to license.

A. Should Antitrust Law Accord

Special Treatment to Patents?

Most panelists concluded that the

antitrust laws should be applied in the

same manner to intellectual and other

property.41 One panelist noted that the

essence of a patent is the right to exclude

competitors, which he believed

distinguishes patents from other

property.42 Others countered that the

right to exclude is an essential part of all

forms of property.43 As one panelist

explained, “all forms of [commercial]

property . . . involve some investment to

create or protect the property . . . with the

hope of some financial return that has to

be based in some significant part on the

ability to exclude others.”44 In this

panelist’s view there is no economic

reason to treat intellectual property

differently from other forms ofproperty.45

Courts have recognized that patents,

similar to other property rights, have

limits, and these limits are “narrowly and

strictly confined to the precise terms of

the grant.”46 Courts have also held that

certain types of conduct involving patent

rights can result in antitrust liability. For

example, attempting to enforce a patent

obtained through fraud on the Patent and

Trademark Office may constitute

monopolization in violation of section 2

of the Sherman Act,

47 and the

demonstration of an objectively baseless

assertion of infringement can overcome a

Noerr defense.48 Patent licensing terms

may constitute tying or price fixing in

violation of section 1 of the Sherman

Act.49

41 “The Agencies apply the same general antitrust

principles to conduct involving intellectual property

that they apply to conduct involving any other form

of tangible or intangible property.” U.S. DEP’T OF

JUSTICE & FEDERAL TRADE COMM’N, ANTITRUST

GUIDELINES FOR THE LICENSING OF INTELLECTUAL

PROPERTY § 2.1 (1995), reprinted in 4 Trade Reg. Rep.

(CCH) ¶ 13,132, available at http://www.usdoj.gov/

atr/public/guidelines/0558.pdf [hereinafter

ANTITRUST-IP GUIDELINES]. Special characteristics of

intellectual property, “such as ease of

misappropriation” can “distinguish it from many

other forms of property” and “can be taken into

account by standard antitrust analysis.” Id.

42

 See May 1 Tr. at 30 (Gleklen).

43

 E.g., id. at 47 (Sprigman). 

44

 Id. at 143-44 (Shapiro).

45

 Id. at 143-46 (Shapiro).

46

 Mercoid Corp. v. Mid-Continent Inv. Co., 320 U.S.

661, 665 (1944).

47

 See Walker Process Equip., Inc. v. Food Mach. & Chem.

Corp., 382 U.S. 172, 177-80 (1965).

48

 See Prof’l Real Estate Investors, Inc. v. Columbia

Pictures Indus., Inc., 508 U.S. 49 (1993) (construing E.

R.R. Presidents Conference v. Noerr Motor Freight, Inc.,

365 U.S. 127 (1961)).

49

 See United States v. Line Material Co., 333 U.S. 287,

308-15 (1948) (price fixing); Int’l Salt Co. v. United

States, 332 U.S. 392, 395-96 (1947) (tying); United States

v. Masonite Corp., 316 U.S. 265, 274-80 (1942) (price

fixing); United States v. Univis Lens Co., 316 U.S. 241,

250-54 (1942) (price fixing); Ethyl Gasoline Corp. v.

United States, 309 U.S. 436, 452-59 (1940) (price fixing).
22 PROMOTING INNOVATION AND COMPETITION

B. Should Market Power Be Presumed

with Patents?

With respect to many violations of

the antitrust laws, the possession of

market or monopoly power is an element

of the offense. When analyzing the

defendant OEMs’ refusals to license their

patents, neither Kodak nor CSU presumed

the defendants had market power on the

basis of the patents.50 Similarly, the

Agencies have stated that, when

analyzing agreements to license, they do

not presume that a patent owner has

market power.51 And the U.S. Supreme

Court recently agreed.52 Although a

patent gives the patent owner the right to

exclude others from making, using, or

selling a particular product orprocess, the

existence of close substitutes for the

product or process may prevent the

patent owner from exercising market

power. As the Solicitor General recently

explained: “[T]he Patent and Trademark

Office has issued scores of patents for

items such as bottle openers,

toothbrushes, and paper clips. It would

be implausible to presume that the owner

of such a patent possesses market power

merely by virtue of the patent.”53

If a patent does result in market

power, that alone does not necessarily

create a violation. The Supreme Court

has made clear that “[t]he mere

possession of monopoly power, and the

concomitant charging of monopoly

prices,” is not unlawful “unless it is

accompanied by an element of

anticompetitive conduct.”54

C. If an Antitrust Violation Were

Found, Would There Be Workable

Remedies for Unconditional,

Unilateral Refusals to License

Patents?

If a unilateral refusal to license

patents were foundto violate the antitrust

laws, one appropriate remedy likely

would entail compulsory licensing. Some

panelists argued that the courts and

Agencies are not well-equipped to

determine appropriate licensing terms

and conditions and, as a result,

compulsory licensing would be

problematic.55 Another panelist noted

50

 CSU, 203 F.3d at 1325 (“A patent alone does not

demonstrate market power.”); see also Kodak, 125 F.3d

at 1202-08, 1219 (stating that Kodak possessed

monopoly power in “all parts” market).

51 ANTITRUST-IP GUIDELINES § 2.2.

52

 Ill. Tool Works Inc. v. Indep. Ink, Inc., 126 S. Ct. 1281,

1284 (2006) (“[T]he mere fact that a tying product is

patented does not support [a market power]

presumption.”).

53 Brief for the United States as Amicus Curiae

Supporting Petitioners at 12, Ill. Tool Works Inc., 126 S.

Ct. 1281 (No. 04-1329) (citation omitted), available at

http://www.usdoj.gov/osg/briefs/2005/3mer/1ami

/2004-1329.mer.ami.pdf. 

54

 Verizon Commc’ns Inc. v. Law Offices of Curtis V.

Trinko, LLP, 540 U.S. 398, 407 (2004); see also Blue Cross

& Blue Shield United v. Marshfield Clinic, 65 F.3d 1406,

1413 (7th Cir. 1995) (Posner, C.J.) (“[A lawful

monopolist may] charge any price that it wants, for

the antitrust laws are not a price-control statute or a

public-utility or common-carrier rate-regulation

statute.”) (citations omitted); Kartell v. Blue Shield of

Mass., Inc., 749 F.2d 922, 927 (1st Cir. 1984) (Breyer, J.)

(“[E]ven a monopolist is free to exploit whatever

market power it may possess when that exploitation

takes the form of charging uncompetitive prices.”).

55 May 1 Tr. at 146-47 (Shapiro); Whitener

Submission at 10; see also May 1 Tr. at 149 (Shapiro)

(urging the Agencies not to impose a regulatory

scheme through the antitrust laws in lieu of dealing

with the underlying issue of reforming the patent

system, if the patents at issue are perceived to be “bad

patents”). A licensor’s moral or ethical objections to

licensing a specific potential licensee would add to

the difficulties of determining appropriate

compensation for a compulsory license.
Unilateral Refusals to License Patents 23

that compulsory licensingmightnot work

because transfer of some technologies

requires not only a patent license, but also

the transfer of related know-how, and it

may be difficult for courts to enforce a

requirement that this know-how be

transferred.56 Moreover, if compulsory

licensing is a generally available remedy

for unconditional, unilateral refusals to

license patents, this panelist argued, firms

may shift their strategies away from filing

patents and toward reliance on trade

secrets. Such an outcome would be

unfortunate, he said, because patents

enable more effective disclosure of

knowledge and therefore make licensing

easier.57

Some panelists thought these

concerns were overstated and that courts,

which set licensing rates in other contexts

(such as infringement suits), could do so

in this context as well or, alternatively,

could send the parties back to the

bargaining table.58 In response, other

panelists objected to this analogy,arguing

that trying to calculate a forward-looking

price is more difficult than what courts

currently do—i.e., make the plaintiff

whole for past actions.59 One panelist

notedthat markets for voluntary licensing

typically arise when intellectual property

rights are well defined, and that when

these markets for technology exist, courts

could observe a market price of the

technologyforthepurpose of compulsory

licensing.60

Most panelists appearedto take for

granted that court-ordered licensing

would occur at royalty rates far less than

those a monopolist would charge. The

Supreme Court has made clear, however,

that—consistent with the view of the

Agencies—the mere possession of lawful

monopoly power, and the concomitant

charging of monopoly prices, is not only

lawful, it is an important element of the

free-market system.61

D. What Would Be the Effect of

Liability for Refusals to License

Patents on Incentives to

Innovate?

Some participants argued that

innovation is reduced by the risk of

compulsory licensing at royalties far

below monopoly levels, royalties which

may not be sufficient to cover the research

and development expenses that led to the

patented invention.62 By contrast, those

who favored liability for some refusals to

license patents were not convinced that

antitrust liability would have a negative

56 May 1 Tr. at 101 (Arora); see also id. at 125

(Shapiro).

57

 Id. at 102 (Arora).

58

 Id. at 184-85 (Sprigman); id. at 55 (Sprigman)

(suggesting the imposition of the same rates as those

for similarly situated licensees); id. at 187 (Melamed)

(explaining that precision is not terribly important

when converting a property rule into a liability rule).

59 May 1 Tr. at 188 (Gleklen); see also id. at 189

(Whitener).

60

 See id. at 94-102 (Arora); Ashish Arora, Refusal to

License: A Transaction Approach (May 1, 2002 Hr’g R.)

(slides) at 3, http://www.ftc.gov/opp/intellect/

020501arora.pdf.

61

 Trinko, 540 U.S. at 407. 

62 May 1 Tr. at 228 (Whitener); see also Carl Shapiro,

Competition Policy and Innovation 13 (Organisation for

Econ. Co-operation and Dev., STI Working Paper No.

2002/11, 2002) (submitted as part of the May 1, 2002

Hr’g R.), available at http://www.ftc.gov/opp/

intellect/020501carlshapiro.pdf [hereinafter Shapiro

Submission].
24 PROMOTING INNOVATION AND COMPETITION

effect on innovation

63 or were skeptical of

society’s ability to determine the

appropriate balance between innovation

and exclusion. One panelist asked

“whether innovation incentives are

sufficiently sensitive at the kinds of

margins we’re talking about of narrow

refusal to deal liability [such] that we can

reliably say across industries that there is

going to be any significant incentive

diminution at all.”64

E. CompetitiveEffects of Refusals to

License Patents

Two panelists argued that

apparent refusals to license intellectual

property may really be attempts to license

it at high prices and to engage in price

discrimination.65 They observed that

price discrimination can be good for

consumers, allowing markets or

consumers to be served that otherwise

would not have been.66 Therefore, they

contended,imposing antitrust liability for

a refusal to license may prevent socially

beneficial price discrimination.67

Another panelist responded to the

argument that only “one monopoly rent”

can be extracted by pointing out that an

intellectual property monopolist may

have difficulty exploiting its monopoly

unless it restricts competition

downstream by making a credible

commitment to restrict or refuse

licenses.68 Without such commitments,he

suggested, the potential licensees would

know that the intellectual property owner

would have the incentive to sell

additional licenses and thus continue to

create competition, and erode profits, in

the downstream market. Knowing this,

potential licensees would be willing to

pay less for a license and invest less in the

licensed invention. This panelist

observed that, if the intellectual property

holder is able credibly to commit to

selling a limited number of licenses, and

thus to limiting competition in the

downstream market, each potential

licensee will be willing to pay more for a

license.

69 The licensee also may be willing

to invest more in the licensed invention as

a result of the intellectual property

holder’s restriction on the number of

licenses sold.70 The intellectual property

holder maximizes its return by choosing

its licensing terms optimally,71 and “the

upstream monopolist in practice will find

it difficult to fully exploit its market

power without some form of exclusion.”

72

63 May 1 Tr. at 136-37 (Kirsch); Kirsch Presentation at

9.

64 May 1 Tr. at 56-57 (Sprigman) (emphasis added).

65

 Id. at 80-81 (Wiley); id. at 81-94 (Klein).

66

 Id. at 89-90 (Klein); see also id. at 81 (Wiley). 

67

 See Benjamin Klein & John Shepard Wiley Jr.,

Competitive Price Discrimination as an Antitrust

Justification for Intellectual Property Refusals to Deal, 70

ANTITRUST L.J. 599, 640-42 (2003).

68 May 22 Hr’g Tr., Refusals to License and

Compulsory Licensing in the European Union,

Canada, and Australia (Morning Session) at 33-37

(Rey), http://www.ftc.gov/opp/intellect/

020522trans.pdf.

69

 Id. at 36-37 (Rey).

70

 See also ANTITRUST-IP GUIDELINES § 2.3 (recognizing

that licensing arrangements involving exclusivity can

encourage licensees to invest in the products

embodying the licensed IP and to engage in follow-on

innovation).

71

 See May 22 Tr. at 34, 36-38 (Rey); Patrick Rey &

Jean Tirole, A Primer on Foreclosure (May 22 Hr’g R.) at

7-8, http://www.ftc.gov/opp/intellect/

020522reydoc.pdf.

72 May 22 Tr. at 32 (Rey).
Unilateral Refusals to License Patents 25

The panelist argued that the ability to

exploit anintellectual property bottleneck

may generate important incentives to

innovate and cautioned that regulating

the exploitation of intellectual property

amounts to regulating the return on R&D

investment and is a very difficult

economic exercise.73

IV. LEGAL ANALYSIS O F

UNILATERAL REFUSALS TO

LICENSE PATENTS

Imposing antitrust liability for

unilateral refusals to deal raises a variety

of legal issues. A threshold question is

whether a 1988 amendment to the Patent

Act impliedly created an immunity when

it restricted misuse defenses to

infringement claims. More fundamental

is the question of how the basic statutory

right to exclude relates to unilateral

refusal to deal claims and to other

antitrust claims involving patent

licensing.

A. Does Section 271(d)(4) of Title 35

of the U.S. Code Create an

Immunity for Unilateral Refusals

to License Patents?

Panelists extensivelydiscussed the

import of section 271(d)(4) of Title 35 of

the U.S. Code, added by a 1988

amendment to the Patent Act, which

provides that “[n]o patent owner

otherwise entitled to relief for

infringement or contributo ry

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 . . . refused to license

or use any rights to the patent . . . .”74

One panelist argued that the 1988

amendment granted antitrust immunity

for refusals to license patents.75 Other

panelists concluded that the amendment

on its face does not apply to antitrust

claims.76 In Illinois Tool Works Inc. v.

Independent Ink, Inc., for example, the

Supreme Court stated that “the 1988

amendment does not expressly refer to

the antitrust laws.”77 Under this view, the

provision does not govern whether

antitrust claims challenging the patentee’s

refusal to license are viable.

Proponents of a broader reading of

section 271(d)(4) sometimes note that the

provision refers to both “misuse” and

“illegal extension of the patent right.” To

73

 See id. at 41-42 (Rey) (stating it is prudent to be

“more tolerant” when a bottleneck “is the result of

innovation” as opposed to economies of scale or

historical accident).

74 35 U.S.C. § 271(d) (2000).

75 May 1 Tr. at 33-35 (Gleklen); Jonathan I. Gleklen,

Unilateral Refusals to License IP (May 1, 2002 Hr’g R.)

(slides) at 11, http://www.ftc.gov/opp/intellect/

020501gleklenppt.pdf.

76 May 1 Tr. at 51-52 (Sprigman); Melamed &

Stoeppelwerth, 10 GEO. MASON L. REV. at 410-12.

77 126 S. Ct. at 1290-91; Scheiber v. Dolby Labs., Inc., 293

F.3d 1014, 1019 (7th Cir. 2002) (Posner, C.J.)

(construing language of section 271(d) to govern only

actions based on infringement); Kodak, 125 F.3d at

1214 n.7 (“[The provision at best] indicate[s]

congressional intent to protect the core patent right of

exclusion.”); see also Brief for the United States as

Amicus Curiae at 12 n.6, CSU, 531 U.S. 1143 (2001)

(No. 00-62) (“On its face [section 271(d)] does not

address antitrust liability for monopolization or

attempted monopolization by refusal to deal.”),

denying cert. to 203 F.3d 1322, available at

http://www.usdoj.gov/osg/briefs/2000/2pet/6invit

/2000-0062.pet.ami.inv.pdf. But cf. CSU, 203 F.3d at

1326 (citing section 271(d) as support for a “patentee’s

right to exclude”); Intergraph Corp. v. Intel Corp., 195

F.3d 1346, 1362 (Fed. Cir. 1999) (citing section

271(d)(4)).
26 PROMOTING INNOVATION AND COMPETITION

save the latter phrase from being

“surplusage,” they read that language to

“refer to unlawfulness other than misuse,

and the obvious extension is to antitrust

violations.”78 But Congress might have

used the phrases “illegal extension of the

patent right” and “misuse” to describe

different aspects of the doctrine of patent

misuse.

79 This would be consistent with

the notion that, had Congress intended to

refer to antitrust violations or claims, it

could have done so explicitly.80

Moreover, courts have held that section

271(d)(4)’s companion provision, section

271(d)(5), does not immunize patentees

from antitrust liability for the conduct it

governs—conditioning a license, or sale

of a patented product, on the purchase of

some other product or the taking of some

other license81—and it would seem

anomalous to read the phrase “illegal

extension of the patent right” to

immunize patentees from antitrust

liability for their refusals to license, but

not for such conditioning of licenses.

Others who read section 271(d)(4)

to grant antitrust immunity contend that

it would “make[] little sense to preclude

an infringer from asserting a misuse

defense based on a patent holder’s refusal

to deal while simultaneously allowingthe

infringer to recover treble damages under

the antitrust laws for the very same

conduct.”82 But nothing precludes a

reading of the statute to permit treble

damages but not the rather different

consequences of a misuse holding (i.e.,

barring enforcement of the patent against

anyone until the misuse is purged).

 

The Agencies weigh these

opposing arguments againstthe backdrop

of the well-established principle that

immunity from antitrust laws is both

exceptional and disfavored.83 Absent

78 3 AREEDA & HOVENKAMP, ANTITRUST LAW ¶ 709c, at

234 n.71; see also May 1 Tr. at 34-35 (Gleklen); CSU,

203 F.3d at 1326 (emphasizing the phrase “illegal

extension of the patent right” in section 271(d) in

arguing that the provision supports “patentee’s right

to exclude”); Sharon Brawner McCullen, The Federal

Circuit and Ninth Circuit Face-Off: Does a Patent Holder

Violate the Sherman Act by Unilaterally Excluding Others

from a Patented Invention in More than One Relevant

Market?, 74 TEMP. L. REV. 469, 494 & n.254 (2001)

(“The Supreme Court has repeatedly used the

language of whether the patent holder’s actions have

‘expanded’ or ‘enlarge[d]’ the patent grant to analyze

allegations of antitrust violations.”).

79 “The reference to ‘illegal extension of the patent

right’ as well as ‘misuse’ recognizes the differing

formulations of activity deemed to be ‘misuse’ and

that misuse is often characterized as illegal extension

of the patent right.” S. REP. No. 100-492, at 19 (1988). 

(No committee report on the 1988 amendment exists. 

The cited report describes an earlier bill containing

the “illegal extension” language now appearing in

section 271(d)(4)). See also USM Corp. v. SPS Techs.,

Inc., 694 F.2d 505, 510-12 (7th Cir. 1982) (discussing

how the patent misuse doctrine could go beyond the

specific practices thought to extend the patent right).

80

 Cf. Scheiber, 293 F.3d at 1019-21 (construing another

provision of section 271(d) in light of this principle).

81

 See, e.g., id. at 1019-20 (finding section 271(d)(5)

inapplicable because the provision “merely limits

defenses to infringement suits”); Grid Sys. Corp. v.

Tex. Instruments Inc., 771 F. Supp. 1033, 1037 n.2 (N.D.

Cal. 1991) (rejecting argument that section 271(d)(5)

affects antitrust claims, noting that the provision

“relates only to the defense of patent misuse as a

defense to an infringement claim”).

82

 In re Indep. Serv. Orgs. Antitrust Litig., 989 F. Supp.

1131, 1136 (D. Kan. 1997); see also May 1 Tr. at 35

(Gleklen); Peter M. Boyle, Penelope M. Lister & J.

Clayton Everett, Jr., Antitrust Law at the Federal Circuit: 

Red Light or Green Light at the IP-Antitrust Intersection?,

69 ANTITRUST L.J. 739, 749 (2001).

83

 Oversight of Enforcement of the Antitrust Laws Before

the Subcomm. on Antitrust, Business Rights, and

Competition of the S. Comm. on the Judiciary, 107th

Cong. 134 (2002) (statement of the Federal Trade

Commission), available at
Unilateral Refusals to License Patents 27

“clear, express Congressional intent to

immunize conduct or . . . repugnancy

between some other body of law and

antitrust,” a finding of immunity is

unwarranted.84 The United States Court

of Appeals for the First Circuit, rejecting

antitrust immunity for copyright holders’

refusals to license, noted that “the

Sherman Act does not explicitly exempt

[the protection of original works of

authorship] from antitrust scrutiny and

courts should be wary of creating implied

exemptions.”85 The Agencies approach

the interpretation of section 271(d)(4)

with the same wariness. Nothing in

section 271(d)(4) expressly addresses

whether a unilateral and unconditional

refusal to license could give rise to

antitrust liability.86 The section can

perhaps be said to shed some light on

Congress’s view of the nature of the

patent right. But the Agencies do not

read the statute to create antitrust

immunity for such refusals to license.

B. When Do Refusals to License

Patents Violate the Antitrust

Laws?

As a threshold matter, antitrust

liability for refusal to assist

competitors—whether by licensing

patents or otherwise—is a rare exception

to the ordinary rules of antitrust. As

expressed in United States v. Colgate & Co.,

the Sherman Act generally “does not

restrict the long recognized right of [a]

trader or manufacturer engaged in an

entirely private business, freely to

exercise [its] own independent discretion

as to parties with whom [it] will deal.”87

Although this right to refuse to deal is not

unqualified,88 the Supreme Court stated

in Verizon Communications Inc. v. Law

Offices of Curtis V. Trinko, LLP that it has

“been very cautious in recognizing such

exceptions, because of the uncertain

virtue of forced sharing and the difficulty

of identifying and remedying

anticompetitive conduct by a single

firm.”89

The Trinko Court articulated three

reasons why requiring firms to “share the

source of their advantage” with rivals is

“in some tension with the underlying

purpose of antitrust law.”90 First,

compelling firms to share “may lessen the

incentive for the monopolist, the rival, or

both to invest in . . . economically

http://a257.g.akamaitech.net/7/257/2422/03jul2003

1230/www.access.gpo.gov/congress/senate/pdf/10

7hrg/87867.pdf; May 1 Tr. at 237 (Melamed); see also

Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476

U.S. 409, 421 (1986) (“[E]xemptions from the antitrust

laws are strictly construed and strongly disfavored.”).

84 May 1 Tr. at 238 (Melamed).

85

 Data Gen. Corp. v. Grumman Sys. Support Corp., 36

F.3d 1147, 1185 (1st Cir. 1994). 

86

 Cf. Ill. Tool, 126 S. Ct. at 1290 (recognizing that “[35

U.S.C. § 271(d)(5)] does not expressly refer to the

antitrust laws”).

87 250 U.S. 300, 307 (1919). 

88

 Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472

U.S. 585, 601 (1985).

89 540 U.S. at 408 (concluding that Verizon’s alleged

failure to provide adequate assistance to its rivals did

not state an antitrust claim). The case involved a

regulatory scheme that required incumbent local

telephone companies to give certain forms of access to

their networks to competitors. Id. at 401, 412-13. In

reaching its decision, the Court stated that it had

“never recognized [the essential facilities] doctrine”

created by lower courts and had no need to decide

the issue in this case. Id. at 411.

90

 Id. at 407-08; see also id. at 399 (“Traditional

antitrust principles do not justify adding [Trinko] to

the few existing exceptions from the proposition that

there is no duty to aid competitors.”).
28 PROMOTING INNOVATION AND COMPETITION

beneficialfacilities.”91 Second, “[e]nforced

sharing also requires antitrust courts to

act as central planners, identifying the

proper price, quantity, and other terms of

dealing—a role for which they are illsuited.”9 2 Finally, “compelling

negotiation between competitors may

facilitate the supreme evil of antitrust:

collusion.”93 Indeed, imposing liability

for such refusals arguably would go

beyond requiring firms to refrain from

anticompetitive conduct that harms rivals

and would instead compel firms to reach

out and affirmatively assist their rivals. 

The Trinko Court’s description of

Aspen Skiing Co. v. Aspen Highlands Skiing

Corp.94 as being “at or near the outer

boundary of [section] 2 liability”95

confirms that unilateral refusals to deal

are rarely anticompetitive, whether or not

they involve patents.96 This suggests that

Aspen Skiing will not support liability for

unilateral refusals to license patents to

rivals, except, perhaps, when a patent

owner refuses to continue to license

under circumstances paralleling those

presented in Aspen.

97

 

91

 Id. at 407-08.

92

 Id. at 408.

93

 Id. 

94 472 U.S. 585 (1985). The facts of Aspen are

described in Trinko, 540 U.S. at 408-09 (“The Aspen

ski area consisted of four mountain areas. The

defendant, who owned three of those areas, and the

plaintiff, who owned the fourth, had cooperated for

years in the issuance of a joint, multiple-day, all-area

ski ticket. After repeatedly demanding an increased

share of the proceeds, the defendant canceled the

joint ticket. The plaintiff, concerned that skiers would

bypass its mountain without some joint offering, tried

a variety of increasingly desperate measures to recreate the joint ticket, even to the point of in effect

offering to buy the defendant’s tickets at retail price. 

The defendant refused even that. We upheld a jury

verdict for the plaintiff, reasoning that ‘[t]he jury may

well have concluded that [the defendant] elected to

forgo these short-run benefits because it was more

interested in reducing competition . . . over the long

run by harming its smaller competitor.’ Aspen Skiing

is at or near the outer boundary of [section] 2

liability.”) (citations omitted).

95

 Trinko, 540 U.S. at 409.

96

 See Brief for the United States and the Federal

Trade Commission as Amici Curiae Supporting

Petitioner at 15, Trinko, 540 U.S. 398 (No. 02-682)

(noting that section 2 of the Sherman Act is violated

only by conduct properly considered “exclusionary

or predatory,” and proposing that, when “the

plaintiff asserts that the defendant was under a duty

to assist a rival, . . . conduct is not exclusionary or

predatory unless it would make no economic sense for

the defendant but for its tendency to eliminate or

lessen competition”), available at

http://www.usdoj.gov/atr/cases/f201000/201048.p

df. In Trinko, the Supreme Court did not adopt a

specific standard, but it stressed the very facts in

Aspen Skiing that suggest a section 2 violation under

the Agencies’ proposed standard. Trinko, 540 U.S. at

409 (“The unilateral termination of a voluntary (and

thus presumably profitable) course of dealing suggested

a willingness to forsake short-term profits to achieve

an anticompetitive end. Similarly, the defendant’s

unwillingness to renew the ticket even if compensated

at retail price revealed a distinctly anticompetitive

bent.”) (citation omitted).

97 One panelist articulated possible reasons for

imposing a duty to continue to license: (1) the

licensing arrangement has been shown to be feasible,

(2) there is an existing template for the terms and

conditions of the license, and (3) licensees have relied

on the expectation of such dealing. May 1 Tr. at 158

(Shapiro) (listing arguments for (and against)

imposing liability for a refusal to license intellectual

property in the context of a historical course of

dealing). That same panelist, however, along with

others, raised several arguments against imposing

liability for terminating a prior course of conduct. 

Some noted that relying on a prior course of conduct

might unfairly punish licensors who legitimately

desire to change their licensing practices. Id. at 117-18

(Whitener); id. at 118-20 (Gleklen); see also id. at 158-60

(Shapiro). In addition, one panelist noted that there

can be countervailing legitimate reasons to refuse to

license, e.g., protecting a trade secret. Melamed &

Stoeppelwerth, 10 GEO. MASON L. REV. at 420. 

Furthermore, as one panelist mentioned, rather than

counting on broad antitrust protection, which might

have adverse effects on competition by significantly

constraining the dealings of the patent holder, third
Unilateral Refusals to License Patents 29

A central question is whether “the

few existing exceptions [to] the

proposition that there is no duty to aid

competitors”98 should include anantitrust

limitation on unilateral, unconditional

refusals to offer a patent license to a

competitor. Some panelists favored a

categorical exemption from antitrust

liability for unilateral, unconditional

refusals to license.

99 One panelist noted

that the essence of a patent is the right to

exclude competitors, which he believed

distinguishes patents from other

property.100 Other panelists favored

allowing liability for unilateral,

unconditional refusals to license under

narrow circumstances, with such refusals

assessed on a case-specific, fact-intensive

basis, without safe harbors.101 Panelists

who favored antitrust liability for

unilateral refusals to license suggested a

liability rule based on Aspen Skiing,

102 or

broad antitrust principles for identifying

anticompetitive conduct.

103

The owner of a patent has the

statutory “right to exclude others from

making, using, offering for sale, or selling

the invention.”104 That right has been

described as “the essence” of a patent

grant,105 and a line of Supreme Court and

courts of appeals cases extending back a

century suggests that exercising that right

by refusing to license a patent, without

more, would not violate the antitrust

laws.106 None of the Supreme Court cases

parties should seek explicit commitments before

making investments in reliance on a continuing duty

to deal. May 1 Tr. at 157-59 (Shapiro). 

98

 Trinko, 540 U.S. at 411.

99 May 1 Tr. at 41-42 (Gleklen); id. at 233-35

(Whitener); Whitener Submission at 14-15.

100

 See May 1 Tr. at 30 (Gleklen). But see supra Part

III.A.

101 Melamed & Stoeppelwerth, 10 GEO. MASON L.

REV. at 423-27; May 1 Tr. at 134-35, 200 (Kirsch); id. at

163, 168, 172-73 (MacKie-Mason); id. at 242

(Melamed); id. at 59, 202, 206-07 (Sprigman).

102 May 1 Tr. at 51 (Sprigman).

103 Melamed & Stoeppelwerth, 10 GEO. MASON L.

REV. at 419 (“[A]nticompetitive conduct is conduct

that serves no legitimate purpose, or is itself

unprofitable, and is undertaken in order to exclude or

weaken competitors in anticipation of increased

market power and resulting supracompetitive

recoupment.”); May 1 Tr. at 242-46 (Melamed); id. at

121-22 (Sprigman). Another panelist questioned how

the concept of recoupment would apply when the

conduct at issue is a decision not to give up patented

property, asking: “Is it recoupment if I make more

money in servicing equipment because I didn’t sell

my patented parts to ISOs?” Id. at 208-09 (Whitener).

104 35 U.S.C. § 154(a)(1) (2000).

105

 Dawson Chem. Co. v. Rohm & Haas Co., 448 U.S. 176,

215 (1980) (“[T]he essence of a patent grant is the

right to exclude others from profiting by the patented

invention.”); cf. eBay Inc. v. MercExchange, L.L.C., 126

S. Ct. 1837, 1840 (2006) (“[T]he creation of a right is

distinct from the provision of remedies for violations

of that right.”).

106

 Hartford-Empire Co. v. United States, 323 U.S. 386,

432 (1945) (“A patent owner is not in the position of a

quasi-trustee for the public or under any obligation to

see that the public acquires the free right to use the

invention. He has no obligation either to use it or to

grant its use to others.”); Mercoid, 320 U.S. at 666

(“The fact that the patentee has the power to refuse a

license does not enable him to enlarge the monopoly 

. . . .”); United States v. United Shoe Mach. Co. of N.J.,

247 U.S. 32, 57 (1918) (“[A patent’s] strength is in the

restraint, the right to exclude others from the use of

the invention . . . . Its exertion within the field . . . is

not an offense against the Anti-Trust Act.”); Bement v.

Nat’l Harrow Co., 186 U.S. 70, 90 (1902) (“[A

patentee’s] title is exclusive, and so clearly within the

constitutional provisions in respect of private

property that he is neither bound to use his discovery

himself nor permit others to use it.” (quoting HeatonPeninsular Button-Fastener Co. v. Eureka Specialty Co.,

77 F. 288, 295 (6th Cir. 1896))); see also Intergraph, 195

F.3d at 1362 (“[T]he antitrust laws do not negate the

patentee’s right to exclude others from patent

property.”); Data Gen. Corp., 36 F.3d at 1186 (“[In the

context of a unilateral refusal to license copyrights,]

[t]he courts appear to have partly settled an

analogous conflict between the patent laws and the

antitrust laws, treating the former as creating an
30 PROMOTING INNOVATION AND COMPETITION

squarely holds that the unilateral refusal

to license a patent could never violate the

antitrust laws, or that the antitrust laws

should be applied in a different manner to

intellectual and other property,107 but the

strong statements in these cases are

indicative of the traditiona l

understanding that the unilateral right to

decline the grant of a license is a core part

of the patent grant. Prior to Kodak, no

reported federal antitrust decision had

imposed liability for the refusal to license

a patent.108 Even in the controversial

Kodak case itself, the outcome might be

explained as a result of Kodak’s refusal to

sell thousands of unpatented parts.109 

Taking all of the relevant factors

together—including the fact that no case

supported this type of antitrust liability

before Kodak, and the silence of section

271(d)(4) on the issue, the Agencies

conclude that liability for mere

unconditional, unilateral refusals to

license will not play a meaningful part in

the interface between patent rights and

antitrust protections. Of course, there are

numerous imaginable scenarios that

involve conduct that goes beyond a mere

refusal to license a patent and could give

rise to antitrust liability.110 In Motion

Picture Patents Co. v. Universal Film

Manufacturing Co.,

111 the Supreme Court

implied limited exception to the latter.”); Miller

Insituform, Inc. v. Insituform of N. Am., Inc., 830 F.2d

606, 609 (6th Cir. 1987) (“A patent holder who

lawfully acquires a patent cannot be held liable under

Section 2 of the Sherman Act for maintaining the

monopoly power he lawfully acquired by refusing to

license the patent to others.”); United States v.

Westinghouse Elec. Corp., 648 F.2d 642, 647 (9th Cir.

1981) (“The right to license [a] patent, exclusively or

otherwise, or to refuse to license at all, is ‘the

untrammeled right’ of the patentee.”); SCM Corp. v.

Xerox Corp., 645 F.2d 1195, 1204 (2d Cir. 1981)

(“Where a patent holder . . . merely exercises his

‘right to exclude others from making, using, or selling

the invention’ by refusing unilaterally to license his

patent . . . such conduct is expressly permitted by the

patent laws.”(quoting 35 U.S.C. § 154)) (citation

omitted); id. at 1206 (“[W]here a patent has been

lawfully acquired, subsequent conduct permissible

under the patent laws cannot trigger any liability

under the antitrust laws.”). The most widely quoted

dictum may be that of Simpson v. Union Oil Co. of Cal.,

which indicated that “[t]he patent laws which give a

[temporary] monopoly on ‘making, using, or selling

the invention’ are in pari materia with the antitrust

laws and modify them pro tanto.” 377 U.S. 13, 24

(1964). The apparent meaning of this statement is

that the patent laws effectively modify the antitrust

laws to the extent, and only to the extent, of

precluding liability for the mere exclusion of others

from making, using, or selling the patented invention.

107

 See supra notes 46-49 and accompanying text.

108

 See Herbert Hovenkamp, Mark D. Janis, & Mark

A. Lemley, Unilateral Refusals to License, 2 J.

COMPETITION L. & ECON. 1, 42 (2006) (“Courts are

properly extremely reluctant to find liability on the

basis of a company’s unilateral refusal to deal, even if

that company is a monopolist. That reluctance is

even stronger when a refusal to license intellectual

property rights is at stake, because the ability to

exclude others from using the right is at the heart of

IP policy.”).

109 Although Kodak might be read to suggest that the

Ninth Circuit was consciously departing from the line

of cases indicating that the refusal to license a patent

would not violate the antitrust laws, that

interpretation may be mistaken. Technically, the

Kodak court addressed whether it was harmless error

for the district court’s instructions to the jury to have

given no weight to Kodak’s patents on sixty-five of

the thousands of parts at issue. 125 F.3d at 1214,

1218-20. In light of the court’s remarks concerning

the plaintiffs’ claimed “all parts” market, id. at 1220, it

is not clear that Kodak is properly described as

imposing antitrust liability for a refusal to license

patents. Moreover, as noted above, the Kodak

decision has been criticized, even by those who

would prefer to depart from those cases indicating

that the mere refusal to license does not support

antitrust liability. See supra Part II.B.

110

 See, e.g., Cont’l Ore Co. v. Union Carbide & Carbon

Corp., 370 U.S. 690, 698-99 (1962) (stating that a jury

must be allowed to consider evidence of alleged

collusive conduct by defendants, including concerted

refusal to deal).

111 243 U.S. 502 (1917).
Unilateral Refusals to License Patents 31

rejected the theory that “since the

patentee may withhold his patent

altogether from public use he must

logically and necessarily be permitted to

impose any conditions which he chooses

upon any use which he may allow of

it.”112 The Court explained that the

“defect in this thinking springs from the

substituting of inference and argument

for the language of the statute and from

failure to distinguish between the rights

which are given to the inventor by the

patent law and which he may assert

against all the world through an

infringement proceeding, and rights

which he may create for himself by

private contract which, however, are

subject to the rules of general [law] as

distinguished from those of the patent

law.”113 Conduct going beyond a mere

refusal thus may merit scrutiny under the

antitrust laws.114 As noted above, the

terms of a license agreement are subject to

section 1 of the Sherman Act, which

“reaches unreasonable restraints of trade

effected by a ‘contract, combination . . . or

conspiracy.’”115

V. CONCLUSION

Whether,and if so when, to impose

antitrust liability for unconditional,

unilateral refusals to license patents has

been a subject of much debate among

antitrust and patent law practitioners and

policymakers. At the Hearing, panelists

offered widely differing views on the

relevant economic, policy, and legal

issues. Some panelists favored antitrust

liability for unilateral, unconditional

refusals to license under narrow

circumstances, with such refusals

assessed on a case-specific, fact-intensive

basis, without formalistic rules or safe

harbors.116 Others favored a categorical

exemption from antitrust liability for

unilateral, unconditional refusals to

license.

117

 Panelists agreed that

conditional refusals to license could cause

competitive harm and should not be

immune from antitrust liability. Panelists

also agreed that the judicial decisions do

not provide satisfactory guidance. All but

one panelist found the subjective

112

 Id. at 514.

113

 Id.

114 Hovenkamp et al., 2 J. COMPETITION L. & ECON. at

37-38 (“The maker of a product is generally free to

decide to whom it will sell, and to terminate its

buyers at will, but this right does not include the right

to impose certain types of conditions on those

buyers—notably, but not exclusively, tying

arrangements and resale price restrictions.”) (footnote

omitted).

115

 Copperweld Corp. v. Independence Tube Corp., 467

U.S. 752, 768 (1984) (quoting section 1 of the Sherman

Act). The applicability of section 1 to agreements

related to patents was made clear by Motion Picture

Patents, 243 U.S. at 514. Moreover, no provision of

the Patent Act on its face grants patentees

untrammeled rights to do as they wish with patented

inventions. The basic right of patentees is the right to

exclude others from making, using, offering to sell, or

selling the patented invention. This is not a right of

the patentee to make, use, offer to sell, or sell the

patented invention. Whether and on what terms the

patentee may make, use, offer to sell, or sell are

governed by other bodies of law. Moreover, practices

designed to create legal rights to exclude extending

beyond the invention described by the patent claims,

or beyond the temporal limits of the patent—i.e.,

practices that seek to extend the legal monopoly

granted in the patent—are disfavored in patent law

and are fully subject to the antitrust laws. See infra

Chapter 4, Variations on Intellectual Property Licensing

Practices; infra Chapter 6, Competitive Issues Regarding

Practices That Extend the Market Power Conferred by a

Patent Beyond Its Statutory Term.

116 May 1 Tr. at 134-35, 200-01 (Kirsch); id. at 163, 168,

172-73 (MacKie-Mason); id. at 242 (Melamed); id. at

59, 202, 206-08 (Sprigman).

117

 Id. at 41-42 (Gleklen); id. at 233-36 (Whitener);

Whitener Submission at 14-15.
32 PROMOTING INNOVATION AND COMPETITION

motivation test for refusals to license

articulated in Kodak to be unsound and

unworkable, and panelists agreedthat the

CSU decision is difficult to parse and so

broadly drafted that it creates

uncertainty.

The panel discussion provided the

Agencies with significant guidance on

many of the concerns associated with

potential liability for refusals to license.

The Supreme Court in Trinko has since

provided important guidance on the

fundamental principles underlying

claimed duties to assist competitors. The

Agencies agree with the panel that there

are circumstances in which imposing

conditions for a license may be

anticompetitive, and that view is

consistent with a long line of antitrust

cases. The Agencies also conclude that

antitrust liability for mere unilateral,

unconditional refusals to license patents

will not play a meaningful part in the

interface between patent rights and

antitrust protections.
33

CHAPTER 2

COMPETITION CONCERNS WHEN PATENTS ARE INCORPORATED

INTO COLLABORATIVELY SET STANDARDS

I. BACKGROUND AND

INTRODUCTION

Industry standards are widely

acknowledged to be one of the engines

driving the modern economy. Standards

can make products less costly for firms to

produce and more valuable to

consumers.1 They can increase

innovation, efficiency, and consumer

choice; foster public health and safety;

and serve as a “fundamental building

block for international trade.”2 Standards

make networks, such as the Internet and

wireless telecommunications, more

valuable by allowing products to

interoperate.3 The most successful

standards are often those that provide

timely, widely adopted, and effective

solutions to technical problems.4

The process by which industry

standards are set varies. Commonly,

businesses collaborate to establish

standards by working through standardsetting organizations (“SSOs”) to develop

a standard that all firms, regardless of

whether they participate in the process,

then can use in making products.5

1

 The two primary types of standards are (1)

interoperability standards, which guarantee that

products made by different firms can interoperate,

and (2) performance standards, which set minimum

requirements for all products in a general product

category. Gregory Tassey, Standardization in

Technology-Based Markets, 29 RES. POL’Y 587, 589-90

(2000).

2

 Amy A. Marasco, Standards-Setting Practices: 

Competition, Innovation and Consumer Welfare (Apr. 18,

2002 Hr’g R.) at 3-4, http://www.ftc.gov/opp/

intellect/020418marasco.pdf [hereinafter Marasco

Submission]; see also Janice M. Mueller, Patent Misuse

Through the Capture of Industry Standards, 17 BERKELEY

TECH. L.J. 623, 631-32 (2002). 

3

 Michael L. Katz & Carl Shapiro, Systems Competition

and Network Effects, J. ECON. PERSP., Spring 1994, at 93,

109 [hereinafter Katz & Shapiro, Systems Competition];

see also Apr. 18, 2002 Hr’g Tr., Standard-Setting

Practices: Competition, Innovation and Consumer

Welfare at 85-86 (Cargill), http://www.ftc.gov/opp/

intellect/020418trans.pdf [hereinafter Apr. 18 Tr.].

4

 See Andrew Updegrove, Standard Setting and

Consortium Structures (Apr. 18, 2002 Hr’g R.) at 1-2,

http://www.ftc.gov/opp/intellect/020418updegrove

2.pdf [hereinafter Updegrove Submission I].

5

 Hundreds of collaborative standard-setting groups

operate worldwide, with diverse organizational

structures and rules. See Apr. 18 Tr. at 63-64

(Deutsch); Scott K. Peterson, Patents and StandardSetting Processes (Apr. 18, 2002 Hr’g R.) at 9,

http://www.ftc.gov/opp/intellect/020418scottkpete

rson.pdf [hereinafter Peterson Submission I]; Mark A.

Lemley, Intellectual Property Rights and StandardSetting Organizations, 90 CAL. L. REV. 1889, 1904-06
34 PROMOTING INNOVATION AND COMPETITION

However, standards also may be set in

the marketplace where firms vigorously

compete in a winner-take-all standards

war6 to establish their own technology as

the de facto standard.7

Firms that choose to work through

an SSO to develop and adopt standards

may be competitors within their

particular industry. Thus, agreement

among competitors about whichstandard

is best suited for them replaces consumer

choice and the competitionthat otherwise

would have occurred in the market to

make their product the consumer-chosen

standard. In many contexts, this process

can produce substantial benefits. By

agreeing on an industry standard, firms

may be able to avoid many of the costs

and delays of a standards war, thus

substantiallyreducing transaction costs to

both consumers and firms.8 

Recognizing that collaboratively

set standards can reduce competition and

consumer choice and have the potentialto

prescribe the direction in which a market

will develop,9 courts have been sensitive

to antitrust issues that may arise in the

context of collaboratively set standards.

They have found antitrust liability in

(2002) (discussing the wide variation in policies

among standard-setting organizations (“SSOs”)). 

They may be called standard development

organizations, promoter’s groups, joint ventures,

special interest groups, or consortia. For ease of

discussion, this Report will refer to all these standardsetting groups as SSOs, recognizing that standardsetting organizations vary widely in size, formality,

operation, and scope.

6

 In a “standards war,” substitute products with

incompatible designs are introduced into a market,

and users’ purchase decisions ultimately establish

one design as the dominant design or de facto

standard, in what can effectively be a winner-take-all

competition. See Carl Shapiro & Hal R. Varian, The

Art of Standards War, CAL. MGMT. REV., Winter 1999, at

8 [hereinafter Shapiro & Varian, The Art of Standards

War]. A well-known war occurred between Sony’s

Betamax format Video Cassette Recorder (“VCR”)

and Matsushita’s VHS format VCR, which ultimately

resulted in VHS becoming the de facto standard. 

However, not all competition among incompatible

designs results in the establishment of a de facto

standard. For example, multiple competing

standards for video game consoles exist, including

Sony’s PlayStation®3, Microsoft’s Xbox 360TM, and

Nintendo’s WiiTM. Markets in which standards wars

result in a single standard are typically those in

which the network effects are the greatest—i.e., those

markets in which there are substantial benefits if all

customers have compatible products. Id. at 14. 

7

 Mueller, 17 BERKELEY TECH. L.J. at 633-34; Daniel J.

Gifford, Standards and Intellectual Property: Licensing

Terms: Some Comments (Apr. 18, 2002 Hr’g R.) at 1

(discussing the Windows operating system as an

example of a de facto standard chosen by the market),

http://www.ftc.gov/opp/intellect/020418danieljgiff

ord.pdf [hereinafter Gifford Submission].

8

 Standards wars offer consumers a choice of

products that incorporate alternative potential

standards. During a standards war, however, some

consumers may delay purchasing until the de facto

standard is chosen because they do not want to be

stuck with the costs of moving from a losing standard

to the winning standard. Jeffrey Church & Roger

Ware, Network Industries, Intellectual Property Rights

and Competition Policy, in COMPETITION POLICY AND

INTELLECTUAL PROPERTY RIGHTS IN THE KNOWLEDGEBASED ECONOMY 230-39 (Robert D. Anderson &

Nancy T. Gallini eds., 1998); see also Katz & Shapiro,

Systems Competition at 105-08 (discussing the concept

of consumers tipping toward a de facto standard). To

win a standards war, a firm may have to incur

significant costs or limit its assertion of market power

in order to establish an installed base of users. The

winner of a standards war, however, may have

significant market power, often because it can enforce

its patent rights to prevent others from making

products that conform to the standard. See, e.g.,

David Balto & Robert Pitofsky, Antitrust and HighTech Industries: The New Challenge, 43 ANTITRUST

BULL. 583, 599 (1998). 

9

 See Standard Sanitary Mfg. Co. v. United States, 226

U.S. 20, 41 (1912); BUREAU OF CONSUMER PROTECTION,

FEDERAL TRADE COMM’N, STANDARDS AND

CERTIFICATION: FINAL STAFF REPORT 28, 34 (1983);

Katz & Shapiro, Systems Competition at 105-06;

Richard Gilbert, Symposium on Compatibility: 

Incentives and Market Structure, 40 J. INDUS. ECON. 1

(1992).
Collaborative Standard Setting and Patents 35

circumstances involving themanipulation

of the standard-setting process or the

improper use of the resulting standard to

gain competitive advantage over rivals.10

This Chapter focuses on antitrust

issues that may arise from collaborative

standard setting when standards

incorporate technologies that are

protected by intellectual property (“IP”)

rights. These issues involve the potential

for “hold up” by the owner of patented

technology after its technology has been

chosen by the SSO as a standard and

others have incurred sunk costs which

effectively increase the relative cost of

switching to an alternative standard.11

Before, or ex ante,

12 multiple technologies

10

 See Allied Tube & Conduit Corp. v. Indian Head, Inc.,

486 U.S. 492, 509-11 (1988) (affirming court of

appeals’ reinstatement of a jury verdict awarding

damages for a Sherman Act violation where

producers and sellers of steel conduit had packed a

meeting with new members whose sole function was

to vote against a proposal to allow the use of equally

viable plastic conduit in the building industry); Am.

Soc’y of Mech. Eng’rs v. Hydrolevel Corp., 456 U.S. 556,

574 (1982) (finding SSO liable for actions of its agents

acting with apparent authority to discourage

customers from purchasing one competitor’s water

boiler safety device, stating that it did not comply

with the SSO’s safety code, even though it did); see

also Radiant Burners, Inc. v. Peoples Gas Light & Coke

Co., 364 U.S. 656, 659-60 (1961) (holding that

complaint alleging agreement by American Gas

Association members to refuse to sell gas to

customers using a non-Association certified product

states a claim of a per se violation of section 1 of the

Sherman Act). 

11 This type of hold up is a variant of the classical

“hold-up problem.” The hold-up problem pertains to

problems of relationship-specific investment, whereas

the hold up contemplated here pertains to standardsspecific investment. The hold-up problem indicates

the prospect of under-investment in collaborations in

which parties must sink investments that are specific

to the collaboration, investments that may be costly to

redeploy or have a significantly lower value if

redeployed outside of the collaboration. The

potential for one party to hold up another party that

has sunk investments specific to the relationship may

discourage that other party from investing efficiently

in the collaboration in the first place. For further

discussion of the hold-up problem, see generally

Benjamin Klein, Robert G. Crawford & Armen A.

Alchian, Vertical Integration, Appropriable Rents, and the

Competitive Contracting Process, 21 J.L. & ECON. 297

(1978); OLIVER E. WILLIAMSON, THE ECONOMIC

INSTITUTIONS OF CAPITALISM: FIRMS, MARKETS,

RELATIONAL CONTRACTING 52-56 (1985); Sanford J.

Grossman & Oliver D. Hart, The Costs and Benefits of

Ownership: A Theory of Vertical and Lateral Integration,

94 J. POL. ECON. 691, 692, 716-18 (1986); Suzanne E.

Majewski & Dean V. Williamson, Incomplete

Contracting and the Structure of R&D Joint Venture

Contracts, in 15 ADVANCES IN THE STUDY OF

ENTREPRENEURSHIP, INNOVATION, AND ECONOMIC

GROWTH: INTELLECTUAL PROPERTY AND

ENTREPRENEURSHIP 201-28 (Gary D. Libecap ed.,

2004). 

In the standard-setting context, firms may

make sunk investments in developing and

implementing a standard that are specific to

particular intellectual property. To the extent that

these investments are not redeployable using other

IP, those developing and using the standard may be

held up by the IP holders. See Nov. 6, 2002 Hr’g Tr.,

Standard Setting Organizations: Evaluating the

Anticompetitive Risks of Negotiating Intellectual

Property Licensing Terms and Conditions Before a

Standard Is Set at 15-16 (Shapiro) (“In addition to the

word ‘hold-up,’ opportunism is a word that’s

commonly used in the relevant economic literature, at

least, which is [i]n transaction cost economics, the

notion that somebody might wait, perhaps, until

commitments were made and then seek to extract a

high royalty or might try to steer things in a direction

so that they would have an essential patent but not

have made a firm commitment ex ante on the terms

on which it would be licensed.”),

http://www.ftc.gov/opp/intellect/021106ftctrans.pd

f [hereinafter Nov. 6 Tr.]; see also Timothy J. Muris,

The FTC and the Law of Monopolization, 67 ANTITRUST

L.J. 693, 704-06 (2000) (describing factual

considerations as to whether a company could

engage in a hold up); cf. Benjamin Klein, Market Power

in Franchise Cases in the Wake of Kodak: Applying Post

Contract Hold-Up Analysis to Vertical Relationships, 67

ANTITRUST L.J. 283 (1999). Moreover, this hold up

may cause firms to sink less investment in developing

and implementing standards.

12 Whether and at what point hold up can occur will

vary, depending on a variety of factors. For hold up

to occur, the cost of switching to the best alternative

standard must be greater than the benefits of
36 PROMOTING INNOVATION AND COMPETITION

may compete to be incorporated into the

standard under consideration. 1 3

Afterwards, or ex post, the chosen

technology may lack effective

substitutes14 precisely because the SSO

chose it as the standard.

15 Thus, ex post,

the owner of a patented technology

necessary to implement the standard may

have the power to extract higher royalties

or other licensing terms that reflect the

absence of competitive alternatives.16

Consumers of the products using the

standard wouldbeharmed if those higher

royalties were passed on in the form of

higher prices.17

 To mitigate this type of hold up,

some SSOs require participants todisclose

the existence of IP rights that may be

infringed by the potential users of a

standard in development. SSOs also may

require SSO members to commit to

license any of their IP that is essential to

an SSO standard on “reasonable and

nondiscriminatory” (“RAND”) terms.18

Some SSOs and SSO members would like

to further mitigate hold up by requiring

IP holders to commit to specific licensing

terms before selecting a particular

technology as part of a standard.

Two questions that can arise from

these efforts to mitigate hold up involve

quite different competition concerns. The

first question involves unilateral conduct.

It asks whether an SSO member harms

competition by failing to disclose, or by

engaging in deceptive conduct regarding,

the existence of intellectual property

rights during the standard-setting process

and later alleging that implementation of

the standard infringes that member’s IP,

and thus, requires a license and the

payment of royalties. The FTC has alleged

violations of section 5 of the Federal

Trade Commission Act in three matters

involving such conduct in different

factual settings,19 and the Commission

switching to the best alternative standard. 

13 Daniel G. Swanson, Evaluating Market Power in

Technology Markets when Standards Are Selected in

Which Private Parties Own Intellectual Property Rights

(Apr. 18, 2002 Hr’g R.) at 2-3, http://www.ftc.gov/

opp/intellect/020418danielswanson.pdf [hereinafter

Swanson Submission] (discussing the possibility of

available substitutes).

14

 See, e.g., CARL SHAPIRO & HAL R. VARIAN,

INFORMATION RULES: A STRATEGIC GUIDE TO THE

NETWORK ECONOMY 103-34 (1999).

15 Collaborative de jure standards sometimes face a

market test for acceptance, just as de facto standards

do. If a standard chosen by an SSO must compete

with rival standards, then the owner of any patented

technology necessary to implement the SSO’s

standard may have little market power. See, e.g., Apr.

18 Tr. at 76 (Lemley). The opportunity for users of

the SSO’s standard to move to a rival standard if the

royalty rates are too high may limit the owner to a

competitive royalty rate. 

16 Nov. 6 Tr. at 15 (Shapiro) (“So, the notion of holdup would be that ex post there are very few choices,

and a company that controls an essential patent is in a

very strong bargaining position to extract royalties or

other concessions from people who want to comply

with the standard. Ex ante, the bargaining positions

are very different because, let’s suppose, there would

be maybe lots of choices . . . .”).

17 For consumer harm to occur, it is not necessary

that hold up result in higher marginal costs for

producers. For example, higher lump sum or fixed

royalties might discourage entry among firms that

would produce the standardized product. The

reduction in competition at the downstream level,

and possible reduction in product adoption, might

harm consumers.

18

 See infra note 72-73 and accompanying text. 

19 Complaint, In re Dell, 121 F.T.C. 616, 616-18 (1996)

(No. C-3658) (resolved by consent order, 121 F.T.C. at

618-26), available at http://www.ftc.gov/os/

decisions/vol121.htm [hereinafter Dell Complaint];

Complaint, In re Rambus, Inc., No. 9302 (F.T.C. 2002),

available at http://www.ftc.gov/os/adjpro/d9302/

020618admincmp.pdf; Complaint, In re Union Oil Co.

of Cal., No. 9305 (F.T.C. Mar. 4, 2003), available at

http://www.ftc.gov/ os/2003/03/unocalcp.htm
Collaborative Standard Setting and Patents 37

recently found a violation of section 5 in

one of these proceedings, following a full

adjudicative trial.20

The second question involves joint

conduct and asks whether ex ante

negotiation of licensing terms by SSO

participants constitutes a per se violation

of section 1 of the Sherman Act because

competitors would be acting jointly to

negotiate licensing terms with each of the

firms whose technology may be

considered for inclusion in the SSO’s

standard.21 In the Agencies’ view, a per se

approach fails to recognize that

negotiating licensing terms during the

standard-setting process may increase

competition between technologies that

are being considered for inclusion in a

standard. In light of these potential

procompetitive benefits, the Agencies

would generally expect to apply the rule

of reason to evaluate conduct such as

multilateral ex ante licensing negotiations

or SSO requirements to disclose model

licensing terms.22 

In announcing this policy

guidance, the Agencies seek to resolve

open questions about the Agencies’

enforcement intentions that may have

discouraged SSOs from attempting to

mitigate the threat of licensing hold up by

evaluating licensing terms and conditions

before hold up can occur. The Agencies

recognize that the evaluation of licensing

terms before the standard is set can

present substantial practical challenges

and costs for an SSO, so even with this

guidance there may be non-antitrust

reasons for an SSO not to engage in such

evaluations. When making this decision,

SSOs and their members should bear in

mind that the Agencies will still condemn

as per se illegal activities designed to

reduce or eliminate competition among

members of an SSO—such as bid rigging

by members who otherwise would

compete in licensing technologies for

adoption by the SSO or naked price fixing

on downstream products by members

who otherwise would compete in selling

downstream products compliant with the

standard—even if these activities are

cloaked by multilateral ex ante licensing

negotiations for the purported purpose of

setting a standard.

II. HOLD UP IN THE CONTEXT OF

JOINT STANDARD SETTING 

Panelists reported that after a

standard has been adopted and switching

to an alternative standard would require

significant additional costs, the holder of

a patent that covers technology needed to

implement the standard can force users of

the technology to choose between two

unpleasant options: “You either don’t

make the standard or you accede to the –

[hereinafter Unocal Complaint], resolved by consent

order, No. 9305 (F.T.C. July 27, 2005), available at

http://www.ftc.gov/os/adjpro/d9305/

050802do.pdf. 

20

 In re Rambus, Inc., No. 9302 (F.T.C. July 31, 2006),

available at http://www.ftc.gov/os/adjpro/d9302/

060802commissionopinion.pdf., remedy ordered, In re

Rambus, Inc., No. 9302 (F.T.C. Feb. 2, 2007), available at

http://www.ftc.gov/os/adjpro/d9302/070205opinio

n.pdf and http://www.ftc.gov/os/adjpro/d9302/

070205finalorder.pdf.

21 The term “negotiation” is used in this Chapter to

encompass a range of activities relating to the

consideration of the price of a technology input for a

standard, including disclosure of most restrictive

licensing terms, discussion of the relative costs of

alternative technology inputs, or negotiation of

licensing terms leading to a licensing agreement.

22

 Infra Parts V-VI.
38 PROMOTING INNOVATION AND COMPETITION

I don’t want to say blackmail, but that’s

[what it] tends to be in that

environment.”23 Anointing a patented

technology as the standard improves the

bargaining position of the owner of the

needed technology in licensing

negotiations because “[i]f you are the

owner of one of the rights to one of those

many equally valuable [technologies],

then it is the standard-setting process that

will reduce the substitution, possibly

eliminate the substitutes, and elevate

your technology to [be] the most

valuable.”24

A holder of IP incorporated into a

standard can exploit its position if it is

costly for users of the standard to switch

to a different technology after the

standard is set. Making such a change

would require abandoning that standard

and developing a new one, but

developing an alternative standard could

be costly and may delay the introduction

of a new product. The profits lost by such

a delay may represent a significant

portion of the cost of developing the

alternative standard. In addition, to

implement an alternative standard for an

existing product that requires

compatibility and interoperability, the

SSOmembers might incur switching costs

in redesigning components that had been

based on the old standard and might have

to subsidize consumers’ migration from a

standard based on one technology to a

standard based on another technology.25

Generally, the greater the cost of

switching to an alternative standard, the

more an IP holder can charge for a

license. 

23 Apr. 18 Tr. at 56-57 (Cargill).

24 Apr. 18 Tr. at 47-48 (Rapp); see also id. at 248-51

(Peterson) (discussing the “anointing” phenomenon);

id. at 76-77 (Lemley).

25 The most direct source of switching costs is the

difference between the costs of acquiring new

infrastructure to implement a new standard and the

salvage value of current infrastructure that is

supporting the existing standard but would not be

used to support a new standard. In the absence of

network effects, this switching cost can be viewed as

an upper bound on the extent to which the

underlying technology’s patent owner can hold up

firms using the standard. A second source of

switching costs can be network effects such as

compatibility. It may be impractical to change the

existing standard for one piece of infrastructure if

that piece must be compatible with other pieces of

infrastructure. Thus, for example, a person wanting

to upgrade his word processing software may be

locked in to his current software if there is a large

benefit to maintaining compatibility with the

software of other colleagues.

There is a vast literature on network effects

and the role of standards in network effects. Much of

it was developed in between the mid-1980s and early

1990s by Joseph Farrell, Richard Gilbert, Michael

Katz, Garth Saloner, and Carl Shapiro. Other major

contributors to this field have been Timothy

Bresnahan, Jeff Church, Neil Gandal, and Nicholas

Economides. For an overview of the literature, see

Bertrand V. Quélin, Tamym Abdessemed, JeanPhilippe Bonardi & Rodolphe Durand, Standardisation

of Network Technologies: Market Processes or the Result

of Inter-firm Co-operation?, 15 J. ECON. SURVS. 543

(2001). See generally Dennis W. Carlton & J. Mark

Klamer, The Need for Coordination Among Firms, with

Special Reference to Network Industries, 50 U. CHI. L.

REV. 446 (1983); Katz & Shapiro, 8 J. ECON. PERSP. at

93; Michael L. Katz & Carl Shapiro, Technology

Adoption in the Presence of Network Externalities, 94 J.

POL. ECON. 822 (1986); Joseph Farrell & Garth Saloner,

Installed Base and Compatibility: Innovation, Product

Preannouncements, and Predation, 76 AM. ECON. REV.

940 (1986); Joseph Farrell & Garth Saloner, Converters,

Compatibility and the Control of Interfaces, 40 J. INDUS.

ECON. 9 (1992); Michael L. Katz & Carl Shapiro,

Product Introduction with Network Externalities, 40 J.

INDUS. ECON. 55 (1992); Jeffrey Church & Neil Gandal,

Network Effects, Software Provision, and Standardization,

40 J. INDUS. ECON. 85 (1992); Nicholas Economides,

The Economics of Networks, 14 INT’L J. INDUS. ORG. 673

(1996).
Collaborative Standard Setting and Patents 39

It is useful to distinguish between

the licensing terms a patent holder could

obtain solely based on the merits of its

technology and the terms that it could

obtain because its technology was

included in the standard. This distinction

can be cast as differentiating two sources

of potential market power, defined as

“the ability to raise prices above those

that would be charged in a competitive

market.”26 The mere existence of a patent

or other intellectual property right does

not necessarily create market power for

the IP holder, although it may in some

cases.27 If the intellectual property right

does convey market power “it would be

worthwhile . . . to distinguish between the

market power that comes from the

technology on its own and the market

power that comes just from the standard,

the act of setting a standard that elevates

a technology above the competitors.”28 Of

course, an analysis of potential harm

arising from failure to disclose relevant IP

would focus on the market power of the

IP holder that was acquired through the

standard-setting process. In contrast, any

claim that ex ante licensing discussions

violate section 1 of the Sherman Act

would focus on the exercise of market

power by the SSO members as a group,

not on the market power of the IP holder.

 

Panelists at the Hearingsdiscussed

a range of related practical, legal, and

economic issues regarding hold up within

SSOs, including the extent to which hold

up occurs.29 Some panelists said hold up

26

 Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of the

Univ. of Okla., 468 U.S. 85, 109 n.38 (1984).

27

 Ill. Tool Works Inc. v. Indep. Ink, Inc., 126 S. Ct. 1281,

1284 (2006) (“[T]he mere fact that a tying product is

patented does not support [a market power]

presumption.”); U.S. DEP’T OF JUSTICE & FEDERAL

TRADE COMM’N, ANTITRUST GUIDELINES FOR THE

LICENSING OF INTELLECTUAL PROPERTY § 2.2 (1995),

reprinted in 4 Trade Reg. Rep. (CCH) ¶ 13,132 (“The

Agencies will not presume that a patent, copyright, or

trade secret necessarily confers market power upon

its owner.”), available at http://www.usdoj.gov/atr/

public/guidelines/0558.pdf [hereinafter ANTITRUSTIP GUIDELINES]. 

28 Apr. 18 Tr. at 321-22 (Stiroh); see Nov. 6 Tr. at 39-40

(Farrell) (“[T]he core point is the extent to which an IP

holder acquires additional bargaining power through

the SDO having completed its – or gone a certain

distance in its standard[s] option process.”); Mark R.

Patterson, Inventions, Industry Standards, and

Intellectual Property, 17 BERKELEY TECH. L.J. 1043, 1044

(2002) (“When an industry standard incorporates a

patented invention, the legal challenge is to

distinguish several market effects. Some of the

demand for products that comply with the standard

may be for the inherent technical advantages of the

invention. A patentee is generally entitled to

revenues attributable to this demand. But some of the

demand may also be created by the adoption of the

standard. The patentee is not entitled to revenues

attributable to this demand.”) (footnotes omitted).

29 Panelists discussed these topics at several sessions

of the Hearings. The first session was held on April

18, 2002 and was divided into two parts. The

morning session was titled “Disclosure of Intellectual

Property in Standards Activities.” The panelists

included: Michael Antalics, Partner, O’Melveny &

Myers, L.L.P.; Carl Cargill, Director of Standards, Sun

Microsystems, Inc.; Donald R. Deutsch, Vice

President, Standards Strategy and Architecture,

Oracle Corp.; Ernest Gellhorn, Professor of Law,

George Mason University School of Law; Peter

Grindley, Senior Managing Economist, LECG, Ltd.,

London; Mark Lemley, Professor of Law, and

Director, Berkeley Center for Law & Technology,

Boalt Hall School of Law, University of California,

Berkeley, Of Counsel, Keker & Van Nest; Amy A.

Marasco, Vice President and General Counsel,

American National Standards Institute; Richard T.

Rapp, President, National Economic Research

Associates; David J. Teece, Mitsubishi Bank Professor

of International Business and Finance, Haas School of

Business, University of California, Berkeley; and

Dennis A. Yao, Associate Professor of Business and

Public Policy, The Wharton School, University of

Pennsylvania. The panel was moderated by Gail

Levine, then-Deputy Assistant General Counsel for

Policy Studies, Federal Trade Commission; Tor

Winston, Economist, U.S. Department of Justice; and

Robert W. Bahr, then-Deputy Solicitor, U.S. Patent

and Trademark Office. The afternoon session was
40 PROMOTING INNOVATION AND COMPETITION

was the rare exception in a system that

otherwise works well.30 Other panelists

questioned this assertion, suggesting that

hold up may be more widespread. They

posited that, although litigation

involving hold up may be rare, market

participants often may have little

incentive to complain about hold up

because they can pass on the hidden costs

of hold up to consumers or because there

is no venue for resolving complaints.31

III. FACTORS OTHER THAN SSO

RULES THAT MAY MITIGATE

HOLD UP

Panelists suggestedseveralfactors,

independent of specific SSO rules or

practices, that may deter some IP holders

from holding up licensees. First, IP

holders that are frequent participants in

standard-setting activities may incur

“reputation and business costs . . . that

could be sufficiently large as to be the

primary deterrent [of fraudulent nondisclosure] as opposed to whatever legal

remedies [the antitrust community]

comes up with.”32 One panelist stated:

titled “Licensing Terms in Standards Activities” and

the panelists were: Stanley M. Besen, Vice President,

Charles River Associates; Daniel J. Gifford, Robins,

Kaplan, Miller & Ciresi Professor of Law, University

of Minnesota School of Law; Richard Holleman,

Industry Standards Consultant; Allen M. Lo, Director

of Intellectual Property, Juniper Networks, Inc.; Mark

R. Patterson, Associate Professor of Law, Fordham

University School of Law; Scott K. Peterson,

Corporate Counsel for Intellectual Property,

Hewlett-Packard Company, Chair, American

National Standards Institute Patent Committee;

Lauren J. Stiroh, Vice President, National Economics

Research Associates; Daniel Swanson, Partner,

Gibson, Dunn & Crutcher LLP; Andrew Updegrove,

Partner, Lucash, Gesmer & Updegrove, LLP; and

Daniel J. Weitzner, Director of Technology and

Society Activities, World Wide Web Consortium. The

panel was moderated by Carolyn Galbreath, thenAttorney, U.S. Department of Justice; Tor Winston,

Economist, U.S. Department of Justice; Gail Levine,

then-Deputy Assistant General Counsel for Policy

Studies, Federal Trade Commission; and Robert Bahr,

then-Deputy Solicitor, U.S. Patent and Trademark

Office. Apr. 18 Tr. at 2-5.

The second session was held on the morning

of November 6, 2002, titled “Standard-Setting

Organizations: Evaluating the Anticompetitive Risks

of Negotiating Intellectual Property Licensing Terms

and Conditions Before a Standard Is Set.” The

panelists included: Joseph Farrell, Professor of

Economics and Chair of the Competition Policy

Center, University of California, Berkeley; Joseph

Kattan, Partner, Gibson, Dunn & Crutcher; Scott K.

Peterson, Corporate Counsel for Intellectual Property,

Hewlett-Packard Company; Carl Shapiro,

Transamerica Professor of Business Strategy, Haas

School of Business, Director and Professor of

Economics, Institute of Business and Economic

Research, University of California, Berkeley; Earle

Thompson, Intellectual Asset Manager and Senior

Counsel, Texas Instruments, Inc.; and Paul Vishny,

Member, D’Ancona & Pflaum, LLC, General Counsel,

Telecommunications Industry Association. The panel

was moderated by Carolyn Galbreath, then-Attorney,

U.S. Department of Justice; Gail Levine, then-Deputy

Assistant General Counsel for Policy Studies, Federal

Trade Commission; and Tor Winston, Economist, U.S.

Department of Justice. Nov. 6 Tr. at 3-13.

30 Apr. 18 Tr. at 236-37 (Holleman) (stating that the

extent to which patent holders try to extract

unreasonable terms is de minimis); Nov. 6 Tr. at 80

(Kattan); id. (Thompson); id. at 21 (Kattan).

31 Nov. 6 Tr. at 26-27 (Farrell) (“I think it’s also

relevant to observe that to the extent that the people

paying royalties are competing against each other

and are all – or believe that they’re all paying roughly

the same royalty, there’s a lot of pass-through, so it’s

the final consumer rather than these competitors who

end up paying.”); accord id. at 18 (Thompson) (“[T]hat

may be a tax on the industry, and . . . it doesn’t hurt

me worse than anybody else.”). But see id. at 56

(Kattan) (companies without cross licenses have a

higher cost position and therefore an incentive to

complain about high royalty rates). 

32 Apr. 18 Tr. at 122 (Yao); see also Stanley M. Besen,

Standard Setting and Intellectual Property: An Outline of

the Issues (Apr. 18, 2002 Hr’g R.) at 2 n.5 (“[T]he

license fee that a winning [patentee] will demand

may be constrained by its desire to develop a

reputation for reasonableness, in order to increase the

likelihood that its technology will be chosen in future

standards competitions . . . .”), http://www.ftc.gov/
Collaborative Standard Setting and Patents 41

“You fool people two or three times and

the next time you go back to play with

them they don’t like you. And that hurts

more than the actual [legal] remedy. . . .

People start to mistrust you after that.”33

Yet even that panelist acknowledged that

this market cure has its limits: “[T]he

next time you may be allied with [the firm

that failed to disclose its IP] and have to

support them no matter what. So it’s not

really deep penalties. I mean we play too

quickly, too fast.”34

Second, one panelist suggested

that in some cases a licensor may try to

affect the SSO’s technology choice by

informally indicating the terms under

which it intends to license intellectual

property incorporated into a standard.35

A licensor also might make bilateral ex

ante licensing commitments outside the

formal standard-setting process.36 This

panelist stated that information filters

back to the standards committee fairly

quickly if it becomes apparent that an IP

holder is not being forthcoming about

termsduring bilateral negotiations. Upon

receiving such confirmation, the

committee can consider alternative

technologies before the standard is set, he

noted.37

Third, an IP holder might enjoy a

first-mover advantage if its technology is

adopted as the standard. IP holders that

produce and sell a product using the

standard sometimes may find it more

profitable to offer attractive licensing

terms in order to promote the adoption of

the product using the standard,

increasing demand for its product rather

than extracting high royalties.38 As one

panelist put it, “if you in fact have your

technology accepted as a standard you

have a tremendous competitive

advantage . . . because you are the first

mover, you are the most competent.”39 

Fourth, IP holders that have broad

cross-licensing agreements with the

owner of the selected IP might be

protected from hold up.40 Of course, this

protection is not available to firms that

have little IP to offer in cross-licensing

deals.41

opp/intellect/020418stanleymbesen.pdf [hereinafter

Besen Submission].

33 Apr. 18 Tr. at 124 (Cargill).

34

 Id. at 124-25 (Cargill).

35

 See Richard J. Holleman, Comments on Standards

Setting and Intellectual Property (Apr. 18, 2002 Hr’g R.)

at 3, http://www.ftc.gov/opp/intellect/

020418richardjholleman.pdf [hereinafter Holleman

Submission I].

36 Apr. 18 Tr. at 194-95 (Holleman); Nov. 6 Tr. at 52-

53 (Vishny). 

37 Apr. 18 Tr. at 194-95 (Holleman).

38 Apr. 18 Tr. at 225-26 (Updegrove) (“So the first

thing is that most people who are going to respond to

a call [for a standard] aren’t people who want to

make that product and collect royalties on it. They

are people who want a head start from already being

at that starting point. They don’t want to saddle

competitors with royalties because what they want is

a big market for that product. And they’re satisfied

with a head start.”). 

39

 Id. at 58 (Cargill). 

40 Nov. 6 Tr. at 18 (Thompson); cf. id. at 27-28 (Farrell)

(asking whether institutions using “mutual assured

destruction or portfolio cross-licensing” can solve

licensing hold up, and inquiring about the limits of

these solutions).

41 Apr. 18 Tr. at 242-43 (Lo). 
42 PROMOTING INNOVATION AND COMPETITION

IV. CURRENT SSO METHODS TO

AVOID OR MITIGATE HOLD

UP

Many SSOs have developed

policies to mitigate hold up. The

provisions of such SSO policies fall,

broadly speaking, into two nonexclusive

categories: disclosure rules and licensing

rules. Disclosure rules require SSO

participants to disclose patents (and,

sometimes, patent applications and other

intellectual property or confidential

information) related to a standard under

consideration. Licensing rules restrict the

terms that holders of such intellectual

property can demand. The most common

licensing rule requires that IP holders

license to users of the standard on RAND

terms. Some SSOs require the

incorporated IP to be licensed on royaltyfree terms.

A. Use of Disclosure Rules to Deter

Hold Up

Panelists noted that disclosure

rules can help avoid hold up by

informing SSO members about relevant

intellectual property held by those

participating in the standard-setting

process, thus allowing SSO members

jointly to decide whether to incorporate

the patented technology in a standard.42

Some SSOs have no disclosure

requirements. The disclosure policies of

those that do are diverse.43 Some policies

state express disclosure obligations, while

others impose implied obligations; the

policies may cover existing patents,

pending patents, or other IP rights; and

they also may require an SSO member to

search its own inventory for patents.44

1. Benefits and Costs of SSO

Disclosure Policies 

Panelists said that SSO policies to

mitigate hold up confer substantial

procompetitive benefits.45 One panelist

stated that such policies serve to clear

patent thickets, and he found it

“significant that they exist primarily in

industries in which it looks like patent

hold-up is the biggest problem.”46

Panelists opined that “the fundamental

reason that drives most disclosure rules is

that people want to make informed

decisions. . . . It’s really designed to avoid

the hold-up situation where they create a

standard without knowing that there is

intellectual property incorporated into

it.”47

Panelists suggested that disclosure

rules also have costs and limitations,

however. For example, compliance with

disclosure rules may slow down

standards development, which could be

particularly costly in fast-paced markets

with short product life cycles.48

42

 Id. at 42-43 (Antalics). 

43 Lemley, 90 CAL. L. REV. at 1904.

44

 Id. at 1904-05. 

45 Apr. 18 Tr. at 35-36 (Lemley); Id. at 86 (Cargill)

(“[D]isclosure is a method of achieving a risk

reduction goal.”). See generally Nov. 6 Tr. at 50

(Peterson) (stressing that costs should be known); Id.

at 85 (Shapiro) (same).

46 Apr. 18 Tr. at 36 (Lemley).

47

 Id. at 42 (Antalics); see id. at 108-09 (Lemley)

(stating that the system can be gamed the most when

disclosure is required but licensing is not).

48 Richard J. Holleman, A Response: Government

Guidelines Should Not Be Used in Connection with

Standard Setting (Apr. 18, 2002 Hr’g R.) at 2
Collaborative Standard Setting and Patents 43

Complying with differing disclosure

policies in different SSOs can be costly to

IP holders,49 especially for those with

large patent portfolios who participate in

many SSOs.50 The cost of compliance may

cause some IP holders to opt out of some

collaborative standard setting.51 As a

result, “whatever they might have had to

contribute to the process is going to be

lost.”52 Furthermore, IP holders that

choose not to participate in an SSO are

not bound by the SSO’s disclosure rules.53

Finally, disclosure rules that are not wellcrafted may not help prevent hold up.

Panelists said that disclosure rulesdrafted

by engineers and business people may

reflect their authors’ laudable ethos—to

work collaboratively toward a

standard—but sometimes fail to consider

carefully the intellectual property and

antitrust issues.54

2. FTC Challenges to Hold Ups

Based on the Failure to Disclose IP

Rights

In the past ten years, the FTC has

brought three cases challenging alleged

hold ups based on failures to disclose the

existence of IP rights as unfair

competition under section 5 of the FTC

(mandatory patent disclosure rule could slow down

the standardization process), http://www.ftc.gov/

opp/intellect/020418richardjholleman2.pdf

[hereinafter Holleman Submission II]; see Apr. 18 Tr.

at 101-02 (Teece) (noting that if lawyers must insert

themselves into the market-building work of the

technical and marketing people who generally run

certain SSOs and other consortia, the standard-setting

process will become slower and “more deliberate”);

id. at 73 (Antalics) (“[Y]ou could have good products

that are delayed coming to market if this whole

process is taking longer.”).

49 Institute of Electrical and Electronics Engineers

(“IEEE”), Comments Regarding Competition and

Intellectual Property (Public Comments Hr’g R.) at 2-3

(noting costs of disclosure rules, including costs of

potential searches for relevant patents),

http://www.ftc.gov/os/comments/intelpropertyco

mments/ieee.pdf [hereinafter IEEE Submission]. 

Simply learning the disclosure and other obligations

of each SSO a firm has joined is no small job, one

panelist noted, and not all firms take on the task of

educating themselves about the intellectual property

policies of the SSOs they have joined and how those

policies interact. Apr. 18 Tr. at 30-31 (Lemley). This

leads to “a recipe for maximum confusion when

complex systems standards are invoked. And,

unfortunately, that is exactly where we are today.”

Carl Cargill, Intellectual Property Rights and Standards

Setting Organizations: An Overview of Failed Evolution

(Apr. 18, 2002 Hr’g R.) at 8, http://www.ftc.gov/

opp/intellect/020418cargill.pdf.

50

 See Apr. 18 Tr. at 84-85 (Cargill) (“There is not an

organization in the [Information Technology]

industry I believe that doesn’t belong to at least 30,

40, or 50 consortia, standards organizations, [or]

alliances. We play against ourselves sometimes.”).

51 Apr. 18 Tr. at 95-96 (Marasco) (describing costs of

conducting a patent portfolio search); id. at 63-64

(Deutsch) (stating that if an SSO’s disclosure policy is

too burdensome, IP holders won’t come to the table

because of the high cost); Mar. 20, 2002 Hr’g Tr.,

Business Perspectives on Patents: Hardware and

Semiconductors at 62-63 (McCurdy) (noting costs of

educating firm’s SSO delegates about firm’s patents

or patent applications),

http://www.ftc.gov/opp/intellect/020320trans.pdf;

see also id. at 64 (Zanfagna) (acknowledging such

challenges at “a company the size of Honeywell”); In

re Dell, 121 F.T.C. at 633 (Azcuenaga, Comm’r,

dissenting) (noting that imposing burdens on SSO

members, including antitrust liability, may dissuade

some firms from participating in the standardssetting process).

52 Apr. 18 Tr. at 73 (Antalics).

53

 See id. at 63 (Deutsch).

54 Apr. 18 Tr. at 202-03 (Updegrove) (explaining that

companies founding consortia ask their business

marketing or technical experts to start them, and

“their acquaintance with intellectual property policies

may be slim to nil”); id. at 29-30 (Lemley) (stating that

some SSOs establish their intellectual property rules

ad hoc in response to issues that happen to arise, and

not in a comprehensive, forward-looking way); id. at

90, 92-93 (Cargill) (stating that the engineers who

draft SSO disclosure rules do not know when they are

being misled about legal issues, and that SSO

intellectual property policies have always been an

afterthought). 
44 PROMOTING INNOVATION AND COMPETITION

Act.55 The first FTC matter, In re Dell,

56

highlighted to industry the possibility of

antitrust liability for deceiving SSOs and

their members.57 In that case, the FTC

alleged that during an SSO’sdeliberations

about a certain standard, Dell, a member

of the SSO, had twice certified that it had

no intellectual property relevant to the

standard, and that the SSO adopted the

standard based, in part, on Dell’s

certifications. After the SSO adopted the

standard, Dell allegedly demanded

royalties from those using its technology

in connection with that standard. The

Commission accepted a consent

agreement under which Dell agreed not

to enforce the patent in question against

firms using it as part of the standard.58

In a recent case, In re Rambus, the

Commission determined that Rambus

had acquired monopoly power through

deceptive, exclusionary conduct in

connection with its participation in an

SSO. According to the Commission’s

opinion, Rambus engaged in a course of

conduct “calculated to mislead [SSO]

members by fostering the belief that

Rambus neither had, nor was seeking,

relevant patents that would be enforced”

against products compliant with the

SSO’s standards.59 The Commission

found that “Rambus’s course of conduct

constituted deception under Section 5 of

the FTC Act.”60 The Commission further

found that Rambus’s course of conduct

contributed significantly to the SSO’s

technology selections and that the SSO’s

choice of standard contributed

significantly to Rambus’s acquisition of

monopoly power.61 According to the

Commission, the switching costs that

developed as manufacturers became

increasingly committed to the standard

locked the industry in and rendered

Rambus’s monopoly power durable.62

The Commission concluded that Rambus

unlawfully monopolized the markets for

four technologies incorporated into the

SSO’s standards in violation of section 5

of the FTC Act.63 

55 A variety of other mechanisms may be available to

challenge hold up in the context of an SSO. Some

have used actions for fraud. See, e.g., Rambus, Inc. v.

Infineon Techs. AG, 164 F. Supp. 2d 743, 750-58 (E.D.

Va. 2001) (upholding jury verdict finding actual fraud

based on firm’s non-disclosure of patents related to a

standard), rev’d in part, 318 F.3d 1081 (Fed. Cir. 2003)

(reversing a denial of judgment for defendant as a

matter of law upon determining that the record

showed no breach of SSO disclosure duty). Others

recommend using contract actions to enforce

disclosure policies. See Mark A. Lemley, Intellectual

Property Rights and Standard Setting Organizations

(Apr. 18, 2002 Hr’g R.) at 38-42, http://www.ftc.gov/

opp/intellect/020418lemley.pdf [hereinafter Lemley

Submission]. Some have used the doctrine of

equitable estoppel to enforce disclosure policies. See

Symbol Techs., Inc. v. Proxim Inc., No. Civ. 01-801-SLR,

2004 WL 1770290 (D. Del. July 28, 2004) (rejecting an

estoppel defense when the firm had no duty to

disclose its patent rights). Others have suggested the

doctrines of implied license or patent misuse to

enforce disclosure policies. See, e.g., Lemley

Submission at 51-56; David R. Steinman & Danielle S.

Fitzpatrick, Antitrust Counterclaims in Patent

Infringement Cases: A Guide to Walker Process and

Sham-Litigation Claims, 10 TEX. INTELL. PROP. L.J. 95, 96

& n.2, 106 (2001).

56 121 F.T.C. 616.

57 Apr. 18 Tr. at 32-33 (Lemley); see also Feb. 28 Hr’g

Tr., Business Perspectives on Patents: Hardware and

Semiconductors (Afternoon Session) at 742 (Telecky),

http://www.ftc.gov/opp/intellect/020228ftc.pdf

[hereinafter Feb. 28 Tr.].

58

 See Decision and Order, In re Dell, 121 F.T.C. at 618-

23.

59

 In re Rambus, Inc., No. 9302, slip op. at 67.

60

 Id.

61

 Id. at 74-79.

62

 Id. at 98-114.

63

 Id. at 3-5, 118-19. Private litigation has also
Collaborative Standard Setting and Patents 45

One other FTC case resulted in a

consent order. In 2003, the FTC filed an

administrative complaint against the

Union Oil Company of California

(“Unocal”) for allegedly misrepresenting

information involving proposed lowemissions gasoline standards in state

regulatory proceedings. According to the

complaint, Unocal presented research

results in these proceedings that it had

represented as non-proprietary, and the

state regulating board used these results

in setting its standards. At the same time,

Unocal was pursuing patent rights to

cover these research results. The FTC’s

complaint asserted that Unocal

misrepresented its proprietary interest in

the standard until members of the

refining industry had spent billions of

dollars modifying their refineries to

become compliant with the new

standards. Unocal then alleged that the

new standards infringed its patents. This

conduct allegedly enabled Unocal to

charge substantial royalties, costing

consumers hundreds of millions of

dollars per year.64 An initial ALJ decision

dismissed the complaint on NoerrPennington65 and jurisdictional grounds,66

but the full Commission reversed,

holding that Unocal’s alleged misleading

statements to the state regulatory board

were not protected as a matter of law by

the Noerr-Pennington doctrine, and that

the FTC had ample jurisdiction to

consider whether Unocal’s actions caused

competitive harm.67 The Unocal matter

settled as part of a larger dual consent

agreement that allowed Chevron

Corporation to acquire Unocal. Under

the terms of the settlement, Unocal will

not enforce its patents related to the

reformulated gasoline standard set by the

state board.68

B. Use of Licensing Rules to Deter

Hold Up

Even if SSO members are informed

about the existence of patented

technologies through disclosure during a

standard-setting process, hold up over

licensing terms may still be a concern.

One panelist identified six “ways that

challenged Rambus’s actions before the SSO. E.g.,

Samsung Elecs. Co. v. Rambus, Inc., 439 F. Supp. 2d 524

(E.D. Va. 2006); Hynix Semiconductor Inc. v. Rambus

Inc., 441 F. Supp. 2d 1066 (N.D. Cal. 2006); Micron

Tech., Inc. v. Rambus Inc., 189 F. Supp. 2d 201 (D. Del.

2002); Infineon, 164 F. Supp. 2d 743, rev’d in part, 318

F.3d 1081 (Fed. Cir. 2003). A district judge on remand

dismissed Rambus’s infringement claims against

Infineon in light of Rambus’s failure to retain certain

documents related to the case; in lieu of pursuing an

appeal, Rambus settled the case and all other claims

against Infineon related to the memory chip

technology. Under the agreement, Infineon has

agreed to pay Rambus royalties for the use of its

technology and to grant Rambus a perpetual license

for Infineon’s memory interfaces. See Licensing

Settlement Ends Patent Suit by Rambus, N.Y. TIMES,

Mar. 22, 2005, at C15. 

64

 See Unocal Complaint paras. 1-10. 

65

 E. R.R. Presidents Conference v. Noerr Motor Freight,

Inc., 365 U.S. 127 (1961); United Mine Workers v.

Pennington, 381 U.S. 657 (1965).

66

 In re Union Oil Co. of Cal., No. 9305, slip op. at 67

(F.T.C. Nov. 25, 2003), available at

http://www.ftc.gov/os/2003/11/031126unionoil.pd

f, rev’d, No. 9305 (F.T.C. July 7, 2004), available at

http://www.ftc.gov/os/adjpro/d9305/040706comm

issionopinion.pdf [hereinafter Unocal Commission

Opinion].

67

 Unocal Commission Opinion, slip op. at 25 (“[T]he

decided weight of precedent concludes that deliberate

misrepresentation that cuts to the core of an

administrative proceeding’s legitimacy can fall

outside Noerr-Pennington protections.”). 

68

 See Statement of the Federal Trade Commission: In

the Matter of Union Oil Company of California, Dkt.

No. 9305 and Chevron/Unocal, File No. 051-0125

(June 10, 2005), available at www.ftc.gov/os/

adjpro/d9305/050802statement.pdf.
46 PROMOTING INNOVATION AND COMPETITION

patent license terms revealed only after

the standard is adopted can generate

conflict and impair many parties’

abilit[ies] to compete in the affected

market.”69 Some SSOs use licensing rules,

such as requiring IP holders to commit to

licensing on RAND terms, to mitigate

hold up.70 Others, particularly those

focused on Internet-based industries,

actively promote the development of

standards that are licensed on a royaltyfree basis.71

1. Use of RAND Licensing

 Some believe that commitments

by IP holders to license IP incorporated

into a standard on RAND terms is an

effective means for SSOs to avoid hold

up.72 Others believe that “a commitment

to offer a license on terms that are merely

specified as ‘RAND’ is not an adequate

safeguard against abusive use of a patent

that has become essential to a standard.”73

69 Peterson Submission I at 8 (the patentee: (1) “seeks

a royalty that is . . . greater than the average profit

margin of all of the parties who will need licenses”;

(2) “seeks a broad grantback that appears evenhanded but [which has] significantly disparate effects

on different parties, perhaps forcing particular

licensees to forfeit the value of their own major

innovation investments, but patentee refuses to

deviate from its ‘standard’ agreement for any

reason”; (3) “demands a minimum annual royalty

based on ‘administrative costs’ but [has] the effect of

locking out smaller rivals and new entrants”; (4)

“seeks royalties from downstream providers (e.g.,

manufacturers of finished goods) and refuses to

license suppliers of upstream inputs”; (5) “requires

admissions of infringement and validity, and/or

retains the right to immediately terminate a license if

the licensor challenges infringement or validity”; (6)

“requires acceptance of venue in a ‘home court’

which might be fine for large companies but a major

problem for small companies or foreign

competitors”); see also Nov. 6 Tr. at 34 (Vishny)

(stating that “looking at the licensing process as

relating to fees, is terribly simplistic”).

70 Lemley, 90 CAL. L. REV. at 1906; Standards-Setting

and United States Competitiveness: Hearing Before the H.

Subcomm. on Environment, Technology, and Standards of

the H. Comm. on Science, 107th Cong. 62, 88 n.22 (2001)

(statement of Carl Cargill) (asserting that RAND

terms must be offered for intellectual property to be

included in an International Organization for

Standardization standard) [hereinafter Cargill

Congressional Submission]. Recently courts and

commentators have been addressing the meaning and

application of RAND terms. E.g., Broadcom Corp. v.

Qualcomm Inc., No. CIV A 05-3350 MLC, 2006 WL

2528545 (D.N.J. Aug. 31, 2006) (dismissing allegation

that SSO participant had violated antitrust law by

reneging on a commitment to license on fair,

reasonable, and nondiscriminatory terms), appeal

docketed, No. 06-4292 (3d Cir. Oct. 4, 2006); United

States v. Microsoft Corp., 231 F. Supp. 2d 144, 193

(D.D.C. 2002) (requiring licenses to be offered on

RAND terms and recognizing that “‘reasonableness’

is generally an objective standard”); ESS Tech., Inc. v.

PC-Tel, Inc., No. C-99-20292 RMW, 2001 WL 1891713,

at *3-*6 (N.D. Cal. 2001) (applying the fifteen criteria

announced in Georgia-Pacific Corp. v. U.S. Plywood

Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970), as

appropriate to determine RAND calculation in

context of a patent license). Some scholars have

proposed alternative methodologies for determining

appropriate licensing terms. See, e.g., Patterson, 17

BERKELEY TECH. L.J. at 1056-73 (proposing that

benefits to which the patentee is entitled be calculated

by determining portion of demand attributable to the

patentee’s invention); Daniel G. Swanson & William J.

Baumol, Reasonable and Nondiscriminatory (RAND)

Royalties, Standards Selection, and Control of Market

Power, 73 ANTITRUST L.J. 1, 25-45 (2005) (advocating

the use of the “efficient component pricing rule” to

determine a competitively neutral licensing fee).

71

 See Apr. 18 Tr. at 23-24 (Lemley); id. at 207-08

(Updegrove); id. at 266-67 (Weitzner).

72 Nov. 6 Tr. at 22-23 (Vishny) (stating that hold up is

resolved in a reasonable period of time within the

Telecommunications Industry Association and that

other standard development organizations, such as

the IEEE, the American National Standards Institute

(“ANSI”), and the Alliance for Telecommunications

Industry Solutions, have not had complaints arise

about RAND terms); see also Apr. 18 Tr. at 270-72

(Updegrove) (explaining that competition from other

consortia promotes willingness to license on RAND

terms).

73

 E.g., Scott K. Peterson, Consideration of Patents

During the Setting of Standards (Nov. 6, 2002 Hr’g R.)

at 6, http://www.ftc.gov/opp/intellect/
Collaborative Standard Setting and Patents 47

Some panelists attributed the potential

inadequacy of a RAND commitment to

the difficulty of defining the terms

“reasonable” and “nondiscriminatory.”74

Few SSOs give “much explanation of

what those terms mean or how licensing

disputes [are to] be resolved,”75 and

courts may be reluctant to determine

what is a “reasonable” price.76 The

meaning of “nondiscriminatory” may be

similarly unclear.77

Some panelists raised concerns

about the extentto which commitments to

license on RAND terms succeed in

mitigating hold up and whether SSOs are

able to assess the full extent of RAND

failures. Supporting those who believe

that hold up is more widespread than it

appears, one panelist said that “[licensees

are] not going to come back to the SDO

[standarddevelopment organization] and

complain [about RAND licensing terms].

The SDOs have made it very clear that

they don’t want to hear about this stuff.”78

The absence of a good forum for potential

licensees to complain about RAND

licensing terms may enhance licensors’

ability to hold up licensees.79

2. Royalty-Free Licensing Standards

A few SSOs require IP holders to

commit to royalty-free licensing before

incorporating the IP into a standard.80

The evolution of the Internet may present

the best opportunity to study market

experiments in royalty-free licensing. For

example, the World Wide Web

Consortium requires all participants to

commit to royalty-free licensing terms.81

021106peterson.pdf [hereinafter Peterson Submission

II].

74 Nov. 6 Tr. at 63 (Shapiro) (“[S]ince reasonable is so

vague, it doesn’t amount to anything.”); id. at 64

(Thompson) (“RAND [is] an empty term . . . .”); id. at

64 (Vishny) (“[T]he people who are negotiating for

the establishment . . . of a standard don’t know what

[RAND] mean[s].”). 

75 Lemley, 90 CAL. L. REV. at 1906; see also id. at 1954

n.272 (“[T]here has not been much in the way of

judicial explication of [RAND licensing terms] so

far . . . .”).

76 One panelist explained: “[T]he insights of modern

economics tell us that prices are determined in

markets and are the result of supply and demand. 

It’s not something that’s typically easy for a [c]ourt

sitting as a regulatory body to determine and to

effectively administer. Courts are very, very loath to

take the role of markets. . . . So from the standpoint

of imposing constraints on the possible subsequent

development of market power as the result of

anointment or selection as a part of a standard,

obviously one wants to give incentives to standard

setting organizations. One wants to bestow them

with the power to put limits, effective limits that will

restrain that exercise after the technology is chosen. 

And the whole trick is doing that in a way that’s

consistent with antitrust law.” Apr. 18 Tr. at 286-87

(Swanson).

77

 See id. at 302-03 (Holleman) (stating that licensing

is nondiscriminatory if licenses are made available to

everyone who requests a license although there is no

guarantee that the terms and conditions of each

license will be identical); see also id. at 272

(Updegrove).

78 Nov. 6 Tr. at 28 (Peterson).

79

 See id. at 27-28 (Farrell).

80

 See, e.g., Lemley, 90 CAL. L. REV. at 1905

(identifying only four standards groups of the fortythree studied that require royalty-free licensing of

patents incorporated in a standard); Apr. 18 Tr. at

257-69 (Weitzner) (discussing the World Wide Web

Consortium and the Platform for Privacy

Preferences). In practice, however, a royalty-free

license may not eliminate the need for agreement

concerning the other terms and conditions under

which the license is offered. Apr. 18 Tr. at 191

(Holleman).

81

 See, e.g., Press Release, World Wide Web

Consortium, World Wide Web Consortium Approves

Patent Policy (May 21, 2003) (announcing finalized

royalty-free patent policy), http://www.w3.org/

2003/05/patentpolicy-pressrelease.html.en. 
48 PROMOTING INNOVATION AND COMPETITION

Some panelists endorsed royaltyfree licenses as the best means for limiting

licensing hold up and for growing

markets.82 Some asserted that giving a

royalty-free license might be of little

competitive consequence to an

intellectual property holder that is a

market player. Such might be the case

because the intellectual property holder

could retain a first-mover advantage and

be in the best position to implement the

standard, or the IP holder could license its

other protected technologies that are

complements to those incorporated in the

standard.83 Others raised concerns about

royalty-free licensing and argued that

royalty-free licenses, even those infused

with a first-mover advantage, might not

provide an efficient incentive for research

and development (“R&D”).84 One

panelist stated, “economists generally

know[,] and antitrust lawyers generally

suspect[,] that zero is rarely a reasonable

price.”85 Panelists debated whether

mandatory royalty-free licenses might

represent the ultimate monopsony by

collectively depriving the licensor of the

ability to extract economic benefit from its

intellectual property.86

Neither Agency advocates that

SSOs adopt any specific disclosure or

licensing policy, and the Agencies do not

suggest that any specific disclosure or

licensing policy is required. 

82 Apr. 18 Tr. at 294-96 (Lo); see also Andrew

Updegrove, Observations on the Current Dynamics of

Consortium Standard Setting (Apr. 18, 2002 Hr’g R.) at

3-4, http://www.ftc.gov/opp/intellect/

020418updegrove3.pdf [hereinafter Updegrove

Submission II] (permitting intellectual property

holders to charge royalties in the context of the

Internet could cripple it, while forbidding royalties in

a more limited commercial area might “unnecessarily

deprive a member of the full economic value” of its

intellectual property). Others discussed the value of

“open” standards. See, e.g., Cargill Congressional

Submission at 21-22; Apr. 18 Tr. at 137 (Cargill). 

83 Apr. 18 Tr. at 225-26 (Updegrove); David J. Teece &

Edward F. Sherry, Standards Setting and Antitrust, 87

MINN. L. REV. 1913, 1954 (2003) (“[A] patent holder

may be willing to license its patents royalty-free to all

interested parties . . . . [T]his is most likely to occur . .

. when the patent holder will benefit from others’

adoption of its patented technology as a standard

because the patent holder has other complementary

capabilities that will enable it to profit from its

innovation in a manner other than collecting

royalties.”).

84

 E.g., Apr. 18 Tr. at 221-22 (Besen).

85

 Id. at 288 (Swanson); id. at 289 (“[I]n the intellectual

property realm obviously the reason why we have

intellectual property protection is to give those who

have engaged in costly efforts to create intellectual

property sufficient protection to give them the

expectation that they will get a return for that, some

return greater than zero.”).

86

 Compare Nov. 6 Tr. at 66-67 (Farrell) (“[I] think that

[a royalty-free license] raises the technology

monopsony concern much more sharply than ex ante

negotiation . . . . I also think that the way these things

are often structured, they’re as duties on member

participants. And to the extent that . . . might create

an incentive not to join, it seems like that could be a

real concern.”), with id. at 67-68 (Kattan) (“[I] think

[Farrell is] beginning from a faulty factual premise. 

The way that the organizations that provide for

royalty-free licensing work is not by requiring

members to commit up front to royalty-free licensing. 

It is rather by agreeing that there will be a license,

which will be royalty-free. If you want to take

advantage of the license and get a royalty-free license

from all the other members who agree to sign the

license, then you have to agree to give them a

reciprocal license. So, it doesn’t create a monopsony

problem, it gives you a choice. What is more valuable

to me? Getting a royalty-free license from everybody

else or paying everybody else the royalties that they

may ask for and at the same time charging royalties

for my patents. So, it’s fundamentally different from

the kind of hold-up that [Farrell] is talking about.”). 

For a discussion of group buying power, see infra Part

V.B.2.
Collaborative Standard Setting and Patents 49

V. USING EX ANTE LICENSING

NEGOTIA TIO N S T O

MITIGATE HOLD UP

In some cases, market factors, IP

disclosures, and commitments to license

on RAND terms may not sufficiently

mitigate the potential for licensing hold

up.87 Some SSO members have suggested

that SSOs should be permitted to require

IP holders to make specific licensing

commitments that are better defined than

RAND terms. These well-defined

licensing commitments could be

introduced into the standard-setting

process through ex ante unilateral

announcements of licensing terms by IP

holders or through ex ante multilateral

licensing negotiations between IP holders

and the group of SSO members. 

An economist at the hearings

noted that “[i]t is efficient [for standard

setters] to choose the technology that

involves the lowest cost of producing

[the] product,” so they would likely

prefer to be able to combine the selection

of technology for a standard with the

negotiation of licensing terms for that

technology.88 Another panelist explained:

“A truly informed and intelligentdecision

[that] . . . would best serve all parties’

interests – including the public’s interest

in competitive market conditions – cannot

be made without knowing what the

patent holderwould extract from all users

as the price for admission into the

affected market.” 8 9

To illustrate this point, the

economist described a stylized setting in

which an SSO needed to select one of

multiple alternative protect ed

technologies.90 He suggested that the SSO

could hold an auction and require the

holders of the IP to submit “bids”

describing the licensing terms to which

they would agree if their technology were

incorporated into the standard. He

explained that, under his simplifying

assumptions, one would expect such an

auction to result in the SSO selecting the

efficient technology, and that the terms of

the licensing agreement would reflect the

relative benefit of the selected

technology.91 Several panelists expressed

concern that such auctions ornegotiations

could slow down the standard-setting

process, raise the costs of participation,

and potentially result in antitrust

liability.92 For these reasons, many SSOs

and companies strictly prohibit

discussions of licensing terms within

SSOs.93

87 Peterson Submission II at 6; Peterson Submission I

at 9-12; see also Nov. 6 Tr. at 59-60 (Farrell).

88 Apr. 18 Tr. at 214-15 (Besen); accord Nov. 6 Tr. at

50-51 (Peterson).

89 Peterson Submission I at 11; accord Lemley, 90 CAL.

L. REV. at 1947 (“[Monopsony problems do] not mean

that members of the SSO should be prohibited from

discussing price. Finding out what a ‘reasonable and

nondiscriminatory’ license will actually cost will help

determine the true value of a proposed standard and

how it compares to possible alternatives.”).

90 Dr. Besen made several other simplifying

assumptions: the alternative technologies are equally

capable of performing in the standard, but they have

different manufacturing costs and the holders of the

relevant intellectual property rights are not members

of the SSO. He also discussed how relaxing the

various assumptions would complicate this analysis. 

Apr. 18 Tr. at 217-24 (Besen); Besen Submission at 1-3.

91

 See Apr. 18 Tr. at 214 (Besen); Besen Submission.

92

 See, e.g., Nov. 6 Tr. at 33 (Thompson).

93 Peterson Submission I at 9-10 & n.2; Apr. 18 Tr. at

171 (Lemley); see also id. at 153 (Cargill).
50 PROMOTING INNOVATION AND COMPETITION

A. Practical Reasons for the Lack of

Ex Ante Licensing Negotiations

There was a general consensus

among panelists that a more transparent

process for setting licensing terms is

desirable. Nonetheless, the increased

administrative costs and delays

associated with such transparency led

many panelists to disfavor ex ante

discussions for practical reasons,

independent of antitrust considerations.

94

Several panelists stated that ex ante

licensing negotiations would require

firms to completely overhaul how they

participate in SSOs. Currently, firms are

typically represented at SSOs by technical

experts who focus on selecting the best

technology for a standard, not on

negotiating licensingterms.95 Multilateral

ex ante negotiations would likely require

lawyers and business and marketing

personnel to also participate in the

process.96 Such participationwould likely

increase the costs and lengthen the

already significant amount of time that it

takes to adopt a standard, which may

dissuade some firms from participating.97

B. AntitrustConcerns About Ex Ante

Licensing Negotiations

Panelists raised concerns about

two categories of antitrust liability that

could result from ex ante negotiation of

licensing terms: (1) naked agreements to

restrain trade by intellectual property

holders or SSO members, and (2) the

exercise of group buying power by those

that participate in the standard-setting

process. 

1. Naked Restraints of Trade by

Intellectual Property Holders or

SSO Members

As discussed above, standardsetting activities were the subject of

several U.S. Supreme Court decisions

between the 1960s and 1980s that dealt

principally with exclusionary practices

and the “capture” of an SSO by a group of

competitors.

98 These cases have

influenced the strict antitrust compliance

rules and procedures adopted by many

SSOs.99

94

 See, e.g., Nov. 6 Tr. at 79-80 (Vishny) (asserting that

ex ante discussions are “highly unworkable and

impractical”); Apr. 18 Tr. at 193-94 (Holleman)

(stating that committees do not want to discuss terms

and conditions of licenses).

95 Apr. 18 Tr. at 173 (Marasco); id. at 195 (Holleman). 

96 Nov. 6 Tr. at 33 (Thompson) (asserting that Texas

Instruments does not have enough “rare breed”

licensing attorney/engineers to engage in ex ante

negotiations with all of the standards bodies in which

Texas Instruments participates).

97

 Id. at 87 (Thompson) (“At some point [ex ante

discussions are] either going to add to my cost,

which, by the way, gets passed on to the consumer at

some point, or it’s going to be we don’t participate in

certain groups. To me, it’s a major longer term

concern and I’m not sure if the thing that we’re trying

to fix, which doesn’t seem to be a real problem, is

worth presenting another problem down the road.”);

see id. at 25-26 (Farrell). However, one panelist

labeled the stated concerns about extra administrative

costs as a “red herring” because Agency guidance

permitting ex ante negotiations would not require

participants to undertake them; it would merely

allow participants to decide for themselves whether it

was worth the costs. Id. at 65-66 (Shapiro).

98

 Radiant Burners, 364 U.S. 656; Nat’l Soc’y of Prof’l

Eng’rs v. United States, 435 U.S. 679 (1978); Am. Soc’y

of Mech. Eng’rs, 456 U.S. 556; Allied Tube, 486 U.S. 492. 

99 In 2004, Congress enacted legislation to limit the

potential antitrust liability of SSOs that meet certain

open-process standards. The Standards Development

Organization Advancement Act of 2004 provides that

the antitrust rule of reason applies to these SSOs
Collaborative Standard Setting and Patents 51

Some panelists extrapolated from

the usual antitrust “presumption that

when competitors get into the same room

together[,] as Adam Smith said, little

good can come out of it.”100 In the

opinion of those panelists, standard

setting that involves intellectual property

rights raises the potential for section 1 per

se liability for individuals and firms

participating in ex ante multilateral

licensing negotiations.101

Sham multilateral licensing

negotiations certainly may offer an

opportunity for SSO members to reach

naked price-fixing agreements that lack

plausible and cognizable justifications,

restraints that the Agencies and courts

summarily condemn.102 For example, if

manufacturers use the cover of

multilateral licensing negotiations to

reach naked agreements on the prices of

the products they sell downstream,

summary condemnation is warranted.103

Meeting to discuss royalty rates within an

SSO may give manufacturers an

opportunitytodiscuss downstreamprices

with less risk of detection, making

collusion less expensive.104 Likewise,

summary condemnation would be

justified if IP holders were to reach naked

agreements on the licensing terms they

will propose to an SSO that permits

multilateral licensing negotiations, thus, while they are engaged in standards development

activities. It also provides special rules for attorney

fees in any antitrust case challenging the standards

development activity of an SSO. In addition,

qualifying SSOs may limit their antitrust liability for

standards development activities to actual, as

opposed to treble, damages if they file a proper

notification with the Agencies. 15 U.S.C. §§ 4301-4305

(Supp. 4 2006).

100 Apr. 18 Tr. at 127 (Gellhorn).

101

 See, e.g., Nov. 6 Tr. at 43-47 (Vishny); Sony Elecs.,

Inc. v. Soundview Techs., Inc., 157 F. Supp. 2d 180 (D.

Conn. 2001) (denying a motion to dismiss an antitrust

claim against a group of standard setters based on

allegations of price-fixing and group boycott). 

Soundview alleged that the group sought to fix the

licensing fee for its patent that was likely infringed by

the standard and then refused to accept a license,

choosing instead to challenge the patent’s validity. 

Although some cite Soundview for the proposition that

antitrust liability may attach in the ex ante licensing

context, the reliance is somewhat misplaced. The

conduct allegedly giving rise to antitrust liability in

Soundview occurred ex post, after the standard had

been adopted. See also Golden Bridge Tech., Inc. v.

Nokia, Inc., 416 F. Supp. 2d 525 (E.D. Tex. 2006)

(denying defendants’ motion to dismiss plaintiff’s

claim that members of the Third Generation

Partnership Project conspired to remove plaintiff’s

Common Packet Channel technology from a

Wideband Code Division Multiple Process wireless

communications standard set by the organization in

violation of section 1 of the Sherman Act and various

state laws).

102 ANTITRUST-IP GUIDELINES § 3.4 ex.7 (describing

likely Agency challenge under the per se rule of “a

sham intended to cloak [the] true nature” of a

particular licensing agreement); Addamax Corp. v.

Open Software Found., Inc., 152 F.3d 48, 52 & n.5 (1st

Cir. 1998) (stating that joint ventures are generally

reviewed under rule of reason “unless they amount

to complete shams”).

103

 See United States v. Socony-Vacuum Oil Co., 310 U.S.

150, 223-24 (1940).

104 ROGER D. BLAIR & JEFFREY L. HARRISON,

MONOPSONY: ANTITRUST LAW AND ECONOMICS 124

(1993) (“[S]ince the parties are permitted to gather for

the purpose of determining a uniform purchase price,

it would be more difficult to detect when they had

crossed over to at least a tacit agreement on selling

price. This decreased likelihood of detection lowers

the risk associated with the price fixing collusion.”);

see also Peterson Submission II at 7 (discussing risk of

collusion on product prices, development, or

marketing). For similar reasons, some fear that

information-sharing among buyer-members of

business-to-business electronic marketplaces could

facilitate downstream coordination. FEDERAL TRADE

COMM’N, ENTERING THE 21ST CENTURY: COMPETITION

POLICY IN THE WORLD OF B2B ELECTRONIC

MARKETPLACES pt. 3, at 4 (2000), available at

http://www.ftc.gov/os/2000/10/b2breport.pdf;

Blair & Harrison, Monopsony at 159 (“‘[P]ermission’

to collude as buyers creates a huge danger that

collusion as sellers will also occur.”).
52 PROMOTING INNOVATION AND COMPETITION

in effect, rigging their selling bids.105 

2. Group Buying Power 

Standards set by SSOs, like all

types of standards, can promote

competition by lowering prices,

increasingconsumer choice, or improving

quality. In the absence of nakedly

anticompetitive restraints by an SSO or by

its members, it is appropriate to

determine whether an SSO’s efforts to

reduce opportunities for IP holders to

hold up future users of a standard

violates the antitrust laws pursuant to the

rule of reason. Relying on the rule of

reason when analyzing the competitive

harm that might arise from

implementation of an SSO policy

promoting ex ante licensingnegotiations is

appropriate because ex ante negotiations

may mitigate the market power of patent

holders created by SSO members when

they incorporate a particular technology

in a standard that creates or expands a

market for that technology. As one

panelist explained, “to talk about per se

liability is to disregard the integrative

effort that takes place in developing the

standard and in creating the demand for

the technology.”106

In most cases, it is likely that the

Agencies would find that joint ex ante

activity undertaken by an SSO or its

members to establish licensing terms as

part of the standard-setting process is

likely to confer substantia l

procompetitive benefits by avoiding hold

up that could occur after a standard is set,

and this would be an important element

of a rule of reason analysis. Ex

ante licensing discussions may lead to

price competition, in effect allowing for

broader competition among alternative

technologies vying for inclusion in the

standard.107 Patent holders choosing to

participate inthe standard-setting process

would compete against other patent

holders, as well as against public domain

technologies, on the basis of technical

merit and on price and other licensing

terms in order to have their technology

included in the standard. Ex ante

licensing discussions can thus preserve

the benefits of competition that exist by

increasing the ex ante knowledge of SSO

decision-makers about licensing terms

and may improve the quality of their

decisions, enabling them to make

tradeoffs between price and technical

105

 See Socony-Vacuum Oil Co., 310 U.S. at 223 (“Under

the Sherman Act a combination formed for the

purpose and with the effect of raising, depressing,

fixing, pegging, or stabilizing the price of a

commodity in interstate or foreign commerce is illegal

per se.”); 12 HERBERT HOVENKAMP, ANTITRUST LAW ¶

2005, at 65-71 (1999).

106 Nov. 6 Tr. at 45-46 (Kattan) (referencing Gail F.

Levine, B2Bs, E-Commerce & the All-Or-Nothing Deal,

28 RUTGERS COMPUTER & TECH. L.J. 383 (2002)); see also

Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S.

1, 20, 23-24 (1979) (holding that blanket license

agreements are not “naked restraints of trade” that

would constitute per se price fixing and should be

examined under the rule of reason); Robert A. Skitol,

Concerted Buying Power: Its Potential for Addressing the

Patent Holdup Problem in Standard Setting, 72

ANTITRUST L.J. 727, 739 (2005) (examining how the

effects of monopsony power fall within the rule of

reason); cf. Patterson, 17 BERKELEY TECH. L.J. at 1078

(“[The SSO itself] should be treated as a single entity

when involved in negotiations related to the

standard. . . . In such circumstances, the individual

members are not pooling their market shares to gain

greater power, but are using the power of the

standard.”).

107

 Chi. Bd. of Trade v. United States, 246 U.S. 231, 238

(1918) (“The true test of legality is whether the

restraint imposed is such as merely regulates and

perhaps thereby promotes competition or whether it

is such as may suppress or even destroy

competition.”).
Collaborative Standard Setting and Patents 53

merit that are not possible unless the price

of patented technologicalinputs is known

before the standard is set. This ex ante

knowledge may place an upper bound on

a patent holder’s RAND commitment,

and it lowers the risk that users of a

standard will face demands for more

restrictive licensing terms after the

standard is set than SSO members

expected when they chose to include the

patented technology in the standard.

Reducing this risk may speed adoption of

the standard in the marketplace. 

Nonetheless, jointex ante licensing

negotiations may raise competition

concerns in some settings.108 For example,

such negotiations might be unreasonable

if there were no viable alternatives to a

particular patented technology that is

incorporated into a standard, the IP

holder’s market power was not enhanced

by the standard, and all potential

licensees refuse to license that particular

patented technology except on agreedupon licensing terms. In such

circumstances, the ex ante negotiation

among potential licensees does not

preserve competition among technologies

that existed during the development of

the standard but may instead simply

eliminate competition among the

potential licensees for the patented

technology. 

VI. A G ENCY POL I C Y

CON CLUSI ONS ABOU T

ANTITRUST CONCERNS

ASSOCIATED WITH EX ANTE

LICENSING NEGOTIATIONS

Some SSOs, and their participants,

have hesitated to allow the question of

price to be part of the formal standardsetting process in any form. They have

allowed neither ex ante unilateral

announcements of licensing terms by

firms that own the protected technology

nor joint discussions about licensing

terms between these firms and the SSO

members.109 To the extent such

prohibitions are based on concerns about

per se illegality of ex ante agreements on

licensing terms, they fail to account for

the procompetitive reasons SSO members

have to broaden ex ante competition

between technologies beyond the

traditional selection criteria, such as

technical merit.110 Suchex ante knowledge

about licensing terms could help mitigate

hold up that is not resolved in the first

instance by the existence of SSO rules

requiring disclosure of IP or by

requirements that SSO members license

108

 See, e.g., Deborah Platt Majoras, Chairman, Federal

Trade Comm’n, Recognizing the Procompetitive

Potential of Royalty Discussions in Standard Setting,

Remarks at Standardization and the Law: 

Developing the Golden Mean for Global Trade 8-9

(Sept. 23, 2005), available at http://www.ftc.gov/

speeches/majoras/050923stanford.pdf (noting that

joint ex ante bargaining could, in theory, reduce

incentives for innovation but questioning whether

that risk would be a frequent practical concern).

109 Marasco Submission at 7, 11; Skitol, 72 ANTITRUST

L.J. at 728-29; Peterson Submission II at 6 (“Some

participants in standards development activities have

refused to permit license terms to be taken into

consideration in the selection of a standard because of

a concern about antitrust risks.”); Lemley, 90 CAL. L.

REV. at 1965 (“[S]ome SSOs expressly forbid

discussion of [the terms on which licenses must be

granted beyond the vague requirement that they be

reasonable] when a standard is under consideration,

presumably for fear of antitrust liability.”); see also

Besen Submission at 2 n.2.

110

 Cf. Patterson, 17 BERKELEY TECH. L.J. at 1056

(“Antitrust law can and should distinguish . . .

between collective action that facilitates negotiation in

the patent-standard context and anticompetitive

collusion among potential licensees.”).
54 PROMOTING INNOVATION AND COMPETITION

on RAND terms. Because of the strong

potential for procompetitive benefits, the

Agencies will evaluate joint ex ante

activity to establish licensing terms under

the rule of reason. The Agencies’ general

approach to these issues is outlined

below.

First, an IP holder’s voluntary and

unilateral disclosureofits licensing terms,

including its royalty rate, is not a

collective act subject to review under

section 1 of the Sherman Act. Further, a

unilateral announcement of a price before

“selling” the technology to the standardsetting body (without more) cannot be

exclusionary conduct and therefore

cannot violate section 2.111 

Second, bilateral ex ante

negotiations about licensing terms that

take place between an individual SSO

member and an individual intellectual

property holder (without more) outside

the auspices of the SSO also are unlikely

to require any special antitrust scrutiny

because IP rights holders are merely

negotiating terms with individual

buyers.112

Third, per se condemnation is not

warranted for joint SSO activities that

mitigate hold up and that take place

before deciding which technology to

include in a standard.113 Rather, the

Agencies will apply the rule of reason

when evaluating joint activities that

mitigate hold up by allowing the

“buyers” (members of the SSO who are

potential licensees of the standard) to

negotiate licensing terms with the

“sellers” (the rival IP holders) before

competition among the technologies ends

and potentially confers market power (or

additional market power) on the holderof

the chosen technology. Such joint

activities could take various forms,

including joint ex ante licensing

negotiations or an SSO rule that requires

intellectual property holders to announce

their intended (or maximum)114 licensing

terms for technologies being considered

for adoption in a standard. The

Department recently analyzed an SSO’s

proposal to require member firms to

disclose their intended most restrictive

licensing terms for patents essential to a

standard. Pursuant to the rule of reason,

the Department concluded that it would

not take enforcement action if the policy

were adopted because the policy 111 Michael A. Carrier, Why Antitrust Should Defer to

the Intellectual Property Rules of Standard-Setting

Organizations: A Commentary on Teece & Sherry, 87

MINN. L. REV. 2019, 2036-37 (2003) (stating that

announcing licensing terms before a standard is

adopted is not an antitrust violation); cf. Marasco

Submission at 11 (“Certainly nothing in the ANSI

Policy prohibits a patent holder from voluntarily

disclosing its proposed licensing terms and

conditions.”).

112 Bilateral negotiations between individual SSO

members and individual patent holders already take

place on occasion. Apr. 18 Tr. at 194-95 (Holleman);

Holleman Submission II at 4 (“[O]utside of the

activities of the SDO, individual standards

participants are able to approach the patent holder to

inquire [about] available licensing terms.”).

113

 See Majoras, Recognizing the Procompetitive

Potential of Royalty Discussions in Standard Setting

at 7; R. Hewitt Pate, Assistant Attorney Gen., U.S.

Dep’t of Justice, Competition and Intellectual

Property in the U.S.: Licensing Freedom and the

Limits of Antitrust, Remarks at the 2005 EU

Competition Workshop 9-10 (June 3, 2005), available at

http://www.usdoj.gov/atr/public/speeches/209359

.pdf.

114 A patent holder may wish to announce a

maximum royalty rate, rather than a single rate

applicable to all licensees if it anticipates that

licensing arrangements with some SSO members

might involve cross licensing, which could lower the

royalty rate appropriate for particular SSO members. 
Collaborative Standard Setting and Patents 55

preserved competition between

technologies during the standard-setting

process.115

If intellectual property holders

turn joint ex ante licensing discussions

into a sham to cover up naked

agreements on the licensing terms each IP

holder will offer the SSO, per se

condemnation of such agreements among

“sellers” of IP rights may be warranted.

Similarly, ex ante discussion of licensing

terms within the standard-setting process

may provide an opportunity for SSO

members to reach side price-fixing

agreements that are per se illegal. The

Agencies will almost certainly treat as per

se illegal any effort by manufacturing

rivals to fix the price of the standardized

products they “sell” instead of discussing

the price of the terms on which they will

“buy” a technology input that is needed

to comply with the standard. However,

such risks are not sufficient to condemn

all multilateral ex ante licensing

negotiations, particularly given the fact

that “[t]hose developing standards

already have extensive experience

managing this risk.”116

The Agencies do not suggest that

SSOs are required to sponsor such

discussions during the standard-setting

process. Concerns about legitimate

licensing discussions spilling over into

dangerous antitrust territory may

dissuade some groups from conducting

them in the first place. Moreover, it is

fully within the legitimate purview of

each SSO and its members to conclude

that ex ante licensing discussions are

unproductive or too time consuming or

costly.117 An SSO may also fear that

requiring ex ante commitments to

licensing terms would deter some IP

holders from participating in the

standard-setting process, depriving the

standard-setting process of the expertise

of those IP holders. 

The Agencies take no position as to

whether SSOs should engage in joint ex

ante discussion of licensing terms but

recognize that joint ex ante activity to

establish licensing terms as part of the

standard-setting process will not warrant

per se condemnation. Such activity might

mitigate the potential for IP holders to

hold up those seeking to use a standard

by demanding licensing terms greater

than they would have received before

their proprietary technology was

included in the standard. Given the

strong potential for procompetitive

115 Letter from Thomas O. Barnett, Assistant Attorney

Gen., U.S. Dep’t of Justice, to Robert A. Skitol, Esq.,

Drinker Biddle & Reath LLP (Oct. 30, 2006), available

at http://www.usdoj.gov/atr/public/busreview/

219380.pdf.

116 Peterson Submission II at 7; see also Vogel v. Am.

Soc’y of Appraisers, 744 F.2d 598, 603 (7th Cir. 1984)

(“[T]he danger that abolishing an anticompetitive fee

system will lead to adoption of an equally or more

anticompetitive one in its place is . . . too speculative

to bring the per se rule into play.”). See generally U.S.

DEP’T OF JUSTICE & FEDERAL TRADE COMM’N,

STATEMENTS OF ANTITRUST ENFORCEMENT POLICY IN

HEALTH CARE (1996), reprinted in 4 Trade Reg. Rep.

(CCH) ¶ 13,153, at 20,812-14, 20,813 n.20 (clarifying

that certain joint purchasing agreements do not raise

antitrust concerns, but that attendant anticompetitive

activities remain unlawful), available at

http://www.usdoj.gov/atr/public/guidelines/1791.

pdf.

117

 See, e.g., IEEE Submission at 5 (“The standardsetting process is designed to develop the best

technical standard, as independent of marketing and

intellectual property rights issues as possible.”);

Holleman Submission II at 4-5 (“Discussions [within

SSOs about which technology to support] should be

focused on technical issues – not licensing terms and

conditions.”). 
56 PROMOTING INNOVATION AND COMPETITION

benefits, the Agencies will evaluate joint

ex ante negotiation of licensing terms

pursuant to the rule of reason.
57

CHAPTER 3

ANTITRUST ANALYSIS OF

PORTFOLIO CROSS-LICENSING AGREEMENTS 

AND PATENT POOLS

I. INTRODUCTION

In many industries, the patent

rights necessary to commercialize a

product are frequently controlled by

multiple rights holders. This

fragmentation of rights can increase the

costs of bringing products to market due

to the transaction costs of negotiating

multiple licenses and greater cumulative

royalty payments. Portfolio cross licenses

and patent pools can help solve the

problems created by these overlapping

patent rights, or patent thicket, by

reducing transaction costs for licensees

while preserving the financial incentives

for inventors to commercialize their

existing innovations and undertake new,

potentially patentable research and

development (“R&D”).1

 A portfolio cross license, under

which two firms license large blocks of

their respective patents to one another,

can provide a partial solution to the

problem of patent thickets because it

removes the need for patent-by-patent

licensing. This bilateral licensing

solution, however, is not likely to be

much help when a firm requires licenses

to a small number of patents held by each

of many firms. In such cases, patentpooling agreements may create

substantial transaction efficiencies by

enabling multiple patent holders to pool

their patented technologies and, through

a joint entity, license them as a group to

each other and to third parties. As a

result, patent pools may reduce the

transaction costs of multiple licensing

negotiations and may mitigate royalty

stacking and hold up problems that can

occur when multiple patent holders

individually demand royalties from a

licensee.2

1

 Carl Shapiro, Navigating the Patent Thicket: Cross

Licenses, Patent Pools, and Standard Setting, in 1

INNOVATION POLICY AND THE ECONOMY 119, 120

(Adam B. Jaffe et al. eds., 2000) [hereinafter Shapiro,

Navigating the Patent Thicket]; see also discussion infra

Part II.A, II.B. See generally FEDERAL TRADE COMM’N,

TO PROMOTE INNOVATION: THE PROPER BALANCE OF

COMPETITION AND PATENT LAW AND POLICY ch. 3

(2003) (discussing circumstances under which patent

thickets arise in various industries), available at

http://www.ftc.gov/os/2003/10/innovationrpt.pdf

[hereinafter FTC INNOVATION REPORT].

2

 U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N,

ANTITRUST GUIDELINES FOR THE LICENSING OF

INTELLECTUAL PROPERTY § 5.5 (1995), reprinted in 4

Trade Reg. Rep. (CCH) ¶ 13,132, available at
58 PROMOTING INNOVATION AND COMPETITION

Although both cross-licensing and

patent-pooling agreements have the

potential to generate significant

efficiencies, they also may generate

anticompetitive effect s if the

arrangements result in price fixing,

coordinated output restrictions among

competitors, orforeclosure ofinnovation.3

Pooling agreements typically warrant

greater antitrust scrutiny than do crosslicensing agreements due to the collective

pricing of pooled patents, greater

possibilities for collusion, and generally

larger number of market participants. 

The Agencies dedicated several

sessions of the Hearings to the subject of

cross-licensing and patent-pooling

agreements. Participants discussed a

number of topics, including the

similarities and differences between

pooling and cross-licensing agreements,

the potential procompetitive benefits and

anticompetitive effects of pools and cross

licenses, and the safeguards that have

been proposed to help ensure that patent

pools do not harm competition.4 

http://www.usdoj.gov/atr/public/guidelines/0558.

pdf [hereinafter ANTITRUST-IP GUIDELINES]; Robert P.

Merges, Institutions for Intellectual Property

Transactions: The Case of Patent Pools, in EXPANDING

THE BOUNDARIES OF INTELLECTUAL PROPERTY:

INNOVATION POLICY FOR THE KNOWLEDGE SOCIETY 123,

129-30, 132, 144 (Rochelle Cooper Dreyfuss et al. eds.,

2000), available at http://www.law.berkeley.edu/

institutes/bclt/pubs/merges/pools.pdf at 10-11, 14,

26 [hereinafter Merges, The Case of Patent Pools]. A

manufacturer may be required to pay royalties for

each patent his product, production process, or

development process infringes. When these

individually priced licensing fees are stacked together

they can represent a significant cost of production. 

See discussion of royalty stacking infra Part II.A; see

also discussion of hold up infra Part III.A.

3

 ANTITRUST-IP GUIDELINES § 5.5.

4

 Panelists addressing this topic at the April 17, 2002

Hearing included: Garrard R. Beeney, Partner,

Sullivan & Cromwell; Jeffery Fromm, Senior

Managing Counsel, Hewlett-Packard Company;

Baryn S. Futa, Manager and Chief Executive Officer,

MPEG LA, LLC; Peter Grindley, Senior Managing

Economist, LECG, Ltd., London; Christopher J. Kelly,

Special Counsel, Litigation Department, Kaye Scholer

LLP; James J. Kulbaski, Partner, Oblon, Spivak,

McClelland, Maier & Newstadt, PC; Josh Lerner,

Jacob H. Schiff Professor of Investment Banking,

Harvard Business School; David McGowan, Associate

Professor of Law, University of Minnesota Law

School; M. Howard Morse, Partner, Drinker, Biddle &

Reath, LLP; Joshua A. Newberg, Assistant Professor,

Robert H. Smith School of Business, University of

Maryland; Jonathan D. Putnam, Assistant Professor

of the Law and Economics of Intellectual Property,

University of Toronto School of Law; Lawrence M.

Sung, Assistant Professor, University of Maryland

School of Law, Baltimore. This panel was moderated

by Frances Marshall, Special Counsel for Intellectual

Property, Antitrust Division, U.S. Department of

Justice; Mary Sullivan, then-Assistant Chief, Antitrust

Division, U.S. Department of Justice; William Cohen,

then-Assistant General Counsel, Policy Studies,

Federal Trade Commission; and Raymond T. Chen,

Assistant Solicitor, U.S. Patent and Trademark Office. 

Apr. 17, 2002 Hr’g Tr., Patent Pools and CrossLicensing: When Do They Promote or Harm

Competition?, http://www.ftc.gov/opp/intellect/

020417trans.pdf [hereinafter Apr. 17 Tr.].

Portfolio cross-licensing agreements were

also discussed at the afternoon session of the

November 6, 2002 Hearing. The panelists included:

Michelle Burtis, Director, LECG, LLC; Joseph Farrell,

Professor of Economics and Chair of the Competition

Policy Center, University of California, Berkeley;

Jeffrey Fromm, Former Senior Managing Counsel,

Hewlett-Packard Company; Michael McFalls, Partner,

Jones Day, Reavis & Pogue; Barbara M. McGarey,

Chief Counsel, National Institutes of Health; Janusz

A. Ordover, Professor of Economics, New York

University; Charles F. (Rick) Rule, Partner, Fried,

Frank, Harris, Shriver & Jacobson; Carl Shapiro,

Transamerica Professor of Business Strategy, Haas

School of Business, Director and Professor of

Economics, Institute of Business and Economic

Research, University of California, Berkeley. This

panel was moderated by David Scheffman, thenDirector, Bureau of Economics, Federal Trade

Commission; Gail Levine, then-Assistant General

Counsel, Policy Studies, Federal Trade Commission;

Sarah Mathias, then-Attorney, Policy Studies, Office
Cross Licensing and Patent Pools 59

The Agencies continue to develop

scholarship and guidance on patent pools

and similar licensing agreements. As part

of this process, the Hearing participants

and the Agencies identified a number of

key concerns and best practices that may

be of benefit to patent licensors and

licensees contemplating entering into

cross-licensing and pooling agreements.

II. PORTFOLIO CROSS LICENSES

Portfolio cross licenses are

commonly bilateral agreements between

two parties seeking to avoid infringement

litigation.5 They are licenses to broad

portfoliosoftechnology, generally related

to a particular field of use.6 Some

panelists noted that cross licenses usually

grant the licensee the right to use the

patented technology only in a limited

field and for a fixed period of time. Cross

licenses often cover both existing patents

as well as those issued during the period

of the agreement. Panelists further

suggested that most cross licenses require

royalty payments and are granted on a

non-exclusive basis so that the parties

retain the right to license their patents to

others.7

A. Efficiencies 

Portfolio cross licenses may be

especially useful in industries, such as the

semiconductor and computer industries,

that are characterized by largenumbers of

overlapping patent rights.8 The most

of the General Counsel, Federal Trade Commission;

and Frances Marshall, Special Counsel for Intellectual

Property, Antitrust Division, U.S. Department of

Justice. Nov. 6, 2002 Hr’g Tr., Relationships Among

Competitors and Incentives to Compete: CrossLicensing of Patent Portfolios, Grantbacks, ReachThrough Royalties, and Non-Assertion Clauses

(Afternoon Session), http://www.ftc.gov/opp/

intellect/021106ftctrans.pdf [hereinafter Nov. 6 Tr.].

5

 ANTITRUST-IP GUIDELINES § 5.5; see also Feb. 27, 2002

Hr’g Tr., Business Perspectives on Patents: Software

and the Internet (Morning Session) at 356 (Friedman)

(“[In the software industry t]he maintenance of a

patent portfolio serves mainly as a means of keeping

detente or for cross-licensing opportunities.”),

http://www.ftc.gov/ opp/intellect/020227trans.pdf

[hereinafter Feb. 27 Tr.]; Feb. 28, 2002 Hr’g Tr.,

Business Perspectives on Patents: Hardware and

Semiconductors (Afternoon Session) at 662 (Hall)

(stating that software industry participants “pile up a

lot of patents because the other guy has a lot of

patents” and can engage in cross-licensing

negotiations if threatened), http://www.ftc.gov/

opp/intellect/020228ftc.pdf [hereinafter Feb. 28 Tr.].

6

 Peter C. Grindley & David J. Teece, Managing

Intellectual Capital: Licensing and Cross-Licensing in

Semiconductors and Electronics, CAL. MGMT. REV.,

Winter 1997, at 8, 9 [hereinafter Grindley & Teece,

Cross-Licensing in Semiconductors].

7

 Peter Grindley, IP, Cross-Licensing and Patent Pools: 

Similarities and Contrasts (Apr. 17, 2002 Hr’g R.)

(slides) at 6, http://www.ftc.gov/opp/intellect/

020417petergrindley.pdf [hereinafter Grindley

Presentation]; see also Nov. 6 Tr. at 109 (Fromm);

Grindley & Teece, Cross-Licensing in Semiconductors at

17.

8

 Nov. 6 Tr. at 97-98 (Shapiro); id. at 99-100 (Fromm). 

Panelists did not specifically discuss portfolio cross

licensing as a practice in the pharmaceutical or

biotechnology industries. Feb. 26, 2002 Hr’g Tr.,

Business Perspectives on Patents: Biotech and

Pharmaceuticals (Afternoon Session) at 314-15

(Blackburn), http://www.ftc.gov/opp/intellect/

020226trans.pdf [hereinafter Feb. 26 Tr.]. But see

Lawrence M. Sung, Greater Predictability May Result in

Patent Pools (Apr. 17, 2002 Hr’g R.) (discussing

concerns with the proliferation and seemingly broad

scope of some biotechnology patents and the benefits

of patent pooling and other cooperative licensing

arrangements for biotechnology research and

development (“R&D”)), http://www.ftc.gov/opp/

intellect/020417lawrencemsung1.pdf [hereinafter

Sung Submission]. Others cautioned that a

“proliferation of gene patents, including multiple

patents on various research tools” may eventually

create a patent thicket in biotechnology as well. 

ORGANISATION FOR ECON. CO-OPERATION & DEV.,

GENETIC INVENTIONS, INTELLECTUAL PROPERTY RIGHTS

AND LICENSING PRACTICES: EVIDENCE AND POLICES 15

(2002). More recent papers and presentations also

suggest that patent licensing issues may become more
60 PROMOTING INNOVATION AND COMPETITION

significant potential benefit of portfolio

cross licensing is that it allows firms

operating within a patent thicket9 to use

each other’s patented technology without

the risk of litigation, including the risk of

facing an injunction that shuts down

production.10 Panelists suggested that

this elimination of risk, or “patent peace,”

can give firms the design freedom they

need to improve current products or

design new products without fear of

infringement.11 Some commentators

agreed that portfolio cross licensing may

encourage long-term investments in both

manufacturingcapacityand R&D because

the parties to the portfolio cross license do

not fear “unforeseen, and unforeseeable,

infringement actions.”12 Portfolio cross

complex and difficult in the biotechnology industry

in the future. See, e.g., COMM. ON INTELLECTUAL PROP.

RIGHTS IN GENOMIC & PROTEIN RESEARCH &

INNOVATION, NAT’L ACADS., REAPING THE BENEFITS OF

GENOMIC AND PROTEOMIC RESEARCH: INTELLECTUAL

PROPERTY RIGHTS, INNOVATION, AND PUBLIC HEALTH

2-3 (Stephen A. Merrill & Anne-Marie Mazza eds.,

2006) (“[Although IP does not appear to be

hampering current research to any great degree,] the

patent landscape, which already is becoming

complicated in areas such as gene expression and

protein-protein interactions, could become

considerably more complex and burdensome over

time.”); James Simon, Dealing with Patent

Fragmentation: The SARS Patent Pool as a Model (May

27, 2005), http://www.law.kuleuven.be/cir/27-05-

05%20studiedag%20presentaties/SARS%20patent%2

0pool-JSimon.pdf [hereinafter Simon Presentation

Slides]. 

9

 See Feb. 28 Tr. at 667-68 (Detkin) (“[In the

semiconductor industry,] people are tripping over

each other’s patents right and left.”); id. at 684

(Poppen) (“[T]hese [semiconductors] are very

complex products; hundreds, thousands of patents

cover a single product.”); id. at 676-77 (Barr) (“[T]he

proliferation, sheer number of issued patents in our

fields [i.e., the semiconductor and computer

industries] makes it virtually impossible to search all

potentially relevant patents . . . .”); Nov. 6 Tr. at 100

(Fromm) (“In any group of five or 10,000 patents, I’m

reasonably certain that I can find [a patent of mine

infringing] somebody else’s product and vice

versa.”). 

10 Nov. 6 Tr. at 102 (Fromm) (“[T]he objective during

that four-year period was to prevent any continuing

litigation over the patent portfolios during that period

so people would be able to design products and ship

them without the threat of injunctions . . . .”); see also

id. at 98, 111 (Shapiro); COMM. ON INTELLECTUAL

PROP. RIGHTS IN THE KNOWLEDGE-BASED ECON., NAT’L

ACADS., A PATENT SYSTEM FOR THE 21ST CENTURY 37

(Stephen A. Merrill et al. eds., 2004) (“[T]he

avoidance of litigation is important, since litigation

can be especially damaging in an industry where a

new product can provoke multiple infringement suits

and the capital investment required to produce it is

very large.”). In May 2006, the U.S. Supreme Court

held that a categorical grant (or denial) of an

injunction in a patent case was not an appropriate

application of the traditional rules of equity, which

govern patent cases as well as other federal cases

involving injunctions. eBay Inc. v. MercExchange,

L.L.C., 126 S. Ct. 1837 (2006).

11 Nov. 6 Tr. at 111 (Shapiro) (“[M]ultiple companies

who are engaging in these cross-licenses have the

design freedom and the freedom from paying

royalties and therefore, can make better, cheaper

products.”); see also id. at 104-05 (Ordover) (“[I]f you

want to stimulate current product competition then

cross-licensing is an obviously very effective way to

minimize some of the dangers for firms making sunk

investments.”). Consider, for example, AT&T’s

liberal licensing and portfolio cross-licensing policy,

which, according to some, “promote[d] new services

and reduce[d] costs,” making AT&T one of the first

companies to have “‘design freedom’ as a core

component of its patent strategy.” Grindley & Teece,

Cross-Licensing in Semiconductors at 12 (noting this

policy was in place at the time AT&T entered its 1956

consent decree). Grindley and Teece believe that

AT&T created the policy in part because it “figured

that its service customers would be better off if its

technologies were widely diffused amongst its actual

and potential suppliers, as this would lower prices

and increase the performance of procured

components.” Id.

12 DAVID J. TEECE, MANAGING INTELLECTUAL CAPITAL:

ORGANIZATIONAL, STRATEGIC, AND POLICY

DIMENSIONS 139 (2002); see also Apr. 17 Tr. at 228-29

(Grindley) (noting that broad cross licenses reduce

uncertainty over future infringement litigation). The

need for patents to cross license also may foster

future innovation by encouraging small companies to

engage in research and development to obtain their

own patents. Nov. 6 Tr. at 108-09 (Fromm). But cf.

Nov. 6 Tr. at 104-07 (Ordover) (noting that although

broad cross licenses encourage sunk investment from
Cross Licensing and Patent Pools 61

licenses also can reduce transaction costs

to licensors by allowing firms to license

multiple patents at once.13

A portfolio cross-licensing

arrangement among multiple patent

holders may also mitigate the problem of

stacking royalties.14 Royalty stacking

occurs when access to multiple patents is

required to produce an end product,

forcing the manufacturer’s products “to

bear multiple patent burdens,” usually in

the form of multiple licensing fees.

15

Royalty stacking can make production

unprofitable and retard innovation. But

when a rights holder enters into a

portfolio cross-licensing arrangement, it

may acquire access to all the blocking

technologies required for production at a

lower royalty rate than if each input were

independently priced.16 As one

economist has stated, a portfolio license

can alleviate the “drag on innovation and

commercialization of new technologies”

that royalty stacking creates.17

One panelist questioned whether

patent thickets are much of a problem and

suggested that, if a patent holder will not

license a patent or tries to extract a

royalty that is too high, other firms may

respond by designing around the

technology covered by the patent.18 He

argued that when firms design around

each other’s intellectual property rights,

they avoid royalties, and may be able to

offer newer, less expensive products to

consumers.19 Others were skeptical that

design-around attempts would be

successful.20

B. Competitive Concerns

Portfolio cross licenses with

provisions that may facilitate the

incumbents, they could discourage R&D by entrants

who lack portfolios of patents to license). 

13

 Grindley Presentation at 10; see also Feb. 26 Tr. at

208-09 (Teece) (“[W]hen you have a portfolio . . . you

don’t necessarily know which patents read on which

products, and that if in fact you force unbundling of a

portfolio . . . you require the owner of the intellectual

property to incur a tremendous amount of transaction

costs.”); Grindley & Teece, Cross-Licensing in

Semiconductors at 9 (“It is simply too cumbersome and

costly to license only the specific patents you need for

specific products. The portfolio approach reduces

transaction costs and allows licensees freedom to

design and manufacture without infringement.”). But

see Grindley Presentation at 9 (noting that negotiating

a portfolio cross license is intense, with negotiations

typically lasting eighteen to twenty-four months).

14 Shapiro, Navigating the Patent Thicket at 123-24.

15

 Id. at 124.

16

 Id. at 123-24.

17

 Id. at 124. Royalty-free portfolio cross licenses can

reduce production costs, which may allow licensees

to offer lower prices to consumers because they do

not have to account for per-unit royalties in the final

price of the product. See Nov. 6 Tr. at 98 (Shapiro). 

Typically, however, these cross-licensing agreements

are not royalty-free. See Grindley Presentation at 6. 

The returns on a portfolio cross license vary. Returns

can be based on fixed fees or running royalties. In the

former case, there may be “balancing payments at the

outset to reflect differences in the strength of the two

companies’ patent portfolios.” Shapiro, Navigating the

Patent Thicket at 130; see also Nov. 6 Tr. at 102

(Fromm); Grindley Presentation at 9.

18 Feb. 28 Tr. at 758-60 (Telecky). 

19 Fredrick J. Telecky, Jr., Statement (Feb. 28, 2002

Hr’g R.) at 3 (stating that a product created by designaround activity may cost the manufacturer less

because the payment of royalties is avoided),

http://www.ftc.gov/opp/intellect/020228telecky.

pdf [hereinafter Telecky Submission]. 

20

 E.g., Feb. 28 Tr. at 676 (Barr) (“[D]esign-around is

very expensive . . . [and] is worse in industries where

a large number of patents have potentially read on a

given product because the likelihood of stepping on a

landmine is so great.”).
62 PROMOTING INNOVATION AND COMPETITION

coordination of other activity—such as

the setting of prices, dividing markets, or

licensing to third parties—can raise

antitrust concerns.21 Some panelists

suggested that a portfolio cross-licensing

regime can pose a barrier to entry if

existing relationships make it harder for

“new firms to come in and overcome the

patentthicket.”22 Other panelists doubted

t ha t portfoli o cross-licensing

arrangements create barriers to entry

because, they said, companies engaged in

portfolio cross licensing are generally

willing to license their portfolios to all

interested parties.23 Panelists also found

that new firms entering the market

frequently develop their own patents

with their own R&D.24

C. Analysis

The Agencies continue to

recognize that most of the nonexclusive

cross-licensing agreements of the type

discussed herein generally do not raise

competition concerns. When the licensing

of intellectual property allows firms to

combine complementary factors of

production, such licensing can be

procompetitive.25 Accordingly, crosslicensing (and pooling) arrangements

typically are analyzed pursuant to the

rule of reason.26 Indeed, the case law

generally establishes that both crosslicensing and patent-pooling agreements

should be so analyzed because, although

21

 See, e.g., Nov. 6 Tr. at 116-17 (Rule) (noting that

patent-pooling and cross-licensing arrangements

could serve as a mechanism for coordinating other

activity, such as prices); John H. Barton, Patents and

Antitrust: A Rethinking in Light of Patent Breadth and

Sequential Innovation, 65 ANTITRUST L.J. 449, 464 (1997)

(“[Portfolio cross licenses can be anticompetitive if the

cross-licensing system amounts] to the creation of a

common front in which, in a form of oligopolistic

parallelism, members hesitate to license their own

patents to outsiders, thus protecting the group’s

position even at the expense of the individual firm’s

short-term interest.”); see also ANTITRUST-IP

GUIDELINES § 5.5 (“When cross-licensing or pooling

arrangements are mechanisms to accomplish naked

price fixing or market division, they are subject to

challenge under the per se rule.”).

22 Nov. 6 Tr. at 105 (Ordover). Claims of such an

arrangement arose in the late 1980s when Allied

Signal alleged that Japanese firms had copied certain

Allied technology (while Allied was waiting for

Japanese patents on that technology) and then formed

a licensing cartel to exclude Allied from exploiting its

own technology in Japan. See Janusz A. Ordover, A

Patent System for Both Diffusion and Exclusion, J. ECON.

PERSP., Winter 1991, at 43, 47 n.4; see also A PATENT

SYSTEM FOR THE 21ST CENTURY at 37-38 (“In

semiconductors, for example, the need to have

substantial patent assets to trade in order to

participate in the pervasive cross-licensing of

portfolios probably acts as a barrier to new entrants,

although the enormous capital required to establish

semiconductor manufacturing capacity is an even

more substantial barrier.”).

23

 See Jeffery Fromm, Statement (Apr. 17, 2002 Hr’g R.)

at 8, http://www.ftc.gov/opp/intellect/

020417jefferyfromm.pdf (stating that such agreements

are pervasive in the high technology sector)

[hereinafter Fromm Submission]; Telecky Submission

at 3.

24

 Nov. 6 Tr. at 108-09 (Fromm) (“[Smaller

companies] take one hit for $10 million and then they

very quickly start finding their own patents on their

own R&D.”); see also id. at 111-12 (Shapiro) (noting

that a patent thicket may give small firms with one

patent an advantage negotiating with larger

companies because the smaller firms are likely to

have less financial exposure from hold up in terms of

their revenues than the larger firms); Telecky

Submission at 3 (“After [new firms] themselves have

become technology contributors and have patents of

their own, those patents can be used as trading

material to obtain necessary patent licenses.”).

25 ANTITRUST-IP GUIDELINES § 2.3; see also Richard

Gilbert & Carl Shapiro, Antitrust Issues in the Licensing

of Intellectual Property: The Nine No-No’s Meet the

Nineties, 1997 BROOKINGS PAPERS ON ECON. ACTIVITY,

MICROECONOMICS 283, 325-26 (stating that assembling

complementary patents enhances their usage, which

in turn causes efficiency gains).

26 ANTITRUST-IP GUIDELINES §§ 3.4, 5.5. 
Cross Licensing and Patent Pools 63

they have the potential to diminish

competition in some circumstances,27 they

also can be procompetitive mechanisms

for using technologies that require access

to a large number of patents.28 The

Agencies’ general approach in analyzing

a licensing restraint pursuant to the rule

of reason is to inquire whether the

restraint “harms competition among

entities that would have been actual or

likely potential competitors” in the

absence of the license and whether the

restraint is reasonably necessary to

achieve procompetitive benefits that

outweigh those anticompetitive effects.29

“The Agencies apply the same

general antitrust principles to conduct

involving intellectual property that they

apply to conduct involving any other

form of tangible or intangible property.”30

In evaluating cross-licensing agreements,

patent pools, or any other IP-related

conduct, the Agencies do not presume

that market power is necessarily

associated with an intellectual property

right.31 The Agencies also do not presume

market power derives from a crosslicensing agreement (or patent pool)

because there may be viable alternatives

to participation in the licensing

agreement that would preclude the

assertion of market power. The Agencies

believe that antitrust concerns about

exclusion from portfolio cross licenses are

unlikely unless the parties to the portfolio

cross licenses collectively possess market

power.32

Of course, agreements that are

determined to be mechanisms to

accomplish naked price fixing or market

divisionare subject to challenge under the

per se rule.33 The Agencies would be

concerned, therefore, if a cross-licensing

relationship were a method for collusion

on price or output by downstream

producers.34 

27

 See supra Part II.B; infra Part III.B, D (discussing

anticompetitive concerns that could arise with both

patent pools and cross-licensing arrangements);

Steven C. Carlson, Patent Pools and the Antitrust

Dilemma, 16 YALE J. ON REG. 359, 376-78, 383-84 (1999);

Apr. 17 Tr. at 107-15 (Newberg). See generally M.

Howard Morse, Cross-Licensing and Patent Pools (Apr.

17, 2002 Hr’g R.) at 4-6, http://www.ftc.gov/

opp/intellect/020417mhowardmorse.pdf [hereinafter

Morse Submission]; Richard J. Gilbert, Antitrust for

Patent Pools: A Century of Policy Evolution, 2004 STAN.

TECH. L. REV. 3, ¶¶ 6-87 (2004),

http://stlr.stanford.edu/STLR/Articles/04_STLR_3/

index.htm (follow “Acrobat/PDF” hyperlink); Joshua

A. Newberg, Antitrust, Patent Pools and the

Management of Uncertainty, 3 ATLANTIC L.J. 1, 6-21

(2000), available at http://www.ftc.gov/opp/

intellect/020417joshuanewberg.pdf. 

28

 See supra notes 8-13 and accompanying text.

29 ANTITRUST-IP GUIDELINES § 3.1; see also id. at §§ 3.3,

3.4, 5.5.

30

 Id. § 2.1 (explaining that the flexibility of general

antitrust principles allows the Agencies to take into

account differences between intellectual property and

other forms of property).

31

 Id. § 2.2 (“Although the intellectual property right

confers the power to exclude with respect to the

specific product, process, or work in question, there

will often be sufficient actual or potential close

substitutes for such product, process, or work to

prevent the exercise of market power.”). The U.S.

Supreme Court recently adopted this view in the

tying context as well. Ill. Tool Works Inc. v. Indep. Ink,

Inc., 126 S. Ct. 1281, 1293 (2006). See also supra

Chapter 1, The Strategic Use of Licensing: Unilateral

Refusals to License Patents Part II.B; infra Chapter 5,

Antitrust Issues in the Tying and Bundling of Intellectual

Property Rights Part III.B 

32

 See ANTITRUST-IP GUIDELINES § 5.5 (“[E]xclusion

from cross-licensing and pooling arrangements

among parties that collectively possess market power

may, under some circumstances, harm competition.”).

33

 Id. § 3.4.

34 Such a concern could arise, for example, if

competitors in a market entered into a sham cross-
64 PROMOTING INNOVATION AND COMPETITION

The Antitrust-IP Guidelines

provide a safe harbor if the parties to a

cross license “collectively account for no

more than twenty percent of each

relevant market significantly affected by

the restraint,” and the restraint is not

“facially anticompetitive.”35 TheAgencies

recognize that, if a cross-licensing

agreement were to affect a technology

market, market share data may be

unavailable or may not accurately

represent the parties’ competitive

significance in the marketplace. In such

cases, the Agencies would consider

whether “there are four or more

independently controlled technologies in

addition to the technologies controlled by

the parties to the licensing arrangement

that may be substitutable for the licensed

technology at a comparable cost to the

user.”36

III. PATENT POOLS 

A. Efficiencies 

 Patent pools generally are created

when a group of patent holders each

decides to license its respective patents to

each other and to third parties

collectively. They often are formed when

multiple patented technologies are

needed to produce a standardized

product.37 One panelist noted that patentpooling agreements usually last for the

life cycle of the technology or standard

rather than for a fixed period of time.38

Patent pools also help to mitigate the

“hold up” and “hold out” problems that

can sometimes stymie industry efforts to

make a product that conforms to an

industry standard. According to some

commentators, hold up can arise when

firms make relationship-specific

investments, after which they may face

efforts by others to recontract for more of

the surplus. The problem derives from

the inability of parties to enter into

complete (and costlessly enforced)

contracts.39 Others explained that hold

out can arise when buyers need multiple

complementary rights, and sellers arrive

in a sequenced fashion. In such a

situation, players may strategically delay

the start of a negotiation so as to garner

the greatest surplus by becoming the last

licensing arrangement in which each participant

agreed to pay every other participant a large per unit

licensing fee. Such an arrangement would impose a

high effective marginal cost on each competitor which

would help facilitate a tacit agreement to limit output

and raise prices. Michael L. Katz & Carl Shapiro, On

the Licensing of Innovations, 16 RAND J. ECON. 504, 512-

13 (1985).

35 ANTITRUST-IP GUIDELINES § 4.3. 

36

 Id.

37 Grindley Presentation at 10; see also James J.

Kulbaski, Comments on Patent Pools and Standards for

Federal Trade Commission Hearings Regarding

Competition & Intellectual Property (Apr. 17, 2002 Hr’g

R.) at 1 (“A patent pool is the most cost effective and

efficient way of collecting and distributing royalties

for patents that are essential to an industry

standard.”), http://www.ftc.gov/opp/intellect/

020417jamesjkulbaski.pdf [hereinafter Kulbaski

Submission]; Apr. 17 Tr. at 176-77 (Beeney) (“The

high cost of R&D and the increasing need in a global

competitive economy to reduce development costs

and reduce risks that develop initiatives that lead to

marketable products has led to at least two significant

developments: First, product standardization as

efforts are made to avoid format wars . . . ; second,

joint development of single products as multiple

industry participants attempt to share the risk and

costs of new product development.”); id. at 50

(Lerner) (“[F]acilitating the standard setting process

seems to be an important motivation . . . .”).

38 Grindley Presentation at 13.

39

 See OLIVER E. WILLIAMSON, THE ECONOMIC

INSTITUTIONS OF CAPITALISM: FIRMS, MARKETS,

RELATIONAL CONTRACTING 20-21, 388 (1985). 
Cross Licensing and Patent Pools 65

bidding seller.40 As a result, the total

burden of all royalty payments may be

higher than if a single royalty is

demanded by a monopolist of all patents

essential to the production of a final

product.41

 Panelists andcommentators noted

that patent pools can reduce transaction

costs for licensees in several ways. For

example, obtaining a pool license may be

less costly than negotiating separate

licenses with each patent owner.42 By

licensing their pooled patents on a group

basis, patent pool members can offer

“one-stop shopping” to firms seeking to

manufacture products using those

patents. According to panelists, this

simplified approach to licensing can

enable more rapid development and

adoption of new technologies than could

be achieved with cross licensing alone.43

Some panelists and commentators

argue that pools may reduce costs by

eliminating infringement litigation44 and,

by using an independent expert to

determine which patents to include in the

pool, reassure licensees that the patents

being licensed are essential to

manufacturing products that comply with

the standard. Additionally, one

commentator suggested that pools can

institutionalize the exchange of nonpatented (or non-copyrighted) technical

information.45 For these reasons,panelists

noted that patent pools “have become

40 Robert P. Merges, Contracting into Liability Rules: 

Intellectual Property Rights and Collective Rights

Organizations, 84 CAL. L. REV. 1293, 1298 n.9 (1996)

(“A holdout is someone who refuses to agree to a

bargain for strategic reasons. For example, if a city

government needs to buy five parcels of land from

property owners A, B, C, D, and E, E might wait until

the other four (A-D) have sold their land. This puts E

in the driver’s seat in bargaining with the city: E can

now charge a very high price—in theory, up to the

total amount the city has to spend on the project,

minus what was paid to A-D—for his or her land. 

Since this price will often be more than the average

price paid to A-D, and in any event more than the

price E could have obtained if he or she were not the

last to sell, such a holdout strategy will be rational in

many cases. See generally, Guido Calabresi & A.

Douglas Melamed, Property Rules, Liability Rules, and

Inalienability: One View of the Cathedral, 85 HARV. L.

REV. 1089, 1106-07 (1972).”).

41 Shapiro, Navigating the Patent Thicket at 121, 123-24;

see also AUGUSTIN COURNOT, RESEARCHES INTO THE

MATHEMATICAL PRINCIPLES OF THE THEORY OF

WEALTH 99-104 (1929) (noting that this problem is

generally known as the “double margin problem”);

Joseph J. Spengler, Vertical Integration and Antitrust

Policy, 58 J. POL. ECON. 347, 347-52 (1950).

42 Grindley Presentation at 10; see also Feb. 28 Tr. at

733 (Barr) (stating that pools limit problems posed by

stacking royalties by consolidating administration);

JEANNE CLARK, JOE PICCOLO, BRIAN STANTON & KARIN

TYSON, U.S. PATENT & TRADEMARK OFFICE, PATENT

POOLS: A SOLUTION TO THE PROBLEM OF ACCESS IN

BIOTECHNOLOGY PATENTS? (2000) (asserting that

reducing transaction costs is particularly important

for biotechnology firms), available at

http://www.uspto.gov/web/offices/pac/dapp/opla

/patentpool.pdf [hereinafter CLARK ET AL., BIOTECH

PATENT POOLS]; Kulbaski Submission at 7 (suggesting

that the transaction costs for companies seeking to

license seventy-five patents from fourteen licensors

could rival the cost of patent litigation); Merges, The

Case of Patent Pools at 134 (article), 17 (Internet).

43 Kulbaski Submission at 6-7; Merges, The Case of

Patent Pools at 144 (article), 25 (Internet) (stating that

one stop licensing for non-member licenses is an

important pool feature); see also Baryn S. Futa,

Statement (Apr. 17, 2002 Hr’g R.) at 1 (“[A]s a

convenience to users who would like to acquire

patent rights from multiple parties in a single

transaction, MPEG LA offers a one-stop license.”),

http://www.ftc.gov/opp/intellect/020417barynfuta.

pdf [hereinafter Futa Submission].

44 Kulbaski Submission at 7; Carlson, 16 YALE J. ON

REG. at 379 (stating that patent pools arising from

litigation settlements can reduce litigation costs); see

also Merges, The Case of Patent Pools at 136-37 (article),

19 (Internet) (asserting that a chief function of the

aircraft pool was to “eliminate ruinous litigation”). 

45 Merges, The Case of Patent Pools at 139 (article), 22

(Internet).
66 PROMOTING INNOVATION AND COMPETITION

critically important mechanisms for

enabling widespread use of new

technologies.”46

B. Competitive Concerns 

The panelists generally noted that

pools composed of pure substitute

patents, (i.e., patents covering

technologies that competewitheachother

and that licensees can choose among), are

more likely to harm social welfare than

are pools of complementary patents, (i.e.,

patents covering separate aspects of a

given technology that do not compete

with each other). Pools composed only of

complementary patents tend to increase

efficiencies and lower prices to

consumers. The panelists addressed

other areas that might raise competitive

concern, including whether patents

included in the pool were essential and

valid, whether patent pool members

retained the ability to license their patents

outside of the pool, whether grantback47

requirements reduce incentives to

innovate, whether access to competitively

sensitive, proprietary business

information should be limited, whether

the Agencies should review pool royalty

rates, and whether pools that refuse to

offer licenses to subsets of the pool’s

patents cause competitive harm. The

panelists also discussed several

mechanisms that could lower the risk of

competitive concerns.48 The following

sections review the Agencies’ guidance

regarding patent pools and analyze

panelists’ comments on specific issues of

competitive concern. 

C. Existing Agency Guidance on

Patent Pools

In recent years, the Agencies have

provided substantial guidance regarding

the antitrust analysis used to evaluate the

potential harms associated with patent

pools and, to a lesser extent, crosslicensing agreements.49 As explained in

46 Feb. 28 Tr. at 700 (Fox); see also Fromm Submission

at 1; Sung Submission at 4-6 (discussing the benefits

of patent pooling for biotechnology research and

development); Futa Submission at 2.

47

 See definition of grantback infra Part III.D.3.a.

48

 See infra Part III.C.3-6. 

49 In addition, courts have reviewed antitrust claims

lodged against numerous pooling and cross-licensing

agreements over the past century. See, e.g., Broad.

Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1

(1979) (copyright pooling arrangement); United States

v. Singer Mfg. Co., 374 U.S. 174 (1963); United States v.

New Wrinkle, Inc., 342 U.S. 371 (1952); United States v.

Line Material Co., 333 U.S. 287 (1948); United States v.

U.S. Gypsum Co., 333 U.S. 364 (1948); Hartford-Empire

Co. v. United States, 323 U.S. 386 (1945); Standard Oil

Co. v. United States, 283 U.S. 163 (1931); Standard

Sanitary Mfg. Co. v. United States, 226 U.S. 20 (1912);

Bement v. Nat’l Harrow Co., 186 U.S. 70 (1902); Carpet

Seaming Tape Licensing Corp. v. Best Seam Inc., 616 F.2d

1133 (9th Cir. 1980); Kobe, Inc. v. Dempsey Pump Co.,

198 F.2d 416 (10th Cir. 1952); Baker-Cammack Hosiery

Mills, Inc. v. Davis Co., 181 F.2d 550 (4th Cir. 1950);

Cutter Labs., Inc. v. Lyophile-Cryochem Corp., 179 F.2d

80 (9th Cir. 1949); King v. Anthony Pools, Inc., 202 F.

Supp. 426 (S.D. Cal. 1962). The economic and legal

analyses articulated in these older cases are often less

sophisticated than contemporary antitrust doctrine

developed and applied by the Agencies in other

fields. For example, few earlier opinions give

significant weight to the relationships among the

patents in the pool, whereas modern economic

analysis of patent pools examines whether the patent

rights in the pool are complements or substitutes for

one another. Also the courts’ terminology is

inconsistent. Courts often have applied the term

“patent pools” to arrangements that the Agencies

would now describe as portfolio cross licenses

because these “pools” did not license to third parties. 

See, e.g., Hartford-Empire Co., 323 U.S. at 392, 413

(describing licensing agreements where defendants

created a multi-firm portfolio of patents and licensed

them only to each other, not to third parties, as a

“patent pool”); see also Line Material Co., 333 U.S. at

313 n.24 (“The words ‘patent pool’ are not words of
Cross Licensing and Patent Pools 67

the Antitrust-IP Guidelines, the Agencies

have two primary concerns when

analyzing the likely effects on

competition of a potential or actual patent

pool. First, horizontal coordination

among the pool’s licensors could lead to

a reduction in price competition among

downstream products. In particular, a

pool that includes patents for substitute

technologies could lead to increased

prices in the final goods market due to the

absence of competition among those

substitute technologies.50 In addition,

participants in the pool might be able to

use it to collude, for example, by

exchanging competitively sensitive

information, such as pricing, marketing,

or R&D information through the

mechanism of the pool. 

Second, the Agencies are

concerned that combining patent rights in

a pool could discourage R&D, new

product development, and cost-reducing

process innovations. Licensors could be

discouraged from making investments in

innovation if “a pooling arrangement . .

. requires members to grant licenses to

each other at minimal cost . . . because

members of the pool have to share their

successful research and development and

each of the members can free ride on the

accomplishments of other pool

members.”51 Licensees could be

discouraged from innovating if the

licensors do not retain the right to license

their patents independently or if licensees

are not adequately rewarded for

innovations that they grant back to the

pool.52

The Agencies have supplemented

the pooling analysis found in the

Antitrust-IP Guidelines in several

business review letters issued by the

Department of Justice53 and in the FTC’s

enforcement action against the patent

pool formed by Summit Technology, Inc.

and VISX, Inc. (“Summit-VISX”).54

art. The expression is used in this opinion to convey

the idea of a linking of the right to use patents issued

to more than one patentee.”). In recent years, only a

few courts have reviewed antitrust claims involving

portfolio cross-licensing and patent-pooling

agreements. See, e.g., Matsushita Elec. Indus. Co. v.

Cinram Int’l, Inc., 299 F. Supp. 2d 370 (D. Del. 2004)

(granting summary judgment on antitrust

counterclaims involving a six-company digital video

disc pool and holding pool participants provided

realistic opportunity for individual licensing of

patents). 

50

 See ANTITRUST-IP GUIDELINES § 5.5. The Guidelines

state that patent pools have the greatest potential to

unreasonably limit competition among entities that

would have been actual or likely potential

competitors in a relevant market in the absence of the

license. Id. §§ 3.1, 4.1, 5.1, 5.5. According to the

Antitrust-IP Guidelines, vertical license restrictions

may harm horizontal competition if they foreclose

access to, or significantly raise the price of, an

important input, or if they facilitate coordination to

increase price or reduce output among competitors. 

Id. §§ 4.1, 5.3, 5.4.

51 ANTITRUST-IP GUIDELINES § 5.5.

52

 Id. The guidelines also note, however, that such

pooling arrangements can have procompetitive

benefits, especially if they do not include a large

fraction of the potential research and development in

an innovation market. Id.

53

 See infra Part III.C.1. 

54 Decision and Order, In re Summit Tech., Inc., 127

F.T.C. 208, 217 (1999) (No. 9286), available at

http://www.ftc.gov/os/decisions/docs/Volume127.

pdf [hereinafter Summit Consent Decree]; Decision

and Order, In re VISX, Inc., 127 F.T.C. 236 (1999) (No.

9286), available at http://www.ftc.gov/os/

decisions/docs/Volume127.pdf [hereinafter VISX

Consent Decree]; Complaint, Summit, 127 F.T.C. at

208 (No. 9286) [hereinafter FTC Summit-VISX

Complaint].
68 PROMOTING INNOVATION AND COMPETITION

1. U.S. Department of Justice

Business Review Letters

The Department analyzed patent

pool proposals in three business review

letters issued in the late 1990s: the

MPEG-2 pool Business Review Letter,55

the three-member DVD pool (“3C DVD”)

Business Review Letter,56 and the sixmember DVD pool (“6C DVD”) Business

Review Letter.57 In its 2002 3G Business

Review Letter, the Department analyzed

a patent platform arrangement that

involved five separate wireless

communication technologies and shared

some characteristics of a patent-pooling

agreement.58

a. The MPEG-2 Pool 

MPEG-2 is a digital video

compression technology used in many

different products and services, including

DVDs and telecommunications, as well as

cable, satellite, and broadcast television.59

When making products that meet the

MPEG-2 standard, a company could

infringe on the patent rights of many

different rights holders. As a result, firms

interested in adopting the MPEG-2

standard hired an independent patent

expert to search for the patents that were

“essential” to its implementation.60 Nine

companies61 that held twenty-seven

essential patents among them,62 along

with one other company,63 formed MPEG

LA, which acts as the pool’s licensing

administrator.64 MPEG LA retains an

independent technical expert to

determine whether other patents are

essential to the MPEG-2 standard.65

MPEG LA assembles and offers a package

of hardware and software licenses to the

pool members’ patents that are

“essential” to comply with the MPEG-2 55 Letter from Joel I. Klein, Acting Assistant Attorney

Gen., U.S. Dep’t of Justice, to G[a]rrard R. Beeney,

Esq. (June 26, 1997), available at

http://www.usdoj.gov/atr/public/busreview/21574

2.pdf [hereinafter MPEG-2 Business Review Letter]. 

56 Letter from Joel I. Klein, Assistant Attorney Gen.,

U.S. Dep’t of Justice, to Garrard R. Beeney, Esq. (Dec.

16, 1998), available at http://www.usdoj.gov/atr/

public/busreview/2121.pdf [hereinafter 3C DVD

Business Review Letter]. The original name for this

technology was “Digital Video Disc;” however, the

word “video” was exchanged for “versatile” due to

an expansion of applications for the technology. See

DVD Forum, DVD Primer,

http://www.dvdforum.org/faq-dvdprimer.htm (last

visited Apr. 11, 2007).

57 Letter from Joel I. Klein, Assistant Attorney Gen.,

U.S. Dep’t of Justice, to Carey R. Ramos, Esq. (June 10,

1999), available at http://www.usdoj.gov/atr/public/

busreview/2485.pdf [hereinafter 6C DVD Business

Review Letter]. 

58 Letter from Charles A. James, Assistant Attorney

Gen., U.S. Dep’t of Justice, to Ky P. Ewing, Esq. (Nov.

12, 2002), available at http://www.usdoj.gov/atr/

public/ busreview/200455.pdf [hereinafter 3G

Business Review Letter].

59 MPEG-2 Business Review Letter at 2.

60

 Id. at 3-5.

61

 Id. at 1, 3 (noting that original pool members were

Trustees of Columbia University, Fujitsu Ltd.,

General Instrument Corp., Lucent Technologies Inc.,

Matsushita Electric Industrial Co., Ltd., Mitsubishi

Electric Corp., Philips Electronics N.V., ScientificAtlanta, Inc., and Sony Corp.).

62

 Id. at 3. As of April 2002, the MPEG-2 pool

included 425 patents (100 patent families) owned by

twenty-one entities. Futa Submission at 2. As of

January 10, 2006, the MPEG-2 pool had grown and

included over 800 patents. See MPEG LA, MPEG-2

Attachment 1, http://www.mpegla.com/m2/m2-

att1.pdf (last visited Apr. 11, 2007).

63 MPEG-2 Business Review Letter at 3 (Cable

Television Laboratories, Inc.).

64

 Id. at 3-4.

65

 Id. at 5; see also infra Part III.D.1 (discussing

essentiality as a method for excluding substitute

patents).
Cross Licensing and Patent Pools 69

standard, and distributes royalty income

among the contributing patent holders on

a per-patent basis.66 Pool members and

third parties can challenge the

“essentiality” of patents in the pool, i.e.,

whether access to the patents in the pool

is indeed necessary to manufacture

products in compliance with the

standard.67 The pool license agreement

also requires every licensee to grant back

licenses to the pool’s members on all

MPEG-2-related patents the licensee may

have or develop.68

b. The DVD Pools 

The Department issued two

business review letters concerningpatentpooling arrangements related to DVDVideo and DVD-ROM standards. The

Department issued the first of these, the

3C DVD Business Review Letter, on

December 16, 1998. The 3C DVD pool

was created by three firms licensing a

total of 210 patents.69 In lieu of an

independent administrator, one of the

licensors, Philips, acts as the joint licensor

on behalf of the other pool members

through bilateral agreements with the

rights holders.70 Pool members grant

licenses to essential patents (defined as

“necessary (as a practical matter) for

compliance with the DVD[-Video or

DVD-ROM] Standard Specifications”) to

the pool on a nonexclusive basis.71 The

essentiality of the patents is determined

by a patent expert retained by the

licensors.72 Royalties are distributed on a

negotiated basis that is not contingent on

the number of patents contributed to the

pool.73 

The Department issued the second

of these letters, the 6C DVD Business

Review Letter, on June 10, 1999. The 6C

DVD pool was formed by six firms.74

Toshiba acts as the joint licensor for the

pool through a multilateral agreement

with the other five firms.75 The parties

grant to the pool, on a nonexclusive basis,

licenses to essential patents (defined as

patents that are “necessarily infringed” or

for which “there is no realistic

alternative” for “implementing the DVD

Standard Specifications.”).76 Members of

this pool are obliged to offer licenses

independently of the pool.77 Whether a

patent is “essential” to the standard is

determined by an expert retained by the

66 MPEG-2 Business Review Letter at 3-4, 6.

67

 Id. at 5.

68

 Id. at 7.

69 3C DVD Business Review Letter at 1-4 (pool

formed by Koninklijke Philips Electronics, N.V., Sony

Corp. of Japan, and Pioneer Electronic Corp. of

Japan).

70

 Id. at 4-5. 

71

 Id. at 3, 4-5 (internal quotation marks omitted); see

also infra Part III.D.1 (discussing essentiality as a

method for excluding substitute patents).

72 3C DVD Business Review Letter at 3-4, 9-10.

73

 Id. at 5-6.

74 6C DVD Business Review Letter at 1 (original pool

members were Hitachi, Ltd., Matsushita Electric

Industrial Co., Mitsubishi Electric Corp., Time

Warner Inc., Toshiba Corp., and Victor Company of

Japan, Ltd.); see also Christopher J. Kelly, Patent Pools

and Antitrust Enforcement – 1997-2001 (Apr. 17, 2002

Hr’g R.) (slides) at 11, http://www.ftc.gov/opp/

intellect/020417christopherjkelly.pdf [hereinafter

Kelly Presentation].

75 6C DVD Business Review Letter at 2-3. 

76

 Id. at 3 (internal quotation marks omitted); see also

infra Part III.D.1 (discussing essentiality as a method

for excluding substitute patents).

77 6C DVD Business Review Letter at 3.
70 PROMOTING INNOVATION AND COMPETITION

pool.78 The licensing program also

provides for a quadrennial review by the

patent expert as to whether the pool’s

patents remain essential to practicing the

standard. It further provides for interim

review of individual patents if their

essentiality is questioned.79 Royalties are

allocated on a per-patent basis, with some

adjustments for the age of the patent.80

Both DVD pools require licensees

to grant back to the licensors, as well as to

the other pool licensees, licenses on any

essential DVD patents that they may own

or control during the term of the license,

on reasonable and nondiscriminatory

terms.81 

c. The 3G “Patent Platform” Licensing

Program

The Third-Generation Mobile

Communication System (“3G”) is a digital

wireless communication technology. At

the time the Department issued the 3G

Business Review Letter, there were five

different 3G technologies82 rather than a

single standard, which was the case in the

patent pools discussed above. As many

as forty-five companies claimed

ownership of patents essential to at least

one of the 3G technologies.83 A nineteencompany partnership formed a licensing

arrangementdubbeda “patent platform,”

which proposed creating five separate

and independent licensing “platform

companies,” one for each 3G technology,

with a separate licensing administrator

and board of directors for each.84 The

platform companies make licensing and

royalty decisions independently, but

coordinate through a single management

company for functions such as promoting

the 3G platform concept and evaluating

patents in order to exclude those that are

not essential to any relevant 3G

technology.85 

Each 3G platform company shares

many features with patent pools. The

platform companies, however, do not

aggregate the essential patents relevant to

a particular 3G technology into a single

license. Instead, each patent is licensed

individually. A licensee may choose to

use “a default Standard License”

established by the relevant platform

company “separately with each essential

patent licensor.” Or a licensee may

choose to use “an Interim License, on

terms similar to the Standard License,

while negotiating terms bilaterally with

the essential patent licensor for a final

license that may vary from the Standard

License.”

86 The platform arrangements

are “structured to take into account

substitutability between 3G technologies

by creating anindependentPlatformCo to

handle all licensing matters, including

[the] setting of actual royalty rates, with

respect to each individual 3G

technology.”87 78

 Id. at 3-4. Over time, each platform

79

 Id. at 4-5.

80

 Id. at 6-7 & n.33.

81 3C DVD Business Review Letter at 6; 6C DVD

Business Review Letter at 8.

82 3G Business Review Letter at 2.

83

 Id. at 3.

84

 Id. at 4.

85

 Id. at 5.

86

 Id. at 7.

87

 Id. at 10; 3G Business Review Letter at 1 n.2 

(“PlatformCo is the generic name for several entities
Cross Licensing and Patent Pools 71

company may modify the license terms

for the technology it is administering and

each platform company “independently

determine[s] the key values used to

calculate royalties.”88

d. The Department’s Review

The Department concluded that

each of these patent-pooling proposals

were likely to create substantial

integrative efficiencies by reducing the

time and expense of disseminating the

patents to interested licensees, clearing

blocking positions, and integrating

complementary technologies. The

Department expected the 3G platform

proposal to deliver somewhat fewer

licensing efficiencies because the patent

rights would not be integrated into a

single bundle.89 To address the

Department’s concern that the pooling

arrangement could reduce horizontal

price competition between licensors,

which could result in an increase in prices

of products that used the licensed patents

or in a decrease in price competition

between downstream marke t

participants,90 each entity engaged an

independent expert to review the patents

and exclude substitute technologies from

the licensing arrangement by admitting to

the pool only those complementary

patents essential to manufacture products

complying with the standard.91 The

proponents sought to ensure that the

licensing agent did not have access to

competitively sensitive proprietary

information, such as cost data, and

included provisions that prevented such

information from being shared with any

of the licensors or licensees.92

The Department relied on several

factors to assess whether the pools were

likely to harm innovation.93 The first was

the statutory presumption that issued

patents are valid,

94 a presumption

reinforced by the mechanisms created by

the pool and platform proponents to

exclude invalid patents from the licensing

arrangements.95 The Department also

relied upon the proponents ’

representations that the licensors would

that would be established with licensing-related

responsibilities for essential patents concerning

specific 3G technologies, while ManCo is an entity

that would be established to oversee certain defined

common functions related to 3G patents such as

evaluation of essentiality.”).

88

 Id. at 10.

89

 See id. at 11.

90 MPEG-2 Business Review Letter at 11; 3C DVD

Business Review Letter at 9; 6C DVD Business

Review Letter at 10; 3G Business Review Letter at 9.

91 MPEG-2 Business Review Letter at 10-11; 3C DVD

Business Review Letter at 10-13; 6C DVD Business

Review Letter at 12-13; 3G Business Review Letter at

10. The distinction between complementary and

substitutable goods arises from a perspective of

consumer demand. More generally, A and B are

economic complements if the demand for A rises as

the price of B falls. A and B are economic substitutes

if the demand for A rises as the price of B rises. HAL

R. VARIAN, INTERMEDIATE MICROECONOMICS: A

MODERN APPROACH 110 (4th ed. 1992); see also Morse

Submission at 3; Roger B. Andewelt, Analysis of Patent

Pools Under the Antitrust Laws, 53 ANTITRUST L.J. 611,

612-14 (1985). 

92 MPEG-2 Business Review Letter at 12; 3C DVD

Business Review Letter at 13; 6C DVD Business

Review Letter at 14; 3G Business Review Letter at 13.

93 MPEG-2 Business Review Letter at 9, 11; 3C DVD

Business Review Letter at 9; 6C DVD Business

Review Letter at 10; 3G Business Review Letter at 9.

94 35 U.S.C. § 282 (2000) (“A patent shall be presumed

valid.”).

95 MPEG-2 Business Review Letter at 9 & n.40; 3C

DVD Business Review Letter at 9; 6C DVD Business

Review Letter at 10-11; 3G Business Review Letter at

9.
72 PROMOTING INNOVATION AND COMPETITION

retain the right to license their patents

individually,

96 the scope of grantback

clauses would be limited,97 the license

agreement would be available to all

interested licensees,98 and the pool would

provide a clear understanding of the

contents of the license.99 

Following extensive review of the

potential efficiencies and competitive

harms, as well as the safeguards

implemented by the proponents to guard

against these harms, the Department

issued a business review letter in each

case stating that, based on the information

provided, “the Department is not

presently inclined to initiate antitrust

enforcement action against the conduct

you have described.”100

The Department’s analyses of the

anticipated competitive effects of these

pools and the 3G Patent Platform

pursuant to its business review procedure

may differ from decisions made in the

context of enforcement investigations.101

Business review letters inform parties of

the Department’s enforcement intentions

based largely on the parties’ description

of the relevant facts before the proposed

activity has commenced. Parties desiring

a favorable business review often

incorporate mechanisms designed to

eliminate or minimize the risk of

anticompetitive effects, in order to give

the Department sufficient confidence in

its assessment of the likely competitive

effects of the proposed activity to permit

the issuance of a favorable letter.102

Investigations of conduct, by contrast,

typically address whether a party is

violating, or has violated, the antitrust

laws. In an enforcement investigation

examining a patent pool currently in

effect, failure to incorporate all the

safeguards set forth in the pooling

business review letters will not

automatically lead to the conclusion that

a pool is anticompetitive. Rather, the

Agencies will evaluate the particular facts

and circumstances to determine whether

96 MPEG-2 Business Review Letter at 12; 3C DVD

Business Review Letter at 13-14; 3G Business Review

Letter at 12; see also 6C DVD Business Review Letter

at 14 n.66.

97 MPEG-2 Business Review Letter at 13-14; 3C DVD

Business Review Letter at 14; 6C DVD Business

Review Letter at 14-16; 3G Business Review Letter at

12.

98 MPEG-2 Business Review Letter at 11; 3C DVD

Business Review Letter at 13-14; 6C DVD Business

Review Letter at 15-16.

99 MPEG-2 Business Review Letter at 12; 3C DVD

Business Review Letter at 15; 3G Business Review

Letter at 13.

100 MPEG-2 Business Review Letter at 17; 3C DVD

Business Review Letter at 15; 6C DVD Business

Review Letter at 16; 3G Business Review Letter at 13. 

The Department’s response to a business review

request will almost always fall into one of three

categories: (1) the Department does not presently

intend to challenge the proposed conduct, (2) the

Department “declines to state its enforcement

intentions,” or (3) the Department finds that it

“cannot state that it would not challenge the

proposed conduct if it is implemented.” In the

second case, the Department might or might not

challenge the conduct if implemented. In the third

case, such a challenge is probable. U.S. DEP’T OF

JUSTICE, ANTITRUST DIVISION MANUAL ch. 3, pt. H.1.g.

(3d ed. 1998, rev. 2002), available at

http://www.usdoj.gov/atr/foia/divisionmanual/thr

ee.htm.

101

 See Antitrust Division Business Review Procedure,

28 C.F.R. § 50.6 (2002). The FTC’s advisory opinion

procedure is similarly differentiated from its

enforcement investigations. See 16 C.F.R. §§ 1.1-1.4

(2003) (FTC advisory opinion procedure).

102 Fromm Submission at 2 (“The MPEG LA and DVD

letters delineate basic rules that can minimize

antitrust risk and that are now widely employed.”);

Morse Submission at 7 (“[The Department’s pooling

business review letters] set forth a road map of

practices that should minimize antitrust risk.”).
Cross Licensing and Patent Pools 73

the actual conduct has an anticompetitive

effect. 

2. The Summit-VISX Pool

In 1998, the FTC challenged a pool

formed by Summit Technology, Inc. and

VISX, Inc. that contained patents relating

to the manufacture and use of lasers

employed in performing photo-refractive

keratectomy (“PRK”), which is a form of

vision-correcting eye surgery.103 At the

time, Summit and VISX were the only

firms whose laser equipment had

received marketing approval from the

U.S. Food and Drug Administration for

performing PRK.104 Through the pool,

Summit and VISX relinquished the right

to license their patents unilaterally, but

each received the right to prohibit the

pool from licensing any third party. The

pool issued no third-party licenses over

its six year existence.105 In addition, the

pool agreement required each company

to pay a $250 fee for each PRK procedure

performed with its laser equipment. That

fee functioned as a price floor for the

“per-procedure fee” that each company

charged ophthalmologists using its

equipment. As a result, Summit and

VISX both charged doctors $250 for each

PRK procedure they performed.106

The FTC alleged that the pool

eliminated competition between Summit

and VISX in the sale or leasing of PRK

equipment, and in the licensing of

technology related to PRK.107 The parties

contended that the pool reduced the

uncertainty and expense of patent

litigation because it included potentially

blocking patents.108 The FTC rejected the

argument that the parties’ patent

portfolios justified the pool’s complete

elimination of price competition. As the

Analysis to Aid Public Comment

explained, “Summit and VISX could have

achieved these efficiencies by anynumber

of significantly less restrictive means,

includingsimple licenses or cross-licenses

that did not dictate prices to users or

restrict entry.”109 

TheComplaint further alleged that

patent infringement would not have

precluded either firm from coming to

market, in part because VISX had

procured a key patent through fraud on

the U.S. Patent and Trademark Office

(“PTO”), rendering it unenforceable.110

103 FTC Summit-VISX Complaint paras. 8, 25-30.

104

 Id. para. 6.

105

 Id. paras. 9-10; Analysis of Proposed Consent

Order to Aid Public Comment para. 8, In re Summit

Tech., Inc., No. 9286 (F.T.C. Aug. 21, 1998), available at

http://www.ftc.gov/os/1998/08/d09286ana.htm

[hereinafter Summit-VISX Analysis].

106 FTC Summit-VISX Complaint paras. 11-12.

107

 Id. paras. 8, 25-30.

108

 Summit-VISX Analysis para. 10.

109

 Id.; see also ANTITRUST-IP GUIDELINES § 4.2 (“The

existence of practical and significantly less restrictive

alternatives is relevant to a determination of whether

a restraint is reasonably necessary. If it is clear that

the parties could have achieved similar efficiencies by

means that are significantly less restrictive, then the

Agencies will not give weight to the parties’

efficiency claim. In making this assessment, however,

the Agencies will not engage in a search for a

theoretically least restrictive alternative that is not

realistic in the practical prospective business situation

faced by the parties.”).

110

 See FTC Summit-VISX Complaint paras. 14-21, 29-

30. In economic terms, a patent blocks “another when

the second cannot be practiced without using the

first;” the patent can neither be substituted for nor, as

a practical matter, invented around. ANTITRUST-IP

GUIDELINES § 2.3; see also Ian Simmons, Patrick Lynch

& Theodore H. Frank, “I Know It When I See It”: 
74 PROMOTING INNOVATION AND COMPETITION

The FTC’s allegations concerning the pool

were settled through consent orders that

dissolved the agreement.111

D. Specific Issues of Competitive

Concern

1. Substitutes Within a Patent Pool

a. Competitive Concerns

 The panelists generally agreed

that pools composed of pure substitute

patents are more likely to harm social

welfare than are pools of complementary

patents, which tend to increase

efficiencies and lower prices to

consumers. As one panelist stated, “[b]y

combining substitute patents, a pool can

be used as a price-fixing mechanism,

ultimately raising the price of products

and services that utilize the pooled

patents”112 and thus harming competition

and consumers.

Panelists noted, however, that

categorizing patents as complements or

substitutes is not a simple task. In many

cases, patents in a pool are not pure

complements or pure substitutes, but

display characteristics of both. As one

panelist explained, “as much as we long

to categorize intellectual property neatly

in the conceptually distinct categories of

competing, complementary, [and]

blocking, patents[,] like facts[,] are

stubborn things that frequently defy such

convenient classifications. They may

straddle one or more classifications.”113 

The panelists also discussed

various tests for determining whether a

patent is essential to a standard or

technology. They noted that each of the

pools that received a business review

letterfrom the Department used a slightly

Defining and Demonstrating “Blocking Patents,”

ANTITRUST, Summer 2002, at 48, 49 (“A patent is

blocking if circumventing it (1) is not commercially

practicable, or (2) will not produce a commercially

viable product.”) [hereinafter Simmons et al., Blocking

Patents].

111

 VISX Consent Decree at pt. II; Summit Consent

Decree at pt. II. The Consent Decrees also required

each company to license to each other, on a royaltyfree and nonexclusive basis, the patents each firm

contributed to the patent pool. According to the

Analysis to Aid Public Comment, although the

Complaint contended that VISX and Summit could

have competed absent the pool, subsequent sunk-cost

investments in reliance on the pool made a cross

license desirable in order to approximate the

competitive conditions that would have been

achieved had the pool not been formed. SummitVISX Analysis para.7. The FTC’s litigation continued

against VISX on allegations that it had procured a key

patent through fraud on the PTO. After the PTO

issued a Reexamination Certificate concerning the

disputed patent, the Commission dismissed the

complaint on this issue. See Order Reopening the

Record and Dismissing the Complaint, In re VISX,

Inc., No. 9286 (F.T.C. Feb. 7, 2001), available at

http://www.ftc.gov/os/2001/02/summitvisxorder.h

tm. 

112 Morse Submission at 7; see also CLARK ET AL.,

BIOTECH PATENT POOLS at 10-11 (stating that concerns

about a patent pool expanding monopoly pricing can

be addressed by carefully evaluating whether the

patents are truly “blocking” as outlined in the

Antitrust-IP Guidelines); Josh Lerner, Patent Pools: 

Some Policy Considerations (Apr. 17, 2002 Hr’g R.)

(slides) at 9 (asserting that pools containing direct or

perfect substitutes harm social welfare),

http://www.ftc.gov/opp/intellect/020417joshlerner.

pdf [hereinafter Lerner Presentation]; Garrard R.

Beeney, Pro-competitive Aspects of Intellectual Property

Pools: A Proposal for Safe Harbor Provisions (Apr. 17,

2002 Hr’g R.) at 5, http://www.ftc.gov/opp/

intellect/020417garrardrbeeney.pdf [hereinafter

Beeney Submission]; Shapiro, Navigating the Patent

Thicket at 134 (“[I]nclusion of truly complementary

patents in a patent pool is desirable and

procompetitive, but assembly of substitute or rival

patents in a pool can eliminate competition and lead

to elevated license fees.”).

113 Apr. 17 Tr. at 107-08 (Newberg); see also id. at 38-39

(Lerner).
Cross Licensing and Patent Pools 75

different test for essentiality. In one

panelist’s view, the DVD pools’

“economic test” is more efficient than the

MPEG-2 pool’s “technically essentialtest”

for licensees and, therefore, should be

preferred by antitrust enforcers.114

Another panelist stated that either

definition is acceptable and that few

competitive issues would arise so long as

each definition was faithfully applied.115

A third panelist noted that the practical

implementation of the different

definitions of essentiality is “pretty much

the same.”116 Using the criteria that a

patent must contain a claim essential to

implementing the standardwasdescribed

by some panelists as an effective means of

assuring that the patents included are not

substitutes.117 In one panelist’s view,

where no standard has been set, it should

be sufficient to define a clear and limited

field of use for a pool’s license in order to

determine whether the included patents

are complements or substitutes and to

“assess the competitive impact of a pool .

. . on . . . innovation and downstream

product markets.”118

A number of panelists discussed

whether, and under what circumstances,

substitute patents should be allowed in a

patent pool. One panelist urged the

inclusion of multiple substitute

technologies into pools when licensees

using the pool’s patents must also

infringe one of the substitute technologies

in order to produce or create a

downstream product that complies with

the standard. Including this limited class

of substitutes, he argued, would decrease

transaction costs and increase the pool’s

efficiency.119 That might be the case, he

suggested, when the manufacturingsteps,

calculations, or processes that produce a

defined product could be accomplishedin

more than one way.120

The same panelist asserted that

barring the substitute patents that cover

these functions required licensees to both

acquire a license from the patent pool and

negotiate a license from one of the patent

holders of the competing technologies,

which increases transaction costs.121

Instead, this panelist suggested that all

competing options be allowed into the

pool and licensees could select which

method to use under the pool license.122

To retain choice among the competing

technologies, the pool’s members could

require that the portion of the license

royalty attributable to the competing

process be distributed proportionate to

actual use by the licensees, he said.123 

This panelist suggested as an

alternative, albeit a less desirable one, that

114 David McGowan, Enforcement Issues Regarding

Pooling and Cross-Licensing (Apr. 17, 2002 Hr’g R.) at 4,

http://www.ftc.gov/opp/intellect/020417davidmcg

owan.pdf [hereinafter McGowan Submission].

115 Beeney Submission at 8.

116 Apr. 17 Tr. at 210-11 (Kulbaski).

117

 Id. at 160-61 (Kelly).

118 Beeney Submission at 5; see also Apr. 17 Tr. at 232-

33 (Beeney).

119 Apr. 17 Tr. at 181-85 (Beeney); Beeney Submission

at 5-7.

120 Apr. 17 Tr. at 181 (Beeney); Beeney Submission at

6.

121 Apr. 17 Tr. at 183 (Beeney); Beeney Submission at

6.

122 Apr. 17 Tr. at 184 (Beeney); Beeney Submission at

7.

123 Apr. 17 Tr. at 185 (Beeney); Beeney Submission at

7.
76 PROMOTING INNOVATION AND COMPETITION

the pool’s members select one of the

competing technologies for inclusion in

the pool, provided the process of selection

does not disproportionately reward one

patent holder, exclude the others from the

market, or limit licensees’ choice of which

method to employ.124 

Panelists’ reactions to these

proposals were mixed. One panelist

stated that including only one of several

substitute patents in a pool “risks

foreclosing markets to competing patents

outside the pool” because a licensee

would not purchase both a pool license

and a license for a substitute patent, even

if that substitute were a superior

technology.125 One economist on the

panel asserted that pools containing

patents that inhabit the middle ground of

impure complements and substitutes can

be welfare-enhancing,

126 while another

panelist stated that, although including

partial substitutes in the pool “may

increase transactions efficiency, [it could]

increase [both] administration costs and

antitrust concerns.”127

b. Analysis

The Antitrust-IP Guidelines state

that “combin[ing] complementary factors

of production . . . is generally

procompetitive.”128 Analyzing the

competitive effects of a patent pool

depends in substantial part on the

characterization of the patents within the

pool. Accordingly, the Department’s

favorable business reviews of pools have

relied heavily on assurances from the

parties that the pools contain only

complementary patents, stating that “a

combination of complementary

intellectual property rights, especially

ones that block the application for which

they are jointly licensed, can be an

efficient and procompetitive method of

disseminating those rights to would-be

users.”129 Similarly, the FTC’s SummitVISX Complaint challenged the

combining of patents in a pool that were

allegedto cover substitute technologies.130

124 Apr. 17 Tr. at 184 (Beeney); Beeney Submission at

6-7.

125 Morse Submission at 8; see also Michael R.

Franzinger, Latent Dangers in a Patent Pool: The

European Commission’s Approval of the 3G Wireless

Technology Licensing Agreements, 91 CAL. L. REV. 1693,

1723 (2003) (recommending that 3G licensing

agreements include a clause requiring removal of an

essential patent if a patented improvement is devised

so the improvement and the formerly essential patent

can compete for the license fees); cf. Regis C. Worley,

The MPEG LA Patent Pool: A Rule of Reason Analysis

and Suggestion to Improve Procompetitiveness, 24 T.

JEFFERSON L. REV. 299, 316 (2002) (arguing that the

most procompetitive outcome is to substitute a new

improvement patent for the original essential patent).

126 Apr. 17 Tr. at 38-39 (Lerner); Lerner Presentation

at 9; see also Merges, The Case of Patent Pools at 164

(article), 49 (Internet) (“[S]trict complementarity,

based on industry standards, should not be deemed

essential to future pools.”).

127 Grindley Presentation at 12.

128 ANTITRUST-IP GUIDELINES § 2.0.

129 MPEG-2 Business Review Letter at 9; see also 3C

DVD Business Review Letter at 8-9; 6C DVD Business

Review Letter at 11. One panelist critiqued the

Department’s terminology, arguing that review

should focus on patent claims, not whole patents. 

Apr. 17 Tr. at 215 (Fromm). Although review of the

patents does indeed examine the independent claims

within the patent, once such a claim is deemed

complementary it is not separated from the rest of the

patent so the entire patent is placed within the pool. 

Id. at 218-19 (Kulbaski) (“[T]he evaluator looks at one

independent claim and usually picks the broadest

claim . . . . And if that claim is found to be essential,

then I believe the letter issued by the evaluator says

that this patent is then essential to the

standard . . . .”).

130 FTC Summit-VISX Complaint paras. 14-21, 29-30.
Cross Licensing and Patent Pools 77

In short, a pool containing

complementary patents, i.e., patents

covering technologies that perform

different functions but are used

collectively to produce the licensed

product, may have the pro-competitive

effect of lowering the total royalty rate to

licensees, thereby lowering the final

product cost to consumers.131 As noted in

the DOJ business review letters and in the

FTC’s VISX case, a pool containing

substitutable patents, i.e., patents

covering technologies that compete with

each other and that licensee producers

would choose between, may have the

anticompetitive effect of increasing the

total royalty rate to licensees.132 Thus, an

important part of the analysis of a patent

pool is whether, and to what extent,

licensees use the patents in the pool as

complements or as substitutes.133

(i) Determining Which Patents May

“Swim” in the Pool

The enforcement conclusions of

both Agencies depend heavily on the

particular facts of each pooling proposal

or existing pool. The Agencies continue

to believe that pools consisting only of

complementary patents are least likely to

prove anticompetitive. One way to

approach the issue of excludingsubstitute

patents from a pool is to determine

whether a patent is essential for purposes

of complying with a particular

standard.134 The pooling proposals

approved by the Department have each

defined the term “essential” to the

standard in a slightly different manner. 

The MPEG-2 pool limits essential patents

to those that are “technically essential” to

produce a product pursuant to the

standard’s specifications, whereas the

DVD pools also include patents that are

practically (or economically) essential.135

Although there is a slightly greater

degree of subjectivity in the criterion used

by the DVD pools than in the criterion

used by the MPEG-2 pool, both were

found reasonable based on the facts

presented at the time.136 If properly

determined, essentiality should guarantee

that the patents in the pool are

complements.137

The Department has stated that if

several patented technologies could be

used to comply with part of a standard,

then including any of these technological

substitutes in the pool could raise

competitive concerns.138 The Agencies

131

 See supra notes 14-17 and accompanying text

(concerning royalty-stacking in connection with

portfolio cross licenses).

132

 See Josh Lerner & Jean Tirole, Efficient Patent Pools,

94 AM. ECON. REV. 691, 695-98, 706 (2004).

133 MPEG-2 Business Review Letter at 15-16; 3C DVD

Business Review Letter at 15; 6C DVD Business

Review Letter at 16; 3G Business Review Letter at 13;

see also FTC Summit-VISX Complaint para. 8.

134

 See 6C DVD Business Review Letter at 10; 3C DVD

Business Review Letter at 8-9.

135 MPEG-2 Business Review Letter at 9-10; 3C DVD

Business Review Letter at 3; 6C DVD Business

Review Letter at 3. 

136

 See Apr. 17 Tr. at 168 (Kelly).

137 Whether a patent is essential to a standard or

technology also depends on when the determination

is made. For example, a patent may be essential

when the pool is first formed, but as a result of

innovations or changes in the standard, over time that

same patent may no longer be essential. The

Department’s review of the MPEG-2 and 6C DVD

pools noted that both pools had mechanisms for

reviewing essentiality at the formation of the pool

and at later points in time. MPEG-2 Business Review

Letter at 5; 6C DVD Business Review Letter at 3-5. 

138 6C DVD Business Review Letter at 11-12. 
78 PROMOTING INNOVATION AND COMPETITION

acknowledge, however, that it might be

reasonable to include substitute patents in

a pool in certain situations. Evaluating

the competitive costs and benefits of a

pool containing substitute technology

would depend, of course, on the facts

available to the Agencies. In the context

of a DVD patent pool, the Department

found that “[i]nclusion in the pool of two

or more [substitute] patents would risk

turning the pool into a price-fixing

mechanism.”139 At that time, however,

the Department also noted that it would

not challenge the inclusion of substitute

patents in a pool without taking into

account whether such inclusion creates

significant efficiencies.140 The Agencies’

previous guidance should not be

interpreted to exclude the possibility of

including some substitute patents in the

pool. The Agencies will consider the

inclusion of some substitutes as one of the

many factors in their rule of reason

analysis of any pooling agreement. 

(ii) Patent Validity

Aninvalid or unenforceablepatent

is not in a complementary relationship

with other patents in the pool. The

Department’s positive view of patentlicensing agreements in its business

review letters assumes that the licensed

patents are valid. Some of the pooling

proposals approved by the Department

include a process to eliminate patents

held to be invalid or unenforceable by a

court in order to ensure that only valid

patents are included in the license.141 Such

mechanisms are important because the

presence of invalid patents in a pool

could raise competitive concerns. For

example, the Summit-VISX pooling

agreement raised competitive concerns

for the FTC in part because a key VISX

pool patent was allegedly obtained by

fraud on the PTO.142 According to the

complaint, the pooling arrangement

prevented competition that otherwise

would have occurred, and inter alia,

served as a price-fixing mechanism for

PRK technology.143

2. Exclusive and Nonexclusive

Licensing

a. Competitive Concerns

According to some panelists,

exclusively licensing patents to a pool can

reduce innovation. As one panelist noted,

“licensors and licensees [need to] be free

to combine technology either to improve

or compete with the pooled technology,”

so that products are made at lower cost

over time.144 Panelists identified both

139

 Id. at 12; 3C DVD Business Review Letter at 10. 

140 6C DVD Business Review Letter at 12 n.64.

141 MPEG-2 Business Review Letter at 5; 6C DVD

Business Review Letter at 11. Noting the possible

trade-off in increased administrative costs, one

panelist proposed using independent experts to

evaluate the validity or enforceability of the patents

in the pool as part of the admission process or to

resolve disputes. David McGowan, Enforcement Issues

Regarding Pooling and Cross-Licensing (Apr. 17, 2002

Hr’g R.) (slides) at 10, http://www.ftc.gov/opp/

intellect/020417mcgowan.pdf [hereinafter McGowan

Presentation]; see also Apr. 17 Tr. at 75-77 (McGowan). 

The proposed pools reviewed by the Department all

engage an expert to determine essentiality but not

patent validity or enforceability. MPEG-2 Business

Review Letter at 5; 3C DVD Business Review Letter at

4; 6C DVD Business Review Letter at 3-4.

142

 See supra notes 103-11 and accompanying text.

143

 See FTC Summit-VISX Complaint paras. 14-21, 29-

30.

144 Apr. 17 Tr. at 79, 97-100 (McGowan); McGowan
Cross Licensing and Patent Pools 79

licensors and licensees as sources of

resistance to licensing outside the pool.145

Panelists observed that, if the size of the

pool is small, licensees will have greater

opportunity and incentive to license

outside the pool. According to one

panelist, potential licensees will have less

opportunity andincentive to seek licenses

outside the pool as the number of

licensors in the pool grows, because the

transaction costs associated with

separately acquiring the pool’s patents

will tend to increase.146 Another panelist

clarified that, although the amount of

independent licensing may decrease as

the size of the pool increases, the size of

the pool would not necessarily affect the

willingness of pool members to support

rival standards or to join other pools.147 

A third panelist explained that

nonexclusivity “leave[s] open the

possibility of some rights that are in that

pool becoming part of different

standards, competing standards,products

that might become substitutes even if

they’re not now, for the pool product.”148

This panelist noted that whether a pool

member has the incentive to license

independently depends on whether the

license will maximize profits. He

explained that the decision will be based,

in part, on “the expected value of the

innovation on an alternative standard.”149

b. Analysis

In the pooling proposals reviewed

by the Department, each licensor

proposed granting a nonexclusive license

to the pool and retaining the right to

license its patent outside the pool.150 By

contrast, VISX and Summit granted

exclusive licenses to the pool and each

company retained veto power to prevent

the other company from licensing the

pooled intellectual property outside the

pool.151 Exclusive licenses may be

desirable, and thus potentially

procompetitive if they are necessary to

provide a significant incentive for the

licensees to invest in complementary

assets (e.g., when complementary assets

Presentation at 12; see also Apr. 17 Tr. at 157 (Kelly);

Beeney Submission at 14.

145 Apr. 17 Tr. at 69, 85 (McGowan); id. at 86 (Lerner). 

One panelist asserted that some licensors are not

motivated to license independently. Id. at 92-93

(Fromm). One court has held that patent pooling

does not violate sections 1 and 2 of the Sherman Act

when independent licensing is a realistic option,

finding $.06 per DVD disk royalty differential

between cost of the pool license and cost of multiple

individual licenses meant that independent licensing

was a realistic alternative because the differential was

not higher than the value of relevant rights conveyed. 

Matsushita, 299 F. Supp. 2d at 377, 379. 

146 Apr. 17 Tr. at 86-87 (Lerner) (“To the extent that . .

. the number of . . . licensors in the pool is small, then

the propensity to license outside the pool is high. To

the extent that the number of licensors in the pool is

very large, large being a number, say, greater than

four . . . essentially licensing from, say, five or six or

ten different licensors, the probability of someone

being able to invest the effort and the time . . . goes

down. The opportunity in a large pool to actually do

this licensing outside the pool is in fact . . . for many

firms not a real opportunity. Even firms that have

significant economic incentive to do so, they simply

don’t have the number of hours in the day before a

product has to be introduced.”); id. at 93 (Fromm)

(“[T]he practical realities tend to push [licensees]

towards the pool . . . because of time and cost.”). 

147

 Id. at 87-88 (Kelly). 

148

 Id. at 84 (McGowan). 

149

 Id. at 85 (McGowan). 

150 MPEG-2 Business Review Letter at 4; 3C DVD

Business Review Letter at 5-6; 6C DVD Business

Review Letter at 3, 6.

151 FTC Summit-VISX Complaint para. 9.
80 PROMOTING INNOVATION AND COMPETITION

would be subject to free-riding absent the

exclusive license). Allowing independent

licensing outside the pool, however,

permits innovators that invent around

one or more pool patents to compete with

the pool.152 Determining the competitive

significance of the exclusive nature of

licenses granted to the pool thus depends

on the specific facts of the case.

Creating the opportunity for

independentlicensing does not guarantee

that such a license will be granted. A

pool’s licensors generally are free to

choose both whether to grant separate

licenses and to set the royalty rates for

any such licenses. A competitive concern

would arise, however, if decisions on

licensing outside a pool were part of a

concerted attempt by the pool’s licensors

to hinder the ability of others (outside the

pool) to offer a competitive product or

process.

3. Grantbacks

a. Competitive Concerns

The Antitrust-IP Guidelines define

a grantback as an agreement by which a

licensee extends to the licensor the “right

to use the licensee’s improvements to the

licensed technology.”153 According to

panelists and commentators, however,

licensors may define a grantback’s scope

more broadly to cover “inventions which

relate in any way to the subject of the

licensed patent,”154 or even to cover

inventions entirely unrelated to the

licensed technology.155 Some panelists

noted that broadly written grantbacks can

deter innovation by reducing the returns

available to the follow-on innovator.156 Of

particular concern to some panelists is the

scope of the rights to be granted back to

the licensor and whether the innovator

retains the right to license to others.157

b. Analysis

Grantbacks can promote

competition within patent pools by

enabling licensors to practice

improvements that licensees make to the

152

 See Lerner & Tirole, 94 AM. ECON. REV. at 698-700.

153 ANTITRUST-IP GUIDELINES § 5.6.

154 Richard E. Donovan, Antitrust Issues in Licensing,

in ADVANCED LICENSING AGREEMENTS FOR THE NEW

ECONOMY 2001, at 643, 660 (2001).

155 Morse Submission at 14; Nov. 6 Tr. at 117-18

(McFalls) (“[A] grantback is . . . a licensing provision

in which a licensee agrees to license back . . . some IP

which may or may not be related to the initial IP

licensed, for some period of time, in some or all parts

of the world.”).

156 Beeney Submission at 11-12 (suggesting the

breadth of grantbacks should be negotiable

depending on the intellectual property investments of

licensees); Kulbaski Submission at 4-5; Fromm

Submission at 6-7. One panelist suggested that a

grantback licensor should be guaranteed, in most

circumstances, that it will receive a reasonable royalty

for its patents. Beeney Submission at 11-12 & n.16

(noting that a “reasonable” royalty could be that

collected by the licensors and that in at least one

context a grantback need not be royalty-bearing); see

also McGowan Presentation at 12 (asserting that

grantbacks should bear royalties); ANTITRUST-IP

GUIDELINES § 5.6.

157 McGowan Presentation at 12 (asserting that

grantbacks should be nonexclusive). Another

panelist urged the Agencies to more strictly enforce

the limitations on grantbacks articulated in the

business review letters, in particular those that cover

unrelated technologies, future patents, and

nonessential patents. Apr. 17 Tr. at 205-06 (Morse);

see also ANTITRUST-IP GUIDELINES § 5.6 (“Compared

with an exclusive grantback, a non-exclusive

grantback, which leaves the licensee free to license

improvements [in] technology to others, is less likely

to have anticompetitive effects.”).
Cross Licensing and Patent Pools 81

licensed technology.158 Grantbacks can

limit the ability of licensees to refuse to

license patented improvements.159 As a

result, a pool’s licensors (and other

licensees) can continue to produce goods

conforming to the pool’s patents.

Grantbacks can promote innovation

incentives by rewarding first innovators

for enabling follow-on innovation by

others.160 They also can promote the

subsequent licensing of the results of the

innovation.161

The Agencies, however, recognize

the concerns raised by the panelists.

Indeed, the pooling proposals reviewed

by theDepartment contained mechanisms

designed to narrow grantbacks, making

them more likely to be procompetitive.

These grantbacks are limited to

innovations within the scope of the

existing patents in the pool and are

further limited to include only essential

patents, so as to add only complementary

patents to the pool.162 In addition, the

grantbacks are nonexclusive, so licensees

may freely use their own inventions and

license them to others.163 Such narrowly

tailored grantbacks are unlikely to raise

competitive concerns.

4. Access to Information

a. Competitive Concerns

Administering a patent pool may

require the pool’s licensing agent to have

access to competitively sensitive

proprietary information of licensors and

licensees, many of which may compete

against each other in downstream

markets. Such was the case in the DVD

pools, for example, where many of the

pools’ licensors and licensees were

competitors in the DVD disc and player

manufacturing markets. Many of them

were also competitors in the market for

content, such as recorded music, films,

and entertainment software, that are

incorporated in the DVDs.164 A patent

pool could serve as a mechanism that

facilitates downstream price coordination

among the licensors if it were used to

disseminate information between them

about one another’s use of the pool’s

technologies.165 Innovation incentives

158

 See infra Chapter 4, Variations on Intellectual

Property Licensing Practices Part III.A (discussing the

efficiencies associated with grantbacks).

159 ANTITRUST-IP GUIDELINES § 5.6; Grindley

Presentation at 13; Beeney Submission at 12; see also

Apr. 17 Tr. at 79-80 (McGowan) (asserting that

grantbacks help standards evolve); 1 HERBERT

HOVENKAMP, MARK D. JANIS & MARK A. LEMLEY, IP

AND ANTITRUST: AN ANALYSIS OF ANTITRUST

PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY LAW §

25.2, at 25-2 (2002).

160 Suzanne Scotchmer, Standing on the Shoulders of

Giants: Cumulative Research and the Patent Law, J.

ECON. PERSP., Winter 1991, at 29, 31 (stating that first

innovators will have the correct incentive to invest

only if they receive some of the social surplus

provided by second-generation products).

161 ANTITRUST-IP GUIDELINES § 5.6.

162 MPEG-2 Business Review Letter at 13; 3C DVD

Business Review Letter at 8, 14; 6C DVD Business

Review Letter at 8-9, 14-16; see also ANTITRUST-IP

GUIDELINES § 5.6.

163 MPEG-2 Business Review Letter at 12-13; 3C DVD

Business Review Letter at 14; 6C DVD Business

Review Letter at 14-15.

164 3C DVD Business Review Letter at 2 n.2; 6C DVD

Business Review Letter at 2 n.2.

165 The Agencies have found U.S. markets conducive

to coordinated interaction when certain market

factors are present, including the ready availability of

reliable competitive information, homogeneous

products, and high concentration levels. U.S. DEP’T OF

JUSTICE & FEDERAL TRADE COMM’N, COMMENTARY ON

THE HORIZONTAL MERGER GUIDELINES 18-23 (2006),
82 PROMOTING INNOVATION AND COMPETITION

might also be reduced if concerns about

others in the pool misappropriating

proprietary information leads rivals

within the pool to invest less in areas such

as product development.166 

b. Analysis

Pooling agreements that limit

licensors’ access to each others’

competitively sensitive proprietary

information, such as cost data, output

levels, and prices of final products, lowers

the risk that licensors will be able to

coordinate their activities in final product

markets.167 Limiting access to such

information also makes it less likely that

rivals within the pool will have concerns

about others misappropriating their data.

Existing pools have used several

mechanisms to keep these types of

information confidential. In the MPEG-2

pooling proposal, the pool hired an

independent licensing administrator so

that the licensors would not be privy to

information gathered from other pool

participants.168 In both DVD pooling

proposals, where one of the pool’s

licensors also acts as the program

administrator, the parties designed socalled “walls” to sufficiently limit access

to each others’ sensitive information.169

5. Royalties for the Pool’s Patents

a. Competitive Concerns

Panelists raised several concerns

about the amount of royalties charged by

patent pools. Some panelists suggested

that licensing terms should be reviewed

over time, set as a reasonable percentage

of the downstream price, or capped in

order to ensure that the royalties remain

reasonable.170 Onepanelist suggested that

a pool that charges smaller royalties to

licensors that are also licensees (insiders)

than it charges to pure licensees

(outsiders) might produ c e

anticompetitive effects in downstream

markets. He argued that doing so would

“allow inefficient[licensor] competitorsto

dominate downstream markets by

combining the power of the patents in the

pool to the exclusion of efficient

independent competitors.”171

b. Analysis

 The Agencies generally do not

assess the reasonableness of royalties set

by patent pools.172 Rather, the Agencies

available at http://www.usdoj.gov/atr/public/

guidelines/215247.pdf.

166

 See U.S. DEP’T OF JUSTICE, ANTITRUST DIVISION

POLICY GUIDE TO MERGER REMEDIES 23 (2004), reprinted

in 4 Trade Reg. Rep. (CCH) ¶ 13,171, available at

http://www.usdoj.gov/atr/public/guidelines/20510

8.pdf.

167 3C DVD Business Review Letter at 11-12; 6C DVD

Business Review Letter at 14.

168 MPEG-2 Business Review Letter at 4, 11.

169

 See Beeney Submission at 13; 3C DVD Business

Review Letter at 7-8, 13; 6C DVD Business Review

Letter at 9-10, 14.

170 Morse Submission at 12; see also Fromm

Submission at 3-4.

171 Morse Submission at 12-13; see also Fromm

Submission at 3; Apr. 17 Tr. at 249-50 (Fromm). 

172

 See R. Hewitt Pate, Assistant Attorney Gen., U.S.

Dep’t of Justice, Competition and Intellectual

Property in the U.S.: Licensing Freedom and the

Limits of Antitrust, Address Before the 2005 EU

Competition Workshop 9 (June 3, 2005), available at

http://www.usdoj.gov/atr/public/speeches/209359

.pdf (“Bringing a complaint to the Antitrust Division

about ‘excessive’ royalties, without more, is a losing

strategy.”). Several panelists were adamant that the

Agencies should not involve themselves in the setting
Cross Licensing and Patent Pools 83

focus on the pool’s formation and

whether its structure, including the terms

of the contract among pool participants,

would likely enable pool participants to

raise prices or restrict output in a relevant

market. In the MPEG-2 and DVD

Business Review Letters, the Department

noted that when royalties are a small

portion of the downstream price, it is

unlikely that they are being used to

coordinate downstream prices.1 7 3

Royalties that are a significant portion of

the downstream price, however, do not

necessarily raise concerns, and other

indications of coordination of

downstream prices would be required

before the Agencies would be likely to

investigate further. Indeed, theoretical

economic models show that if only

complementary patents are pooled, the

royalties the pool charges should be

lower than those that would be charged if

no pool were formed.174

The Agencies will not presume

that different royalty payments faced by

different licensees (e.g., insiders and

outsiders) are anticompetitive. Whether

such an arrangement could be

anticompetitive would depend upon the

specific facts of the case. The Agencies

may examine the structure and amount of

royalties as one of the many factors when

investigating alleged price coordination.

6. Requests for Partial-Pool Licenses

a. Competitive Concerns

Panelists also discussed whether it

harms competition if patent pools do not

offer licensees the option of licensing only

some of a pool’s patents, a partial-pool

license at a lower royalty rate, instead of

offering only a single comprehensive

blanket license.

175 One panelist asserted

that partial licenses are needed because,

even if a pool were originally devised to

include only those patents deemed

essential to a standard, over time some of

those patents would no longer be

essential to all the pool’s licensees.

176 In

addition, some licensees may desire

partial licenses if they already have access

to some of the necessary technology

through pre-existing licenses. In such

instances, one panelist asserted that

requiring a blanket license forces licensees

to pay for access to intellectual property

they do not need.177

Other panelists responded that

offering only a blanket license is not

harmful to those seeking a partial license,

provided that the pool members retain

the right to license their contributed

patents independently, thereby creating

the opportunity to enter into bilateral

of pools’ royalties. According to one panelist: 

“Marketplace acceptance is the best gauge of fair and

reasonable [licensing terms] . . . . Every license must

be priced to sell. In the end, we are dealing with very

sophisticated users who have many market choices.” 

Futa Submission at 3; Apr. 17 Tr. at 245 (Futa). 

Another panelist stated that lawyers are not wellequipped to set royalties and that pools would

disappear if the freedom to set royalties disappeared. 

See Apr. 17 Tr. at 283 (Beeney).

173 MPEG-2 Business Review Letter at 11; 3C DVD

Business Review Letter at 13; 6C DVD Business

Review Letter at 14.

174 Shapiro, Navigating the Patent Thicket at 123-24,

149-50; Lerner & Tirole, 94 AM. ECON. REV. at 695-97.

175 Apr. 17 Tr. at 246-77 (Futa, Fromm, Kelly, Beeney,

Grindley, Morse). 

176

 Id. at 251 (Fromm).

177 Fromm Submission at 4-5.
84 PROMOTING INNOVATION AND COMPETITION

agreements for particular patents.178

Furthermore, one panelist argued,ifpools

were required to let firms pick and choose

which patents they wanted and then had

to vary the royalties accordingly, the pool

administrator could be required to offer

many different permutations of licenses,

perhaps at differing royalties.179 In such

situations, some panelists suggested that

a pool offering partial licenses in addition

to the broader pool license may not create

the efficiencies that flow from reducing

transaction costs.180

b. Analysis

In general, a refusal to license less

than all of a pool’s intellectual property

will not raise competitive concerns,

provided that the licensors retain the

ability to license their patents

individually and the pool’s design is

otherwise procompetitive. In this way,

licensees are not required to purchase

access to more technology than theyneed.

However, the combined price of the

individual licenses may be more than the

price of the pooled patents which benefits

from lower transaction costs. In addition,

although partial pool licensing could be

used to cull nonessential patents from the

pool over time, requiring such partial

licenses would tend to undermine the

chief efficiency benefit of pooling

arrangements, namely, the ability to offer

as close to “one-stop shopping” as

possible for a given technology.181 Other

more efficient means to accomplish this

goal are available, such as continuous

review of the licensed patent portfolio

that is designed to exclude patents from

the pool that have become nonessential

over time.

IV. CONCLUSION

Both cross licenses and patent

pools are based on reciprocal agreements

to share patent rights,182 and they can

achieve similar efficiencies,183 including

integrating complementary technologies,

reducing transaction costs, clearing

blockingpatents,decreasing infringement

litigation and the uncertainties related to

178 Apr. 17 Tr. at 262-63 (Futa). But see id. at 252

(Fromm) (asserting that the possibility of negotiating

individual licenses is “more illusory than real”);

Fromm Submission at 5 (“[Individual licensing is

problematic due to] major transaction costs and time

required for multiple negotiations; holders’

disincentives to entertain negotiations; likelihood that

the sum of individually negotiated royalties would

significantly exceed the prescribed package license

royalty; and the likely necessity of exchanging

competitively sensitive information with one’s

competitors in the administration of individual

licenses.”).

179 Apr. 17 Tr. at 275-76 (Beeney); see also Futa

Submission at 5 (stating licensees could attempt to

customize, in myriad ways, number of patents, length

of term, and parts of the standard).

180 Apr. 17 Tr. at 267-68 (Grindley); id. at 274-77

(Beeney). Moreover, according to one pool

administrator, the market develops subset licenses

when multiple firms request such a license. Id. at 262-

63 (Futa). In response, one panelist noted that the

ability to license fewer than all the patents in a pool is

important for the first mover, who will have lost the

innovation advantage once multiple firms start

requesting a specific subset license. Id. at 264-66

(Fromm); see also Fromm Submission at 5.

181

 See supra Parts III.A, III.C.1.d.

182

 See Joel I. Klein, Acting Assistant Attorney Gen.,

U.S. Dep’t of Justice, Cross-Licensing and Antitrust

Law, Address Before the American Intellectual

Property Law Association 3 n.3 (May 2, 1997),

available at http://www.usdoj.gov/atr/public/

speeches/1118.pdf; Andewelt, 53 ANTITRUST L.J. at

611.

183 ANTITRUST-IP GUIDELINES § 5.5; Apr. 17 Tr. at 178

(Beeney); McGowan Submission at 2; Kelly

Presentation at 5.
Cross Licensing and Patent Pools 85

it, and promoting the dissemination of

technology. Although pools and cross

licenses seek to achieve these benefits via

methods that differ in fundamental ways,

the competitive analysis set forth in the

Antitrust-IP Guidelines is robust enough

to take these differences into account.

Indeed, the panelists generally agreed

that the Agencies’ guidance regarding the

antitrust analysis of patent pools and

cross-licensing agreements is sound.184

That analysis acknowledges that

cross licensing and patent pooling can

offer substantial efficiencies, but also that

they sometimes present certain

competitive risks. Provisions in portfolio

cross licenses that may facilitate price

fixing, for example, can raise antitrust

concerns. The Agencies generally review

portfolio cross licenses under the rule of

reason. 

The Agencies likewise generally

review patent pools under the rule of

reason. As noted above, patent pools can

help firms cut through overlapping

patent rights and bring products to

market. However, in certain

circumstances, they can also facilitate

horizontal coordination among the pool’s

licensors or discourage innovation. For

example, there may be an anticompetitive

risk in a pool containing substitute

patents. One solution is to exclude

substitute patents from the pool by

ensuring that each patent is essential to

the standard, or principle, around which

the pool is organized. Likewise,

exclusivity in patent pools can provide

incentives for procompetitive investment,

but may also pose competitive concerns

regarding reduced innovation. Similarly,

broadly written grantbacks in a patentpooling agreement can promote

competition by giving licensors access to

downstream improvements, or they can

erode incentives for future innovation.

Moreover, limiting licensors’ access to the

competitively sensitive information of

others in the pool can minimize the

anticompetitive risk of improper

information sharing in the pool. 

Despite concerns voiced about the

anticompetitive potential of “high”

royalty rates in a pool, the Agencies

generally will not police the

“reasonableness” of pool royalty rates.

Likewise, pool licensing provisions that

require the licensing of all (not just some)

of the pool’s intellectual property do not

generally raise competitive concerns if the

licensors retain the ability to license their

patents individually and the pool’s design

is otherwise procompetitive.

184 Apr. 17 Tr. at 193 (Morse); Feb. 27 Tr. at 512

(Shapiro) (“[B]y and large the [A]gencies have done

well to recognize the benefits of cross-licenses and

patent pools, and they should affirm those benefits

going forward. . . . [T]he DOJ’s . . . business review

letters in the MPEG and DVD patent pools . . . were

exemplary in that respect.”); Apr. 17 Tr. at 175

(Beeney); id. at 57 (McGowan); id. at 40 (Lerner); Feb.

28 Tr. at 700 (Fox).

87

CHAPTER 4

VARIATIONS ON INTELLECTUAL PROPERTY LICENSING

PRACTICES

I. INTRODUCTION 

For over a decade, the Agencies

have relied on the Antitrust Guidelines

for the Licensing of Intellectual Property

(“Antitrust-IP Guidelines”) to aid in their

analysis of complex licensing practices.1

Recognizing that intellectual property

(“IP”) rights are critical to a wellfunctioning market economy, the

Agencies crystalized some fundamental

principles regarding the intersection of IP

and antitrust law and policy in the

Antitrust-IP Guidelines. These principles

include recognizing that: (1) an IP right

does not necessarily create market

power;2 (2) agreements involving IP can

be analyzed using the same antitrust rules

applied to agreements involving any

other property;3 and (3) IP licensing is

generally procompetitive.4 The vast

majority of licensing restraints “can be

expected to contribute to an efficiencyenhancing integration of economic

activity,” by, for example, “facilitat[ing]

the combination of the licensor’s

intellectual property with [other]

complementary factors of production.”5

The Agencies therefore will evaluate such

1

 U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N,

ANTITRUST GUIDELINES FOR THE LICENSING OF

INTELLECTUAL PROPERTY (1995), reprinted in 4 Trade

Reg. Rep. (CCH) ¶ 13,132, available at

http://www.usdoj.gov/atr/public/guidelines/0558.

pdf [hereinafter ANTITRUST-IP GUIDELINES]. 

2

 Id. § 2.2. 

3

 Id. § 2.1.

4

 Id. § 2.0.

5

 Id. § 3.4. Recognizing that intellectual property

licensing is generally procompetitive, many foreign

jurisdictions have followed the United States’ lead in

creating transparency in this area by adopting their

own intellectual property guidelines. E.g.,

COMPETITION BUREAU, GOV’T OF CAN., INTELLECTUAL

PROPERTY ENFORCEMENT GUIDELINES (2000), available at

http://www.strategis.ic.gc.ca/pics/ct/ipege.pdf;

Guidelines on the Application of Article 81 of the EC

Treaty to Technology Transfer Agreements (EC), 2004

O.J. (C 101) 2, available at http://www.europa.eu.int/

eur-lex/pri/en/oj/dat/2004/c_101/

c_10120040427en00020042.pdf; JAPAN FAIR TRADE

COMM’N, GUIDELINES FOR PATENT AND KNOW-HOW

LICENSING AGREEMENTS UNDER THE ANTIMONOPOLY

ACT (1999), available at http://www.jftc.go.jp/

e-page/legislation/ama/patentandknow-how.pdf;

KOREA FAIR TRADE COMM’N, GUIDELINES OF

REVIEWING UNDUE EXERCISE OF INTELLECTUAL

PROPERTY RIGHTS (2000), available at http://ftc.go.kr/

data/hwp/ irp_guidelines.doc; COMPETITION

COMM’N OF SING., GUIDELINES ON THE TREATMENT OF

INTELLECTUAL PROPERTY RIGHTS (2005), available at

http://www.ccs.gov.sg/NR/rdonlyres/A67B68FC-D

B6F-415B-9DF1-5A97FC6855A9/6714/CCSGuideline

onIPR20051228websitefinal2.pdf; TAIWAN FAIR TRADE

COMM’N, RULES FOR REVIEW OF TECHNOLOGY

LICENSING ARRANGEMENT CASES, available at http://

www.globalcompetitionforum.org/regions/asia/Tai

pei/Technology%20Licensing.pdf.
88 PROMOTING INNOVATION AND COMPETITION

agreements pursuant to the rule of

reason.6 

During the Agencies’ Hearings on

Competition and Intellectual Property

Law and Policy in the Knowledge-Based

Economy, panelists discussed several

licensing practices that have the potential

to promote licensing efficiencies,

including non-assertion clauses,7

grantbacks,8 and reach-through licensing

agreements.9 They considered when

these practices might be procompetitive,

under what circumstances they might be

anticompetitive, and whether the

Antitrust-IP Guidelinesprovide adequate

guidance for evaluating the antitrust

implications of these arrangements.10 The

panelists generally agreed that the basic

principles set forth in the Antitrust-IP

Guidelines are preferable to bright line,

per se rules that affirmatively approve or

condemn a specific licensing practice

without regard to the circumstances in

which it is being employed.11 Moreover,

panelists agreed that, although theories of

anticompetitive licensing practices may

exist, identifying such scenarios in

practice requires a highly fact-specific,

case-by-case analysis. Consequently,

applying simple rules to broad classes of

behavior can risk great inefficiency.

12 To

avoid this risk, the Agencies will continue

to use the flexible rule of reason to assess

the competitive significance of the

licensing arrangements discussed in this

Chapter, evaluating a particular

agreement’s ability to harm or enhance

competition in the factual circumstances

in which it arises.13 

II. NON-ASSERTION CLAUSES 

According to panelists, nonassertion clauses typically provide that a

contracting party will not assert patents

or other IP rights against the other

contracting party, even if that party were

to engage in an infringing use.14 Panelists

said that such clauses are entered into for

a variety of reasons, but that, as a

practical matter, non-assertion clauses

serve one of the same functions as a

license or cross license, i.e., they permit

6

 ANTITRUST-IP GUIDELINES § 3.4.

7

 See infra Part II.

8

 See infra Part III.

9

 See infra Part IV.

10 The panelists discussing these topics included: 

Michelle Burtis, Director, LECG, Inc.; Joseph Farrell,

Professor of Economics and Chair of the Competition

Policy Center, University of California, Berkeley;

Jeffery Fromm, Former Senior Managing Counsel,

Hewlett-Packard Company; Michael McFalls, Partner,

Jones Day Reavis & Pogue; Barbara M. McGarey,

Deputy Associate General Counsel, National

Institutes of Health; Janusz A. Ordover, Department

of Economics, New York University; Charles F. (Rick)

Rule, Partner, Fried, Frank, Harris, Shriver &

Jacobson; Carl Shapiro, Transamerica Professor of

Business Strategy, Haas School of Business,

University of California, Berkeley. The panel was

moderated by Gail Levine, then-Deputy Assistant

General Counsel for Policy Studies, Federal Trade

Commission; Frances Marshall, Special Counsel for

Intellectual Property, U.S. Department of Justice;

Sarah Mathias, then-Attorney, Policy Studies, Federal

Trade Commission; and David L. Scheffman, thenDirector, Bureau of Economics, Federal Trade

Commission. Nov. 6, 2002 Hr’g Tr., Relationships

Among Competitors and Incentives to Compete: 

Cross-Licensing of Patent Portfolios, Grantbacks,

Reach-Through Royalties, and Non-Assertion Clauses

(Afternoon Session), http://www.ftc.gov/opp/

intellect/021106ftctrans.pdf [hereinafter Nov. 6 Tr.].

11

 E.g., Nov. 6 Tr. at 146-47 (Rule); see also id. at 185-86

(Shapiro).

12

 See, e.g., id. at 145 (Ordover).

13

 See ANTITRUST-IP GUIDELINES § 3.4.

14 Nov. 6 Tr. at 121-22 (McFalls).
Other IP Licensing Practices 89

the contracting parties to avoid costly

litigation over the use of an IP right.15 A

non-assertion clause is “a convenient way

for people to be able to effectively give

comfort to somebody they would

otherwise license,” one panelist

explained.16 In this respect, panelists

stated,non-assertion clauses are similar to

nonexclusive, royalty-free licenses that

allow the parties to allocate risk and to

avoid litigation by contract.17 Panelists

observed that non-assertion clauses can

appear in multilateral or bilateral

agreements, and they can cover existing

or potential future patents, or both.18

Pure non-assertion clauses that do not

transfer a right to use the patent, do not,

by themselves, provide for the transfer of

know-how, something that frequently

accompanies the affirmative licensing of

patent rights.19

A. Efficiencies of Non-Assertion

Clauses

Panelists stated that non-assertion

clauses may create efficiencies akin to

those created by patent licenses.20 For

example, one panelist said that nonassertion clauses tend to reduce

transaction costs because they “guarantee

to the licensor . . . that any intellectual

property issue that exists at [the time of

the license negotiation] will be surfaced

by the licensee.”21 Indeed, according to

this panelist, the licensee typically will

benefit by, in effect, “charging” the

licensor for the value of the right it is

giving up—a right to assert a hidden

blocking patent, for example.22 This

panelist reported that non-assertion

agreements also can facilitate the sharing

of information, because a licensor who is

unafraid of the eventual developments of

blocking patents is more likely to

“provide information and details that

otherwise might be used by the licensee

to develop a blocking patent position.”23

The panelist asserted that such exchanges

of information are procompetitive

because both parties to the non-assertion

agreement avoid hidden blocking

patents.24 Finally, the panelist saw an

15

 Id. at 121 (McFalls) (“[I]nstead of giving somebody

an affirmative grant . . . [you] say, within this field,

just as with a license, I’m not going to [sue] you on

patents that I have today.”); see also id. at 127-28

(Rule).

16

 Id. at 121 (McFalls). 

17

 Id.; id. at 125 (Farrell) (stating that a non-assertion

clause is essentially “royalty-free permission to use

one another’s IP”).

18 Nov. 6 Tr. at 122-23 (Fromm); id. at 127-28 (Rule). 

Non-assertion agreements may also encompass

different categories of IP rights. For example, a nonassertion agreement may permit use of one type of IP

(e.g., patents) in return for use of a different type of

intellectual property (e.g., copyright). Id. at 123

(Fromm). 

19

 Cf. David J. Teece, Peter Grindley & Edward

Sherry, Understanding the Licensing Option, in

MANAGING INTELLECTUAL CAPITAL 135, 135-38 (2000)

(discussing when know-how is typically transferred

between firms). 

20 One panelist stated that a licensor may negotiate a

non-assertion clause in lieu of a grantback to prevent

its licensee from asserting a hidden blocking position

after the product has become successful. Nov. 6 Tr. at

127-28 (Rule). This panelist explained that nonassertion clauses can cover both existing and future

portfolios, whereas a grantback generally is limited to

future technology. Id. at 127 (Rule).

21

 Id. at 128 (Rule).

22

 Id.

23

 Id. at 129 (Rule).

24

 Id.
90 PROMOTING INNOVATION AND COMPETITION

additional potential benefit if a nonassertion clause can eliminate patent hold

up for the licensor’s other licensees

because the clause applies to the licensor

and to “those who license from the

licensor.”25

B. Competitive Concerns Regarding

Non-Assertion Clauses

Panelists expressed concern over

the use of broad non-assertion clauses,

such as those that are unlimited in scope

or duration, or are more extensive than a

license. Some panelists noted that such

clauses raise competitive concerns

because, by limiting the ability of

licensees to collect rents on their own IP,

they may discourage independent

innovation.26 Another concern is that a

broad non-assertion agreement between

the only two participants in a market may

help to maintain an illegitimate duopoly

or monopoly if the participants agree not

to challenge each other’s questionable

patents.27 

Invalid pa tents impair

competition,28 and as a matter of patent

policy, challenges to their validity are

encouraged.29 As the Solicitor General

recently urged, “[w]hile patent licensing

in general should be encouraged because

it allows the efficient exploitation of

technology and promotes competition

and innovation, public policy strongly

25 Nov. 6 Tr. at 129 (Rule). One panelist also noted

that non-assertion clauses may be used in lieu of a

license to avoid breaching an exclusive licensing

obligation in another contract or to provide a means

of avoiding the application of a “Most Favored

Nation” (“MFN”) clause in another licensing

agreement. Id. at 121 (McFalls). Another panelist

reported that courts have not accepted attempts to

label grantbacks as non-assertion clauses so as to

avoid having to comply with a MFN clause. Id. at 123

(Fromm).

26

 Id. at 136 (Fromm) (“[A broad non-assertion clause]

can’t help but be a disincentive to the licensee, the

grantor of the non-assert, to further innovate because

essentially what [it has] done is [it has] eliminated the

patent thicket, that’s for sure.”); see also id. at 137-38

(Rule) (“[Y]ou can certainly abuse a non-assert if it’s

way too broad and it’s unconnected to the underlying

licensed technology.”); id. at 143 (Fromm) (stating

that the proper focus is on whether the non-assertion

clause is “significantly more extensive” than the

scope of a license). According to panelists, although a

patent thicket has the potential to impede innovation

when access to certain inputs necessary for

production is difficult, the elimination of a patent

thicket altogether can slow innovation when no firm

has the incentive to innovate by designing around an

infringing patent. See, e.g., Frederick J. Telecky, Jr.,

Statement (Feb. 28, 2002 Hr’g R.) at 3 (“Without the

need to design around, simple inertia and

practicalities such as the necessity of qualifying a new

product with customers can be a barrier to

innovation.”), http://www.ftc.gov/opp/intellect/

020228telecky.pdf.

27

 See R. Hewitt Pate, Acting Assistant Attorney Gen.,

U.S. Dep’t of Justice, Antitrust and Intellectual

Property, Address Before the American Intellectual

Property Law Association 2003 Mid-Winter Institute

9 (Jan. 24, 2003) (“[P]otential concerns may arise with

agreements among IPR holders not to challenge one

another’s IPR claims through either innovation or

litigation . . . .”), available at http://www.usdoj.gov/

atr/public/speeches/200701.pdf.

28 FEDERAL TRADE COMM’N, TO PROMOTE

INNOVATION: THE PROPER BALANCE OF COMPETITION

AND PATENT LAW AND POLICY, Executive Summary, at

5 (2003), available at http://www.ftc.gov/os/2003/

10/innovationrpt.pdf [hereinafter FTC Innovation

Report].

29

 See Lear v. Adkins, 395 U.S. 653, 674 (1969)

(“[E]nforcing [a] contractual provision [that would

require a licensee to continue to pay royalties during

the time it is challenging the patent’s validity in

courts] would undermine the strong federal policy

favoring the full and free use of ideas in the public

domain.”); see also MedImmune, Inc. v. Genentech, Inc.,

127 S. Ct. 764, 777 (2007) (“We hold that [a licensee is]

not required, insofar as Article III is concerned, to

break or terminate its 1997 license agreement before

seeking a declaratory judgment in federal court that

the underlying patent is invalid, unenforceable, or not

infringed.”).
Other IP Licensing Practices 91

favors ridding the economy of invalid

patents, which impede efficient licensing,

hinder competition, and undermine

incentives for innovation.”30 Publicpolicy

also concomitantly favors the swift

resolution of patent litigation on terms

not harmful to competition.31

III. GRANTBACKS

A grantback is “an arrangement

under which a licensee agrees to extend to

the licensor of intellectual property the

right to use the licensee’s improvements

to the licensed technology.”32 Panelists

said that a grantback is similar to a nonassertion clause in that it provides the

freedom to use a particular intellectual

property right, but it encompasses only

future improvements.33 Panelists noted

that the two arrangements are often

negotiated in the same way,34 and that

their economic effects are virtually

identical.35 

According to panelists, the scope,

terms, and duration of grantbacks vary.36

One panelist stated that a grantback may

give exclusive rights to use future

improvements solely to the licensor,

leaving none to the licensee,37 or it may

allow both parties to share those rights to

the exclusion of others.38 Conversely,

panelists noted, a grantback may be

nonexclusive, thus allowing one or both

contracting parties to license to others the

right on the improvement.39 Grantbacks

may be limited by geographic scope or

territory or by field of use, a panelist

explained.40 According to one panelist,

grantbacks “may not be related to the

initial IP licensed.”41 For example, a

research tool patent license may grant

back to the licensor the rights to make a

drug created with the use of the research

tool patent, even though the patent

30 Brief for the United States as Amicus Curiae

Supporting Petitioner at 23-24, MedImmune, 127 S. Ct.

764 (No. 05-608) (internal citations omitted), available

at http://www.usdoj.gov/osg/briefs/2005/3mer/

1ami/2005-0608.mer.ami.pdf.

31 ANTITRUST-IP GUIDELINES § 5.5 (“Settlements

involving the cross-licensing of intellectual property

rights can be an efficient means to avoid litigation,

and in general, courts favor such settlements.”); Brief

for the United States as Amicus Curiae at 17, Andrx

Pharms. Inc. v. Kroger Co., 543 U.S. 939 (2004) (No. 03-

779) (recognizing that settlements that end litigation

may “facilitate innovation and investment in the

patented technology by eliminating litigation risks

and providing certainty over patent rights”) (internal

quotations omitted), denying cert. to In re Cardizem CD

Antitrust Litig., 332 F.3d 896 (2003), available at

http://www.usdoj.gov/osg/briefs/2004/2pet/6invit

/2003-0779.pet.ami.inv.pdf; cf. id. at 8 (“Although

‘public policy wisely encourages settlements’ of legal

disputes, McDermott, Inc. v. AmClyde, 511 U.S. 202,

215 (1994), it does not follow that all settlements are

in the public interest.”). 

32 ANTITRUST-IP GUIDELINES § 5.6; see also supra

Chapter 3, Antitrust Analysis of Portfolio CrossLicensing Agreements and Patent Pools Part III.D.3

(noting that patent pools may include grantbacks to

access newly developed, essential IP). 

33

 See Nov. 6 Tr. at 119, 121-22 (McFalls); id. at 120,

124 (Fromm).

34

 Id. at 123-24 (Fromm).

35

 Id. at 124 (Fromm) (referring to nonexclusive

agreements); id. at 124-25 (Shapiro); see also discussion

of non-assertion clauses supra Part II.

36

 See Nov. 6 Tr. at 118-19 (McFalls); id. at 120

(Fromm). 

37

 Id. at 118 (McFalls).

38

 Id. at 118-19 (McFalls).

39

 Id. at 119 (McFalls); see also id. at 120 (Fromm)

(stating that grantbacks, at least as to improvements,

are “reasonably pervasive” in the computer industry).

40 Nov. 6 Tr. at 118 (McFalls).

41

 Id. at 117-18 (McFalls). 
92 PROMOTING INNOVATION AND COMPETITION

claiming the drug would not infringe the

research tool patent.42 One panelist

explained that like many other licensing

arrangements, grantbacks may or may

not be royalty-free.43

A. Efficiencies of Grantbacks

The Agencies already have noted

that grantbacks, particularly those that

are nonexclusive, can offer efficiencies to

licensees and licensors.44 A grantback can

facilitate downstream licensing because it

provides a good way to value the licensed

intellectual property, one panelist

asserted, stating that a grantback is “a

useful way for the original licensor to get

some value later on [when an] initial

contract may be hard to write.”45

Moreover, a nonexclusive grantback can

“serve as [an] alternative[] to higher

royalty rates where the nature and value

of future improvements is uncertain.”46

The Agencies recognize that a grantback

can foster the sharing of risk and “reward

the licensor for making possible further

innovation based on or informed by the

licensed technology.”47 Panelists stated

that, like a non-assertion clause, a

grantback can also facilitate bargaining48

and encourage information exchange by

eliminating a licensor’s concern that a

licensee will assert a blocking patent

position in the future.49 

B. CompetitiveConcernsAssociated

with Grantbacks

Panelists stated that the primary

anticompetitive concern presented by

grantbacks is their potential for adverse

effects on innovation.50 Some have

expressed concern that an exclusive

grantback that allows only the original

licensor to reap the rewards of any

follow-on invention can deter innovation

42

 See Michael A. Heller & Rebecca S. Eisenberg, Can

Patents Deter Innovation? The Anticommons in

Biomedical Research, 280 SCIENCE 698, 699 (1998); Jane

Nielsen, Reach-Through Rights in Biomedical Patent

Licensing: A Comparative Analysis of Their

Anticompetitive Reach, 32 FED. L. REV. 169, 170-71, 176

(2004); see also infra Part IV (discussing reach-through

licensing agreements).

43 Nov. 6 Tr. at 118 (McFalls).

44 ANTITRUST-IP GUIDELINES § 5.6; see also 1 HERBERT

HOVENKAMP, MARK D. JANIS & MARK A. LEMLEY, IP

AND ANTITRUST: AN ANALYSIS OF ANTITRUST

PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY LAW

§§ 25.2 to -.4, at 25-2 to -10 (2002) [hereinafter 1

HOVENKAMP ET AL., IP AND ANTITRUST].

45 Nov. 6 Tr. at 133 (Ordover).

46 1 HOVENKAMP ET AL., IP AND ANTITRUST § 25.2, at

25-2 (“Nonexclusive grantback clauses are virtually

always competitive.”).

47 ANTITRUST-IP GUIDELINES § 5.6.

48 According to one panelist, grantbacks in the

biomedical field aid in valuing a research tool, for

example, by granting back an option to a license on

the end product. Nov. 6 Tr. at 151-52 (McGarey).

49

 See, e.g., id. at 128-29 (Rule) (stating that the same

efficiencies are associated with non-assertion clauses).

50

 Id. at 135 (Farrell); see also id. at 133-34 (Ordover).

The anticompetitive concerns associated with the use

of grantbacks within a patent pool are discussed in

Chapter 3, Antitrust Analysis of Portfolio CrossLicensing Agreements and Patent Pools, and are

essentially the same as those noted here. Broad

grantback clauses that, for example, “cover entirely

unrelated technology, [cover] future as well as

present patents, [or] cover non-essential as well as

essential patents,” may deter innovation and should,

according to panelists, engender antitrust scrutiny. 

M. Howard Morse, Cross-Licensing and Patent Pools

(Apr. 17, 2002 Hr’g R.) at 14, http://www.ftc.gov/

opp/intellect/020417mhowardmorse.pdf; see Apr. 17

Tr., Patent Pools and Cross-Licensing: When Do

They Promote or Harm Competition? at 204-05

(Morse) (recognizing that Department of Justice

business review letters had approved grantback

provisions that were structured so as not to impede

innovation), http://www.ftc.gov/opp/intellect/

020417trans.pdf.
Other IP Licensing Practices 93

because the licensee will receive none of

the benefits from any future

improvements it might make.51 One

panelist stated that, as in the case of a

non-assertion clause, the disincentive to

innovate increases if the grantback

provision “is larger in scope than the

forward-going license or longer in

duration than the . . . license [for which

the grantback is conveyed].”52 Some have

argued that grantbacks also have the

potential to extend improperly a

patentee’s market power because

“numerous improvements made by

different licensees all come back to the

original patentee. The patentee can then

use all the improvements, not merely to

obtain control of the affected technology

during the life of the original patent, but

often for a subsequent time as well.”53 

Thesepotential concerns,however,

must be measured against the “but for”

world; that is, the Agencies must consider

the amount of innovation that might have

occurred in the absence of the licensing

restraint.54 As noted earlier, grantback

provisions can make follow-on

innovation possible. Without the security

of a grantback provision, a licensor may

be hesitant to share its intellectual

property with others, fearing that it might

be prevented from accessing and

benefitting fromfollow-onimprovements

to its own technology.55

IV. REACH-THROUGHLICENSING

AGREEMENTS

Reach-thr o ugh licensing

agreements grant the owner of a patent

on an upstream research tool56 the right to

receive consideration based on sales or

usage of a subsequent downstream

product created with that tool.57 For

example, a reach-through licensing

agreement might allow a pharmaceutical

company to use a patented research tool

to identify components of what becomes

a marketable drug without paying

royalties to the tool owner before

commercialization of the product.58

51 1 HOVENKAMP ET AL., IP AND ANTITRUST § 25.3, at

25-6 to -7.

52 Nov. 6 Tr. at 120 (Fromm); see also id. at 137

(Fromm) (“[T]here ought to be heightened scrutiny

whenever there is . . . a significant difference in the

grantback or the non-assertion provisions in the

forward-going licenses.”).

53 1 HOVENKAMP ET AL., IP AND ANTITRUST § 25.3, at

25-7; see also John H. Barton, Patents and Antitrust: A

Rethinking in Light of Patent Breadth and Sequential

Innovation, 65 ANTITRUST L.J. 449, 461-62 (1997). 

54

 See ANTITRUST-IP GUIDELINES §§ 3.1, 3.3.

55

 See ANTITRUST-IP GUIDELINES § 5.6; supra Part III.A;

see also Nov. 6 Tr. at 128-29 (Rule) (discussing how

grantbacks and non-assertion clauses can promote

cooperation and information exchange between

licensor and licensee).

56 Patented research tools, which have primarily

arisen in the pharmaceutical and biotechnology

fields, are technologies “used to find, refine, or

otherwise design and identify a potential product.” 

FTC INNOVATION REPORT ch. 3, at III(D)(1)(c); see also

Nov. 6 Tr. at 159 (McGarey) (“[I]n the context of

reach-through [licensing agreements] . . . we’re

talking about broad enabling tools that are not

destined to be products themselves . . . .”). 

57 FTC INNOVATION REPORT ch. 3, at III(E)(1). 

Although a research tool is used to develop a new

product, the sale or use of the new product generally

will not infringe the claims of the research tool patent. 

See Feb. 26, 2002 Hr’g Tr., Business Perspectives on

Patents: Biotech and Pharmaceuticals (Afternoon

Session) at 260 (Blackburn) (“[A research tool] is not a

patent that covers the final product that is the subject

of ongoing manufacture and sale.”),

http://www.ftc.gov/opp/intellect/020226trans.pdf

[hereinafter Feb. 26 Tr.].

58 Heller & Eisenberg, 280 SCIENCE at 699; see also

Janice M. Mueller, No “Dilettante Affair”: Rethinking

the Experimental Use Exception to Patent Infringement for
94 PROMOTING INNOVATION AND COMPETITION

Rather, the research tool owner would

opt to “reach through” and receive a

royalty based on a percentage of the

drug’s future sales.59 This arrangement

can be particularly valuable to the

contracting parties in cases in which the

creator of the downstream product has

only limited ability to pay or borrow

funds to cover up-front licensing costs.60

Reach-through licensing agreements may

also include the ability to use future

patented inventions, including the option

to license the final product created using

an upstream research tool.61

A. Efficiencies of Reach-Through

Licensing Agreements

According to panelists, reachthrough licensing agreements can create

efficiencies when they promote the

dissemination of an upstream research

tool, by, for example, creating a way to

value the research tool or establish a

reasonable royalty.62 Some have reported

that the initial fee for use of a patented

research tool may be difficult to

determine when there is no “commercial

product in existence” and “the research

tool owner and the tool user may have

very different views about the proper

economic valuation of the tool.”63

Panelists said that by allowing the

research tool patent owner to accrue

royalties on sales of downstream

discoveries in lieu of up-front royalties,

the parties are better able to assess the

value of the research tool by taking into

account the value of the product

developed using the research tool.64

Reach-through licensing agreements also

permit the research tool owner and

follow-on researchers to share innovation

risks, with the research tool owner

gambling that his tool will lead to the

development of a commercially viable

Biomedical Research Tools, 76 WASH. L. REV. 1, 16

(2001); Nielsen, 32 FED. L. REV. at 171.

59 Heller & Eisenberg, 280 SCIENCE at 699.

60

 See Mueller, 76 WASH. L. REV. at 16.

61 Heller & Eisenberg, 280 SCIENCE at 699; Nielsen, 32

FED. L. REV. at 171; see also Nov. 6 Tr. at 151-52

(McGarey) (stating a reach-through licensing

agreement may take the form of a grantback of an

option to exclusively license the downstream

innovation). 

62

 Nov. 6 Tr. at 155 (Burtis) (“[If] whatever is

commercialized never has a market, then the person

who has bought the tool ends up paying a very little

amount for the tool.”); id. at 171 (Rule) (suggesting

the Agencies should not be concerned with reachthrough license agreements because the agreements

“essentially captur[e] the value created by intellectual

property” and allow for a broader dissemination of

the technology); see also Nielsen, 32 FED. L. REV. at 171

(“Reach-through rights allow patent holders to

license and reali[z]e value on their inventions even

when that value is speculative. In this respect, they

encourage the dissemination of patented inventions

and are likely to have a positive effect on

innovation.”); Mueller, 76 WASH. L. REV. at 59

(“[Reach-through license agreements are] an

expedient method of measuring the value of the use

of the research tool rather than an unlawful leverage

of the patent right.”); Nov. 6 Tr. at 151-52 (McGarey)

(acknowledging that a reach-through arrangement is

a way to value the technology).

63 Mueller, 76 WASH. L. REV. at 16.

64

 See Nov. 6 Tr. at 154-56 (Burtis) (“[P]eople [like]

reach-through agreements because . . . [they are] a

way to efficiently price . . . .”); Feb. 26 Tr. at 279

(Blackburn) (“I think that really reduces to a price

negotiation, how much does the tool owner profit

from the successful development of a product. So

that allocation of risk I think is taken care of in the

pricing.”); see also Nielsen, 32 FED. L. REV. at 176 (“If

an upstream invention is subsequently determined to

be a foundational research tool, setting a value on it

too early would deprive the patent holder of valuable

income, and allow the licensee to reali[z]e a windfall

gain. Reach-through rights allow the patent holder to

defer decisions about the value of research tools and

technologies.”).
Other IP Licensing Practices 95

product.65 In this way, reach-through

licenses may facilitate an efficient

allocation of risk when there is

uncertainty regarding the value of the

licensed technology.

B. Competitive Concerns About

Reach-Through Licensing

Agreements

Panelistswereprimarily concerned

that reach-through licensing agreements

could impair innovation in downstream

markets66 because of “royalty stacking”

by multiple research tool owners.67

Royalty stacking occurs when royalties

are owed to multiple licensors. As one

panelist noted, when “one company

comes in and asks for five percent,

another company comes in and asks for

five percent, . . . all of a sudden you’re . .

. giving away a hundred and twenty

percent, three hundred percent of your

revenues to various patents.”68 Although

no rational firm would knowingly agree

to give up all its profits, some have

expressed concern that the cumulative

royalties of all upstream holders have the

potential to stifle follow-on innovation if

they reach a level at which

commercialization of the improvement is

no longer profitable from a business

perspective.69 Thus, some fear royalty

stacking may result in a “tragedy of the

anticommons” whereby “people under

use scarce resources because too many

owners can block each other.”70 At the

Hearing, the Deputy Associate General

Counsel of the National Institutes of

Health (“NIH”) explained that NIH

adopted a policy discouraging the use of

reach-through royalty agreements

65

 See, e.g., Feb. 26 Tr. at 275 (Blackburn) (“Reachthrough royalties are a way to lower the up-front

costs for the smaller firms and to have a risk-sharing

arrangement basically with the tool owner . . . .”). But

see id. at 278 (Oehler) (questioning whether “risk is

truly shared” when a tool may prove valuable in

early stages of research and development but the end

product fails in clinical trials). 

66

 See, e.g., Nov. 6 Tr. at 153 (McGarey) (arguing that

reach-through agreements can result in a “pile-up” of

royalties that impair innovation); July 10, 2002 Hr’g

Tr., Trends in Federal Circuit Jurisprudence (Morning

Session) at 56-57 (Scherer) (stating that numerous

upstream patents can impede downstream

innovation by, among other things, attempting to

collect royalties individually), http://www.ftc.gov/

opp/intellect/020710trans.pdf; Oct. 30, 2002 Hr’g Tr.,

Competition, Economic, and Business Perspectives on

Substantive Patent Law Issues: Non-Obviousness

and Other Patentability Criteria at 175 (Stoner)

(asserting that when an upstream patent manages the

downstream flow of innovations it could lead to less

downstream commercialization),

http://www.ftc.gov/opp/intellect/021030trans.pdf

[hereinafter Oct. 30 Tr.].

67

 See Mueller, 76 WASH. L. REV. at 7 (“Innovation is

impeded by the ‘royalty stacking’ problem imposed

by the numerous upstream patents that must be

practiced in order to make the new downstream

product.”); ORGANISATION FOR ECON. CO-OPERATION

& DEV., GENETIC INVENTIONS, INTELLECTUAL PROPERTY

RIGHTS AND LICENSING PRACTICES: EVIDENCE AND

POLICIES 63 (2002) [hereinafter GENETIC INVENTIONS]

(“The concerns evoked about reach-through royalties

are that they increase royalty stacking, as multiple

tests and assays are needed when developing a

medicinal product[;] that they make project

management more complex and the relationship to

all collaborators more delicate[;] and that they are

costly to negotiate.”).

68 Feb. 27, 2002 Hr’g Tr., Business Perspectives on

Patents: Software and the Internet (Morning Session)

at 415 (Kohn) (noting the high transaction costs

stemming from proliferating patents), 

http://www.ftc.gov/opp/intellect/020227trans.pdf.

69

 See, e.g., GENETIC INVENTIONS at 61-62 (describing

the large number of license agreements

pharmaceutical companies must enter).

70 Heller & Eisenberg, 280 SCIENCE at 698; see also Feb.

26 Tr. at 310-11 (Kirschner) (explaining the potential

for an anticommons problem in the biotechnology

industry due to the proliferation of reach-through

royalty agreements); FTC INNOVATION REPORT ch. 3,

at III(D)(4)(a).
96 PROMOTING INNOVATION AND COMPETITION

because they may impose restrictions on

the IP developed using the tool, as well as

create multiple royalty obligations

associatedwithdownstreamdiscoveries.71

Some have argued that reachthrough licensing does not allow a

patentee to capture excessive royalties

and does not pose a concrete harm to

innovation. As one panelist explained:

“If the licensor . . . is about to propose a

royalty that’s going to kill the product

they’re not going to make any money.

And most of the players in this field are

sophisticated enough to understand

that.”72 In any event, the inefficiencies

associated with royalty stacking canoccur

even without the use of reach-through

licensing agreements.73 Thus, some

panelists opined that reach-through

licensing agreements raise no real

competitive concerns unless licensors

adversely affect innovationbyprohibiting

entry or exploitation of the upstream

research tool or downstream products.74

Inaddition, another panelist reported that

extensive interviews of people in the

biomedical industry demonstrated that

the “anticommons” had not developed.75

Panelists also suggested thatreachthrough agreements could reduce

incentives to challenge a potentially

invalid patent or the scope of protection

claimed by the patent “by specifying that

payments continue even if the patent

were to be found invalid or the product

[is] non-infringing.”76 Other panelists

asserted that the collection of royalties on

a patent that is beyond its statutory term

or scope could amount to an antitrust

violation or patent misuse.77 These

71 Nov. 6 Tr. at 152-53, 158 (McGarey) (discussing the

problems reach-through agreements pose for the

NIH); see also Principles and Guidelines for Recipients

of NIH Research Grants and Contracts on Obtaining

and Disseminating Biomedical Research Resources,

64 Fed. Reg. 72,090, 72,091 (Dec. 23, 1999), available at

http://ott.od.nih.gov/pdfs/64FR72090.pdf; Mueller,

76 WASH. L. REV. at 7-8, 16 (discussing NIH’s

position). To foster access to protected research tools,

for which a license on reasonable terms cannot be

freely negotiated, the National Research Council of

the National Academies recommends that federal

research-sponsoring agencies assume liability for

patent infringement arising from the use of a

protected research tool by including an

“authorization and consent” clause in research

funding instruments. COMM. ON INTELLECTUAL PROP.

RIGHTS IN THE KNOWLEDGE-BASED ECON., NAT’L

ACADS., A PATENT SYSTEM FOR THE 21ST CENTURY 115-

17 (Stephen A. Merrill et al. eds., 2004). 

72 Feb. 26 Tr. at 315 (Blackburn) (“[Most research tool

owners are] fairly sophisticated and know that [they

will] kill the goose if the stack is too high.”). 

73 If numerous complementary patents are necessary

to create a new innovation and these patents are

valued independently by multiple licensors, then the

total royalties paid generally will be greater than they

would be if all patents were controlled by a single

licensor. See, e.g., Carl Shapiro, Navigating the Patent

Thicket: Cross Licenses, Patent Pools, and Standard

Setting, in 1 INNOVATION POLICY AND THE ECONOMY

121, 122-23 (Adam B. Jaffe et al. eds., 2000). In

economics, this problem is known as “double

marginalization” and can be mitigated with the use of

a patent pool. See supra Chapter 3, Antitrust Analysis

of Portfolio Cross-Licensing Agreements and Patent Pools

Part III.D.1.b.

74

 See Nov. 6 Tr. at 169 (Ordover); id. at 171-72 (Rule);

id. at 169-70 (McGarey) (“[NIH] certainly [does not]

like reach through [licensing agreements] . . . but I

don’t think I can say that it’s anticompetitive or it’s

something that the Federal Trade Commission or the

Department of Justice needs to look at because . . . it’s

something that the marketplace takes care of,

perhaps, very painfully.”).

75

 See Oct. 30 Tr. at 149 (Cohen).

76 Nov. 6 Tr. at 172-73 (Farrell).

77 Feb. 26 Tr. at 269-70 (Earp) (stating that collecting

royalties on noninfringing downstream products

raises antitrust and misuse issues); Nov. 6 Tr. at 153

(McGarey) (“[A] patent owner is trying to get, by

contract, what they could not get through their patent

rights, because typically . . . the tool is not going to

show up in the final product. And so, it’s a way for a
Other IP Licensing Practices 97

panelists suggested that the patent misuse

doctrine or antitrust law would not allow

a “licensing company [to demand]

royalties on the sale of a product that is

not covered by [its] patent”78 or to extend

royalty payments beyond the enforceable

life of the patent on the underlying

researchtool.79 Other panelists disagreed.

From an economics perspective,

“spreading out royalties over a larger

[base] and a lower rate could be better,”

one panelist opined, because that would

suggest the licensee negotiated a lower

rate.80 From a legal perspective, another

panelist remarked, reach-through

royalties can be a mechanism for

metering, which antitrust law has

generally treated favorably because it

“tends to disseminate technology [often

more broadly] than a single price.”81

Indeed, in 2002 one federal trial court

found no patent misuse when a reachthrough licensingagreement provided for

royalties based on products not covered

by the patent and allowed for the

collection of royalties beyond the term of

the patent, because the agreement was

structured for the convenience of the

parties and was valued based on the

patent’s actual term.82

V. PER SPECTI VES O N

ANTITRUST ANALYSIS OF

LICENSING PRACTICES

Panelistsdebatedseveral analytical

approaches for evaluating competitive

concerns raised by the licensing practices

discussed in this Chapter, particularly

with respect to non-assertion clauses and

grantbacks. One panelist, for example,

advocated an assessment of likely

competitive effects in both the relevant

product and innovation markets.83

patent owner to really extend rights that the patent

system has not really given them.”). See generally infra

Chapter 6, Competitive Issues Regarding Practices That

Extend the Market Power Conferred by a Patent Beyond

Its Statutory Term.

78 Feb. 26 Tr. at 270 (Earp) (citing Zenith Radio Corp. v.

Hazeltine Research, Inc., 395 U.S. 100, 135 (1969)

(“[C]onditioning the grant of a patent license upon

payment of royalties on products which do not use

the teaching of the patent does amount to patent

misuse.”)); see also Nov. 6 Tr. at 157 (Fromm)

(advocating for heightened scrutiny of a reachthrough agreement when a patentee receives royalties

on an unpatented item).

79 Nov. 6 Tr. at 163 (Fromm); see also Brulotte v. Thys

Co., 379 U.S. 29, 32 (1964) (“[A] patentee’s use of a

royalty agreement that projects beyond the expiration

date of the patent is unlawful per se.”). 

80 Nov. 6 Tr. at 162-63 (Shapiro); cf. Scheiber v. Dolby

Labs., Inc., 293 F.3d 1014, 1017 (7th Cir. 2002) (“The

duration of the patent fixes the limit of the patentee’s

power to extract royalties; it is a detail whether he

extracts them at a higher rate over a shorter period of

time or a lower rate over a longer period of time.”),

cert. denied, 537 U.S. 1109 (2003); see also Richard

Gilbert & Carl Shapiro, Antitrust Issues in the Licensing

of Intellectual Property: The Nine No-No’s Meet the

Nineties, 1997 BROOKINGS PAPERS ON ECON. ACTIVITY,

MICROECONOMICS 283, 322 (permitting royalties to be

paid over a longer period can reduce the deadweight

loss from the patent monopoly); infra Chapter 6,

Competitive Issues Regarding Practices That Extend the

Market Power Conferred by a Patent Beyond Its Statutory

Term Part I.

81 Nov. 6 Tr. at 171 (Rule); see also Mueller, 76 WASH.

L. REV. at 62 (“A reach-through license agreement

merely time-shifts the royalty payments to the period

when they are most accurately indicating the research

tool’s true value to the user.”).

82

 Bayer AG v. Housey Pharms., Inc., 228 F. Supp. 2d

467, 471-72 (D. Del. 2002). But see Robin C. Feldman,

The Insufficiency of Antitrust Analysis for Patent Misuse,

55 HASTINGS L.J. 399, 448 (2003) (“Patent misuse rules

based on whether the agreement is voluntary fail to

recognize that an agreement may be in the interests of

both parties and yet be adverse to the interests of the

patent system as a whole.”) (footnote omitted).

83 Nov. 6 Tr. at 139 (McFalls) (“[T]he focus . . . has to

return to what’s the actual effect going to be on the

grantor of a non-assert’s incentive to innovate, and

are they an important innovator in the product

market in which that entry could occur, and are you
98 PROMOTING INNOVATION AND COMPETITION

Although other participants agreed that

such an analysis would be desirable, they

questioned whether it would always be

practical.84 Another panelist proposedthe

use of a market power screen, asking “do

the firms entering into this agreement

jointly have market power?”8 5

Consideration of market structure,

market power, and complementarities

can, according to the panelist, lead to a

correct assessment of parties’ incentives

for efficient rather than anticompetitive

conduct or vice-versa.86 

Panelists suggested that market

power is not always easy to determine,

however.87 One participant therefore

advocated applying the ancillary

restraints doctrine to assess a potentially

anticompetitive provision as “a heuristic

kind of approach” that “establishes

certain rules that are administrable and

somewhat easy to understand and apply

at the time you’re doing an agreement.”88

Another panelist found the doctrine to be

unhelpful in some cases, when there are

no restrictions on the use of the

technology, as is the case for a mutual or

one-way non-assertion agreement.89

Other panelists desired more definite

guidance, such as specific factors to

consider when structuring a licensing

agreement or practices that raise “red

flags” or provide “green lights.”90 Using

a grantback as an example, one panelist

proposed several shortcuts, inquiring

whether the grantback is “beyond the

duration of the license” or “relating to

products that are only marginally related

to the initial licensed technology” or if it

is exclusive.91 This panelist conceded,

however, that defining such shortcuts

would be difficult because “at this stage

[we are] still looking for answers.”92

Another panelist asserted that fixed rules

are not the best answer, pointing to the

abandonment of the “Nine No-Nos” by

the Department of Justice.93

going to lose product differentiation or value to

consumers at the end of this long road.”).

84

 Id. at 140 (Farrell); id. at 141-42 (Rule); id. at 142-43

(Fromm).

85

 Id. at 131 (Farrell).

86

 Id. at 132 (Farrell).

87 Nov. 6 Tr. at 136 (Fromm) (stating market power is

difficult to measure); see also id. at 134-35 (Ordover)

(focusing on the question of appropriate markets in

which to measure market power). 

88

 Id. at 141 (Rule).

89

 Id. at 138 (McFalls).

90

 Id. at 145 (Ordover); see also id. at 143 (Fromm)

(“[I]s the grantback or . . . non-assert provision

significantly more extensive than the forward-going

[license].”); Jeffrey Fromm, Patent Pools and CrossLicensing (Apr. 17, 2002 Hr’g R.) at 8-9 (proposing a

rule of presumptive legality for portfolio cross

licenses which could be overcome in certain

circumstances), http://www.ftc.gov/opp/intellect/

020417jefferyfromm.pdf.

91 Nov. 6 Tr. at 145 (Ordover). 

92

 Id. 

93

 Id. at 147 (Rule); see also Bruce B. Wilson, Deputy

Assistant Attorney Gen., U.S. Dep’t of Justice, Patent

and Know-How License Agreements: Field of Use,

Territorial, Price and Quantity Restrictions, Remarks

Before the Fourth New England Antitrust Conference

(Nov. 6, 1970), reprinted in ANTITRUST PRIMER:

PATENTS, FRANCHISING, TREBLE DAMAGE SUITS 11

(describing the patent licensing practices covered by

the Nine No-Nos); Abbott B. Lipsky, Jr., Deputy

Assistant Attorney Gen., U.S. Dep’t of Justice, Current

Antitrust Division Views on Patent Licensing

Practices, Remarks Before the American Bar

Association Antitrust Section (Nov. 5, 1981), reprinted

in 4 Trade Reg. Rep. (CCH) ¶ 13,129 (abandoning

application of the Nine No-Nos).
Other IP Licensing Practices 99

VI. THEAGENCIES’COMPETITIVE

CONCERNS AND ANALYSES 

The Agencies generally agree with

the panelists’ conclusions that fixed

antitrust rules in intellectual property

licensing are often difficult to articulate94

and are not necessarily desirable.

95 To

evaluate whether a particular restraint is

likely to have anticompetitive effects

pursuant to the rule of reason, the

Agencies ask whether the restraint is

likely to diminish competition in a

properly defined market “among entities

that would have been actual or likely

potential competitors” in the absence of

that restraint.96 Pursuant to a rule of

reason analysis, the Agencies consider the

anticompetitive concerns and the

effi ciencies of the particula r

arrangement.

97 In general, the Agencies

expect that non-assertion agreements,

grantbacks, and reach-through licenses

either will not raise any competitive

concerns or that the efficiencies of these

types of agreements will be sufficient to

alleviate competitive concerns. Several

factors will be particularly relevant to the

Agencies’ examination of these licensing

practices, including (1) whetherthepatent

holder possesses market power in the

relevant market, (2) whether the practice

encourages unlawful coordinationamong

competitors, (3) whether the practice

inhibits entry of other firms through the

licensing regime’s exclusivity or

exclusion, and (4) whether the practice

reduces the incentive to innovate in the

future.98

As a threshold matter, the

Agencies do “not presume that a patent,

copyright, or trade secret necessarily

confers market power upon its owner”

because intellectual property rights are

not necessarily associated with market

power.99 A patent, for example,

may create a monopoly—just as an

auto manufacturer may own all of

the auto production facilities—but

property and monopoly usually

differ. That a patent covers an

“entire” idea or product no more

implies monopoly than the fact

that USX Corporation owns the

“entire” South Works in Chicago.

Frequently, indeed almost always,

different patented goods and

processes compete with each other

94

 See Nov. 6 Tr. at 145 (Ordover).

95

 Id. at 147, 187 (Rule); see also id. at 185 (Shapiro).

96

 See ANTITRUST-IP GUIDELINES § 3.1 & n.14 (“A firm

will be treated as a likely potential competitor if there

is evidence that entry by that firm is reasonably

probable in the absence of the licensing agreement.”);

U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N,

ANTITRUST GUIDELINES FOR COLLABORATIONS AMONG

COMPETITORS § 3.1 (2000), reprinted in 4 Trade Reg.

Rep. (CCH) ¶ 13,161 (“Under the rule of reason, the

central question is whether the relevant agreement

likely harms competition by increasing the ability or

incentive profitably to raise price above or reduce

output, quality, service, or innovation below what

likely would prevail in the absence of the relevant

agreement.”), available at http://www.ftc.gov/os/

2000/04/ftcdojguidelines.pdf.

97 ANTITRUST-IP GUIDELINES § 3.4.

98

 See id. § 3.2.3 (considering future innovation); id. §

4.1.2 (discussing licensing arrangements involving

exclusivity); id. § 5.5 (considering portfolio cross

licenses and patent-pooling arrangements); id. § 5.6

(discussing grantbacks). See generally id. § 3.1.

99

 Id. § 2.2; see also Ill. Tool Works Inc. v. Indep. Ink, Inc.,

126 S. Ct. 1281, 1293 (2006) (“Congress, the antitrust

enforcement agencies, and most economists have all

reached the same conclusion that a patent does not

necessarily confer market power upon the

patentee.”).
100 PROMOTING INNOVATION AND COMPETITION

and with unpatented goods and

processes.100

For this reason, “the antitrust agencies

determine whether a patent owner

possesses market power by applying the

same analysis that they apply to any other

valuable asset, which requires the

consideration of possible substitutes that

might allow consumers to turn to other

suppliers of a similar product or

process.”101 Consistent with this

approach, in Illinois Tool, the U.S.

Supreme Court recently held that market

power cannot be presumed based on the

existence of a patent.102 Equally

important is the notion that, “[i]f a patent

or other form of intellectual property

does confer market power, that market

power does not by itself offend the

antitrust laws.”103 Market power that is

“solely ‘a consequence of . . . superior

product, business acumen, or historic

accident’” does not create competition

concerns.104 Efficiently exploiting the

market power that might be associated

with an intellectual property right is

likely reasonable conduct under the

Agencies’ framework, provided that

market power is legitimately obtained

and maintained.105

Although efficient exploitation of

the market power associated with an

intellectual property right is likely

reasonable and procompetitive activity,

the licensing of intellectual property

rights caninvolve coordination, especially

if a license includes restrictions on the use

of the intellectual property rights.

Coordination between or among

intellectual property holders on one

aspect of competition may provide a

means or opportunity for coordination on

other aspects of competition, such as

downstream price or output.1 0 6

Sometimes competitive concerns arise not

from the underlying arrangement itself,

but rather from attendant restrictions that

may facilitate coordination on price or

other competitive variables.107 

In addition, exclusivity could raise

competitive concerns if, for example,

firms agreed to limit their granting of

non-assertion clauses to each other,

100 Frank H. Easterbrook, Intellectual Property is Still

Property, 13 HARV. J.L. & PUB. POL’Y 108, 109 (1990).

101 Brief for the United States as Amicus Curiae

Supporting Petitioners at 13-14, Ill. Tool, 126 S. Ct.

1281 (No. 04-1329), available at

http://www.usdoj.gov/osg/briefs/2005/3mer/1ami

/2004-1329.mer.ami.pdf; ANTITRUST-IP GUIDELINES §§

2.1, 2.2. The existence of substitute inputs for the

patented input that could be used as a work-around

when producing the final product may also be

relevant to the Agencies’ analysis.

102

 Ill. Tool, 126 S. Ct. at 1293. 

103 ANTITRUST-IP GUIDELINES § 2.2.

104

 Id. (citing United States v. Grinnell Corp., 384 U.S.

563, 571 (1966)).

105

 See id. §§ 2.2, 3.4. 

106

 See id. § 5.5 (“Collective price or output restraints

in pooling arrangements, such as the joint marketing

of pooled intellectual property rights with collective

price setting or coordinated output restrictions, may

be deemed unlawful if they do not contribute to an

efficiency-enhancing integration of economic activity

among the participants.”); supra Chapter 3, Antitrust

Analysis of Portfolio Cross-Licensing Agreements and

Patent Pools Part III.D.5.

107

 See ANTITRUST-IP GUIDELINES § 5.5; Nov. 6 Tr. at

116-17 (Rule) (“[P]otentially the big issue is—and this

really goes to consumers in many ways—are the

restrictions that come along with the cross- licensing

and the pooling [agreements] . . . . [I]t is something

that . . . lawyers, when they look at these problems,

are particularly concerned about as opposed to the

question of whether to enter into that agreement, per

se.”).
Other IP Licensing Practices 101

precluding other competitors from

receiving such protection from

infringement suits by the parties to the

agreement. An exclusive reach-through

licensing agreement might also raise

competitive concerns ifithas a substantial

impact on the ability of other competitors

to innovate.108 Of course, the Agencies

recognize that exclusivity can have

desirable effects on competition and

innovation, by, for example, encouraging

investment in the research, development,

and marketing of a product created with

the licensed technology.109 Thus, when

analyzing a particular license requiring

exclusivity, the Agencies weigh such

efficiencies against any anticompetitive

effects.110

Finally, certain licensing practices

could impede innovation. If a license

includes restrictions on patents that have

yet to be issued or filed, competitive

concerns could arise about the

arrangement’s likely effect on future

innovation. Scholars have expressed

concern about grantbacks that require the

licensee to assign all rights to

improvements to the grantor, thereby

potentially reducing the licensee’s

incentives to improve the patented

technology.111 Non-assertion clauses that

are the functional equivalent of broadly

worded grantbacks could raise similar

concerns. 

In contrast, the Agencies may find

that a situation such as the “royalty

stacking” generated by multiple reachthrough licensing agreements does not

raise antitrust concerns even when it

might impede innovation. In some cases,

licenses on multiple patents, each

requiring payment of a royalty, are

legitimately required to innovate,

develop, or commercialize anewproduct.

However, assuming no anticompetitive

conduct and that the patents at issue are

legitimate, the mere fact that the

cumulative cost of the licenses might

impede innovation is not an antitrust

issue. In this context, the antitrust laws

permit a single IP holder with a desirable

intellectual property asset to extract as

much return as the market will bear for

the use of that property.112

Moreover, according to panelists,

it is often not clear that the cost of

royalties arising from reach-through

licensing agreements will be excessive,

such that it impedes innovation or

otherwise causes competitive harm. The

royalty that an upstream firm may charge

for use of a patented research tool will be

108 Sections 4.1.2 and 5.4 of the ANTITRUST-IP

GUIDELINES outline the analysis relevant to both

exclusivity and exclusion in the context of the types of

arrangements discussed in this Chapter. 

109 ANTITRUST-IP GUIDELINES § 2.3.

110

 Id. §§ 3.4, 4.1.2.

111

 See supra notes 50-53 and accompanying text.

112

 See, e.g., R. Hewitt Pate, Assistant Attorney Gen.,

U.S. Dep’t of Justice, Competition and Intellectual

Property in the U.S.: Licensing Freedom and the

Limits of Antitrust, Address Before the 2005 EU

Competition Workshop 8-9 (June 3, 2005), available at

http://www.usdoj.gov/atr/public/speeches/209359

.pdf; Gerald F. Masoudi, Deputy Assistant Attorney

Gen., U.S. Dep’t of Justice, Intellectual Property and

Competition: Four Principles for Encouraging

Innovation, Address Before the Digital Americas 2006

Meeting 7-8 (April 11, 2006), available at

http://www.usdoj.gov/atr/public/speeches/215645

.pdf; Schor v. Abbott Labs., 457 F.3d 608, 610 (7th Cir.

2006) (Easterbrook, J.) (“[Absent some exclusionary

practice,] [t]he price of [a patented product] cannot

violate the Sherman Act: a patent holder is entitled to

charge whatever the traffic will bear.”); see also

ANTITRUST-IP GUIDELINES § 2.2.
102 PROMOTING INNOVATION AND COMPETITION

limited by the downstream firm’s

willingness to pay. That willingness will

reflect the value of the patent to the

downstream firm, and includes

considerations such as theprobability that

the patent would be found invalid or

unenforceable, as well as the difficulty of

detecting infringement. The Agencies’

rule of reason analysis, applied to

particular facts, may well indicate that

anticompetitive harm would not arise

from a reach-through licensing

agreement,113 in which case the Agencies

would not challenge the agreement.114

VII. CONCLUSION

Panelists generally agreed that the

various licensing practices discussed in

this Chapter can provide great efficiencies

to the contracting parties that would

ultimately benefit consumers, but also

that each licensing practice has the

potential to stymie innovation and

weaken competition among firms. These

countervailing effects complicate an

antitrust analysis, especially because

procompetit i v e benefit s an d

anticompetitive effects can be difficult to

unravel, and may or may not be present

in any individual case. Indeed, the

competitive effects of certain licensing

practices are not obvious—an example is

the reach-through license, where the

harm may not be apparent simply by

examining the four corners of the

agreement. Most panelists recognized

that the Agencies are not in a position

immediately to decipher possible

pro competitiv e benefits and

anticompetitive effects or to provide fixed

rules that work efficiently in every case.

Although “red flags” and “green lights”

may be easy to apply, many panelists

found them considerably less desirable

than the Agencies’ current approach

based on principled economics.115 

The Agencies will continue to

apply the flexible framework set forth in

the Antitrust-IP Guidelines and to

evaluate each licensing practice

individually with particular focus on

whether it “harms competition among

entities that would have been actual or

likely potential competitors in a relevant

market in the absence of the license.”116

The Agencies will analyze the agreements

discussed in this Chapter pursuant to the

rule of reason.117

113

 See supra Part IV.

114 ANTITRUST-IP GUIDELINES § 4.2.

115

 See, e.g., Nov. 6 Tr. at 147, 187 (Rule); id. at 185

(Shapiro).

116 ANTITRUST-IP GUIDELINES § 3.1; see also id. §§ 3.3,

3.4.

117

 Id. § 3.4. However, the Agencies may challenge a

license restraint under the per se rule if “there is no

efficiency-enhancing integration of economic activity

and if the type of restraint is one that has been

accorded per se treatment . . . .” Id.; see also id. § 3.4

ex.7 (explaining that the Agencies may challenge a

licensing agreement under the per se rule when it is “a

sham intended to cloak [the] true nature” of the

arrangement). 
103

CHAPTER 5

ANTITRUST ISSUES IN THE TYING AND BUNDLING 

OF INTELLECTUAL PROPERTY RIGHTS

I. INTRODUCTION

“Tying and bundling [are] so

ubiquitous that we forget they are there

. . . . Tying and bundling [are], roughly

speaking, what the modern firm does. It’s

the rationale. It puts things together and

offers them in packages to consumers.”

1

A tying arrangement occurs when,

through a contractual or technological

requirement, a seller conditions the sale

or lease of one product or service on the

customer’s agreement to take a second

product or service.2 The term “tying” is

most often used by economists when the

proportion in which the customer

purchases the two products is not fixed or

specified at the time of purchase, as in a

“requirements tie-in” sale.3 A bundled

sale typically refers to a sale in which the

products are sold only in fixed

proportions (e.g., one pair of shoes and

one pair of shoe laces or a newspaper,

which can be viewed as a bundle of

sections, some of which may not be read

at all by the customers). Bundling may

also be referred to as a “package tie-in.”4

Case law in the United States sometimes

uses the terms “tying” and “bundling”

interchangeably.5

In view of their potential

efficiencies,many economistsbelievethat,

in general, tying and bundling are more

likely to be procompetitive than

anticompetitive.6 Analysis of the

1

 Center for the New Europe, Edited Transcript of a

CNE Market Insights Event: Tying and Bundling: 

From Economics to Competition Policy (Sept. 19,

2002) (Prof. Paul Seabright discussing tying and

bundling), http://www.cne.org/pub_pdf/

2002_09_19_tying_bundling.htm.

2

 DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN

INDUSTRIAL ORGANIZATION 319 (4th ed. 2005).

3

 A “requirements tie-in” sale occurs when a seller

requires customers who purchase one product from

the seller (e.g., a printer) also to make all their

purchases of another product from the seller (e.g., ink

cartridges). Such tying allows the seller to charge

customers different amounts depending on their

product usage. Id. at 321-22.

4

 Id. “Pure bundling” occurs when consumers can

purchase only the entire bundle (e.g., when

customers are allowed to purchase only a fixed price

meal that includes all courses). “Mixed bundling”

occurs if the components also are sold separately,

with a discount for purchasing the bundle (e.g.,

restaurant menus that include both à la carte items

and complete meals). See id. at 324.

5

 See, e.g., United States v. Loew’s, Inc., 371 U.S. 38

(1962) (analyzing the licensing of feature films only in

blocks (or bundles) as tying).

6

 See, e.g., David Evans & Michael Salinger, Why Do
104 PROMOTING INNOVATION AND COMPETITION

anticompetitive effects of tying and

bundling by U.S. courts, by contrast, has

evolved over time. Although courts long

have expressed concern that tying or

bundling might enable firms to use

monopoly power in one market as

leverage to curb competition, and thereby

acquire monopoly power, in a second

market,7 judicial concern has eased as

tying and bundling have become better

understood. Once thought to be worthy

of per se condemnation8 without

examination of any actual competitive

effects, tying currently is deemed per se

illegal under U.S. Supreme Court rulings

only if specific conditions are met,

including proof that the defendant has

market power over the tying product.9

Further, the Supreme Court has recently

recognized that competitive markets and

tying arr a ngements are no t

incompatible.10 Indeed, some lower

courts have required proof of likely or

actual anticompetitive effects and

efficiencies in tying cases.11

At the Hearings, one panel

discussed how the Agencies and the

courts could best analyze tying and

bundling when two or more products are

tied or bundled together and at least one

of the products is protected by intellectual

property rights. Panelists discussed how

to reach the right answers in particular

cases and how to give private parties a

reasonable ability to predict how their

intellectual property licensing practices

will be treated under the antitrust laws.12

As discussed below, panelists generally

doubted that tying and bundling

involving intellectual property are likely

enough to harm consumer welfare to

justify per se treatment, and therefore

advocated a rule of reason approach that

would require proof of likely or actual

Firms Bundle and Tie? Evidence from Competitive

Markets and Implications for Tying Law, 22 YALE J. ON

REG. 37 (2005).

7

 See, e.g., N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5-

6 (1958); Int’l Salt Co. v. United States, 332 U.S. 392, 396

(1947).

8

 Business practices merit treatment as per se illegal if

“their pernicious effect on competition and lack of

any redeeming virtue are conclusively presumed to

be unreasonable.” N. Pac. Ry., 356 U.S. at 5.

9

 Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2,

9, 16-18 (1984) (retaining per se treatment for “certain

tying arrangements” but requiring consideration of

market power); Ill. Tool Works Inc. v. Indep. Ink, Inc.,

126 S. Ct. 1281, 1292 (2006); id. at 1291 (stating that an

allegation of illegal tying must be supported by proof

of market power, rather than a presumption of

market power based on a patent).

10

 Ill. Tool, 126 S. Ct. at 1292; see also infra note 21 and

accompanying text.

11

 See infra notes 40-43 and accompanying text

(discussing United States v. Microsoft Corp., 253 F.3d 34

(D.C. Cir. 2001) (applying the rule of reason to the

bundling of operating systems and applications

software)). 

12 Panelists addressing this topic at the May 14, 2002

Hearing were: Joseph Farrell, Professor of Economics

and Chair of the Competition Policy Center,

University of California, Berkeley; Jonathan M.

Jacobson, Partner, Akin, Gump, Strauss, Hauer &

Feld, LLP; Abbott B. Lipsky, Jr., Partner, Latham &

Watkins; David S. Sibley, John Michael Stuart

Professor of Economics, University of Texas at

Austin; J. Gregory Sidak, F. K. Weyerhaeuser Fellow

in Law and Economics Emeritus, American

Enterprise Institute; and Gregory Vistnes, Vice

President, Charles River Associates. The session was

moderated by Michael Katz, then-Deputy Assistant

Attorney General, and David L. Scheffman, thenDirector, Bureau of Economics, Federal Trade

Commission. They were joined by C. Edward Polk,

Jr., then-Associate Solicitor, U.S. Patent and

Trademark Office. May 14, 2002 Hr’g Tr., Antitrust

Analysis of Specific Intellectual Property Licensing

Practices: Bundling, Grantbacks and Temporal

Extensions (Morning Session), http://www.ftc.gov/

opp/intellect/020514trans.pdf [hereinafter May 14

Tr.].
Tying and Bundling of IP Rights 105

anticompetitive effects and allow

consideration of the efficiencies that such

arrangements may generate.13 

II. LEGAL ANALYSES OF TYING

AND BUNDLING14

Ever since the late 1940s, when the

Supreme Court stated in International Salt

Co. v. United States that “it is

unreasonable, per se, to foreclose

competitors from any substantial

market,”15 and in Standard Oil Co. v.

United States that “[t]ying agreements

serve hardly any purpose beyond the

suppressionof competition,”16 U.S. courts

have found tying to be per se unlawful.17

Although the Court’s 1984 Jefferson Parish

opinion confirmed the continued role of a

per se analysis,18 it emphasized that

market power in the tying product was a

requirement for per se illegality.

19 Later

that same year, the Court explained that

the application of the per se rule to tying

had evolved to incorporate a market

analysis:

[T]here is often no bright line

separating per se from Rule of

Reason analysis. Per se rules may

require considerable inquiry into

market conditions before the

evidence justifies a presumption of

anticompetitive conduct. For

example, while the Court has

spoken of a “per se” rule against

tying arrangements, it has also

recognized that tying may have

procompetitive justifications that

make it inappropriate to condemn

without considerable market

analysis.20

Consistent with this approach, the

Supreme Court recently acknowledged

that “[m]any tying arrangements . . . are

fully consistent with a free, competitive

market.”21 Indeed, leading treatises have

commented that the test lower courts use

to determine whether to apply the per se

rule to a particular alleged tie

“increasingly resembles a rule of reason

inquiry.”22 Although the elements of a per

se tying violation have been articulated

differently, courts generally require that:

(1) two separate products or

services are involved, (2) the sale

13 Panelists stated that such tying and bundling do

not meet the standard for per se analysis of always or

almost always being harmful to competition. Id. at

35-44 (Jacobson, Farrell, Sidak, Sibley, and Lipsky).

14 More complete summaries of basic tying law are

found in ABA SECTION OF ANTITRUST LAW, ANTITRUST

LAW DEVELOPMENTS 175-214 (5th ed. 2002)

[hereinafter ANTITRUST LAW DEVELOPMENTS] and 1

HERBERT HOVENKAMP, MARK D. JANIS & MARK A.

LEMLEY, IP AND ANTITRUST: AN ANALYSIS OF

ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL

PROPERTY LAW §§ 21.1, at 21-3 to -8, 21.5(d), at 21-113

to -16 (2002) [hereinafter 1 HOVENKAMP ET AL., IP AND

ANTITRUST].

15 332 U.S. at 396.

16 337 U.S. 293, 305-06 (1949).

17 ANTITRUST LAW DEVELOPMENTS at 177-79.

18 “It is far too late in the history of our antitrust

jurisprudence to question the proposition that certain

tying arrangements pose an unacceptable risk of

stifling competition and therefore are unreasonable

‘per se.’” 466 U.S. at 9.

19

 Id. at 9-18.

20

 Nat’l Collegiate Athletic Ass’n v. Bd. of Regents of the

Univ. of Okla., 468 U.S. 85, 104 n.26 (1984) (citation

omitted).

21

 Ill. Tool, 126 S. Ct. at 1292.

22 ANTITRUST LAW DEVELOPMENTS at 178; 1

HOVENKAMP ET AL., IP AND ANTITRUST § 21.5, at 21-

113 to -15.
106 PROMOTING INNOVATION AND COMPETITION

or agreement to sell one is

conditioned on the purchase of the

other, (3) the seller has sufficient

economic power in the market for

the tying product to enable it to

restrain trade in the market for the

tied product, and (4) a not

insubstantial amount of interstate

commerce in the tied product is

affected.23 

For other per se violations, such as naked

agreements to fix price, plaintiffs are not

required to define the relevant product

markets or show that the defendant has

market power in a relevant market. In

addition, some courts have shown a

willingness to consider business

justifications for the alleged tie,24 and

some courts have required proof that the

tie has anticompetitive effects.25

Courts have sometimes analyzed

bundling under the rubric of tying. In

United States v. Loew’s, Inc.,

26 for example,

the Supreme Court found that the

practice of licensing feature films to

television stations only in blocks (or

“bundles”) containing films the stations

did not want to license constituted

unlawful tying in violation of section 1 of

the Sherman Act.27 Nonetheless, in

explaining its tying analysis in Jefferson

Parish, the Supreme Court noted the fact

that “a purchaser is ‘forced’ to buy a

product he would not have otherwise

bought even from another seller” does

not imply an “adverse impact on

competition.”28 Thus, to prevail on an

unlawful tying claim, a plaintiff would

have to show an exclusionary effect on

other sellers as a result of plaintiff’s

thwarted desire to purchase substitutes

for one or more items in the bundle from

other sources that harms competition. 

III. TYING AND BUNDLING

INVOLVING INTELLECTUAL

PROPERTY

Linking intellectual property with

products or other intellectual property

can take many forms, such as offering

licenses that cover multiple patents or

copyrighted materials or tying the sale of

two patented goods or one unpatented

and one patented good. Such linkages

carry various labels, depending on

whether the linked product embodies

intellectual property, whether one price

23 ANTITRUST LAW DEVELOPMENTS at 179 & n.998

(citing cases).

24

 United States v. Jerrold Elecs. Corp., 187 F. Supp. 545,

557-58 (E.D. Pa. 1960), aff’d per curiam, 365 U.S. 567

(1961) (concluding that a tie was justified for a limited

time in a new industry to assure effective functioning

of complex equipment); Mozart Co. v. Mercedes-Benz of

N. Am., Inc., 833 F.2d 1342, 1348-51 (9th Cir. 1987)

(upholding verdict for defendant because the tie may

have been found to be the least expensive and most

effective means of policing quality); Dehydrating

Process Co. v. A. O. Smith Corp., 292 F.2d 653, 655-57

(1st Cir. 1961) (affirming a judgment of a district court

that directed a verdict in favor of the defendant

because a tie was necessary to assure utility of two

products when separate sales led to malfunctions and

widespread customer dissatisfaction).

25

 Wells Real Estate, Inc. v. Greater Lowell Bd. of Realtors,

850 F.2d 803, 815 (1st Cir. 1988) (“The tying claim

must fail absent any proof of anti-competitive effects

in the market for the tied product.”); Fox Motors, Inc.

v. Mazda Distribs. (Gulf), Inc., 806 F.2d 953, 958 (10th

Cir. 1986) (declining to apply the per se rule to a tie

that “simply does not imply a sufficiently great

likelihood of anticompetitive effect”).

26 371 U.S. 38 (1962). 

27

 Id. at 41-43 (noting the blocks contained as many as

754 separate titles); id. at 44, 49-50 (treating block

booking as tying). 

28

 Jefferson Parish, 466 U.S. at 16. 
Tying and Bundling of IP Rights 107

or separate prices are charged, and

whether the linkage is accomplished

contractually or technologically. Classic

“contractual” patent tying occurs when

the tying product (such as a mimeograph

machine) is patented, the tied product is

an unpatented commodity used as an

input for the tying product (such as ink or

paper), and the sale of the patented

product is conditioned on the purchase of

the unpatented product. A“technological

tie” may be defined as one in which “the

tying and tied products are bundled

together physically or produced in such a

way that they are compatible only with

each other.”29 The government’s tying

claim against Microsoft involved both the

contractual and technologicalbundling of

the Internet Explorer web browser (the

tied product) with its Windows operating

system (the tying product).30

Multiple intellectual property

rights may themselves be combined into

bundlesorpackages. Mandatory package

licensing occurs when a patent owner

refuses to license a particular patent

unless a licensee accepts an entire

package (or where the patent owner’s

royalty scale has this effect).31 It also

includes “block booking” of motion

pictures or television shows. Panelists

explored the economic, legal, and

practical issues raised by these various

practices, all of which involve intellectual

property tying or bundling.

A. The Economics of Bundling

Involving Intellectual Property

Economists on the panel discussed

features that may distinguish intellectual

property from tangible property. One

such feature is that the development and

exploitation of intellectual property

typically involves high fixed costs but low

marginal costs, but the panel discussion

did not make the relevance of this

distinction to the analysis of bundling

clear. One panelist suggested that

predicting anticompetitive effects may be

more difficult in cases involving

intellectual property bundling than in

cases involving the bundling of tangible

property.32 Another panelist stated that it

is difficult to determine whether

intellectual property bundling in a

particular case is driven by efficiencies

and, as a result, the analysis is ultimately

fact-intensive.33

Two economists have considered

the bundling of so-called information

goods, such as copyrighted music,

programming, and other online content

on the Internet.34 They observe that the

29 1 HOVENKAMP ET AL., IP AND ANTITRUST § 21.5b2, at

21-104 to -05. An example would be a razor and

razor blade cartridge.

30

 Microsoft, 253 F.3d at 45; see also Complaint paras.

18, 20, 103-23, Microsoft, 87 F. Supp. 2d 30 (D.D.C.

2000) (No. 98-1232), aff’d in part, rev’d in part, 253 F.3d

34, available at http://www.usdoj.gov/atr/cases/

f1700/1763.pdf.

31 Richard Gilbert & Carl Shapiro, Antitrust Issues in

the Licensing of Intellectual Property: The Nine No-No’s

Meet the Nineties, 1997 BROOKINGS PAPERS ON ECON.

ACTIVITY, MICROECONOMICS 283, 317. 

32 May 14 Tr. at 41-42 (Sidak). This panelist also cited

Microsoft’s bundling of a browser with its operating

system and suggested that the mechanism through

which viable and independently-owned

complementary products may facilitate competitive

entry into each other’s markets is imperfectly

understood and deserving of more careful economic

analysis. Id. at 45-47. 

33

 Id. at 24-25 (Vistnes).

34

 See Yannis Bakos & Eric Brynjolfsson, Bundling and
108 PROMOTING INNOVATION AND COMPETITION

marginal cost of adding additional units

of an information good to a bundle of

other information goods typically is very

low. They also observe that demand for

bundles of goods across customers can be

more homogeneous than the demand for

the individual components. In such

circumstances, it can be more profitable to

offer such goods only in a bundle. In

their analysis, competition between two

firms that each offer sufficiently large

bundles can make consumers better off,35

and bundling by a firm facing no

competition can increase total welfare but

increase or decrease consumer welfare.36

Another distinction between

intellectual and tangible property is that

the validity of patents can be challenged.

It is widely believed that intellectual

property bundling “is apt to affect private

incentives to challenge the IP”37—most

likely decreasing incentives to challenge

it. Some find it difficult to assess the

likely welfare effects of this decrease,

however, because the optimal level of

incentive to challenge intellectual

property rights is not clearly known.38

B. Legal Issues Relevant to

Intellectual Property Bundling

Courts have not taken a consistent

analytical approach to tying andbundling

cases involving intellectual property. In

1999, the U.S. Court of Appeals for the

Eleventh Circuit applied the per se rule to

a package license for television

programming because the package at

issue could not be distinguished from the

block booking that the Supreme Court

declared to be illegal per se in Loew’s.39

By contrast, the U.S. Court of

Appeals for the D.C. Circuit’s 2001

decision in United States v. Microsoft

rejected application of the per se rule to

“platform software,”40 thereby “carving

Competition on the Internet, 19 MARKETING SCI. 63

(2000); Yannis Bakos & Eric Brynjolfsson, Bundling

Information Goods: Prices, Profits, and Efficiency, 45

MGMT. SCI. 1613 (1999). 

35 Bakos & Brynjolfsson, 19 MARKETING SCI. at 71-74

(showing that customers are able to purchase goods

from competing firms selling large enough bundles at

a lower effective per unit price than the price they

would pay for each good if all goods are sold

separately).

36

 Id. at 72. The intuition behind this result is that

bundling allows the monopolist to sell more units to

customers which increases total welfare, but also

allows the monopolist to charge higher average prices

which extracts surplus from customers. Depending

on the parameters of the model, the latter effect could

be either greater or less than the former effect.

37 May 14 Tr. at 89-90 (Farrell).

38

 Id. at 90, 220-27 (Farrell) (describing the complexity

of determining the efficient incentives to challenge

intellectual property, but expressing his belief that

“private incentives to challenge intellectual property

may be badly inadequate”); id. at 295-300 (Miller)

(discussing ideas for increasing incentives assuming

they are too low); see also id. at 158 (Katz) (“[E]ven in

the case where it’s said that by having the package

it’s either diminishing the incentives to invent around

or diminishing the incentives to challenge validity or

enforceability . . . , work I’ve done and others have

done suggests [that assessment] actually is very

delicate.”). For example, one panelist argued that a

successful challenge both eliminates the mark-up

attributable to intellectual property and also reduces

potential innovators’ expectations of how much they

might earn on the basis of intellectual property in the

future. Id. at 91 (Farrell). 

39

 MCA Television Ltd. v. Pub. Interest Corp., 171 F.3d

1265, 1277-78 (11th Cir. 1999) (citing Loew’s, 371 U.S.

at 50).

40 253 F.3d at 95. In deciding a tying patent misuse

claim, the U.S. Court of Appeals for the Federal

Circuit recently rejected a per se approach and applied

tying case law to find that a package license

combining alleged “essential” with “nonessential”

patents did not constitute patent misuse because there
Tying and Bundling of IP Rights 109

out what might be called a ‘technology

exception’ to that rule,”

41 as one

submission suggested. The court

reasoned that application of traditional

per se analysis in the “pervasively

innovative” platform software industry

risks condemning ties that may be

welfare-enhancing and procompetitive.42

According to one panelist, however, “the

rationale [that the court] articulated for

abandoning per se condemnation applies

well beyond just the software industry,”

notwithstanding “the court’ s

protestations to the contrary.”43 Although

in Illinois Tool Works Inc. v. Independent

Ink, Inc. the Supreme Court recognized

that many tying arrangements, “even

those involving patents and requirements

ties,” can be procompetitive,44 that case

did not present a vehicle for the Court to

revisit its conclusion that some tying

arrangements constitute per se

violations.45 

The Agencies’ rule of reason

approach to intellectual property

bundling is reflected in the Antitrust

Guidelines for the Licensing of

Intellectual Property (“Antitrust-IP

Guidelines”). TheAntitrust-IP Guidelines

recognize that “[c]onditioning the ability

of a licensee to license one or more items

of intellectual property on the licensee’s

purchase of another item of intellectual

property or a good or a service has been

held in some cases to constitute illegal

tying,”46 but also state that “[a]lthough

tying arrangements may result in

a nticompetitive effects, such

was no separate demand for the “nonessential”

patents, and, thus, no separate product market in

which competition could have been foreclosed. U.S.

Philips Corp. v. Int’l Trade Comm’n, 424 F.3d 1179,

1193-97 (Fed. Cir. 2005). The court rejected a per se

approach “[i]n light of the efficiencies of package

patent licensing and the important differences

between product-to-patent tying arrangements and

arrangements involving group licensing of

patents . . . .” Id. at 1193.

41 Jonathan M. Jacobson & Abid Qureshi, Did the Per

Se Rule on Tying Survive ‘Microsoft’? (May 14, 2002

Hr’g R.) at 1, http://www.ftc.gov/opp/intellect/

020514jacobson2.pdf [hereinafter Jacobson

Submission]; cf. Warren S. Grimes, The Antitrust Tying

Law Schism: A Critique of Microsoft III and a Response

to Hylton and Salinger, 70 ANTITRUST L.J. 199, 202

(2002) (“[C]iting the novelty of the issues and the

possibility of procompetitive effects, [the D.C. Circuit]

imposed a rule of reason to measure Microsoft’s

software bundling practices.”); William J. Kolasky,

GE/Honeywell: Continuing the Transatlantic Dialogue,

23 U. PA. J. INT’L ECON. L. 513, 532 & n.66 (2002)

(citing Microsoft, 253 F.3d at 84-97, to support a

statement that technological ties “are generally

evaluated under the rule of reason”); Edward G.

Biester III, An Overview of the IP-Antitrust Intersection: 

Reevaluating the 1995 Antitrust Guidelines for the

Licensing of Intellectual Property, ANTITRUST, Summer

2002, at 8, 10 [hereinafter Biester, An Overview of the

IP-Antitrust Intersection].

42 253 F.3d at 93.

43 Jacobson Submission at 1; Herbert Hovenkamp, IP

Ties and Microsoft’s Rule of Reason, 47 ANTITRUST

BULL. 369, 413 (2002) (“[W]hile developing a rule of

reason for OS/application is laudable, the court’s

rationale for distinguishing such ties from the general

run of tying arrangements cannot be supported.”); see

also Biester, An Overview of the IP-Antitrust Intersection

at 10 (“Basic antitrust principles like the traditional

per se rule against tying where there is market power

in the tying product become complicated in markets

that are difficult to define because of the moving

target of constantly developing technology.”).

44

 Ill. Tool, 126 S. Ct. at 1292 (recognizing that price

discrimination occurs in fully competitive markets);

see also supra note 21 and accompanying text.

45

 See Jefferson Parish, 466 U.S. at 9 (acknowledging

that certain tying arrangements are per se illegal).

46 U.S. DEP’T OF JUSTICE & FEDERAL TRADE COMM’N,

ANTITRUST GUIDELINES FOR THE LICENSING OF

INTELLECTUAL PROPERTY § 5.3 & n.34 (1995), available

at http://www.usdoj.gov/atr/public/guidelines/

0558.pdf [hereinafter ANTITRUST-IP GUIDELINES]

(citing United States v. Paramount Pictures, Inc., 334

U.S. 131, 156-58 (1948) (copyrights); Int’l Salt, 332 U.S.

392 (patent and related product)).
110 PROMOTING INNOVATION AND COMPETITION

arrangements can . . . result in significant

efficiencies and procompetitive

benefits.”47 Pursuant to the Antitrust-IP

Guidelines, the Agencies, as a matter of

prosecutorial discretion, consider boththe

anticompetitive effectsandthe efficiencies

attributable to a tie. The Agencies would

be likely to challenge a tying arrangement

if: “(1) the seller has market power in the

tying product, [which the Agencies will

not presume necessarily to be conferred

by a patent, copyright, or trade secret]; (2)

the arrangement has an adverse effect on

competition in the relevant market for the

tied product; and (3) efficiency

justifications for the arrangement do not

outweighthe anticompetitive effects.”48 If

a package license constitutes tying,49 the

Agencies will evaluate it pursuant to the

same rule of reason principles they use to

analyze other tying arrangements.

Whether the legal analysis applied

to intellectual property bundling is some

form of the per se rule or the more

searching rule of reason, a plaintiff will

have to establish that a defendant has

market power in the tying product.

Recognizing that “Congress, the antitrust

enforcement agencies, and most

economists have all reached the

conclusion that a patent does not

necessarily confer market power uponthe

patentee,” the Supreme Court has held

that “in all cases involving a tying

arrangement, the plaintiff mustprove that

the defendant has market power in the

tying product.”

50 Thus, market power

should not be presumed merely from the

existence of a patent.51 As the Court

explained:

[W]e conclude that tying

arrangements involving patented

products should be evaluated

under the standards applied in

cases like Fortner II and Jefferson

Parish rather than under the per se

rule applied in Morton Salt and

Loew’s. While some such

arrangements are still unlawful,

such as those that are the product

of a true monopoly or a market

wide conspiracy, that conclusion

must be supported by proof of

power in the relevant market

rather than by a mere presumption

thereof.52

The Agencies, as a matter of sound

economics, had chosen not to rely on such

a presumption prior to Illinois Tool.

53 As

47

 Id. § 5.3.

48

 Id. (footnotes omitted); see also id. § 2.2 (“[The]

Agencies will not presume that a patent, copyright, or

trade secret necessarily confers market power upon

its owner.”).

49 The Antitrust-IP Guidelines describe package

licensing as “the licensing of multiple items of

intellectual property in a single license or in a group

of related licenses,” which “may be a form of tying . .

. if the licensing of one product is conditioned upon

the acceptance of a license for another, separate

product.” Id. § 5.3.

50

 Ill. Tool, 126 S. Ct. at 1293. 

51

 Id.

52

 Id. at 1291 (citations omitted).

53 The Solicitor General filed an amicus brief in

Illinois Tool asserting that the market power

presumption was contrary to modern tying

jurisprudence and sound economics. Brief for the

United States as Amicus Curiae Supporting

Petitioners, Ill. Tool, 126 S. Ct. 1281 (No. 04-1329),

available at http://www.usdoj.gov/osg/briefs/

2005/3mer/1ami/2004-1329.mer.ami.pdf. The

Solicitor General noted that “[a]s a matter of

longstanding antitrust policy, both the Department of

Justice and the Federal Trade Commission have

rejected the presumption that patents confer market
Tying and Bundling of IP Rights 111

the Antitrust-IP Guidelines explain, the

Agencies “will not presume that a patent,

copyright, or trade secret necessarily

confers market power upon its owner.

Although the intellectual property right

confers the power to exclude with respect

to the specific product, process, or work in

question, there will often be sufficient

actual or potential close substitutes . . . to

prevent the exercise of market power.”54

The Agencies therefore investigate the

relevant market to determine whether the

intellectual property at issue grants any

market power in the economic sense. If

such market power is found, the Agencies

further investigate whether the business

practice under scrutiny is likely to be

anticompetitive on balance. 

C. Practical Issues Regarding

Intellectual Property Bundling

Panelists addressed several issues

that attorneys confront when counseling

clients with regard to intellectual

property bundling. One panelist noted

that, in addition to the courts’ inconsistent

treatment of cases involving intellectual

property bundling, courts have also

differed in ordinary tying cases as to

whether: (1) a plaintiff must show harm

to competition in the tied product market;

and (2) a defendant’s evidence of business

justification is admissible.55 “The result of

this is when the client asks you about

what the rules are governing bundling of

intellectual property . . . you cannot give

a clear answer. [Lawyers have to give]

the cautious advice . . . please, don’t do it;

the risk [of litigation] is too great.”56

The panel also discussed the extent

to whichattorneys counseling their clients

will consider the likelihood that an

enforcement agency or private party will

challenge intellectualpropertybundling.57

Due in part to the rules on antitrust injury

and standing, the probability of being

sued may be small, but one panelist

expressed the view that, “given the state

of the law today you just can’t advise a

client that has an intellectual property

right that it’s okay to tie . . . . It’s just too

dangerous.”58 Counseling about potential

antitrustliability also occurs when a client

is about to bring an infringement suit,

because such a suit may trigger an

antitrust counterclaim even when an

antitrust suit would otherwise be

unlikely. One panelist expressed the

view that “it’s per se malpractice to fail to

advise a client who is considering an

intellectual property infringement suit

that he must be prepared to litigate any

manner of crazy antitrust or misuse

power for the simple reason that the presumption is

so demonstrably unsound.” Id. at 13. The Solicitor

General observed that “the Patent and Trademark

Office has issued scores of patents for such items as

bottle openers, toothbrushes, and paper clips . . . [but]

[i]t would be implausible to presume that the owner

of such a patent possesses market power merely by

virtue of the patent.” Id. at 12. 

54 ANTITRUST-IP GUIDELINES § 2.2.

55 May 14 Tr. at 29-30 (Jacobson); see also supra notes

22-25, 50-52 and accompanying text (discussing types

of proof required by some courts in tying cases

including market definition, business justifications,

and anticompetitive effects).

56 May 14 Tr. at 30-31 (Jacobson). Such results can

harm consumers. Cf. Hovenkamp, 47 ANTITRUST

BULL. at 382 ([Socially costly rules include] “the

enormous compliance costs of those who are denied a

more efficient method of doing business for fear of

breaching a senseless antitrust rule.”).

57 May 14 Tr. at 107-13 (Jacobson, Lipsky). 

58

 Id. at 108 (Jacobson).
112 PROMOTING INNOVATION AND COMPETITION

counterclaim – or misuse defense.”59

Another panelist observed that

firms that have been advised by counsel

will often offer alternatives to a package

license. He suggested that “one way to

[offer] package licenses and not get

immediately hauled into [f]ederal

[d]istrict [c]ourt is to make sure there’s an

alternative available.”60 When another

panelist questioned the wisdom of

advising clients “that they are essentially

home free on bundling pricing where

intellectual property is involved,”61 the

other replied that, although this practice

does not provide a complete safety zone,

“the difficulty of proving that the pricing

bundle is sufficiently coercive . . . given

the expense of bringing an antitrust case

. . . gives you a measure of comfort . . . .”62

Finally, one panelist argued that,

although defendants in many cases could

“devise ways of achieving the same

efficiencies without tying,”63 the per se

rule creates “enormous cost in terms of

firms without market power and with

intellectual property rights trying to

figure out the best way to exploit those

rights,” such as small firms trying to enter

a marketinwhich metering through tying

may work best.64 Another panelist

suggested that “product combination

decisions[,] like things that can be

characterized as ties[,] ought to be

presumptively lawful” and that the real

problem with the per se rule against tying

is that it is “potentially applicable to an

enormous range of harmless commercial

decisions which nevertheless tend to

attractinvolvement with law enforcement

and the civil justice system.”65 

D. Suggested Approaches to

Improvin g the Law on

Intellectual Property Bundling

The panel explored ways to

improve the law on tying in general and

with regard to intellectual property

bundling in particular. One panelist

highlighted three approaches.66 First, he

suggested that the courts, instead of

carving out exceptions to the per se rule

against tying (as the D.C. Circuit did for

“platform software” products in

Microsoft67), should follow the approach

taken by the U.S. Court of Appeals for the

Seventh Circuit in Khan v. State Oil Co.,

68

59

 Id. at 109 (Lipsky).

60

 Id. at 110-11 (Jacobson); cf. Jefferson Parish, 466 U.S.

at 12 n.17 (quoting N. Pac. Ry. Co., 356 U.S. at 6 n.4

(“Of course where the buyer is free to take either

product by itself there is no tying problem even

though the seller may also offer the two items as a

unit at a single price.”)). Where, however, a firm

offers products A (the tying product) and B at a

bundled price but also offers product A separately, a

court may determine whether an unbundled price for

product A may be so high as to demonstrate that no

real alternative to the bundle of products A and B is

being offered. May 14 Tr. at 46-52 (Sidak) (noting

that courts may face such questions in fashioning

relief in instances in which liability for tying has been

found).

61 May 14 Tr. at 112 (Lipsky). 

62

 Id. at 113 (Jacobson).

63

 Id. at 36 (Jacobson).

64

 Id. at 40-41 (Jacobson); cf. Hovenkamp, 47

ANTITRUST BULL. at 382.

65 May 14 Tr. at 42-44 (Lipsky).

66

 See Jonathan M. Jacobson, Counseling in

Uncertainty: The Law of Tying & Intellectual Property

(May 14, 2002 Hr’g R.) (slides), http://www.ftc.gov/

opp/intellect/020514jacobson.pdf [hereinafter

Jacobson Presentation].

67 253 F.3d at 95-96.

68 93 F.3d 1358, 1362-64 (7th Cir. 1996).
Tying and Bundling of IP Rights 113

which applied the per se rule against

vertical maximum price-fixing while

carefully explaining the shortcomings of

the approach and inviting the Supreme

Court to overturn it, as the Court

ultimately did.69 Second, testifying prior

to Illinois Tool, he suggested that Congress

should consider legislation mandating

that there shall be no presumption of

market power from the mere possession

of a patent or copyright in antitrust

cases.70 Third, he suggested that the

Agencies should advocate improvements

inthe law through amicus participationin

cases involving intellectual property

bundling, both in the district courts and

courts of appeals, with the hope that the

decisions of these courts may eventually

be reviewed by the Supreme Court.71

Panelists acknowledged that

conducting a rule of reason analysis of

intellectual property bundling or other

practices results in a very fact-intensive

inquiry, the outcome of which will likely

be difficult to predict.72 An economist on

69

 State Oil Co. v. Khan, 522 U.S. 3, 7 (1997); see also

Hovenkamp, 47 ANTITRUST BULL. at 383 n.33 (noting

with approval Judge Posner’s invitation for reversal). 

Such invitations, however, are not always accepted. 

After this Hearing took place, Judge Posner took a

similar approach in applying the per se rule against

post-expiration royalties, based on Brulotte v. Thys

Co., 379 U.S. 29, 32 (1964), while inviting the Supreme

Court to reconsider the rule. Scheiber v. Dolby Labs.,

Inc., 293 F.3d 1014, 1018-19 (7th Cir. 2002). The Court,

however, denied certiorari. 537 U.S. 1109 (2003). By

contrast, believing the court bound by Supreme Court

precedent, Judge Dyk made a similar invitation in

Illinois Tool which the Court accepted. Indep. Ink, Inc.

v. Ill. Tool Works, Inc., 396 F.3d 1342, 1351 (Fed. Cir.

2005), rev’d, 126 S. Ct. 1281 (2006).

70 May 14 Tr. at 32-34 (Jacobson). Such legislation is

now unnecessary in light of the Supreme Court’s

decision in Illinois Tool rejecting such a presumption. 

126 S. Ct. 1281. Cf. Hovenkamp, 47 ANTITRUST BULL.

at 373 (“We might be better off if Congress legislated

prescriptions about the domain of intellectual

property rights directly into the federal intellectual

property statutes themselves and occasionally it has

done so.”).

71 May 14 Tr. at 34-35 (Jacobson); Jacobson

Presentation at 14. The Agencies have a long history

of advising the courts on intellectual property issues

relevant to competitive concerns. See, e.g., Brief for

the United States as Amicus Curiae Supporting

Respondent, eBay Inc. v. MercExchange, L.L.C., 126 S.

Ct. 1837 (2006) (No. 05-130), available at

http://www.usdoj.gov/osg/briefs/2005/3mer/1ami

/2005-0130.mer.ami.pdf; Brief for the United States as

Amicus Curiae Supporting Petitioners, Ill. Tool, 126 S.

Ct. 1281 (No. 04-1329); Brief for the United States as

Amicus Curiae Supporting Respondent, Pfaff v. Wells

Elecs., Inc., 525 U.S. 55 (1998) (No. 97-1130), available at

http://www.usdoj.gov/atr/ cases/f1800/1836.pdf;

Brief Amicus Curiae of the United States of America

Urging Reversal in Support of Appellant Kanebridge

Corp., Southco, Inc. v. Kanebridge Corp. (Southco I), 258

F.3d 148 (3d Cir. 2001) (No. 00-1102), available at

http://www.usdoj.gov/atr/cases/f4900/4953.pdf;

Brief Amicus Curiae of the United States of America

in Support of Appellee Kanebridge Corp., Southco,

Inc. v. Kanebridge Corp. (Southco II), 390 F.3d 276 (3d

Cir. 2004) (en banc) (No. 02-1243), cert. denied, 126 S.

Ct. 336 (2005), available at http://www.usdoj.gov/

atr/cases/f201000/201034.pdf; Brief for Amicus

Curiae United States of America in Support of

Appellees, Matthew Bender & Co. v. West Publ’g Co.,

158 F.3d 693 (2d Cir. 1998) (No. 97-7430), available at

http://www.usdoj.gov/atr/cases/f1100/1191.pdf.

72 One of the panelists discussed how, if the per se

rule for tying is ultimately abandoned, courts can best

deal with complex issues so as both to reach the right

answers in individual cases and to provide some

predictability as to how business practices will be

analyzed. May 14 Tr. at 54-63 (Lipsky); Abbott B.

Lipsky, Amateurs in Black (May 14, 2002 Hr’g R.) at 6-

12, http://www.ftc.gov/opp/intellect/

020514abbottblipskyjr.pdf [hereinafter Lipsky

Submission]. Lipsky said that the Supreme Court, in

a series of four cases beginning with Daubert v.

Merrell Dow Pharmaceuticals, Inc, 509 U.S. 579 (1993),

has mandated that the district courts assume the

position of gatekeepers and make independent

evaluations (subject to review for abuse of discretion)

of the relevance, reliability, and fit of expert

testimony. He suggested that this procedure has

revolutionized the presentation of expert testimony

and noted that in a number of antitrust cases expert

testimony has been rejected. He maintained that,

when courts evaluate particular patent licensing

practices, they will need institutions superior to those

currently available in order to generate

improvements in the quality of economic analysis. 
114 PROMOTING INNOVATION AND COMPETITION

the panel suggested that, rather than

attempting to categorize the conduct (e.g.,

as tying or not) or looking at cost

standards, a better approachwould be “to

ask why are you doing this; what are the

efficiencies, are there other ways to

achieve the efficiencies; do you expect it

to block competition[?]”73

IV. CONCLUSION

Legal and policy analysis of

intellectual property bundling has

evolved over time. Older case law, with

its per se rule and presumption of market

power, contends withthe current analysis

of the Agencies and some more recent

lower court decisions that embody, in

essence, a rule of reason approach.

Moreover, the Supreme Court recently

eliminated its rule presuming market

power based on intellectual property.

Panelists noted that, although intellectual

prope rty bundling may have

anticompetitive potential in certain

circumstances, there may also be

significant efficiency justifications for

such bundling in some cases. Thus, as a

matter of their prosecutorial discretion,

the Agencies will apply the rule of reason

when evaluating intellectual property

tying and bundling agreements.74 Given

the ubiquitous use of these arrangements

by businesses lacking in market power

and the efficiencies that such

arrangements can often entail, these

practices usually are not anticompetitive.

When the Agencies do identify

anticompetitive situations, however,they

will pursue them. 

Possible approaches that he described include

certification by an expert body, such as the National

Academy of Sciences or American Economic

Association, appointment by the court of an expert

under rule 706(a) of the Federal Rules of Evidence, or

use of a law clerk particularly skilled in economics. 

May 14 Tr. at 54-63 (Lipsky); see also Lipsky

Submission at 7-12.

73 May 14 Tr. at 103 (Farrell).

74 ANTITRUST-IP GUIDELINES § 5.3 (stating that, in

exercising their prosecutorial discretion, the Agencies

“consider both the anticompetitive effects and the

efficiencies attributable to a tie-in”).
115

CHAPTER 6

COMPETITIVE ISSUES REGARDING PRACTICES THAT EXTEND

THE MARKET POWER CONFERRED BY A PATENT BEYOND ITS

STATUTORY TERM 

A portion of the Hearings focused

on the competitive impact of practices

that firms may use to extend the reach of

a patent beyond the expiration of a

patent’s statutory term.1 Such practices

traditionally have been challenged under

the doctrine of patent misuse.2 By

contrast, there have been few antitrust

challenges to these practices, perhaps

because they cause competitive concern

only if the patent in question has

conferred market power, i.e., the patent

holder can profitably “maintain prices

above, or output below, competitive

levels for a significant period of time,”3

and the practice unreasonably extends

that market power beyond the patent’s

expiration.4 

1

 Utility patents have a statutory term of twenty

years from the date of filing. 35 U.S.C. § 154 (2000). 

A design patent has a term of fourteen years from the

date of grant. 35 U.S.C. § 173 (2000). The value of a

patent declines for one of two reasons: either its term

expires or new noninfringing products or processes

become available that “diminish any market power

the [patent] may have commanded.” May 14, 2002

Hr’g Tr., Antitrust Analysis of Specific Intellectual

Property Licensing Practices: Bundling, Grantbacks

and Temporal Extensions (Morning Session) at 119

(Dick), http://www.ftc.gov/opp/intellect/

020514trans.pdf [hereinafter May 14 Tr.]; see also

Richard C. Levin, Alvin K. Klevorick, Richard R.

Nelson & Sidney G. Winter, Appropriating the Returns

from Industrial Research and Development, 1987

BROOKINGS PAPERS ON ECON. ACTIVITY 783, 808, 810-

11 (explaining that one to three years was the median

estimate by industry respondents surveyed about the

time required for imitators to duplicate a major

patented new process or product and “to have a

significant impact on the market”) (internal quotation

marks omitted). This Chapter does not address these

and other complex issues that may arise when patentconferred market power may decline due to the entry

of noninfringing substitutes before patent expiration.

2

 See 1 HERBERT HOVENKAMP, MARK D. JANIS & MARK

A. LEMLEY, IP AND ANTITRUST: AN ANALYSIS OF

ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL

PROPERTY LAW § 3.2c, at 3-8 to -10 (2002 & Supp. 2005)

[hereinafter 1 HOVENKAMP ET AL., IP AND ANTITRUST];

see also infra note 12 and accompanying text. See

generally 1 HOVENKAMP ET AL., IP AND ANTITRUST §

3.3b, at 3-12 to -36 (Supp. 2005). 

3

 “The Agencies will not presume that a patent . . .

confers market power upon its owner.” U.S. DEP’T OF

JUSTICE & FEDERAL TRADE COMM’N, ANTITRUST

GUIDELINES FOR THE LICENSING OF INTELLECTUAL

PROPERTY § 2.2 (1995), reprinted in 4 Trade Reg. Rep.

(CCH) ¶ 13,132, available at http://www.usdoj.gov/

atr/public/guidelines/0558.pdf [hereinafter

ANTITRUST-IP GUIDELINES]. The U.S. Supreme Court

recently confirmed that market power should not be

presumed merely from the existence of a patent. Ill.

Tool Works Inc. v. Indep. Ink, Inc., 126 S. Ct. 1281, 1293

(2006) (“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 . . . .”). 

4

 The Agencies have stated that “[i]f a patent or other

form of intellectual property does confer market
116 PROMOTING INNOVATION AND COMPETITION

This Chapter discusses certain

practices that have been alleged to have

the potential to harm competition by

unreasonably extending market power

conferred by a patent beyond the patent’s

expiration: collecting royalties beyond

the statutory term, the use of exclusive

contracts that deprive rivals or potential

entrants of a source of supply or access to

customers, or bundling trade secrets with

patents.5 Most of the practices discussed

in the Chapter, such as exclusive dealing,

are not unique to patent licenses.

Moreover, although some of these

practices may have the potential to extend

the ability to exercise the market power

conferred by a patent, most practices do

not actually do so, and as many Hearings

panelists6 observed, many may, in fact,

offe r significant efficiencies. 7

Accordingly, panelists identified the

fundamental question for assessing

competitive harm that may result from

such practices to be whether the patent

holder is exercising market power arising

solely from the patent beyond its

statutory term to prevent expansion by

those already in the market or to deter the

entry of substitute products or processes

into the market.8

I. COLLECTING ROYALTIES

BEYOND THE STATUTORY

TERM

Some have viewed a requirement

that a licensee pay royalties beyond a

patent’s expiration as unreasonably

extending the market power conferred by

the patent. Panelists discussed whether

such a requirement can actually extend a

patent’s market power.9 One panelist

power, that market power does not by itself offend

the antitrust laws.” ANTITRUST-IP GUIDELINES § 2.2.

5

 Other practices might also extend the market power

of a patent beyond the end of that patent’s statutory

term. E.g., May 14 Tr. at 129-33 (Dick) (discussing a

covenant not to compete that was entered in

connection with a joint venture, but extended beyond

the life of the joint venture and any intellectual

property associated with the joint venture); id. at 138

(Dick) (noting that grantbacks may raise the question

whether the acquisition of rights in improvement

patents by the original patentee may enable that

patentee to use its expired core patents as a means to

obtain control over later-generation products); id. at

133-37 (Dick) (discussing a patent holder that

includes unnecessary, but later-expiring patents in a

pool, or that makes unwarranted modifications to a

standard in order to justify inclusion of later-expiring

patents); id. at 128-29 (Dick) (discussing rebate

programs and incentive sales agreements that extend

beyond the life of the patented technology and have

the potential to extend the market power conferred

by the patent).

6

 Panelists addressing this topic at the May 14, 2002

Hearing were: Rebecca P. Dick, Of Counsel, Swidler

Berlin Shereff Friedman, LLP; Joseph Farrell,

Professor of Economics and Chair of the Competition

Policy Center, University of California, Berkeley; and

David S. Sibley, John Michael Stuart Professor of

Economics, University of Texas at Austin. The

session was moderated by Michael L. Katz, thenDeputy Assistant Attorney General, Antitrust

Division, U.S. Department of Justice and David L.

Scheffman, then-Director, Bureau of Economics, U.S.

Federal Trade Commission. They were joined by C.

Edward Polk, Jr., then-Associate Solicitor, U.S. Patent

and Trademark Office. 

7

 See, e.g., infra notes 24-25 and accompanying text

(discussing the efficiencies of contract provisions

involving exclusivity).

8

 See generally Rebecca P. Dick, Extending the Useful

Life of Intellectual Property: Antitrust Risks and Safety

Zones (May 14, 2002 Hr’g R.) (slides),

http://www.ftc.gov/opp/intellect/020514dick.pdf

[hereinafter Dick Presentation]; May 14 Tr. at 119-45

(Dick); id. at 146-49 (Sibley). 

9

 At the Hearings, panelists considered, for example,

whether reach-through royalty agreements that

continue beyond the life of a research tool patent raise

antitrust concerns. See, e.g., Nov. 6, 2002 Hr’g Tr.,

Relationships Among Competitors and Incentives to

Compete: Cross-Licensing of Patent Portfolios,

Grantbacks, Reach-Through Royalties, and NonAssertion Clauses (Afternoon Session) at 157-58
Extending a Patent’s Market Power 117

suggested that agreements that seek

“royalties that run past the lifetime of a

patent” may pose an antitrust problem

because a patent licensor with market

power may be using the agreement to

extend royalty payments beyond the

patent term and get the same royalty “for

50 years instead of 20.”10 Over forty years

ago, in Brulotte v. Thys Co.,

11 the U.S.

Supreme Court condemned an agreement

in which the licensor demanded royalties

for practicing an inventionbeyond the life

of its patents as per se patent misuse.12

Brulotte, however, did not involve an

antitrust claim,13 and its holding reaches

only agreements in which royalties

actually accrue on post-expiration use.14

Thus, courts tend to apply the opinion

narrowly.15 In addition, Brulotte has been

strongly criticized on the ground that

(Fromm), http://www.ftc.gov/opp/intellect/

021106ftctrans.pdf [hereinafter Nov. 6 Tr.]; id. at 162

(Shapiro); id. at 170-72 (Rule). In a reach-through

royalty agreement, the royalty is based on

downstream sales of a product that was created with

the use of the research tool patent. See supra Chapter

4, Variations on Intellectual Property Licensing Practices

Part IV. See generally Michael A. Heller & Rebecca S.

Eisenberg, Can Patents Deter Innovation? The

Anticommons in Biomedical Research, 280 SCIENCE 698

(1998). Questions related to the duration of market

power conferred by the patent arise when the product

continues to be sold, subject to royalties, beyond the

expiration date of the research tool patent. See Robin

C. Feldman, The Insufficiency of Antitrust Analysis for

Patent Misuse, 55 HASTINGS L.J. 399, 443-47 (2003);

Nov. 6 Tr. at 157-58, 163 (Fromm). 

10 Nov. 6 Tr. at 163 (Fromm); see also supra Chapter 4,

Variations on Intellectual Property Licensing Practices

Part IV.

11 379 U.S. 29 (1964).

12

 Id. at 30-32. “Patent misuse is an equitable defense

to patent infringement” and is not a separate cause of

action. U.S. Philips Corp. v. Int’l Trade Comm’n, 424

F.3d 1179, 1184 (Fed. Cir. 2005). Patent misuse is said

to be broader than antitrust liability as it extends to

“some sorts of conduct antitrust law would not

reach.” 1 HOVENKAMP ET AL., IP AND ANTITRUST §

3.2c, at 3-10. Over the years, however, patent misuse

has become more “coextensive” with antitrust

doctrine, see id., and the United States Court of

Appeals for the Federal Circuit applies antitrust

principles in deciding cases involving allegations of

patent misuse. See id. § 3.2a, at 3-6.

13 In Brulotte, the patent owner sued the licensee to

recover royalty payments. 379 U.S. at 29-30.

14

 See Zenith Radio Corp. v. Hazeltine Research, Inc., 395

U.S. 100, 136-37 (1969) (“Recognizing that the

patentee [in Brulotte] could lawfully charge a royalty

for practicing a patented invention prior to its

expiration date and that the payment of this royalty

could be postponed beyond that time, we noted that

the post-expiration royalties were not for prior use

but for current use, and were nothing less than an

effort by the patentee to extend the term of his

monopoly beyond that granted by law. Brulotte thus

articulated in a particularized context the principle

that a patentee may not use the power of his patent to

levy a charge for making, using, or selling products

not within the reach of the monopoly granted by the

Government.”).

15

 See Bayer AG v. Housey Pharms., Inc., 228 F. Supp.

2d 467, 472-73 (D. Del. 2002) (finding it permissible

for a patentee to agree to postpone royalty payments

when the payments were clearly in exchange for

practicing the patented technology prior to the

expiration of the patent); see also Aronson v. Quick

Point Pencil Co., 440 U.S. 257, 264-66 (1979)

(permitting, consistent with Brulotte, enforcement of a

royalty agreement that required payment for use of

an invention for which a patent never issued because

the agreement was “freely undertaken . . . with no

fixed reliance on a patent or a probable patent

grant”); cf. Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365,

1373 (11th Cir. 1983) (holding that licensing rights

and obligations applying in both the pre- and postexpiration period signaled that “at least some part of

the post-expiration payment” compensated “for

patent rights beyond the patent period”), cert. denied,

464 U.S. 893 (1983); Meehan v. PPG Indus., Inc., 802

F.2d 881, 886 (7th Cir. 1986) (holding licensing terms

unlawful per se because contract “fail[ed] to

distinguish between pre-expiration and postexpiration royalties”), cert. denied, 479 U.S. 1091

(1987); Boggild v. Kenner Prods., 776 F.2d 1315, 1321

(6th Cir. 1985), cert. denied, 477 U.S. 908 (1986) (same). 

See generally 1 HOVENKAMP ET AL., IP AND ANTITRUST

§§ 23.2a-e, at 23-5 to 23-22.3 (2002 & Supp. 2005)

(discussing, inter alia, the treatment of post-expiration

royalties and royalties collected on unissued patents

in light of Brulotte). 
118 PROMOTING INNOVATION AND COMPETITION

“post-expiration royalties merely

amortize the price of using patented

technology.”

16

 According to Judge

Posner, writing for the court in Scheiber v.

Dolby Laboratories, Inc., “[f]or a licensee . .

. to go on paying royalties after the patent

expires does not extend the duration of

the patent . . . because . . . if the licensee

agrees to continue paying royalties after

the patent expires the royalty rate will be

lower.”17 Economists agree, contending

that agreements that extend royalty

payments beyond the patent term

actually can “reduce the deadweight loss

from a patent monopoly” because perperiod royalties are low, and yet the

licensor recoups the same present value

rent from licensing the patent.18 This

point was reiterated at the Hearings.19 It

is generally better, one panelist asserted,

to have a “long[,] small stream of

royalties rather than a short[,] large

stream” because the former collects the

same intellectual property rent with the

same incentives for innovation but with a

lower deadweight loss.20 Another

panelist suggested that collecting royalty

paymentsbeyond the patent’s enforceable

life is not an antitrust concern because a

patentee is entitled to appropriate value

from its intellectual property and a

licensee will not pay a royalty that

exceeds the value of that intellectual

property.21 Because the purpose of patent

protection is to provide incentives for

innovation, measures that permit a

patentee to capture more fully the value

of its patent may lead to a more efficient

level of innovation, this panelist opined.22

Another possibility is that

agreements that require royalties to be

16 10 PHILLIP E. AREEDA, EINER ELHAUGE & HERBERT

HOVENKAMP, ANTITRUST LAW: AN ANALYSIS OF

ANTITRUST PRINCIPLES AND THEIR APPLICATION §

1782c, at 492 (2004); Richard Gilbert & Carl Shapiro,

Antitrust Issues in the Licensing of Intellectual Property: 

The Nine No-No’s Meet the Nineties, 1997 BROOKINGS

PAPERS ON ECON. ACTIVITY, MICROECONOMICS 233,

322 (“Legal reasoning here . . . although rhetorically

appealing, does not seem to reflect commercial reality

or basic economics.”).

17 293 F.3d 1014, 1017 (7th Cir. 2002). The Scheiber

court strongly criticized the holding in Brulotte, but

felt compelled to follow it and hold the patent license

agreement at issue unenforceable. The U.S. Court of

Appeals for the Seventh Circuit invited the Supreme

Court to reconsider the matter. Id. at 1018 (“[W]e

have no authority to overrule a Supreme Court

decision no matter how dubious its reasoning strikes

us, or even how out of touch with the Supreme

Court’s current thinking the decision seems.”). But

the Supreme Court declined to grant certiorari. 

Scheiber v. Dolby Labs., Inc., 537 U.S. 1109 (2003).

18 Gilbert & Shapiro, 1997 BROOKINGS PAPERS ON

ECON. ACTIVITY, MICROECONOMICS at 322. Once a

patent expires, a licensee can use the patent for no

charge. It is therefore unclear how a licensor could

persuade a licensee to pay more than the amount the

licensee would be willing to pay to use the patent

during its term. Scheiber, 293 F.3d at 1017; Gilbert &

Shapiro, 1997 BROOKINGS PAPERS ON ECON. ACTIVITY,

MICROECONOMICS at 322.

19

 See, e.g., Nov. 6 Tr. at 162-64 (Shapiro)

(“[S]preading out royalties over a larger brace and a

lower rate could be better.”). 

20 May 14 Tr. at 149-50 (Farrell) (discussing Gilbert &

Shapiro’s analysis); see also Stephen M. Law, Intertemporal Tie-ins: A Case for Tying Intellectual Property

Through Licensing, 11 INT’L J. ECON. BUS. 3, 15 (2004)

(“The countervailing benefit to society from allowing

the licensor greater freedom to contract is the

reduction in royalty rate, and hence prices, during the

patent period that occurs as the licensor adjusts the

license to induce a licensee to accept the longer

term.”). Moreover, the antitrust laws are not

concerned with agreements that allow a licensee to

amortize royalty payments beyond the life of the

licensed patent if the patent itself does not confer

market power. 

21 Nov. 6 Tr. at 171-72 (Rule).

22

 See, e.g., id. at 171 (Rule) (using metering to capture

the value created by intellectual property “is a good

thing” because “[i]t tends to disseminate technology

broader oftentimes than a single price”).
Extending a Patent’s Market Power 119

paid beyond the statutory term may

enable a licensor to overcome incomplete

contracting. Incomplete contracting

occurs when imperfect contracting

conditions prevent a licensor from

negotiating a satisfactory royalty rate that

reflects the patent’s true value. To resolve

this problem, there may be an incentive

and ability to require the payment of

royalties after the patent expires as a

condition of licensing during the patent

period, thus allowing a licensorto capture

the patent’s full value.23

II. LONG TERM CONTRACTS

INVOLVING EXCLUSIVITY

An exclusive patent license can

offer significant efficiencies. Such a

license can, for example, encourage the

exclusive licensee to commercialize and

distribute the patented invention to

consumers and make improvements

without the threat of free-riding by the

patent holder or its other licensees.24

Exclusivity provisions, such as field-ofuse or territorial restrictions, can ease the

threat of misappropriation, which can

mitigate competitive concerns over a

potentially anticompetitive agreement.25

Panelists discussed how

agreements involving exclusivity might

be used instead to extend a patent’s

market power beyond the patent’s

statutory term. One panelist used the

example of long-term contracts that

extend past patent expiration to

demonstrate that such activities can cause

competitive harm.26 The panelist

explained that exclusive dealing can

profitably deter entry if an incumbent

firm can convince enough customers to

carry its product exclusively, leaving too

few customers for a new entrant to reach

a minimum viable scale. For example, the

panelist said that it might be in the

interest of the incumbent seller to give

hefty inducements to one or more buyers

to sign long-term contracts instead of

awaiting new entry. Once a critical mass

of buyers has signed up, later buyers may

be willing to sign contracts at higher

prices. These buyers would not receive

the price inducements from the

incumbent seller nor enjoy the prospect of

new entry because they know that their

contracting decisions cannot attract new

entrants who need to have a minimum

number of buyers in order to enter.27  

23 For example, if a licensee valued a patent at $100

during the patent period, but imperfect contracting

conditions would allow the patent holder to extract

only $70 during the patent period, the licensee would

be willing ex ante to agree to pay up to $30 of royalties

after the patent expired, even though the patent then

could be used at no charge. An analogous incentive

is well recognized, for example, in regulated

industries in which a seller has an incentive to tie a

regulated service, whose regulated price is below the

maximum value a customer would pay, with an

unregulated service to raise the price of that

unregulated service and extract additional rents. See

DENNIS W. CARLTON & JEFFREY M. PERLOFF, MODERN

INDUSTRIAL ORGANIZATION 319-20 (4th ed. 2005).

24 ANTITRUST-IP GUIDELINES § 2.3.

25

 Id. §§ 2.3, 4.1.2.

26 May 14 Tr. at 146-49 (Sibley); see also George G.

Gordon & James P. Denvir, III, Is There Life After a

Patent?: Strategies to Maximize the Value of Product

Life-Cycles After a Patent Expires, Presentation

Before the American Bar Association, Antitrust

Section 281-84 (May 3-4, 2001) (on file with the

Department of Justice and Federal Trade

Commission) [hereinafter Gordon & Denvir, Is There

Life After a Patent?].

27 May 14 Tr. at 146-49 (Sibley); see also David S.

Sibley, Long Term Contracts as a Barrier to Entry (May

14, 2002 Hr’g R.) at 2-3, http://www.ftc.gov/opp/

intellect/020514sibley.pdf. 
120 PROMOTING INNOVATION AND COMPETITION

Others have explored the

conditions that would induce a consumer

to sign a long-term contract with an

incumbent monopolist.28 If enough

consumers sign such an agreement, the

probability of entry may become very

low, allowing the incumbent to continue

charging higher prices. However, the

individual buyer, in signing a long-term

contract—perhaps in return for a

discount—may ignore the resulting lower

probability of entry that its contract

causes. The reduced probability of entry

gives the incumbent more scope to get

buyers to accept higher prices for a longterm contract.

29 This activity could

extend the market power conferred by the

patent beyond patent expiration.

Inaddition, one panelist addressed

how the discounts associated with

incentive sales agreements or rebate

programs could be used to extend the

market power conferred by a patent

beyond the patent’s expiration.30 In an

incentive sales agreement or rebate

program, the price a licensee pays over

time can be based on the use of the

patented technology both during the life

of the patent and after the patent has

expired. To illustrate how such programs

might be used to extend the market

power conferred by a patent beyond the

patent’s expiration, this panelist pointed

to one district court case in which an

aggrieved competitor argued that its

rival’s rebate program was an

anticompetitive attempt to extend the

monopoly conferred by a valuable patent

beyond its expiration. According to the

panelist, the program was designed so

that a customer would forfeit rebates on

prior purchases of the patented product if

the customer’s purchasing volume fell

after the patent expired and generic

alternatives were available;31 the risk of

forfeiture allegedly coerced the customer

into using the branded product

exclusively.32 This panelist stated that in

analyzing such practices antitrust

enforcers should consider, inter alia,

whether “calculating a total discount

based on purchases both pre- and postexpiration improperly extends the termof

the patent.”33

III. BUNDLING PATENTS WITH

TRADE SECRETS

The panel also discussed whether

antitrust issues can arise if a patent holder

tries to extend the market power

conferred by a patent beyond its

expiration by bundling the patent license

with trade secrets or know-how.34 Unlike

28

 See, e.g., Philippe Aghion & Patrick Bolton,

Contracts as a Barrier to Entry, 77 AM. ECON. REV. 388

(1987); Eric B. Rasmusen, J. Mark Ramseyer & John S.

Wiley, Jr., Naked Exclusion, 81 AM. ECON. REV. 1137

(1991); Ilya R. Segal & Michael D. Whinston, Naked

Exclusion: Comment, 90 AM. ECON. REV. 296 (2000);

John Simpson & Abraham Wickelgren, The Use of

Exclusive Contracts to Deter Entry (Bureau of Econ.,

Fed. Trade Comm’n, Working Paper No. 241, 2001),

available at http://www.ftc.gov/be/workpapers/

wp241.pdf. 

29 Aghion & Bolton, 77 AM. ECON. REV. at 396-97.

30

 See May 14 Tr. at 126-28 (Dick).

31

 See id. at 127-28 (Dick) (discussing private litigation

against Monsanto involving its incentive sales

agreements regarding its patented Roundup

herbicide); see also Complaint and Jury Demand

paras. 3, 24-27, Chem. Prods. Techs., LLC v. Monsanto

Co., No. 4:01-4384-12 (D.S.C. Nov. 13, 2001) (settled

Nov. 2002). 

32 Complaint and Jury Demand paras. 25, 54-56, 69,

73-74, 83, Chem. Prods. Techs., No. 4:01-4384-12. 

33 May 14 Tr. at 128-29 (Dick).

34

 Id. at 121-26 (Dick); see also Gilbert & Shapiro, 1997
Extending a Patent’s Market Power 121

patents, trade secrets enjoy perpetual

protection provided the proprietary

information remains secret.35 If the patent

in such a “hybrid agreement” expires, or

if the trade secrets hold little or no value,

the licensing of these rights may

incorporate restrictions that effectively

establish a cartel. That was the

Department of Justice’s allegation in

United States v. Pilkington plc.

36 Pilkington

had once held patents on a process for

making flat glass. During the life of those

patents, Pilkington set up a worldwide

licensing regime with exclusiveterritories

in which each licensee could practice the

patent. By the early 1980s, the principal

U.S. patents on the process had expired.

Nevertheless, Pilkington continued to

enforce a worldwide licensing scheme

with exclusive territories based solely on

the licensing of trade secrets. The

Department challenged this scheme in

1994, alleging that any remaining trade

secrets consisted of engineering solutions

with no substantial value over equally

efficacious engineering alternatives. The

Department argued that the licensing of

the know-how was a sham, and it had

simply become a device for implementing

a cartel.37 Most intellectual property

bundling agreements, in contrast, are not

sham agreements, and they often serve as

mechanisms for reducing transaction

costs, alleviating blocking positions, or

creating other efficiencies.38

BROOKINGS PAPERS ON ECON. ACTIVITY,

MICROECONOMICS at 322 (stating such “hybrid”

bundling agreements are a “common tactic” that is

used to extend the term of the agreement beyond the

patent’s expiration); Pitney Bowes, 701 F.2d 1365

(involving a “hybrid” patent and a know-how

license); Indus. Promotion Co. v. Versa Prods., Inc., 467

N.W.2d 168, 169 (Wis. Ct. App. 1991) (same).

35 Trade secrets can be licensed to others, much like

patents and copyrights. As one panelist explained,

trade secret protection offers the benefit of no

expiration of the rights as long as the trade secrets are

not disclosed in the public domain. Trade secrets

have no fixed term and are governed by state law,

operating entirely outside the federal patent or

copyright regimes. (Although the Model Uniform

Trade Secrets Act drafted by the National Conference

of Commissioners on Uniform State Laws, provides

some guidance about what constitutes know-how

and how rights to it can be enforced, there are

variations in the state schemes and some states have

not adopted the Act in any form.) Trade secrets,

however, usually leak out. Apart from Coca-Cola’s

close holding of its secret formula, few firms have

been able to protect their trade secrets for long

periods, the panelist stated. May 14 Tr. at 121-22

(Dick); see also Edwin Mansfield, How Rapidly Does

New Industrial Technology Leak Out?, 34 J. INDUS.

ECON. 217, 219-21 (1985) (explaining that information

about the detailed nature and operations of a new

product or process is in the hands of at least some

rival firms within a year, on the average, after a new

product is developed, and sometimes within six

months).

36 Complaint paras. 26-31, United States v. Pilkington

plc, No. 94-345, 1994-2 Trade Cas. (CCH) ¶ 70,842,

1994 WL 750645 (D. Ariz. Dec. 22, 1994), available at

http://www.usdoj.gov/atr/cases/f0000/0014.pdf;

see also United States v. Pilkington plc and Pilkington

Holdings Inc.; Proposed Final Judgment and

Competitive Impact Statement, 59 Fed. Reg. 30,604,

30,508-10 (June 14, 1994), available at

http://www.usdoj.gov/atr/cases/f220800/220860.

pdf, http://www.usdoj.gov/atr/cases/f220800/

220861.pdf.

37 Dick Presentation at 4-5; May 14 Tr. at 122-24

(Dick). The consent decree eliminated all territorial

and use limitations Pilkington imposed on U.S.

licensees and allowed them to manufacture on their

own or sublicense any third party to do so anywhere

in the world, free of charge, using the float

technology disclosed and licensed to those licensees. 

The decree also provided, in effect, a similar “safe

harbor” for any other American individual or firm

who was not a Pilkington float glass licensee to use

any float technology in its possession without liability

to Pilkington. Pilkington, 1994-2 Trade Cas. (CCH) ¶

70,842, at 73,668-71, 1994 WL 750645, at *2-5.

38 ANTITRUST-IP GUIDELINES § 5.3; Philips, 424 F.3d at

1192-93 (noting the efficiencies of package licensing);

May 14 Tr. at 133 (Dick) (stating package licenses can

be “a very efficient means for transferring IP rights”);

see also id. at 19-20, 25 (Vistnes) (stating there are

greater, or at least a greater potential for, efficiencies
122 PROMOTING INNOVATION AND COMPETITION

IV. THE AGENCIES’ ANALYSIS

The Agencies review most

agreements that have the potential to

extend the market power conferred by a

valuable patent beyond that patent’s

expiration pursuant to the rule of

reason.39 The first step in the Agencies’

analysis is to assess whether the patent at

issue confers market power upon its

holder, and if so, whether the patent

holder’s conduct unreasonably extends

that market power beyond the patent’s

statutory term. In performing that

inquiry, the Agencies consider, as

panelists suggested, whether a firm is

exercising such market power beyond the

patent’s statutory term so as to prevent

expansion by those already in the market,

or deter entry of substitute products or

processes.40 

Few antitrust cases involving the

improper extension of patent rights have

been brought in recent years. Panelists at

the Hearings explained that this may be

because few practices that could extend

the market power conferred by a patent

beyondthepatent’s expiration actuallydo

so.

41 Moreover, many restrictions that

have the potential to extend the market

power conferred by a valuable patent

beyond its term can have demonstrable

efficiencies. The Agencies have

recognized, for example, that contracts

that require exclusive dealing may

encourage a licensee to further develop

the licensed technology. It is also possible

that collecting royalties over a longer

term than the patent grant will reduce the

deadweight loss associated with a patent

monopoly and allow the patent holder to

recover the full value of the patent,

thereby preserving innovation incentives.

Although some agreements may have

anticompetitive effects, patent licenses

can often be “expected to contribute to an

efficiency-enhancing integration of

economic activity,”42 and thus the

Agencies generally analyze them

pursuant to the rule of reason. Of course,

with regard to any of these practices, per

se treatment would be warranted if a

particular practice is a sham—if, for

associated with intellectual property bundles); 1

HERBERT HOVENKAMP ET AL., IP AND ANTITRUST § 22.5,

at 22-32 (making a similar observation); Evans &

Salinger, 22 YALE J. ON REG. at 41 (“Bundling . . . can

provide efficiencies such as marginal cost savings,

quality improvements, and customer convenience.”). 

39 ANTITRUST-IP GUIDELINES § 3.4 (“In the vast

majority of cases, restraints in intellectual property

licensing arrangements are evaluated under the rule

of reason. . . . If there is no efficiency-enhancing

integration of economic activity and if the type of

restraint is one that has been accorded per se

treatment, the Agencies will challenge the restraint

under the per se rule. Otherwise, the Agencies will

apply a rule of reason analysis.”).

40

 See supra note 8 and accompanying text.

41

 See, e.g., May 14 Tr. at 149-50 (Farrell); id. at 156

(Katz). In addition, legal doctrines may limit antitrust

challenges in this area. For example, successful

lobbying that leads to enactment of a legislative or

regulatory regime with rules inhibiting entry might

well extend the duration of patent-conferred market

power. See id. at 145 (Dick) (noting copyright holders

successful efforts to extend copyright protection for

an additional number of years which resulted in the

Sonny Bono Copyright Term Extension Act, Pub. L.

No. 105-298, 112 Stat. 2827 (1998)); see also Gordon &

Denvir, Is There Life After a Patent? at 279-81

(discussing an antitrust challenge to a branded firm’s

activities and related publicity campaigns directed at

excluding generic competition). The Noerr-Pennington

doctrine exempts from antitrust enforcement certain

bona fide petitioning conduct directed toward a

governmental decision maker. See United Mine

Workers v. Pennington, 381 U.S. 657 (1965); E. R.R.

Presidents Conference v. Noerr Motor Freight, Inc., 365

U.S. 127 (1961).

42 ANTITRUST-IP GUIDELINES § 3.4. 
Extending a Patent’s Market Power 123

example, it is designed to implement a

market division agreement among

competitors.43

43

 Id.

125

APPENDIX A

HEARINGS PARTICIPANTS

Competition and Intellectual Property Law and Policy in the Knowledge-Based

Economy February 6 - November 6, 2002

Primary source: http://www.ftc.gov/opp/intellect/index.htm

Name Affiliation (at time of Hearings)

Aharonian, Greg Publisher, Internet Patent News Service Panel: 2/27/02

Submission: 

2/27/02 

Alderrucci, Dean Chief Counsel of Intellectual Property,

Walker Digital Management LLC

Panel: 4/9/02 

Alexiadis, Peter Partner, Squire, Sanders & Dempsey LLP,

Brussels

Panel: 5/22/02 

Allen, Gwilliym Senior Economist and Strategic Policy

Advisor, Competition Policy Branch,

Canadian Competition Bureau

Panel: 5/22/02 

Submission: 

5/22/02 

Alstadt, Lynn J. Shareholder, Buchanan Ingersoll PC;

Adjunct Professor, Duquesne University

Panel: 3/19/02 

American Bar

Association, Section of

Antitrust Law

Public Comments

American Bar

Association, Section of

Intellectual Property

Law

Public Comments

American Intellectual

Property Law

Association

Public Comments

American National

Standards Institute

Public Comments

Anderman, Steven D. Professor of Law, University of Essex,

England

Submission: 

5/22/02 

Antalics, Michael Partner, O’Melveny & Myers LLP Panel: 4/18/02 
126 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Armbrecht, F.M. Ross,

Jr.

President, Industrial Research Institute Panel: 3/19/02 

Armitage, Robert A. Vice President and General Patent Counsel,

Eli Lilly and Company

Panel: 3/19/02 

Arora, Ashish Visiting Associate Professor of Economics,

Stanford University; Associate Professor of

Economics and Public Policy, Carnegie

Mellon University

Panels: 2/25/02,

5/1/02 

Submissions: 

2/25/02, 5/01/02

Arrow, Kenneth J. Nobel Memorial Prize and Joan Kenney

Professor of Economics Emeritus, and

Professor of Operations Research Emeritus,

Stanford University

Panel: 2/25/02

Submission: 

2/25/02 

Arthur D. Little, Inc. Public Comments

Aventis

Pharmaceuticals, Inc.

Public Comments

Baker, Charles P. Partner, Fitzpatrick, Cella, Harper & Scinto Panel: 7/11/02 

Submission: 

7/11/02 

Balto, David A.

(with Daniel I.

Prywes)

Partner, White & Case LLP Public Comments

Banner, Mark T. Banner & Witcoff, Ltd.; Chair, American

Bar Association, Intellectual Property Law

Section

Panel: 10/30/02 

Barnes, E. Bruce Public Comments

Barnett, Thomas O. Partner, Covington & Burling Panel: 5/02/02 

Barr, Robert Vice President and Worldwide Patent

Counsel, Cisco Systems, Inc.

Panels: 2/28/02,

10/30/02

Submission: 

2/28/02

Barton, John H. George E. Osborne Professor of Law,

Stanford University Law School

Panel: 2/26/02 

Submission: 

2/26/02 

Public Comments

Beeney, Garrard R. Partner, Sullivan & Cromwell Panel: 4/17/02 

Submission: 

4/17/02 
APPENDIX A: HEARINGS PARTICIPANTS 127

Name Affiliation (at time of Hearings)

Beier, David W. Partner, Hogan & Hartson LLP; Counsel to

Biotechnology Industry Organization;

Senior Fellow, Wharton School of Business,

University of Pennsylvania

Panel: 2/26/02 

Submission: 

2/26/02 

Bendekgey, Lee General Counsel and Executive Vice

President, Incyte Genomics

Panel: 2/26/02 

Besen, Stanley M. Vice President, Charles River Associates Panel: 4/18/02

Submission: 

4/18/02 

Bessen, James

(with Eric Maskin)

Public Comments 

Bhaskar, R. Senior Research Fellow, Harvard Business

School

Panels: 7/11/02,

10/25/02

Submission: 

7/11/02 

Black, Edward J. President and CEO, Computer &

Communications Industry Association

Panel: 3/20/02 

Submission: 

3/20/02 

Blackburn, Robert Vice President, Chief Patent Counsel,

Chiron Corp.; Distinguished Scholar,

Berkeley Center for Law and Technology 

Panel: 2/26/02 

Boast, Molly S. Partner, Debevoise & Plimpton LLP Panel: 5/14/02 

Boulware, Margaret

A.

Shareholder, Jenkens & Gilchrist PC Panel: 10/30/02 

Boyce, John R.

(with Aidan Hollis)

Professor, Department of Economics,

University of Calgary

Public Comments

Brodley, Joseph F. Professor, Kennison Distinguished Scholar

of Law, Boston University School of Law

Panel: 5/2/02 

Submission: 5/2/02 

Browder, Monte R. Senior Intellectual Property Counsel, Ivax

Corp.

Panel: 3/19/02

Brunt, George B. Senior Vice President, General Counsel and

Secretary, Alcatel USA

Panel: 3/20/02 

Submission: 

3/20/02 

Buddington, Eric Semi-Professional Programmer Public Comments

Burchfiel, Kenneth J. Partner, Sughrue Mion, PLLC Panel: 4/11/02 
128 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Burk, Dan L. Julius E. Davis Professor of Law, University

of Minnesota Law School

Panels: 3/20/02, 

7/10/02 

Submissions: 

3/20/02, 7/10/02 

Burtis, Michelle Director, LECG, LLC Panel: 11/6/02

Busey, Roxanne C. Partner, Gardner Carton & Douglas; Chair,

American Bar Association Section of

Antitrust Law

Panel: 7/11/02 

Submission: 

7/11/02 

Cargill, Carl Director of Standards, Sun Microsystems,

Inc.

Panel: 4/18/02

Submission: 

4/18/02 

Carlin, Fiona Partner, European Law Center, Baker &

McKenzie, Brussels

Panel: 5/22/02 

Submission: 

5/22/02 

Carrier, Michael A. Assistant Professor, Rutgers University

School of Law–Camden

Public Comments

Cary, George S. Partner, Cleary, Gottlieb, Steen & Hamilton Panel: 5/2/02 

Submission: 5/2/02 

Casamento, Gregory

John 

Software Engineer Public Comments

Casey, Timothy D. Partner and Chairman of Intellectual

Property and Technology Transactions

Department, Fried, Frank, Harris, Shriver &

Jacobsen

Panel: 4/9/02 

Caulfield, Barbara A. Executive Vice President and General

Counsel, Affymetrix, Inc.

Panel: 3/19/02 

Submission: 

3/19/02 

Chaikovsky, Yar R. General Counsel, Zaplet, Inc. Panel: 2/27/02 

Chambers, Scott A. M. Associate, Arnold and Porter; Adjunct

Faculty Member at Georgetown Law Center

and the George Washington University

School of Law

Panels: 2/8/02,

10/25/02

Submission: 2/8/02 

Chin, Yee Wah Senior Counsel, Mintz, Levin Cohn, Ferris,

Glovsky and Pompeo, PC

Panel: 5/22/02 

Submission: 

5/22/02 

Coffin-Beach, David President, Torpharm, Inc. Panel: 3/19/02 
APPENDIX A: HEARINGS PARTICIPANTS 129

Name Affiliation (at time of Hearings)

Cohen, Wesley M. Professor of Economics and Social Science,

Carnegie Mellon University; Professor of

Economics and Management, Fuqua School

of Business, Duke University; Research

Associate, National Bureau of Economic

Research

Panels: 2/20/02,

10/30/02

Submission: 

2/20/02 

Cook, Robert N. Partner, Drinker, Biddle & Reath LLP Panel: 5/2/02

Submission: 5/2/02 

Craft, James A. Gammage & Burnham Public Comments

Crossman, Colin

(with Thomas Griffin,

David Silverstein, &

Mark Webbink)

Student, Duke University School of Law Public Comments

Delrahim, Makan Republican Chief Counsel, Senate

Committee on the Judiciary

Panel: 3/19/02 

Detkin, Peter N. Vice President, Legal and Government

Affairs and Assistant General Counsel, Intel

Corp.

Panel: 2/28/02 

Submission: 

2/28/02 

Deutsch, Donald R. Vice President, Standards Strategy and

Architecture, Oracle Corp.

Panel: 4/18/02 

Submission: 

4/18/02 

Dick, Rebecca P. Of Counsel, Swidler Berlin Shereff

Friedman, LLP

Panel: 5/14/02 

Submission: 

5/14/02 

Dickinson, Q. Todd Partner, Howrey, Simon, Arnold & White Panels: 2/6/02,

10/25/02 

Dolmans, Maurits Partner, Cleary, Gottlieb, Steen & Hamilton,

Brussels

Panel: 5/22/02 

Submission: 

5/22/02 

Dreyfuss, Rochelle C. Pauline Newman Professor of Law, New

York University School of Law

Panels: 7/10/02,

7/11/02 

Duffy, John F. Associate Professor of Law, William &

Mary Marshall-Wythe School of Law

Panels: 7/10/02,

10/30/02

Submission: 

7/10/02 

Earp, David J. Vice President of Intellectual Property,

Geron Corp.

Panel: 2/26/02 
130 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Egan, James J. Senior Vice President, Novirio

Pharmaceuticals

Panel: 5/2/02 

Ellis, Mark Public Comments

Ellis, The Honorable

T.S., III

Judge, U.S. District Court for the Eastern

District of Virginia

Panel: 7/11/02 

Ergas, Henry Managing Director, Network Economics

Consulting Group Pty Ltd, Australia

Panels: 5/22/02,

5/23/02

Submissions: 

5/22/02, 5/23/02

Evenson, Robert E. Professor of Economics, Yale University Panel: 2/20/02 

Submission: 

2/20/02 

Farrell, Joseph Professor of Economics and Chair of the

Competition Policy Center, University of

California, Berkeley

Panels: 2/28/02,

5/14/02, 11/6/02

Submissions: 

2/28/02

5/14/02 

Feinstein, Richard A. Partner, Boies, Schiller & Flexner LLP Panel: 5/02/02 

Submission: 

5/02/02 

Fine, Frank Partner, DLA Public Comments

Forrester, Ian S. Executive Partner, White & Case LLP,

Brussels; Visiting Professor, University of

Glasgow

Panel: 5/22/02

Submission: 

5/22/02 

Fox, Stephen P. Associate General Counsel and Director,

Intellectual Property, Hewlett-Packard

Company

Panel: 2/28/02 

Submission: 

2/28/02 

Frankel, Kenneth M. Partner, Finnegan, Henderson, Farabow,

Garrett & Dunner LLP; Chairman, Antitrust

Law Committee, Intellectual Property Law

Association

Panel: 4/10/02 

Submission: 

4/10/02 

Friedman, Bradford L. Director of Intellectual Property, Candence

Design Systems, Inc.

Panel: 2/27/02 
APPENDIX A: HEARINGS PARTICIPANTS 131

Name Affiliation (at time of Hearings)

Fromm, Jeffery Senior Managing Counsel, Hewlett-Packard

Company

Panels: 4/17/02 

11/6/02

Submission: 

4/17/02 

Futa, Baryn S. Manager and Chief Executive Officer,

MPEG LA, LLC

Panel: 4/17/02 

Submission: 

4/17/02 

Gable, R. Lewis Partner, Cowan, Liebowitz & Latman, P.C. Panel: 3/20/02 

Gambrell, James B. Visiting Professor, The University of Texas

School of Law

Panel: 10/25/02 

Garner, Melvin C. Partner, Darby & Darby; Second Vice

President, American Intellectual Property

Law Association

Panel: 10/25/02 

Gellhorn, Ernest Professor of Law, George Mason University

School of Law

Panel: 4/18/02 

Submission: 

4/18/02 

Gifford, Daniel J. Robins, Kaplan, Miller & Ciresi Professor of

Law, University of Minnesota School of

Law

Panel: 4/18/02 

Submission: 

4/18/02 

Gilbert, Richard J. Professor of Economics, University of

California, Berkeley

Panels: 2/6/02,

2/25/02

Submissions: 

2/6/02, 2/25/02

Gleklen, Jonathan I. Partner, Arnold & Porter Panel: 5/1/02 

Submission: 5/1/02

Glover, Gregory J. Partner, Ropes & Gray, Counsel to

Pharmaceutical Research & Manufacturers

of America

Panel: 3/19/02

Submission: 

3/19/02 

Gordon, George G. Partner, Dechert Panel: 7/11/02 

Submission: 

7/11/02 

Greenhall, R. Jordan Co-founder and Chief Executive Officer,

DivX Networks

Panel: 2/27/02 
132 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Greenstein, Shane

Mitchell

Elinor and Wendall Hobbs Professor,

Kellogg School of Management,

Northwestern University

Panel: 2/20/02

Submission: 

2/20/02

Griffin, Thomas

(with Colin Crossman,

David Silverstein &

Mark Webbink)

Student, Duke University School of Law Public Comments

Grindley, Peter Senior Managing Economist, LECG, Ltd.,

London

Panels: 4/17/02,

4/18/02 

Submission: 

4/17/02 

Guerin-Calvert,

Margaret E.

Principal, Economists, Inc. Panel: 2/20/02 

Submission: 

2/20/02 

Hall, Bronwyn H. Professor of Economics, University of

California, Berkeley

Panel: 2/26/02,

2/28/02

Submission: 

2/26/02 

Harris, H. Stephen, Jr. Partner, Alston & Bird LLP Panel: 5/23/02 

Submission: 

5/23/02 

Hart, Leslie J. Vice President of Intellectual Property,

Harris Corp.

Panel: 4/9/02

Hayes-Rines, Joanne

M.

Vice President, United Investors

Association

Panel: 3/19/02

Hoerner, Robert J. Former Partner, Jones, Day, Reavis & Pogue Panel: 7/11/02 

Submission: 

7/11/02 

Holleman, Richard J. Industry Standards Consultant; Treasurer,

IEEE Standards Association

Panel: 4/18/02 

Submission: 

4/18/02 Public

Comments

Hollis, Aidan

(with John R. Boyce)

Associate Professor, Department of

Economics, University of Calgary

Public Comments

Horton, Thomas J. Partner, Orrick, Herrington & Sutcliffe LLP Public Comments
APPENDIX A: HEARINGS PARTICIPANTS 133

Name Affiliation (at time of Hearings)

Hughes, James W.

(with Edward A.

Snyder & Michael J.

Moore)

Associate Professor, Economics

Department, Bates College

Public Comments

Hughes, Justin Visiting Professor of Law, University of

California, Los Angeles

Panel: 2/28/06 

Hull, David W. Partner, Covington & Burling, Brussels Panel: 5/22/02 

Submission: 

5/22/02 

Hunt, Robert M. Economist, Research Department, Federal

Reserve Bank of Philadelphia

Public Comments

Institute of Electrical

and Electronics

Engineers, Inc. 

Public Comments 

Intellectual Property

Owners Association 

Public Comments

Jacobson, Jonathan M. Partner, Akin, Gump, Strauss, Hauer &

Feld, LLP

Panel: 5/14/02 

Submission: 

5/14/02 

James, Charles Assistant Attorney General for Antitrust,

U.S. Department of Justice

Speech: 2/6/02 

Submission: 2/6/02

Janis, Mark D. Professor of Law, University of Iowa

College of Law

Panels: 4/10/02,

4/11/02, 5/22/02 

Japan Fair Trade

Commission

Submission: 

5/23/02 

Jorda, Karl F. David Rines Professor of Intellectual

Property Law and Industrial Innovation,

Franklin Pierce Law Center

Panel: 5/23/02 

Kahin, Brian Director, Center for Information Policy,

Visiting Professor, College of Information

Studies, University of Maryland

Panels: 3/19/02,

4/11/02, 10/25/02,

10/30/02

Submissions: 

3/19/02, 4/11/02 

Public Comments

Kantor, David A.

(with Sal Racciardi)

President, Victory Wholesale Grocers Public Comments
134 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Kaplan, Joshua President and Chief Executive Officer,

Founder Intouch Group, Inc.

Panel: 2/27/02 

Katsh, Salem M. Partner, Shearman & Sterling Panels: 4/10/02,

5/14/02

Submissions: 

4/10/02, 5/14/02

Kattan, Joseph Partner, Gibson, Dunn & Crutcher Panels: 5/14/02,

11/6/02 

Submission: 

5/14/02 

Katz, Ronald S.

(with Adam J. Safer)

Antitrust Litigator, Coudert Bros. Public Comments

Kelly, Christopher J. Special Counsel, Litigation Department,

Kaye Scholer LLP

Panel: 4/17/02 

Submission: 

4/17/02 

Kesan, Jay P. Assistant Professor of Law, University of

Illinois College of Law

Panels: 4/10/02,

10/25/02

Submission: 

4/10/02 

Kieff, F. Scott John M. Olin Senior Research Fellow in

Law, Economics and Business, Harvard

Law School; Associate Professor of Law,

Washington University School of Law

Panel: 4/10/02 

Public Comments

Kim, Byungbae Competition Policy Counselor and Director

General, Korean Fair Trade Commission

Panel: 5/23/02

Submission: 

5/23/02

Kirsch, Paul F. Partner, Townsend and Townsend and

Crew LLP

Panel: 5/1/02 

Submission: 5/1/02 

Kirschner, Michael K. Vice President for Intellectual Property,

Immunex Corp.

Panel: 2/26/02 

Kitch, Edmund W. Joseph M. Hatfield Professor of Law,

University of Virginia School of Law;

Visiting Professor, Georgetown University

Law Center 

Panels: 2/20/02,

10/30/02 

Klein, Benjamin Professor of Economics, University of

California Los Angeles

Panel: 5/1/02 

Submission: 5/1/02 

Kobak, James B., Jr. Partner, Hughes Hubbard & Reed LLP Panel: 7/11/02 
APPENDIX A: HEARINGS PARTICIPANTS 135

Name Affiliation (at time of Hearings)

Kohn, Robert H. Vice Chairman and Director, Borland

Software Corp.

Panel: 2/27/02 

Konovalov, Zoe Public Comments

Kovacic, William E. General Counsel, Federal Trade

Commission

Panel: 2/8/02 

Submission: 2/8/02 

Koyanagi, Masayuki Director, Institute of Intellectual Property,

JETRO

Panel: 5/23/02 

Submission: 

5/23/02 

Kuester, Jeffrey R.

(with Lawrence E.

Thompson)

Partner, Thomas, Kayden, Horstemeyer &

Risley, LLP

Panel: 4/11/02

Public Comments

Kulbaski, James J. Partner, Oblon, Spivak, McClelland, Maier

& Neustadt, P.C.

Panel: 4/17/02 

Submission: 

4/17/02 

Public Comments 

Kunin, Stephen G. Deputy Commissioner for Patent

Examination Policy, U.S. Patent and

Trademark Office

Panels: 4/10/02,

7/10/02, 7/11/02 

Kushan, Jeffrey P. Partner, Powell, Goldstein, Frazer &

Murphy, LLP; currently Partner, Sidley

Austin Brown & Wood LLP

Panels: 4/11/02,

10/25/02

Submission: 

4/11/02 

Lang, John Temple Counsel, Cleary, Gottlieb, Steen &

Hamilton, Brussels; Visiting Professor,

Trinity College; Senior Research Fellow,

Oxford

Panel: 5/22/02

Submission: 

5/22/02

Langenfeld, James A. Director, LECG, LLC Panel: 2/20/02 

Submission: 

2/20/02 

League for

Programming

Freedom

Public Comments

Leavy, James Member, Serra Leavy & Cazals Panel: 5/22/02 

Submission: 

5/22/02

Lee, Rusty Small Business Owner and Professional

Software Developer

Public Comments 
136 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Leggett, Nickolaus E. Independent Inventor and U.S. patent

holder

Public Comments

Lemley, Mark Professor of Law and Director, Berkeley

Center for Law & Technology, Boalt Hall

School of Law, University of California,

Berkeley; Of Counsel, Keker & Van Nest

Panels: 2/25/02,

4/18/02 

Submission: 

4/18/02 

Lennros, Hans Public Comments

Lerner, Josh Jacob H. Schiff Professor of Investment

Banking, Harvard Business School

Panels: 2/20/02,

4/17/02

Submissions: 

2/20/02, 4/17/02 

Public Comments

Levin, Jonathan D. Assistant Professor of Economics, Stanford

University; National Fellow, Hoover

Institution

Panel: 10/25/02 

Levin, Richard C. President, Yale University Panel: 2/6/02

Submission: 2/6/02 

Public Comments

Liebowitz, Stan Professor of Managerial Economics, School

of Management, The University of Texas at

Dallas

Panel: 2/20/02 

Submission: 

2/20/02 

Linck, Nancy J. Senior Vice President, General Counsel and

Secretary, Guilford Pharmaceuticals

Panels: 4/9/02, 

10/25/02

Lipsky, Abbott B., Jr. Partner, Latham & Watkins Panels: 5/14/02,

5/23/02

Submission: 

5/14/02 

Liu, Dr. Len-yu Commissioner, Taiwan Fair Trade

Commission

Panel: 5/23/02 

Submission: 

5/23/02 

Lo, Allen M. Director of Intellectual Property, Juniper

Networks, Inc.

Panel: 4/18/02 

Submission: 

4/18/02 

Love, James Director, Consumer Project on Technology Panel: 3/19/02 

Submission: 

3/19/02 
APPENDIX A: HEARINGS PARTICIPANTS 137

Name Affiliation (at time of Hearings)

Love, John J. Director, Technology Center 2100, U.S.

Patent and Trademark Office

Panels: 2/27/02,

2/28/02 

Submission: 

2/27/02 

Lunney, Glynn S., Jr. Professor of Law, Tulane Law School Panel: 7/10/02 

Submission: 

7/10/02 

MacKie-Mason,

Jeffrey K.

Arthur W. Burks Professor of Information

and Computer Science, Professor of

Economics and Public Policy, University of

Michigan

Panel: 5/01/02 

Submission: 

5/01/02 

Maebius, Stephen B. Partner, Foley & Lardner Panel: 4/11/02 

Submission: 

4/11/02

Marasco, Amy A. Vice President and General Counsel,

American National Standards Institute

Panel: 4/18/02 

Submission: 

4/18/02 

Mar-Spinola, Julie Chief Litigation and Intellectual Property

Counsel, Atmel Corporation

Panel: 2/28/02 

Maskin, Eric

(with James Bessen)

Harvard University and Massachusetts

Institute of Technology

Public Comments 

McCurdy, Daniel President and Chief Executive Officer,

ThinkFire

Panel: 3/20/02 

McFalls, Michael Associate, Jones Day Reavis & Pogue Panel: 11/06/02 

McGarey, Barbara M. Chief Counsel, National Institutes of Health Panel: 11/06/02 

McGowan, David Associate Professor of Law, University of

Minnesota Law School 

Panel: 4/17/02 

Submission: 

4/17/02 

Mehta, Kirtikumar Director, Directorate General for

Competition, European Commission

Panel: 5/22/02

Submission: 

5/22/02 

Mejia, Luis Senior Associate, Office of Technology

Licensing, Stanford University

Panel: 2/27/02

Melamed, A. Douglas Partner, Wilmer, Cutler & Pickering Panels: 5/01/02,

5/14/02 

Submission: 5/1/02 
138 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Merges, Robert P. Wilson Sonsini Goodrich & Rosati

Distinguished Professor of Law and

Technology, Boalt Hall School of Law; 

Director, Berkeley Center for Law and

Technology, University of California,

Berkeley

Panels: 2/26/02,

2/28/02

Submissions: 

2/26/02, 2/28/02 

Merrill, Stephen A. Executive Director, Board on Science

Technology and Economic Policy, National

Research Council/National Academy of

Sciences

Panels: 10/25/02,

10/30/02

Microsoft Corporation Public Comments

Miller, Joseph Scott Assistant Professor, Lewis & Clark Law

School

Panel: 5/14/02 

Submission: 

5/14/02 

Misener, Paul Vice President, Global Public Policy,

Amazon.com

Panel: 2/27/02 

Mitchell, John T. Partner, Seyfarth Shaw LLP Public Comments

Moltenbrey, M.J. Partner, Freshfields Bruckhaus Deringer Panel: 5/14/02 

Moore, Michael J.

(with Edward A.

Snyder & James W.

Hughes)

Bank of America Research Professor of

Business Administration, Darden School,

University of Virginia

Public Comments

Moree, Jeremiah T. PC Xperience Public Comments

Morgan, Paul F. Public Comments

Morse, M. Howard Partner, Drinker, Biddle & Reath, LLP Panel: 4/17/02 

Submission: 

4/17/02 

Mossinghoff, Gerald J. Senior Counsel, Oblon Spivak, McClelland,

Maier & Neustadt; Visiting Professor of

Intellectual Property, The George

Washington School of Law

Panels: 2/6/02,

10/30/02

Submission: 2/6/02 

Public Comments

Mowery, David C. Milton W. Terrill Professor of Business, and

Director of the Haas School of Business

Ph.D. Program, University of California,

Berkeley

Panel: 2/27/02 

Muris, Timothy Chairman, Federal Trade Commission Speech: 2/6/02 
APPENDIX A: HEARINGS PARTICIPANTS 139

Name Affiliation (at time of Hearings)

Musacchia, Mary U. Counsel to the President/CEO and

Director, Government Relations & Public

Policy, SAS Institute Inc.

Panel: 4/9/02 

Submission: 4/9/02

Public Comments

Myrick, Ronald Chief Patent Counsel, General Electric;

President-Elect, American Intellectual

Property Law Association; President,

Monogram Licensing, Inc. 

Panels: 3/19/02,

10/30/02

Submission: 

3/19/02

Nelson, Philip B. Principal, Economists, Inc. Panel: 2/20/02 

Submission: 

2/20/02 

Newberg, Joshua A. Assistant Professor, Robert H. Smith School

of Business, University of Maryland

Panels: 4/17/02,

5/23/02 

Submission: 

4/17/02 

Newman, The

Honorable Pauline 

Judge, U.S. Court of Appeals for the Federal

Circuit

Panel: 2/6/02 

Nydegger, Rick D. Shareholder, Workman, Nydegger &

Seeley; First Vice President, American

Intellectual Property Association

Panels: 2/27/02,

4/11/02

Submissions: 

2/27/02, 4/11/02 

O’Brien, Vincent E. Director, LECG, LLC Public Comments

Oehler, Ross Vice President, U.S. Patent Operations,

Aventis Pharmaceuticals, Inc.

Panel: 2/26/02 

Olshove, DonPaul Public Comments

Ordover, Janusz A. Professor of Economics, New York

University

Panels: 2/20/02,

11/6/02

Submission: 

2/20/02

O’Rourke, Maureen A. Professor of Law, Boston University School

of Law

Panel: 2/20/02

Open GIS

Consortium, Inc. 

Public Comments

Parkhurst, Roger W. Partner, Parkhurst & Wendel, LLP;

President, American Intellectual Property

Law Association

Panel: 4/10/02 
140 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Patterson, Mark R. Associate Professor of Law, Fordham

University School of Law

Panel: 4/18/02 

Submission: 

4/18/02 

Peterson, Scott K. Corporate Counsel for Intellectual Property,

Hewlett-Packard Company; Chair,

American National Standards Institute

Patent Committee

Panels: 4/18/02,

11/6/02

Submissions: 

4/18/02, 11/6/02 

Pharmaceutical

Research and

Manufacturers of

America 

Public Comments

Pitofsky, Robert Professor of Law, Georgetown University

Law Center; Member, Board of Directors,

American Intellectual Property Association

Panel: 2/6/02 

Public Comments

Place, John Executive Director, Center for Internet and

Society, Stanford University Law School

Panel: 2/27/02 

Pooley, James Partner, Milbank, Tweed, Hadley & McCoy Panels: 2/27/02,

10/30/02 

Poppen, Joel Director, Patent Litigation and Licensing,

Micron Technology, Inc.

Panel: 2/28/02

Potter, Robert Chief, Legal Policy Section, Antitrust

Division, U.S. Department of Justice

Speech: 4/17/02 

Pritchard, Thomas, Sr. Digital Video Yellow Pages Public Comments

Proger, Phillip A. Partner, Jones, Day, Reavis & Pogue Panel: 5/2/02 

Prywes, Daniel I.

(with David A. Balto)

Partner, Pepper Hamilton LLP Public Comments

Putnam, Jonathan D. Assistant Professor of the Law and

Economics of Intellectual Property,

University of Toronto School of Law

Panel: 4/17/02

Submission: 

4/17/02 

Quillen, Cecil D., Jr. Senior Advisor, Cornerstone Research

Group

Panels: 3/19/02,

7/11/02

Submissions: 

3/19/02, 7/11/02 

Public Comments

Rai, Arti K. Assistant Professor of Law, University of

Pennsylvania Law School

Panel: 4/10/02 
APPENDIX A: HEARINGS PARTICIPANTS 141

Name Affiliation (at time of Hearings)

Rapp, Richard T.

(with Lauren J. Stiroh)

President, National Economic Research

Associates

Panel: 4/18/02 

Submission: 

4/18/02 

Public Comments

Rey, Patrick Professor of Economics, University of

Tolouse, France, and Research Director,

Institut d’Economie Industrielle

Panel: 5/22/02 

Submission: 

5/22/02 

Rhoden, Desi President and Chief Executive Officer,

Advanced Memory International, Inc.

Panel: 2/28/02 

Ricciardi, Sal

(with David Kantor)

President, Pharmaceutical Distributors

Association; President, Purity Wholesale

Grocers, Inc.

Public Comments

Riches, Robert M., Jr. Public Comments

Rill, James Partner and Co-Chair of the Antitrust

Practice Group, Howrey, Simon, Arnold &

White

Panel: 5/23/02 

Rogan, James E. Undersecretary of Commerce for

Intellectual Property and Director of U.S.

Patent and Trademark Office

Panel: 2/6/02 

Submission: 2/6/02 

Public Comments

Rubinfeld, Daniel L. Robert L. Bridges Professor of Law, and

Professor of Economics, University of

California, Berkeley

Panel: 2/25/02 

Rule, Charles F. (Rick) Partner, Fried, Frank, Harris, Shriver &

Jacobson

Panel: 11/6/02

Safer, Adam J.

(with Ronald S. Katz)

Miller & Wrubel P.C. Public Comments

Sander, Scott President, Chief Executive Officer and CoFounder, SightSound Technologies, Inc.Panel: 3/20/02 

Submission: 

3/20/02 

Saunders, Kurt M. Assistant Professor of Business Law,

California State University, Northridge

Public Comments

Scherer, F.M. Roy E. Larson Professor of Public Policy

and Management, Harvard University

Panel: 7/10/02
142 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Scotchmer, Suzanne Professor of Economics and Public Policy,

University of California, Berkeley

Panels: 2/26/02,

4/10/02

Submissions: 

2/26/02, 4/10/02

Seide, Rochelle K. Partner, Baker Botts, LLP Panel: 3/19/02 

Shapiro, Carl Transamerica Professor of Business

Strategy, Haas School of Business; Director

and Professor of Economics, Institute of

Business and Economic Research,

University of California, Berkeley

Panels: 2/27/02,

5/01/02, 5/02/02,

11/06/02

Submissions: 

5/1/02, 5/2/02 

Shelanski, Howard Acting Professor of Law, and Director,

Berkeley Center for Law & Technology,

University of California, Berkeley

Panel: 2/25/02 

Sibley, David S. John Michael Stuart Professor of

Economics, University of Texas at Austin

Panel: 5/14/02 

Submission: 

5/14/02 

Sidak, J. Gregory F.K. Weyerhaeuser Fellow in Law and

Economics Emeritus, American Enterprise

Institute

Panel: 5/14/02 

Silverstein, David

(with Colin Crossman,

Thomas Griffin, &

Mark Webbink)

Student, Duke University School of Law Public Comments

Snyder, Edward A.

(with James W.

Hughes & Michael J.

Moore)

Dean and Professor of Economics,

University of Chicago Graduate School of

Business

Panel: 3/19/02

Submission: 

3/19/02

Public Comments

Sobel, Gerald Partner, Kaye Scholer LLP Panel: 7/10/02 

Public Comments

Sprigman,

Christopher J.

Counsel, King & Spalding Panel: 5/1/02 

Submission: 5/1/02 

Stack, Stephen A., Jr. Partner, Dechert Panel: 5/2/02 

Submission: 5/2/02 

Stallman, Richard President, Free Software Corp. Panel: 4/9/02 

Public Comments
APPENDIX A: HEARINGS PARTICIPANTS 143

Name Affiliation (at time of Hearings)

Stiroh, Lauren J.

(with Richard T.

Rapp)

Vice President, National Economics

Research Associates

Panel: 4/18/02 

Submission: 

4/18/02

Public Comments

Stoll, Robert L. Administrator for External Affairs, U.S.

Patent and Trademark Office

Panel: 4/11/02

Stoner, Robert D. Senior Vice President, Economists, Inc. Panels: 2/26/02,

10/30/02 

Submission: 

2/26/02 

Sung, Lawrence M. Assistant Professor, University of Maryland

School of Law, Baltimore

Panels: 2/8/02,

4/17/02 

Submissions: 

2/8/02, 4/17/02 

Swanson, Daniel G. Partner, Gibson, Dunn & Crutcher LLP Panel: 4/18/02 

Submission: 

4/18/02 

Tada, Toshiaki Senior Associate, Hibiya Sogo; International

Legal Trainee, Weil, Gotshal & Manges LLP

Panel: 5/23/02

Taylor, Robert P. Partner, Howrey Simon Arnold & White

LLP

Panels: 2/27/02,

7/11/02, 10/25/02

Submissions: 

2/27/02, 7/11/02 

Teece, David J. Mitsubishi Bank Professor of International

Business and Finance, Haas School of

Business, University of California, Berkeley

Panels: 2/26/02,

2/27/02, 4/18/02 

Submissions: 

2/26/02, 2/27/02 

Telecky, Frederick J.,

Jr.

Senior Vice President and General Patent

Counsel, Texas Instruments, Inc.

Panel: 2/28/02

Submission: 6/3/02 

Public Comments

Thomas, John R. Associate Professor of Law, The George

Washington University School of Law;

Professor of Law, Georgetown University

Law Center; Visiting Researcher,

Congressional Research Service; Instructor,

U.S. Patent and Trademark Office, Patent

Academy

Panels: 2/8/02,

4/10/02, 4/11/02,

10/25/02, 10/30/02 

Submissions: 

2/8/02, 4/11/02

Thompson, Earle Intellectual Asset Manager and Senior

Counsel, Texas Instruments, Inc.

Panel: 11/6/02 
144 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Thompson, Lawrence

E.

(with Jeffery R.

Kuester)

Associate, Thomas, Kayden, Horstemeyer

& Risley, LLP

Public Comments

Thompson, Mozelle

W.

Commissioner, Federal Trade Commission Panel: 2/25/02 

Submission: 

2/25/02

Thurston, Richard L. Vice President and General Counsel,

Taiwan Semiconductor Manufacturing

Company, Ltd.

Panel: 3/20/02 

Submission: 

3/20/02 

Tom, Willard K. Partner, Morgan, Lewis & Bockius, LLP Panels: 2/8/02,

5/22/02 

Submission: 2/8/02 

Udell, Lawrence J. Executive Director, California Invention

Center, the Center for New Venture

Alliance and Intellectual Property

International

Panel: 2/28/02 

Submission: 

2/28/02 

United States Council

for International

Business 

Public Comments

Updegrove, Andrew Partner, Lucash, Gesmer & Updegrove, LLP Panel: 4/18/02 

Submission: 

4/18/02 

Varian, Hal R. Dean, School of Information Management

and Systems; Professor, Haas School of

Business and Department of Economics,

University of California, Berkeley

Panel: 2/25/02

Submission: 

2/25/02

Venit, James S. Partner, Skadden, Arps, Slate, Meagher &

Flom, LLP, Brussels

Panel: 5/22/02 

Submission: 

5/22/02

Vishny, Paul Member, D’Ancona & Pflaum, LLC;

General Counsel, Telecommunications

Industry Association

Panel: 11/6/02 

Vistnes, Gregory Vice President, Charles River Associates Panel: 5/14/02 

Submission: 

5/14/02 

Wamsley, Herbert C. Executive Director, Intellectual Property

Owners Association

Panel: 7/10/02 
APPENDIX A: HEARINGS PARTICIPANTS 145

Name Affiliation (at time of Hearings)

Webbink, Mark

(with Colin Crossman,

Thomas Griffin, &

David Silverstein)

Senior Vice President, General Counsel and

Secretary, Red Hat, Inc.

Panel: 3/20/02

Public Comments

Weil, Matthew F. Partner, McDermott, Will & Emery Panel: 7/11/02 

Submission: 

7/11/02 

Weinstein, Les J. Partner, Squire, Sanders & Dempsey Panel: 2/27/02

Submission: 

2/27/02

Weitzner, Daniel J. Director of Technology and Society

Activities, World Wide Web Consortium

Panel: 4/18/02 

Submission: 

4/18/02 

Public Comments

Weller, Charles D. Law Offices of Charles D. Weller Public Comments

White, Lawrence J. Arthur E. Imperatore Professor of

Economics, Leonard N. Stern School of

Business, New York University

Panel: 2/20/06 

Submission: 

2/20/06 

Whitener, Mark D. Antitrust and General Counsel, General

Electric

Panel: 5/1/02 

Submission: 5/1/02 

Widge, Alik Technology Researcher and Medical

Professional

Public Comments

Wiley, John Shepard,

Jr.

Professor of Law, University of California,

Los Angeles

Panel: 5/1/02 

Submission: 5/1/02 

Willingmyre, George

T.

President, GTW Associates Public Comments

Wolin, Harry Vice President of Intellectual Property,

Advanced Micro Devices, Inc.

Panel: 3/20/02 

Submission: 

3/20/02 

Yao, Dennis A. Associate Professor of Business and Public

Policy, The Wharton School, University of

Pennsylvania

Panel: 4/18/02 

Submission: 

4/18/02 

Young, Robert Chairman, Center for Public Domain;

Chairman, Red Hat, Inc.

Panel: 4/11/02

Zanfagna, Gary Associate General Counsel for Antitrust,

Honeywell International

Panel: 3/20/02 
146 APPENDIX A: HEARINGS PARTICIPANTS

Name Affiliation (at time of Hearings)

Ziedonis, Rosemarie Assistant Professor of Management, The

Wharton School, University of

Pennsylvania

Panel: 3/20/02 

Submission: 

3/20/02 
147

APPENDIX B

HEARINGS SUBMISSIONS

Competition and Intellectual Property Law and Policy in the Knowledge-Based

Economy February 6 - November 6, 2002

Primary source: http://www.ftc.gov/opp/intellect/index.htm

Panelist Title Hearing Date

Aharonian, Greg Statistics on Prior Art Citations for

U.S. Computing Patents

2/27/02

Allen, Gwillym Canadian Intellectual Property

Enforcement Guidelines

5/22/02

Anderman, Steve Microsoft in Europe 5/22/02

Arora, Ashish Patents, R&D and Market for

Technology

Refusal to License: A Transaction

Approach 

Refusal to License: A Transaction

Based Perspective

2/25/02

5/1/02

5/1/02

Arrow, Kenneth J. Untitled 2/25/02

Baker, Charles P. Statement 7/11/02

Barr, Robert Untitled 2/28/02

Barton, John H. Patents and Antitrust Emerging

Paradigms

2/26/02

Beeney, Garrard R. Pro-Competitive Aspects of

Intellectual Property Pools: A

Proposal for Safe Harbor Provisions

4/17/02

Beier, David Testimony of the Biotechnology

Industry Organization

2/26/02

Besen, Stanley M. Standard Setting and Intellectual

Property: An Outline of the Issues

4/18/02
148 APPENDIX B: HEARINGS SUBMISSIONS

Panelist Title Hearing Date

Bhaskar, R. Antitrust Law in the Federal Circuit: 

Conflict in the Public Purpose

7/11/02

Black, Edward J. Testimony 3/20/02

Brodley, Joseph F. Joseph F. Brodley & Maureen

O’Rourke, Patent Settlement

Agreements: Preliminary Thoughts

Questions for FTC/DOJ IP and

Antitrust Patent Settlement Hearing

5/2/02

5/2/02

Brunt, George B. Alcatel Company Presentation 3/20/02

Burk, Dan L. Dan L. Burk & Mark Lemley, Is Patent

Law Technology Specific?

Patent Disclosure Doctrines

3/20/02 

7/10/02

Busey, Roxane C. SECTION OF ANTITRUST LAW,

AMERICAN BAR ASSOCIATION, REPORT

ON THE UNITED STATES COURT OF

APPEALS FOR THE FEDERAL CIRCUIT

(2002).

Untitled

7/11/02

7/11/02

Cargill, Carl Intellectual Property Rights and

Standards Setting Organizations: An

Overview of Failed Evolution

4/18/02

Carlin, Fiona The EU Committee, American

Chamber of Commerce in Belgium,

Position Paper on the Commission’s

Review of the Technology Transfer

Block Exemption, Regulation 240/96

Review of the Block Exemption on

Technology Transfer

5/22/02

5/22/02

Cary, George S. Antitrust Implications of Patent

Settlements

5/2/02

Caulfield, Barbara A. Business Perspectives on Patents: 

Biotech and Pharmaceuticals

3/19/02

Chambers, Scott A. M. Patenting Procedures 2/8/02
APPENDIX B: HEARINGS SUBMISSIONS 149

Panelist Title Hearing Date

Chin, Yee Wah ABA Comments on EC Evaluation

Report on TTBE

Yee Wah Chin & Thomas G.

Krattenmaker, Antitrust Update,

MERGERS & ACQUISITIONS, December

2001, at 30. 

COMM ISSION OF TH E EUROPEAN

COMM UNITIES, COMMISSION

EVALUATION REPORT ON TH E TRANSFER

OF TECHNOLOGY BLOCK EXEMPTION

REGULATION NO. 240/96:

TECHNOLOGY TRANSFER AGREEMENTS

UNDER ARTICLE 81

Section of Antitrust Law, Section of

International Law and Practice,

Section of Intellectual Property Law,

American Bar Association, Joint

Comments on the Commission

Evaluation Report on the Transfer of

Technology Block Exemption

Regulation No. 240/96 Technology

Transfer Agreements Under Article 81

Unilateral Technology Suppression: 

Appropriate Antitrust and Patent Law

Remedies, 66 ANTITRUST L.J. 441 (1998).

5/22/02

5/22/02

5/22/02

5/22/02

5/22/02

Cohen, Wesley M. Patents: Their Effectiveness and Role 2/20/02

Cook, Robert N. A Competition View of Patent

Settlements: Settling Patent Disputes

by Merger: Some Antitrust

Considerations

5/2/02

Detkin, Peter N. A Semiconductor Patent Survey 2/28/02

Deutsch, Donald Statement on Intellectual Property

Strategy in Standards Activity

4/18/02

Dick, Rebecca Extending the Useful Life of

Intellectual Property: Antitrust Risks

and Safety Zones

5/14/02
150 APPENDIX B: HEARINGS SUBMISSIONS

Panelist Title Hearing Date

Dolmans, Maurits EU Standardization: IPR Policies and

RAND Licensing

Standards for Standards

5/22/02

5/22/02

Duffy, John F. Nonobviousness: The Economics and

Legal Process of the Doctrine

7/10/02

Ergas, Henry Intellectual Property Rights &

Competition Law

Treatment of Unilateral Refusals to

License and Compulsory Licensing in

Australia

5/22/02

5/22/02

Evenson, Robert E. IPRs and Innovation 2/20/02

Farrell, Joseph Competition and IP

Incentives to Challenge IP

IP Bundling and Antitrust

2/28/02

5/14/02

5/14/02

Feinstein, Richard A. Per Se Antitrust Risks in HatchWaxman Agreements5/2/02

Forrester, Ian S. Compulsory Licensing in Europe: A

Rare Cure to Aberrant National

Intellectual Property Rights?

5/22/02

Fox, Stephen P. Opening Statement 2/28/02

Fromm, Jeffery Patent Pools and Cross-Licensing 4/17/02

Futa, Baryn S. Statement 4/17/02

Gellhorn, Ernest Standard-Setting 4/18/02

Gifford, Daniel J. Standards and Intellectual Property: 

Licensing Terms: Some Comments

4/18/02

Gilbert, Richard The Evolution of Guidelines

Should Innovation Have a Role in

Merger Policy?

2/6/02

2/25/02
APPENDIX B: HEARINGS SUBMISSIONS 151

Panelist Title Hearing Date

Gleklen, Jonathan Antitrust Liability for Unilateral

Refusals to License Intellectual

Property: Xerox and Its Critics

Unilateral Refusals to License IP

5/1/02

5/1/02

Glover, Gregory J. PhRMA Statement: Competition in

the Pharmaceutical Marketplace

5/19/02

Gordon, George G. The Implications of Federal Circuit

Jurisdiction for the Development of

Antitrust Law

7/11/02

Greenstein, Shane Market Structure and Innovation: A

Brief Synopsis

2/20/02

Grindley, Peter IP, Cross-Licensing and Patent Pools: 

Similarities and Contrasts

4/17/02

Guerin-Calvert, Margaret E. Competition and Innovation in the

Context of Network Economics

2/20/02

Hall, Bronwyn H. Patents and Innovation

Testimony

2/26/02

2/26/02

Harris, H. Stephen, Jr. Competition Law and Intellectual

Property Protection in Japan: A HalfCentury of Progress, a New

Millennium of Challenges

IP and Competition Law

Developments in Japan

5/23/02

5/23/02

Hoerner, Robert J. The Decline (and Fall?) of the Patent

Misuse Doctrine in the Federal Circuit, 69

ANTITRUST L.J. 669 (2001).

Is Activity Within the Subsections of 35

U.S.C. § 271(d) Protected from a Finding

of Antitrust Violation?, 74 J. PATENT &

TRADEMARK OFFICE SOCIETY 283 (1992).

Patent Misuse

Patent Misuse: Portents for the 1990s, 59

ANTITRUST L.J. 687 (1991). 

7/11/02

7/11/02

7/11/02

7/11/02
152 APPENDIX B: HEARINGS SUBMISSIONS

Panelist Title Hearing Date

Holleman, Richard J. A Response: Government Guidelines

Should Not Be Issued in Connection

with Standards Setting

Comments on Standards Setting and

Intellectual Property

4/18/02

4/18/02

Hull, David W. The IMS Case: A Comparative

Perspective

David W. Hull, James R. Atwood &

James B. Perrine, Intellectual Property: 

Compulsory Licensing, EUROPEAN

ANTITRUST REV. (2002). 

5/22/02

5/22/02

Jacobson, Jonathan M. Counseling in Uncertainty: The Law

of Tying & Intellectual Property

Did the Per Se Rule on Tying Survive

‘Microsoft’?, previously published as: 

Jonathan M. Jacobson & Abid Qureshi,

Did the Per Se Rule on Tying Survive

‘Microsoft’?, 226 N.Y.L.J. 1 (2001).

5/14/02

5/14/02

James, Charles Opening Day Comments 2/6/02

Japan Fair Trade Commission

2002 Study Group on “Patents

in New Areas and Competition

Policy”

Untitled 5/23/02

Kahin, Brian Presentation

What are Business Methods?

3/19/02

4/11/02

Katsh, Salem M. Presentation

Presentation

4/10/02

5/14/02

Kattan, Joseph Evaluating Patent Infringement and

Validity in Antitrust Analysis

5/14/02

Kelly, Christopher J. Patent Pools and Antitrust

Enforcement – 1997-2001

4/17/02

Kesan, Jay P. Toward a Better Informed Patent

System

4/10/02
APPENDIX B: HEARINGS SUBMISSIONS 153

Panelist Title Hearing Date

Kim, Byungbae Korean Competition Policy with

Regard to Intellectual Property Rights

5/23/02

Kirsch, Paul F. Refusals to License IP – The

Perspective of the Private Plaintiff

5/1/02

Klein, Benjamin Antitrust and IP: What the Feds

Should Do About Refusals to Deal

5/1/02

Kovacic, William E. Antitrust Law for Intellectual Property

Attorneys

2/8/02

Koyanagi, Masayuki Japanese Perspective on Relationship

Between IP and Antitrust

5/23/02

Kulbaski, James J. Comments on Patent Pools and

Standards for Federal Trade

Commission Hearings Regarding

Competition & Intellectual Property

4/17/02

Kushan, Jeff Examination Reforms as a Means of

Improving Patent Quality

4/11/02

Lang, John Temple Compulsory Licensing of Intellectual

Property in European Community

Antitrust Law

5/22/02

Langenfeld, James Innovation, Competition, and

Intellectual Property: Providing an

Economic Framework

2/20/02

Leavy, James LESI European Committee, Comments

on the Commission Document:

“Evaluation Report on the Transfer of

Technology Block Exemption

Regulation No. 240/96”

The Technology Transfer Block

Exemption

5/22/02

5/22/02

Lemley, Mark A. Intellectual Property Rights and

Standard Setting Organizations

4/18/02

Lerner, Josh Into the Patent Thicket

Patent Pools: Some Policy

Considerations

2/20/02

4/17/02

Liebowitz, Stan Untitled 2/20/02
154 APPENDIX B: HEARINGS SUBMISSIONS

Panelist Title Hearing Date

Lipsky, Abbott B., Jr. “Amateurs in Black” 5/14/02

Liu, Len-yu The CD Product Patent Licensing

Practices in Taiwan Were in Violation

of the Fair Trade Law

5/23/02

Lo, Allen M. A Need For Intervention: Keeping

Competition Alive in the Networking

Industry in the Face of Increasing

Patent Assertions Against Standards

4/18/02

Love, James Perspectives on Competition and

Intellectual Property Law and Policy

in the Knowledge-Based Economy

3/19/02

Love, John J. Steps Taken to Improve Patent Quality 2/27/02

Lunney, Glynn S., Jr. Patents, the Federal Circuit, and the

Simply Property Perspective

7/10/02

MacKie-Mason, Jeffrey K. What to Do About Refusals to License?

What to Do About Unilateral Refusals

to License?

5/1/02

5/1/02

Maebius, Stephen Opening Remarks 4/11/02

Marasco, Amy A. Standards-Setting Practices: 

Competition, Innovation and

Consumer Welfare

4/18/02

McGowan, David Enforcement Issues Regarding Pooling

and Cross-Licensing

Enforcement Issues Regarding Pooling

and Cross-Licensing (slides)

4/17/02

4/17/02

Mehta, Kirtikumar Licensing of Intellectual Property

Under EU Competition Rules: The

Review of the Technology Transfer

Block Exemption Regulation

5/22/02
APPENDIX B: HEARINGS SUBMISSIONS 155

Panelist Title Hearing Date

Melamed, A. Douglas A. Douglas Melamed & Ali M.

Stoeppelwerth, The CSU Case: Facts,

Formalism and the Intersection

of Antitrust and Intellectual Property

Law (April 11, 2002), subsequently

published as: A. Douglas Melamed &

Ali M. Stoppelworth, The CSU Case: 

Facts, Formalism and the Intersection of

Antitrust and Intellectual Property Law,

10 GEORGE MASON L. REV. 407 (2002). 

5/1/02

Merges, Robert P. Second Order Patent Scope

Patent Standards and Procedures: 

Literature Summary and Discussion of

Prospects

2/26/02

2/28/02

Miller, Joseph Scott This Bitter Has Some Sweet: Antitrust

Enforcement Benefits from Patent

Law’s Procedural Rules

5/14/02

Morse, M. Howard Cross-Licensing and Patent Pools 4/17/02

Mossinghoff, Gerald J. Statement 2/6/02

Musacchia, Mary U. Prepared Remarks 4/9/02

Myrick, Ronald Testimony 3/19/02

Nelson, Philip Relationships Between Market

Structure and Innovation

2/20/02

Newberg, Joshua A. Antitrust, Patent Pools, and the

Management of Uncertainty, 3 ATLANTIC

L.J. 1 (2000).

4/17/02

Nydegger, Rick D. Comments

Comments

2/27/02

4/11/02

Ordover, Janusz A. Antitrust for the New Economy or

New Economics for Antitrust

2/20/02

Patterson, Mark R. Inventions, Industry Standards, and

Intellectual Property

4/18/02
156 APPENDIX B: HEARINGS SUBMISSIONS

Panelist Title Hearing Date

Peterson, Scott K. Patents and Standard-Setting

Processes

Consideration of Patents During the

Setting of Standards

4/18/02

11/6/02

Putnam, Jonathan D. The Regulation of Patent Pools 4/17/02

Quillen, Cecil D., Jr. Statement

Testimony Notes

3/19/02

7/11/02

Rapp, Richard T. Richard T. Rapp & Lauren J. Stiroh,

Standard Setting and Market Power

4/18/02

Rey, Patrick Economics of Compulsory Licensing

Patrick Rey & Jean Tirole, A Primer on

Foreclosure (February 21, 1997).

5/22/02

5/22/02

Rogan, James E. Prepared Remarks 2/6/02

Sander, Scott Prepared Remarks 3/20/02

Scotchmer, Suzanne Competition Policy and Innovation: 

The Context of Cumulative Innovation

Cumulative Innovation: Breadth and

Standards for Protection

2/26/02

4/10/02

Shapiro, Carl Competition Policy and Innovation

(Organisation for Econ. Co-operation

and Development, STI Working Paper

No. 2002/11, 2002).

Antitrust Limits to Patent Settlements

5/1/02

5/2/02

Sibley, David S. Long Term Contracts as Barriers to

Entry

5/14/02

Snyder, Edward A. Untitled 3/19/02

Sprigman, Christopher J. Unilateral Refusals to License IP: 

Xerox and the Right to Exclude

5/1/02
APPENDIX B: HEARINGS SUBMISSIONS 157

Panelist Title Hearing Date

Stack, Stephen A., Jr. Abbott Laboratories and Geneva

Pharmaceuticals, Inc., File No. 981-

0395: Comment on Proposed Consent

Order

Patent Settlements

5/2/02

5/2/02

Stiroh, Lauren J. Richard T. Rapp & Lauren J. Stiroh,

Standard Setting and Market Power

4/18/02

Stoner, Robert Intellectual Property and Innovation 2/26/02

Sung, Lawrence M. Scope and Enforcement of Patent

Rights

Greater Predictability May Result in

Patent Pools

Patent Pools and Cross Licensing

JEANNE CLARK, JOE PICCOLO, BRIAN

STANTON & KARIN TYSON, U.S. PATENT

& TRADEMARK OFFICE, PATENT POOLS:

A SOLUTION TO TH E PROBLEM OF

ACCESS IN BIOTECHNOLOGY PATENTS?

(2000).

2/08/02

4/17/02

4/17/02

4/17/02

Swanson, Daniel G. Evaluating Market Power in

Technology Markets when Standards

Are Selected in Which Private Parties

Own Intellectual Property Rights

4/18/02

Taylor, Robert P. Presentation

Statement

2/27/02

7/11/02

Teece, David J. Intellectual Property, Valuation, and

Licensing

IP, Competition Policy, and

Enforcement Issues

2/26/02

2/27/02

Telecky, Frederick J., Jr. Statement 2/28/02
158 APPENDIX B: HEARINGS SUBMISSIONS

Panelist Title Hearing Date

Thomas, John R. Patent Law and Policy: An

Introduction

Intellectual Property Rights in

Computer Software and Business

Methods: A Skeptical View

2/8/02

4/11/02

Thompson, Mozelle W. Economic Perspectives on Intellectual

Property, Competition, and

Innovation

2/25/02

Thurston, Richard L. Business and Other Perspectives on

Real-World Experience with Patents

Competition and Intellectual Property

Law and Policy as It Relates to the

Semiconductor Foundry Industry

3/20/02

3/20/02

Tom, Willard K. Antitrust Law for IP Lawyers: 

Agreements Under § 1 of the Sherman

Act

Antitrust for IP Lawyers: Mergers

2/8/02

2/8/02

Udell, Lawrence J. Untitled 2/28/02

Updegrove, Andrew Is There a Need for Government

Regulation of the Standard Setting

Process?: An Analysis of Underlying

Realities

Observations on the Current

Dynamics of Consortium Standard

Setting

Standard Setting and Consortium

Structures

4/18/02

4/18/02

4/18/02

Varian, Hal R. Intellectual Property, Competition and

Innovation: Some Partially-Baked

Ideas

2/25/02

Venit, James S. Intellectual Property and EC Antitrust: 

Unilateral Refusals to License

5/22/02
APPENDIX B: HEARINGS SUBMISSIONS 159

Panelist Title Hearing Date

Vistnes, Gregory Bundling and Tying: Antitrust

Analysis in Markets with Intellectual

Property

Practical Issues in Intellectual Property

Investigations: Balancing Rules

Versus Discretion

5/14/02

5/14/02

Webbink, Mark Mark Webbink, Colin Crossman,

Thomas Griffin & David Silverstein, 

Red Hat’s Comments to the Joint

FTC/DOJ Hearing on Competition

and Intellectual Property Law

3/20/02

Weil, Matthew F. Statement 7/11/02

Weinstein, Les J. Current Issues Involving the U.S.

Patent System and Competition: 

Room for Improvement

Room for Improvement in the Patent

System: Enhancing Both Innovation

and Competition

2/27/02

2/27/02

Weitzner, Daniel J. Testimony 4/18/02

White, Lawrence J. Network Industries and Innovation 2/20/02

Whitener, Mark D. Statement 5/1/02

Wiley, John Shepard, Jr. Antitrust and IP: What the Feds

Should Do About Refusals to Deal

5/1/02

Wolin, Harry Standard Setting in the Semiconductor

Industry: Trends, Benefits and Anticompetitive Concerns

3/20/02

Yao, Dennis A. Standard Setting Practices:

Competition, Innovation, and

Consumer Welfare

4/18/02

Ziedonis, Rosemarie The Role of Patents in Semiconductors: 

Insights from Two Recent Studies

3/20/02

161

APPENDIX C

PUBLIC COMMENTS

Competition and Intellectual Property Law and Policy in the Knowledge-Based

Economy February 6 - November 6, 2002

Primary source: http://www.ftc.gov/opp/intellect/index.htm

Name Title

American Bar Association, 

Section of Antitrust Law

Testimony (6/28/02)

REPORT ON TH E UNITED STATES COURT OF APPEALS FOR THE

FEDERAL CIRCUIT (2002).

THE ECONOM ICS OF INNOVATION: A SURVEY (2002).

American Bar Association,

Section of Intellectual

Property Law

Statement of Robert P. Taylor (7/11/02)

American Intellectual

Property Law Association

(AIPLA)

AIPLA Testimony (4/10/02)

American National

Standards Institute (ANSI) 

FTC/DOJ Hearings on the Implications of Competition and

Patent Law and Policy (11/14/02)

Arthur D. Little, Inc. Arthur D. Little Bio-Pharmaceutical Study Finds Significant

Link Between Innovation and Market-Based Drug Pricing

(5/09/02)

Executive Summary: Examining the Relationship Between

Market-Based Pricing and Bio-Pharmaceutical Innovation

(undated)

Aventis Pharmaceuticals,

Inc.

Comments of Dr. Nahed Ahmed (7/15/02)

Balto, David A., and

Daniel I. Prywes

Standard-Setting Disputes: The Need for Guidelines (undated)

Barnes, E. Bruce Comments Regarding Competition & Intellectual Property

(4/15/02)
162 APPENDIX C: PUBLIC COMM ENTS

Name Title

Barton, John H. Reforming the Patent System, previously published as: 

Reforming the Patent System, 287 SCIENCE 1933 (2000).

International Patent-Antitrust Principles: The United StatesEuropean Balances (5/28/02)

Bessen, James, and Eric

Maskin

Sequential Innovation, Patents, and Imitation (1/00)

Boyce, John R., and Aidan

Hollis

Innovation, Imitation & Preliminary Injunctions in Patents

(5/02)

Buddington, Eric Comments Regarding Competition & Intellectual Property

(11/29/02)

Carrier, Michael A. Unraveling the Patent-Antitrust Paradox, 150 UNIVERSITY OF

PENNSYLVANIA L. REV. 761 (2002).

Resolving the Patent-Antitrust Paradox Through Tripartite

Innovation (2002), subsequently published as: Resolving the

Patent-Antitrust Paradox Through Tripartite Innovation, 56

VANDERBILT L. REV. 1047 (2003).

Casamento, Gregory John FTC Hearings on Competition and Intellectual Property

(2/20/02)

Craft, James A. Comments Regarding Competition and Intellectual Property

(“Patent Pools and Cross-Licensing: When Do They Promote

or Harm Competition?”) (4/25/02)

Ellis, Mark Comments Regarding Competition & Intellectual Property

(undated)

Fine, Frank NDC/IMS: A Logical Application of Essential Facilities

Doctrine (undated)

Holleman, Richard J. A Response: Government Guidelines Should Not Be Issued in

Connection with Standards Setting (undated)

Horton, Tom Patenting Our Lives and Our Genes: Where Does Congress

Stand in the Coming Clash? (undated)

Hughes, James W.,

Michael J. Moore, and

Edward A. Snyder

“Napsterizing” Pharmaceuticals: Access, Innovation, and

Consumer Welfare (undated)
APPENDIX C: PUBLIC COMM ENTS 163

Name Title

Hunt, Robert M. Nonobviousness and the Incentive to Innovate: An Economic

Analysis of Intellectual Property Reform (3/99)

Patent Reform: A Mixed Blessing For the U.S. Economy?, BUSINESS

REV., Nov.-Dec. 1999, at 15.

Patentability, Industry Structure, and Innovation (8/01)

You Can Patent That? Are Patents on Computer Programs and

Business Methods Good for the New Economy?, BUS. REV., First

Quarter 2001, at 5.

Institute of Electrical and

Electronics Engineers, Inc.

Comments Regarding Competition & Intellectual Property

(4/17/02)

Intellectual Property

Owners Association 

Comments (11/15/02)

Kahin, Brian The Expansion of the Patent System: Politics and Political

Economy (12/31/00)

Comments (undated)

A Possible Higher Standard of Nonobviousness (undated)

Kantor, David A., and Sal

Ricciardi

Comments Regarding Competition & Intellectual Property Law

in the Knowledge-Based Economy (5/10/02)

Katz, Ronald S., and

Adam J. Safer

Why is One Patent Court Deciding Antitrust Law for the Whole

Country? (undated)

Kieff , F. Scott Comments Regarding Competition & Intellectual Property: 

Summary of Proposed Testimony (12/20/01)

Konovalov, Zoe The Economics of Open Source Software (11/04/02)

Kuester, Jeffrey R., and

Lawrence E. Thompson

Risks Associated with Restricting Business Method and E-Commerce

Patents, 17 GEORGIA STATE UNIVERSITY L. REV. 657 (2001).

Kulbaski, James J. Comments on Patent Pools and Standards (1/02)

League for Programming

Freedom

Against Software Patents (2/28/91)

Lee, Rusty Comments Regarding Competition & Intellectual Property

(3/24/02)
164 APPENDIX C: PUBLIC COMM ENTS

Name Title

Leggett, Nickolaus E. Comments Regarding Competition & Intellectual Property

(2/13/02)

Lennros, Hans Question Regarding Competition & Intellectual Property

(1/12/02)

Lerner, Josh The Patent System and Competition (undated)

Levin, Richard C. Testimony (2/06/02)

Microsoft Corporation Statement of Dan Crouse (undated)

Mitchell, John T. Retailers of Intellectual Property: The Competitive Voice of

Consumers (7/02)

Moree, Jeremiah T. IP Law (1/28/02)

Morgan, Paul F. Personal Comments (undated)

Mossinghoff, Gerald J. Statement (2/06/02)

Musacchia, Mary U. Prepared Remarks (4/09/02)

O’Brien, Vincent E. Economics and Key Patent Damage Cases, 9 UNIVERSITY OF

BALTIMORE INTELLECTUAL PROPERTY L.J. 1 (2000).

Olshove, DonPaul Comments Regarding Competition & Intellectual Property

(4/25/02)

Open GIS Consortium,

Inc.

Intellectual Property Rights Policy of Open GIS Consortium,

Inc. (5/09/02)

Pharmaceutical Research

and Manufacturers of

America

Delivering on the Promise of Pharmaceutical Innovation: The

Need to Maintain Strong and Predictable Intellectual Property

Rights (4/22/02)

Pitofsky, Robert The Essential Facilities Doctrine Under United States Antitrust

Law (undated)

Pritchard, Thomas, Sr. Untitled (9/20/02)
APPENDIX C: PUBLIC COMM ENTS 165

Name Title

Quillen, Cecil D., Jr. Innovation and the U.S. Patent System Today (10/19/92)

Proposal for the Simplification and Reform of the United States

Patent System (1993), previously published as: Proposal for the

Simplification and Reform of the United States Patent System, 21

AIPLA Q.J. 189 (1993).

Testimony of Cecil D. Quillen, Jr. Presented at the Public

Hearing on the Standard of Nonobviousness at the United

States Patent and Trademark Office (7/20/94)

Patent Standards and Innovation (2/2/00)

The U.S. Patent System: Is it Broke? And Who Can Fix It if It

Is? (5/11/01)

Cecil D. Quillen, Jr. & Ogden H. Webster, Continuing Patent

Applications and Performance of the U.S. Patent and Trademark

Office, 11 FEDERAL CIRCUIT BAR J. 1 (2001).

Innovators, Innovation, and the U.S. Patent System (10/17/02)

Cecil D. Quillen, Jr., Ogden H. Webster & Richard Eichmann,

Continuing Patent Applications and Performance of the U.S. Patent

Office – Extended, 12 FEDERAL CIRCUIT BAR J. 35 (2002).

Rapp, Richard T., and

Lauren J. Stiroh

Standard Setting and Market Power (4/18/02)

Ricciardi, Sal Competition and Intellectual Property Law and Policy in the

Knowledge-Based Economy, Pharmaceutical Distributors

Association (4/05/02)

Riches, Robert M., Jr. Comments Regarding Competition & Intellectual Property

(undated)

Rogan, James E. Prepared Remarks (2/6/02)

Saunders, Kurt M. Patent Nonuse and the Role of Public Interest as a Deterrent to

Technology Suppression, 15 HARVARD J.L. & TECHNOLOGY, Spring

2002, at 1.

Sobel, Gerald Patent Scope and Competition: Is the Federal Circuit’s

Approach Correct? (2001), subsequently published as: Patent

Scope and Competition: Is the Federal Circuit’s Approach Correct?, 7

VIRGINIA J.L. & TECHNOLOGY 3 (2002).

Stallman, Richard The Danger of Software Patents (3/25/02)
166 APPENDIX C: PUBLIC COMM ENTS

Name Title

Telecky, Frederick J., Jr. Statement (6/3/02)

United States Council for

International Business 

Comments (7/12/02)

Webbink, Mark, Colin

Crossman, Thomas

Griffin, and David

Silverstein

Red Hat’s Comments to the Joint FTC/DOJ Hearing On

Competition and Intellectual Property Law (3/20/02) 

Weitzner, Daniel J. Supplemental Comments (11/06/02)

W3C Patent Policy (2/5/04)

Weller, Charles D. Daubert Sounds the Death Knell for Antitrust’s Merger Presumption

After Baby Foods, 1 EXPERT EVIDENCE REP. 168 (2001).

Harmonizing Antitrust Worldwide by Evolving to Michael Porter’s

Dynamic Productivity Growth Analysis, 46 ANTITRUST BULL. 879

(2001).

Patent Reform by Daubert Litigation, 2 EXPERT EVIDENCE REP. 232

(2002).

Widge, Alik Comments Regarding Competition & Intellectual Property

(2/9/02)

Willingmyre, George T. Intellectual Property Rights Policies of Selected Standards

Developers (5/02)

Approaches to Influence the IPR Policies and Practices in US

and Global Standards Setting (6/14/02)

Comments Regarding Competition & Intellectual Property

(6/14/02)

Considerations in Assessing a Standards Developing

Organization’s Intellectual Property Rights Policies in Advance

of Participation (6/14/02)
167

APPENDIX D

HEARINGS TRANSCRIPTS

Competition and Intellectual Property Law and Policy in the Knowledge-Based

Economy February 6 - November 6, 2002

Primary source: http://www.ftc.gov/opp/intellect/index.htm

February 6, 2002

Welcome and Overview of Hearings

February 8, 2002

Patent Law for Antitrust Lawyers (Morning Session)

Antitrust Law for Patent Lawyers (Afternoon Session)

February 20, 2002

Intellectual Property and Innovation (Morning Session)

Competition and Innovation (Afternoon Session)

February 25, 2002

Economic Perspectives on Intellectual Property, Competition, and Innovation

February 26, 2002

Economic Perspectives on Intellectual Property, Competition, and Innovation (Morning

Session)

Business Perspectives on Patents: Biotech and Pharmaceuticals (Afternoon Session)

February 27, 2002

Business Perspectives on Patents: Software and the Internet (Morning Session)

Diverse Perspectives on Patents (Afternoon Session)

February 28, 2002

Independent Inventor Perspective on Patents (Morning Session)

Economic and Other Perspectives on Patent Standards and Procedures (Morning Session)

Business Perspectives on Patents: Hardware and Semiconductors (Afternoon Session)

March 19, 2002

Diverse Perspectives on Patents (Morning Session)

Business Perspectives on Patents: Biotech and Pharmaceuticals (Afternoon Session)

March 20, 2002

Business Perspectives on Patents: Hardware and Semiconductors (Morning Session)

Business Perspectives on Patents: Software and the Internet (Afternoon Session)

April 9, 2002

Cross-Industry Perspectives on Patents
168 APPENDIX D: HEARINGS TRANSCRIPTS

April 10, 2002

Substantive Standards of Patentability (Morning Session)

Patenting Procedures, Presumptions, and Uncertainties (Afternoon Session)

April 11, 2002

Patentable Subject Matter – Business Method and Software Patents (Morning Session)

Patent Criteria and Procedures – International Comparisons (Afternoon Session)

April 17, 2002

Patent Pools and Cross-Licensing: When Do They Promote or Harm Competition?

April 18, 2002

Intellectual Property Strategies in Standards Activities (Morning Session)

Licensing Terms in Standards Activities (Afternoon Session)

May 1, 2002

The Strategic Use of Licensing: Is There Cause for Concern About Unilateral Refusals to Deal?

May 2, 2002

A Competition View of Patent Settlements: Introductory Presentations (Morning Session)

A Competition View of Patent Settlements: Panel Discussion (Afternoon Session)

May 14, 2002

Antitrust Analysis of Specific Intellectual Property Licensing Practices: Bundling, Grantbacks 

and Temporal Extensions (Morning Session)

Practical Issues Encountered in Antitrust Analysis of Licensing Practices: The Problem of 

Dealing with Uncertain or Disputed Patent Rights (Afternoon Session)

May 22, 2002

Refusals to License and Compulsory Licensing in the European Union, Canada, and Australia 

(Morning Session)

Licensing in the European Union: The Technology Transfer Block Exemption and Agreements

that Fall Outside Its Scope (Afternoon Session)

May 23, 2002

Asian Perspectives 

July 10, 2002

Trends in Federal Circuit Jurisprudence (Morning Session)

Patent Law Analysis in Federal Circuit Jurisprudence (Afternoon Session)

July 11, 2002

Federal Circuit Jurisprudence: Jurisdiction, Choice of Law, and Competition Policy 

Perspectives

October 25, 2002

Competition, Economic, and Business Perspectives on Patent Quality and Institutional Issues: 

Competitive Concerns, Prior Art, Post-Grant Review, and Litigation
APPENDIX D: HEARINGS TRANSCRIPTS 169

October 30, 2002

Competition, Economic, and Business Perspectives on Substantive Patent Law Issues: NonObviousness and Other Patentability Criteria

November 6, 2002

Standard Setting Organizations: Evaluating the Anticompetitive Risks of Negotiating IP 

 Licensing Terms and Conditions Before a Standard Is Set (Morning Session)

Relationships Among Competitors and Incentives to Compete: Cross-Licensing of Patent

Portfolios, Grantbacks, Reach-Through Royalties, and Non-Assertion Clauses

(Afternoon Session)

171

APPENDIX E

UNITED STATES CODE

Sherman Act

C 15 U.S.C. § 1 (2000); Trusts, etc., in restraint of trade illegal; penalty

C 15 U.S.C. § 2 (2000); Monopolizing trade a felony; penalty

Clayton Act

C Section 3, 15 U.S.C. § 14 (2000); Sale, etc., on agreement not to use goods of

competitor

C Section 7, 15 U.S.C. § 18 (2000); Acquisition by one corporation of stock of

another

FTC Act 

C 15 U.S.C. § 45 (a)(1) (2000); Unfair methods of competition unlawful;

prevention by Commission

U.S. Copyright Code

C 17 U.S.C. § 102 (2000); Subject matter of copyright: In general

C 17 U.S.C. § 103 (2000); Subject matter of copyright: Compilations and

derivative works

C 17 U.S.C. § 106 (2000); Exclusive rights in copyrighted works

C 17 U.S.C. § 302 (2000); Duration of copyright: Works created on or after

January 1, 1978

U.S. Patent Code 

C 35 U.S.C. § 154; Contents and term of patent; provisional rights

C 35 U.S.C. § 173 (2000); Term of design patent

C 35 U.S.C. § 271(d)(4), (5) (2000); Infringement of patent

C 35 U.S.C. § 282 (2000); Presumption of validity; defenses
172 APPENDIX E: UNITED STATES CODE

Sherman Act

Section 1, 15 U.S.C. § 1 (2000); Trusts, etc., in restraint of trade illegal; penalty

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.

Section 2, 15 U.S.C. § 2 (2000); Monopolizing trade a felony; penalty

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.

Clayton Act

Section 3, 15 U.S.C. § 14 (2000); Sale, etc., on agreement not to use goods of competitor

It shall be unlawful for any person engaged in commerce, in the course of such commerce, to

lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies, or

other commodities, whether patented or unpatented, for use, consumption, or resale within the

United States or any Territory thereof or the District of Columbia or any insular possession or

other place under the jurisdiction of the United States, or fix a price charged therefor, or

discount from, or rebate upon, such price, on the condition, agreement, or understanding that

the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise,

machinery, supplies, or other commodities of a competitor or competitors of the lessor or seller,

where the effect of such lease, sale, or contract for sale or such condition, agreement, or

understanding may be to substantially lessen competition or tend to create a monopoly in any

line of commerce.

Section 7, 15 U.S.C. § 18 (2000); Acquisition by one corporation of stock of another

No person engaged in commerce or in any activity affecting commerce shall acquire, directly or

indirectly, the whole or any part of the stock or other share capital and no person subject to the

jurisdiction of the Federal Trade Commission shall acquire the whole or any part of the assets

of another person engaged also in commerce or in any activity affecting commerce, where in

any line of commerce or in any activity affecting commerce in any section of the country, the

effect of such acquisition may be substantially to lessen competition, or to tend to create a

monopoly.
APPENDIX E: UNITED STATES CODE 173

No person shall acquire, directly or indirectly, the whole or any part of the stock or other share

capital and no person subject to the jurisdiction of the Federal Trade Commission shall acquire

the whole or any part of the assets of one or more persons engaged in commerce or in any

activity affecting commerce, where in any line of commerce or in any activity affecting

commerce in any section of the country, the effect of such acquisition, of such stocks or assets,

or of the use of such stock by the voting or granting of proxies or otherwise, may be

substantially to lessen competition, or to tend to create a monopoly.

 

This section shall not apply to persons purchasing such stock solely for investment and not

using the same by voting or otherwise to bring about, or in attempting to bring about, the

substantial lessening of competition. Nor shall anything contained in this section prevent a

corporation engaged in commerce or in any activity affecting commerce from causing the

formation of subsidiary corporations for the actual carrying on of their immediate lawful

business, or the natural and legitimate branches or extensions thereof, or from owning and

holding all or a part of the stock of such subsidiary corporations, when the effect of such

formation is not to substantially lessen competition.

 

Nor shall anything herein contained be construed to prohibit any common carrier subject to the

laws to regulate commerce from aiding in the construction of branches or short lines so located

as to become feeders to the main line of the company so aiding in such construction or from

acquiring or owning all or any part of the stock of such branch lines, nor to prevent any such

common carrier from acquiring and owning all or any part of the stock of a branch or short line

constructed by an independent company where there is no substantial competition between the

company owning the branch line so constructed and the company owning the main line

acquiring the property or an interest therein, nor to prevent such common carrier from

extending any of its lines through the medium of the acquisition of stock or otherwise of any

other common carrier where there is no substantial competition between the company

extending its lines and the company whose stock, property, or an interest therein is so acquired.

 

Nothing contained in this section shall be held to affect or impair any right heretofore legally

acquired: Provided, That nothing in this section shall be held or construed to authorize or

make lawful anything heretofore prohibited or made illegal by the antitrust laws, nor to exempt

any person from the penal provisions thereof or the civil remedies therein provided.

 

Nothing contained in this section shall apply to transactions duly consummated pursuant to

authority given by the Secretary of Transportation, Federal Power Commission, Surface

Transportation Board, the Securities and Exchange Commission in the exercise of its

jurisdiction under section 79j of this title, the United States Maritime Commission, or the

Secretary of Agriculture under any statutory provision vesting such power in such

Commission, Board, or Secretary.
174 APPENDIX E: UNITED STATES CODE

FTC Act

Section 5, 15 U.S.C. § 45 (a)(1) (2000); Unfair methods of competition unlawful;

prevention by Commission

 

(a) Declaration of unlawfulness; power to prohibit unfair practices; inapplicability to foreign

trade

(1) Unfair methods of competition in or affecting commerce, and unfair or deceptive acts

or practices in or affecting commerce, are hereby declared unlawful.

U.S. Copyright Code

17 U.S.C. § 102 (2000); Subject matter of copyright: In general

(a) Copyright protection subsists, in accordance with this title, in original works of authorship

fixed in any tangible medium of expression, now known or later developed, from which they

can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a

machine or device. Works of authorship include the following categories:

 

(1) literary works;

 

(2) musical works, including any accompanying words;

 

(3) dramatic works, including any accompanying music;

 

(4) pantomimes and choreographic works;

 

(5) pictorial, graphic, and sculptural works;

 

(6) motion pictures and other audiovisual works;

 

(7) sound recordings; and

 

(8) architectural works.

(b) In no case does copyright protection for an original work of authorship extend to any idea,

procedure, process, system, method of operation, concept, principle, or discovery, regardless of

the form in which it is described, explained, illustrated, or embodied in such work.
APPENDIX E: UNITED STATES CODE 175

17 U.S.C. § 103 (2000); Subject matter of copyright: Compilations and derivative

works

 

(a) The subject matter of copyright as specified by section 102 includes compilations and

derivative works, but protection for a work employing preexisting material in which copyright

subsists does not extend to any part of the work in which such material has been used

unlawfully.

 

(b) The copyright in a compilation or derivative work extends only to the material contributed

by the author of such work, as distinguished from the preexisting material employed in the

work, and does not imply any exclusive right in the preexisting material. The copyright in such

work is independent of, and does not affect or enlarge the scope, duration, ownership, or

subsistence of, any copyright protection in the preexisting material.

17 U.S.C. § 106 (2000); Exclusive rights in copyrighted works

Subject to sections 107 through 122, the owner of copyright under this title has the exclusive

rights to do and to authorize any of the following:

 

(1) to reproduce the copyrighted work in copies or phonorecords;

 

(2) to prepare derivative works based upon the copyrighted work;

 

(3) to distribute copies or phonorecords of the copyrighted work to the public by

sale or other transfer of ownership, or by rental, lease, or lending;

 

(4) in the case of literary, musical, dramatic, and choreographic works,

pantomimes, and motion pictures and other audiovisual works, to perform the

copyrighted work publicly;

 

(5) in the case of literary, musical, dramatic, and choreographic works,

pantomimes, and pictorial, graphic, or sculptural works, including the

individual images of a motion picture or other audiovisual work, to display the

copyrighted work publicly; and

 

(6) in the case of sound recordings, to perform the copyrighted work publicly by

means of a digital audio transmission.

17 U.S.C. § 302 (2000); Duration of copyright: Works created on or after January 1,

1978

 

(a) In General.--Copyright in a work created on or after January 1, 1978, subsists from its

creation and, except as provided by the following subsections, endures for a term consisting of

the life of the author and 70 years after the author's death.

 
176 APPENDIX E: UNITED STATES CODE

U.S. Patent Code 

35 U.S.C. § 154; Contents and term of patent; provisional rights

(a) In General--

(1) Contents.--Every patent shall contain a short title of the invention and a grant to the

patentee, his heirs or assigns, of the right to exclude others from making, using, offering

for sale, or selling the invention throughout the United States or importing the invention

into the United States, and, if the invention is a process, of the right to exclude others

from using, offering for sale or selling throughout the United States, or importing into

the United States, products made by that process, referring to the specification for the

particulars thereof.

 

 (2) Term.--Subject to the payment of fees under this title, such grant shall be for a term

beginning on the date on which the patent issues and ending 20 years from the date on

which the application for the patent was filed in the United States or, if the application

contains a specific reference to an earlier filed application or applications under section

120, 121, or 365(c) of this title, from the date on which the earliest such application was

filed.

35 U.S.C. § 173 (2000); Term of design patent

Patents for designs shall be granted for the term of fourteen years from the date of grant.

35 U.S.C. § 271(d)(4), (5) (2000); Infringement of patent

(d) 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: 

. . . .

(4) refused to license or use any rights to the patent; or 

(5) 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.

35 U.S.C. § 282 (2000); Presumption of validity; defenses

A patent shall be presumed valid. Each claim of a patent (whether in independent, dependent,

or multiple dependent form) shall be presumed valid independently of the validity of other

claims; dependent or multiple dependent claims shall be presumed valid even though
APPENDIX E: UNITED STATES CODE 177

dependent upon an invalid claim. Notwithstanding the preceding sentence, if a claim to a

composition of matter is held invalid and that claim was the basis of a determination of

nonobviousness under section 103(b)(1), the process shall no longer be considered nonobvious

solely on the basis of section 103(b)(1). The burden of establishing invalidity of a patent or any

claim thereof shall rest on the party asserting such invalidity.

The following shall be defenses in any action involving the validity or infringement of a patent

and shall be pleaded:

(1) Noninfringement, absence of liability for infringement or unenforceability,

(2) Invalidity of the patent or any claim in suit on any ground specified in part II of this

title as a condition for patentability,

(3) Invalidity of the patent or any claim in suit for failure to comply with any

requirement of sections 112 or 251 of this title,

(4) Any other fact or act made a defense by this title.

In actions involving the validity or infringement of a patent the party asserting invalidity or

noninfringement shall give notice in the pleadings or otherwise in writing to the adverse party

at least thirty days before the trial, of the country, number, date, and name of the patentee of

any patent, the title, date, and page numbers of any publication to be relied upon as

anticipation of the patent in suit or, except in actions in the United States Court of Federal

Claims, as showing the state of the art, and the name and address of any person who may be

relied upon as the prior inventor or as having prior knowledge of or as having previously used

or offered for sale the invention of the patent in suit. In the absence of such notice proof of the

said matters may not be made at the trial except on such terms as the court requires. Invalidity

of the extension of a patent term or any portion thereof under section 154(b) or 156 of this title

because of the material failure-- 

(1) by the applicant for the extension, or 

(2) by the Director,

to comply with the requirements of such section shall be a defense in any action involving the

infringement of a patent during the period of the extension of its term and shall be pleaded. A

due diligence determination under section 156(d)(2) is not subject to review in such an action. 

179

APPENDIX F

CITED CASES AND SUPPORTING DOCUMENTS IN REPORT

A

Addamax Corp. v. Open Software Foundation, Inc., 152 F.3d 48 (1st Cir. 1998).

Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 U.S. 492 (1988).

American Society of Mechanical Engineers v. Hydrolevel Corp., 456 U.S. 556 (1982).

Andrx Pharmaceuticals Inc. v. Kroger Co., 543 U.S. 939 (2004), denying cert. to In re Cardizem

CD Antitrust Litigation, 332 F.3d 896 (2003).

• Brief for the United States as Amicus Curiae, Andrx, 543 U.S. 939

(No. 03-779), available at http://www.usdoj.gov/osg/briefs/2004/2pet/6invit/

2003-0779.pet.ami.inv.pdf.

Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979).

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985).

Atari Games Corp. v. Nintendo of America, Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990).

B

Baker-Cammack Hosiery Mills, Inc. v. Davis Co., 181 F.2d 550 (4th Cir. 1950).

Bayer AG v. Housey Pharmaceuticals, Inc., 228 F. Supp. 2d 467 (D. Del. 2002).

Bement v. National Harrow Co., 186 U.S. 70 (1902).

Blue Cross & Blue Shield United v. Marshfield Clinic, 65 F.3d 1406 (7th Cir. 1995).

Boggild v. Kenner Products, 776 F.2d 1315 (6th Cir. 1985), cert. denied, 477 U.S. 908 (1986).

Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979).

Broadcom Corp. v. Qualcomm Inc., No. CIV A 05-3350 MLC, 2006 WL 2528545 (D.N.J. Aug. 31,

2006), appeal docketed, No. 06-4292 (3d Cir. Oct. 4, 2006).

Brulotte v. Thys Co., 379 U.S. 29 (1964).

C

CSU, L.L.C. v. Xerox Corp., 531 U.S. 1143 (2001), denying cert. to 203 F.3d 1322 (Fed. Cir. 2000).

• Brief for the United States as Amicus Curiae, CSU, 531 U.S. 1143 (No. 00-62), 

available at http://www.usdoj.gov/osg/briefs/2000/2pet/6invit/2000-0062.

pet.ami.inv.pdf.

Carpet Seaming Tape Licensing Corp. v. Best Seam Inc., 616 F.2d 1133 (9th Cir. 1980).

Chemical Products Technologies, LLC v. Monsanto Co., No. 4:01-4384-12 (D.S.C. Nov. 13, 2001)

(Complaint and Jury Demand).
180 APPENDIX F: CITED CASES AND SUPPORTING DOCUMENTS

Chicago Board of Trade v. United States, 246 U.S. 231 (1918).

Continental Ore Co. v. Union Carbide Corp., 370 U.S. 690 (1962).

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).

Cutter Laboratories, Inc. v. Lyophile-Cryochem Corp., 179 F.2d 80 (9th Cir. 1949).

D

Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147 (1st Cir. 1994).

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).

Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176 (1980).

Dehydrating Process Co. v. A. O. Smith Corp., 292 F.2d 653 (1st Cir. 1961).

In re Dell, 121 F.T.C. 616 (1996).

• Complaint, In re Dell, 121 F.T.C. at 616-18 (No. C-3658), available at

http://www.ftc.gov/os/decisions/vol121.htm.

E

ESS Technology, Inc. v. PC-Tel, Inc., No. C-99-20292 RMW, 2001 WL 1891713 (N.D. Cal. 2001).

Eastern Railroad Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961).

eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006).

• Brief for the United States as Amicus Curaie Supporting Respondent, eBay, 126

S. Ct. 1837 (No. 05-130), available at http://www.usdoj.gov/osg/briefs/2005/

3mer/1ami/2005-0130.mer.ami.pdf.

Ethyl Gasoline Corp. v. United States, 309 U.S. 436 (1940).

F

Fox Motors, Inc. v. Mazda Distributors (Gulf), Inc., 806 F.2d 953 (10th Cir. 1986).

G

Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970).

Golden Bridge Technology, Inc. v. Nokia, Inc., 416 F. Supp. 2d 525 (E.D. Tex. 2006).

Grid Systems Corp. v. Tex. Instruments Inc., 771 F. Supp. 1033 (N.D. Cal. 1991).

H

Hartford-Empire Co. v. United States, 323 U.S. 386 (1945).

Heaton-Peninsular Button-Fastener Co. v. Eureka Specialty Co., 77 F. 288 (6th Cir. 1896).
APPENDIX F: CITED CASES AND SUPPORTING DOCUMENTS 181

Hynix Semiconductor Inc. v. Rambus Inc., 441 F. Supp. 2d 1066 (N.D. Cal. 2006).

I

Illinois Tool Works Inc. v. Independent Ink, Inc., 126 S. Ct. 1281 (2006).

• Brief for the United States as Amicus Curiae Supporting Petitioners, Illinois

Tool, 126 S. Ct. 1281 (No. 04-1329), available at http://www.usdoj.gov/osg/

briefs/2005/3mer/1ami/2004-1329.mer.ami.pdf.

Image Technical Services, Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997).

Independent Ink, Inc. v. Illinois Tool Works, Inc., 396 F.3d 1342 (Fed Cir. 2005), rev’d, 126 S. Ct.

1281 (2006).

In re Independent Service Organizations Antitrust Litigation, 203 F.3d 1322 (Fed. Cir. 2000).

In re Independent Service Organizations Antitrust Litigation, No. MDL-1021 (D. Kan. Jan. 8,

1999) (Order). 

In re Independent Service Organizations Antitrust Litigation, 989 F. Supp. 1131 (D. Kan. 1997).

In re Independent Service Organizations Antitrust Litigation, 964 F. Supp. 1479 (D. Kan. 1997).

Industrial Promotion Co. v. Versa Products, Inc., 467 N.W.2d 168 (Wis. Ct. App. 1991).

Intergraph Corp. v. Intel Corp., 195 F.3d 1346 (Fed. Cir. 1999).

International Salt Co. v. United States, 332 U.S. 392 (1947). 

J

Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984).

K

Kartell v. Blue Shield of Massachusetts, Inc., 749 F.2d 922 (1st Cir. 1984).

Khan v. State Oil Co., 93 F.3d 1358 (7th Cir. 1996), vacated, 522 U.S. 3 (1997).

King v. Anthony Pools, Inc., 202 F. Supp. 426 (S.D. Cal. 1962).

Kobe v. Dempsey Pump Co., 198 F.2d 416 (10th Cir. 1952).

L

Lear v. Adkins, 395 U.S. 653 (1969).

M

MCA Television Ltd. v. Public Interest Corp., 171 F.3d 1265 (11th Cir. 1999).
182 APPENDIX F: CITED CASES AND SUPPORTING DOCUMENTS

Matsushita Electrical Industrial Co. v. Cinram International, Inc., 299 F. Supp. 2d 370 (D. Del.

2004).

Matthew Bender & Co. v. West Publishing Co., 158 F.3d 693 (2d Cir. 1998).

• Brief for Amicus Curiae United States of America in Support of Appellees,

Matthew Bender & Co., 158 F.3d 693 (No. 97-7430), available at

http://www.usdoj.gov/atr/cases/f1100/1191.pdf.

McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994).

MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764 (2007).

• Brief for the United States as Amicus Curiae Supporting Petitioner,

MedImmune, 127 S. Ct. 764 (No. 05-608), available at http://www.usdoj.gov/osg/

briefs/2005/3mer/1ami/2005-0608.mer.ami.pdf.

Meehan v. PPG Industries, Inc., 802 F.2d 881 (7th Cir. 1986), cert. denied, 479 U.S. 1091 (1987).

Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S. 661 (1944).

Micron Technology, Inc. v. Rambus Inc., 189 F. Supp. 2d 201 (D. Del. 2002).

Miller Insituform, Inc. v. Insituform of North America, Inc., 830 F.2d 606 (6th Cir. 1987).

Motion Picture Patents Co. v. Universal Film Manufacturing Co., 243 U.S. 502 (1917).

Mozart Co. v. Mercedes-Benz of North America, Inc., 833 F.2d 1342 (9th Cir. 1987).

N

National Collegiate Athletic Association v. Board of Regents of the University of Oklahoma, 468

U.S. 85 (1984).

National Society of Professional Engineers v. United States, 435 U.S. 679 (1978).

Northern Pacific Railway Co. v. United States, 356 U.S. 1 (1958).

P

Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998).

• Brief for the United States as Amicus Curiae Supporting Respondent, Pfaff, 525

U.S. 55 (No. 97-1130), available at http://www.usdoj.gov/atr/cases/f1800/

1836.pdf.

Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365 (11th Cir. 1983).

Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993).

R

Radiant Burners, Inc. v. Peoples Gas Light & Coke Co., 364 U.S. 656 (1961).

In re Rambus, Inc., No. 9302 (F.T.C. July 31, 2006), available at http://www.ftc.gov/os/adjpro/

d9302/060802commissionopinion.pdf.
APPENDIX F: CITED CASES AND SUPPORTING DOCUMENTS 183

In re Rambus Inc., No. 9302 (F.T.C. 2002).

• Complaint, Rambus, No. 9302, available at http://www.ftc.gov/os/adjpro/

d9302/020618admincmp.pdf.

Rambus Inc. v. Infineon Technologies AG, 164 F. Supp. 2d 743 (E.D. Va. 2001), rev’d in part, 318

F.3d 1081 (Fed. Cir. 2003).

S

SCM Corp. v. Xerox Corp., 645 F.2d 1195 (2d Cir. 1981).

Samsung Electronics Co. v. Rambus Inc., 439 F. Supp. 2d 524 (E.D. Va. 2006).

Scheiber v. Dolby Laboratories, Inc., 293 F.3d 1014 (7th Cir. 2002).

Schor v. Abbott Laboratories, 457 F.3d 608 (7th Cir. 2006).

Simpson v. Union Oil Co. of California, 377 U.S. 13 (1964).

Sony Electronics, Inc. v. Soundview Technologies, Inc., 157 F. Supp. 2d 180 (D. Conn. 2001).

Southco, Inc. v. Kanebridge Corp. (Southco II), 390 F.3d 276 (3d Cir. 2004) (en banc), cert. denied,

126 S. Ct. 336 (2005).

• Brief Amicus Curiae of the United States of America in Support of Appellee

Kanebridge Corp., Southco II, 390 F.3d 276 (No. 02-1243), available at

http://www.usdoj.gov/atr/cases/f201000/201034.pdf.

Southco, Inc. v. Kanebridge Corp. (Southco I), 258 F.3d 148 (3d Cir. 2001).

• Brief Amicus Curiae of the United States of America Urging Reversal in

Support of Appellant Kanebridge Corp., Southco I, 258 F.3d 148 (No. 00-1102),

available at http://www.usdoj.gov/atr/cases/f4900/4953.pdf.

Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476 U.S. 409 (1986).

Standard Oil Co. v. United States, 337 U.S. 293 (1949).

Standard Oil Co. v. United States, 283 U.S. 163 (1931).

Standard Sanitary Manufacturing Co. v. United States, 226 U.S. 20 (1912).

In re Summit Technology, Inc., 127 F.T.C. 208 (1999), available at http://www.ftc.gov/os/

decisions/docs/Volume127.pdf.

• Analysis of Proposed Consent Order to Aid Public Comment, Summit Tech,

No. 9286, available at http://www.ftc.gov/os/1998/08/d09286ana.htm.

• Complaint, Summit, 127 F.T.C. at 208 (No. 9286).

• Decision and Order, Summit, 127 F.T.C. at 217 (No. 9286).

• Order Reopening the Record and Dismissing the Complaint, In re VISX, Inc.,

No. 9286 (F.T.C. Feb. 7, 2001), available at http://www.ftc.gov/os/2001/02/

summitvisxorder.htm.

Symbol Technologies, Inc. v. Proxim Inc., No. Civ. 01-801-SLR, 2004 WL 1770290 (D. Del. July

28, 2004).
184 APPENDIX F: CITED CASES AND SUPPORTING DOCUMENTS

T

Townshend v. Rockwell International Corp., 2000-1 Trade Cas. (CCH) ¶ 72,890, 2000 WL 433505

(N.D. Cal. 2000).

U

USM Corp. v. SPS Technologies, Inc., 694 F.2d 505 (7th Cir. 1982).

U.S. Philips Corp. v. International Trade Commission, 424 F.3d 1179 (Fed. Cir. 2005).

In re Union Oil Co. of California, No. 9305 (F.T.C. Nov. 25, 2003), available at 

http://www.ftc.gov/os/2003/11/031126unionoil.pdf, rev’d, No. 9305 (F.T.C. July 7,

2004), available at http://www.ftc.gov/os/adjpro/d9305/

040706commissionopinion.pdf.

• Complaint, Unocal, No. 9305 (F.T.C. Mar. 4, 2003), available at 

http://www.ftc.gov/os/2003/03/unocalcp.htm.

United Mine Workers v. Pennington, 381 U.S. 657 (1965).

United States v. Colgate & Co., 250 U.S. 300 (1919).

United States v. Grinnell Corp., 384 U.S. 563 (1966).

United States v. Jerrold Electronics Corp., 187 F. Supp. 545 (E.D. Pa. 1960), aff’d per curiam, 365

U.S. 567 (1961).

United States v. Line Material Co., 333 U.S. 287 (1948).

United States v. Loew’s, Inc., 371 U.S. 38 (1962).

United States v. Masonite Corp., 316 U.S. 265 (1942).

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc).

United States v. Microsoft Corp., 87 F. Supp. 2d 30 (D.D.C. 2000), aff’d in part, rev’d in part, 253

F.3d 34.

• Complaint, Microsoft 87 F. Supp. 2d 30 (No. 98-1232), available at

http://www.usdoj.gov/atr/cases/f1700/1763.pdf.

United States v. New Wrinkle, Inc., 342 U.S. 371 (1952).

United States v. Paramount Pictures, Inc., 334 U.S. 131 (1948).

United States v. Pilkington plc, No. 94-345, 1994-2 Trade Cas. (CCH) ¶ 70,842, 1994 WL 750645

(D. Ariz. Dec. 22, 1994).

• Complaint, Pilkington plc, No. 94-345, available at 

http://www.usdoj.gov/atr/cases/f0000/0014.pdf.

• United States v. Pilkington plc and Pilkington Holdings Inc.; Proposed Final

Judgment and Competitive Impact Statement, 59 Fed. Reg. 30,604 (June 14, 1994),

available at http://www.usdoj.gov/atr/cases/f220800/220860.pdf,

http://www.usdoj.gov/atr/cases/f220800/220861.pdf.

United States v. Socony-Vacuum Oil Co., 310 U.S. 150 (1940). 

United States v. Singer Manufacturing Co., 374 U.S. 174 (1963).
APPENDIX F: CITED CASES AND SUPPORTING DOCUMENTS 185

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V

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W

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Z

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187

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INDEX

A

Abdessemed, Tamym 38

Activities

joint 7, 37, 53-55

ex ante 7, 8, 37, 53, 54, 56

SSO 7, 37, 53, 54

standards development 51, 53

Addamax Corp. v. Open Software Foundation, Inc., 152 

F.3d 48 (1st Cir. 1998) 51

Aghion, Philippe 120

Agreements

bundling 5, 10, 105, 106, 114, 121

cross-licensing 5, 8, 9, 41, 57-59, 61-63, 66, 67, 85, 

91, 92, 96, 98, 100, 116

naked 50-52, 55, 63, 106, 120

nonexclusive 62, 69, 89, 91, 92

patent-licensing 78

patent-pooling 5, 8, 57, 58, 62, 64, 67, 69

reach-through 5, 10, 88, 92-97, 99, 101, 116, 117

reciprocal 84

royalty 5, 8, 10, 51, 54, 57, 61, 89, 94-97, 101,

116-118

sham 51, 55, 121

Alchian, Armen A. 35

Allied Tube & Conduit Corp. v. Indian Head, Inc., 486 

U.S. 492 (1988) 35, 50

American Society of Mechanical Engineers v. Hydrolevel 

Corp., 456 U.S. 556 (1982) 35, 50

Andewelt, Roger B. 71, 84

Andrx Pharmaceuticals Inc. v. Kroger Co., 543 U.S. 939 

(2004) 91

Antalics, Michael 39, 42, 43

Anticommons 92, 95, 96, 117

Antitrust-IP Guidelines 1-4, 9-13, 21, 22, 58, 59,

62-64, 67, 73, 74, 76, 80, 81, 87, 88, 91-93, 99-102,

109-111, 114-116, 121, 122

Areeda, Phillip E. 18, 19, 26, 118

Aronson v. Quick Point Pencil Co., 440 U.S. 257 (1979)

117

Arora, Ashish 15, 23

Arrangements

platform 70, 71, 109

pooling 5, 8, 58, 59, 62, 63, 67, 69, 71, 78, 84, 99,

100

reach-through 5, 10, 88, 94, 101

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472

U.S. 585 (1985) 27, 28

Atari Games Corp. v. Nintendo of America, Inc., 897 F.2d

1572, 1576 (Fed. Cir. 1990) 13

B

Bahr, Robert W. 39

Baker-Cammack Hosiery Mills, Inc. v. Davis Co., 181 F.2d

550 (4th Cir. 1950) 66

Bakos, Yannis 107, 108

Balto, David 34

Barnett, Thomas O. 55

Barr, Robert 60, 61, 65

Barton, John H. 62, 93

Baumol, William J. 46

Bayer AG v. Housey Pharmaceuticals, Inc., 228 F. Supp.

2d 467 (D. Del. 2002) 97, 117

Beeney, Garrard 58, 64, 68, 74-76, 79, 80-85

Bement v. National Harrow Co., 186 U.S. 70 (1902) 29,

66

Besen, Stanley M. 40, 48, 49, 53

Bid rigging 37, 52

Biester, Edward G., III 109

Bilateral

agreements 57, 59, 69, 89

licensing solution 57

Biotechnology 59, 60, 65, 66, 93, 95

Blackburn, Robert 59, 93, 95, 96

Blair, Roger D. 51

Blanket license 52, 83

Block booking 11, 106-108

Blocking patents 61, 71, 73, 74, 84, 89, 92, 121

Blue Cross & Blue Shield United v. Marshfield Clinic, 65

F.3d 1406 (7th Cir. 1995) 22

Boggild v. Kenner Products, 776 F.2d 1315 (6th Cir.

1985) 117

Bolton, Patrick 120

Bonardi, Philippe 38

Boyle, Peter M. 26

Bresnahan, Timothy 38
200 INDEX

Broadcast Music, Inc. v. Columbia Broadcasting System,

Inc., 441 U.S. 1 (1979) 52, 66

Broadcom Corp. v. Qualcomm Inc., No. CIV A 05-3350

MLC, 2006 WL 2528545 (D.N.J. Aug. 31, 2006) 46

Brulotte v. Thys Co., 379 U.S. 29 (1964) 12, 97, 113, 117

Brynolfsson, Eric 107, 108

Bundling 5, 10-12, 63, 103-116, 120-22

technological 10, 103, 107, 109

trade secrets 12, 116, 120, 121

Burtis, Michelle M. 18, 58, 94

Business review 9, 67-72, 74, 76-83, 85, 92

procedure 72

Business Review Letter 68-72, 74, 76-79, 81-83

C

CSU, L.L.C. v. Xerox Corp., 531 U.S. 1143 (2001) 25

In re Cardizem CD Antitrust Litigation, 332 F.3d 896

(2003) 91

Cargill, Carl 33, 38, 39, 41-43, 46, 48, 49

Carlson, Steven C. 63

Carlton, Dennis W. 38, 103, 119

Carpet Seaming Tape Licensing Corp. v. Best Seam Inc.,

616 F.2d 1133 (9th Cir. 1980) 66

Carrier, Michael A. 54

Chemical Products Technologies, LLC v. Monsanto Co.,

No. 4:01-4384-12 (D.S.C. Nov. 13, 2001) 120

Chen, Raymond T. 58

Chicago Board of Trade v. United States, 246 U.S. 231

(1918) 18, 52

Church, Jeffrey 34, 38

Clark, Jeanne 65, 74

Cohen, Wesley M. 96

Cohen, William 58

Cole, Pam 15

Collaborative de jure standards 36

Collaborative standard setting 35, 37, 39, 41, 43, 45,

47, 49, 51, 53, 55

and Patents 35, 37, 39, 41, 43, 45, 47, 49, 51, 53, 55

Competing standards 34, 79

multiple 34

Competition

downstream 8, 24, 36, 37, 51, 67, 85, 92, 94-96,

100, 102

ex ante 8, 36, 37, 50, 52-56

horizontal 4, 8, 67, 71, 81

Competitive effects 6, 9, 21, 24, 72, 76, 97, 102, 104,

106

Complements 48, 66, 71, 74-77

Conduct

joint 37, 54

unilateral 6, 18, 19, 22, 27-31, 36, 54

Congress 26, 27, 50, 99, 110, 113, 115

Consent decrees 60, 74, 121

Consent orders 74

Consortia 34, 43, 46

Consumer

choice 6, 33, 34, 52

harm 6, 36, 52, 104

welfare 1, 6, 33, 104, 108

Continental Ore Co. v. Union Carbide Corp., 370 U.S. 690

(1962) 30

Contracts

exclusive 12, 116, 119, 120, 122

long-term 119, 120

Coordination 8, 38, 51, 62, 67, 81, 83, 85, 99, 100

Copperweld Corp. v. Independence Tube Corp., 467 U.S.

752 (1984) 31

Copyright 2, 27, 39, 66, 89, 99, 109-111, 113, 121,

122

holders 27, 122

pooling arrangement 66

protection 27, 121, 122

regimes 121

Costs

business 17, 40, 43, 50, 76-78, 95, 111

manufacturing 4, 49, 65, 75

potential 7, 8, 10, 34, 35, 43, 50, 60, 79, 89, 95

reducing 8, 34, 57, 65, 84, 121

relative 35, 37, 49

switching 7, 35, 37, 38, 44

up-front 94, 95

Crawford, Robert G. 35

Cross licensing 5, 8, 9, 19, 41, 57-64, 66, 67, 75, 78,

84, 85, 88, 91, 92, 96, 98, 100, 116

arrangements 63, 100

Cutter Laboratories, Inc. v. Lyophile-Cryochem Corp., 179

F.2d 80 (9th Cir. 1949) 66

D

Damages 26, 35, 51

Data General Corp. v. Grumman Systems Support Corp.,

36 F.3d 1147 (1st Cir. 1994) 27, 29

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S.

579 (1993) 113

Dawson Chemical Co. v. Rohm & Haas Co., 448 U.S. 176

(1980) 29
INDEX 201

Deadweight loss 12, 97, 118, 122

Dehydrating Process Co. v. A. O. Smith Corp., 292 F.2d

653 (1st Cir. 1961) 106

In re Dell, 121 F.T.C. 616 (1996) 36, 43, 44

Denvir, James P., III 119, 122

Design

dominant 34

freedom 60, 61

patent 59-61, 85, 90, 93, 115

products 34, 60, 61, 93, 115

Detkin, Peter N. 60

Deutsch, Donald R. 33, 39, 43

Development costs 34, 42, 50, 57, 61, 64, 65, 95, 107

Dick, Rebecca P. 115, 116, 120-122

Disclosure 1, 7, 23, 37, 39, 40, 42-45, 48, 53, 54

obligations 42, 43

policies 42-44

requirements 7, 42, 53

rules 7, 40, 42, 43, 45, 53

unilateral 23, 54

Donovan, Richard E. 80

Downstream 8, 24, 36, 37, 46, 51, 63, 67, 75, 81-83,

85, 92-96, 100, 102, 117

Durand, Rodolphe 38

DVD 68-72, 75-79, 81-83, 85

DVD Business Review Letter 68-72, 76-79, 81-83

E

ESS Technology, Inc. v. PC-Tel, Inc., No. C-99-20292

RMW, 2001 WL 1891713 (N.D. Cal. 2001) 46 

Earp, David J. 96, 97

Easterbrook, Frank H. 100

Eastern Railroad Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127 (1961) 21, 45

eBay Inc. v. MercExchange, L.L.C., 126 S. Ct. 1837 (2006)

29, 60, 113

Economides, Nicholas 38

Efficiencies 6, 8, 11, 12, 33, 57-59, 64, 71-75, 84, 85,

88, 89, 92, 94, 101-105, 107-110, 114, 121, 122

Eisenberg, Rebecca S. 92-95, 117

Elhauge, Einer 118

Entry 12, 36, 62, 73, 96, 97, 99, 107, 115, 116, 119, 120,

122

Essentiality 68-71, 75, 77, 78

Ethyl Gasoline Corp. v. United States, 309 U.S. 436

(1940) 21

Evans, David 103, 122

Everett, Clayton, Jr. 26

Ewing, Ky P. 68

Ex ante 7, 8, 35-37, 39, 41, 48-56, 119

agreements 8, 50, 51, 53, 55, 57

commitments 35, 41, 49, 55

discussion 8, 48, 55

joint 7, 8, 37, 52-56

licensing 7, 8, 35, 37, 39, 41, 48-57

negotiations 7, 8, 37, 41, 49-55

Exclusionary 1, 2, 18, 20, 28, 44, 50, 54, 101, 106

Exclusive licenses 79, 80

Experts

independent 50, 65, 71, 78

Extension 20, 25, 26, 122

F

Farrell, Joseph 38-41, 47-50, 58, 88, 89, 92, 96, 98,

104, 105, 108, 114, 116, 118, 122

Feldman, Robin C. 97, 117

Fitzpatrick, Danielle S. 44

Foreclosure 8, 24, 58

Fox, Stephen P. 66, 85

Fox Motors, Inc. v. Mazda Distributors (Gulf), Inc., 806

F.2d 953 (10th Cir. 1986) 106

Frank, Theodore H. 73

Franzinger, Michael R. 76

Fraud 5, 17, 18, 21, 44, 73, 74, 78

Free-riding 80, 119

Friedman, Bradford L. 59

Fromm, Jeffrey 58-62, 66, 72, 76, 79, 82-84, 88-91,

93, 97, 98, 117

FTC Act 44

FTC Innovation Report 57, 90, 93, 95

Futa, Baryn S. 58, 65, 66, 83, 84

G

Galbreath, Carolyn 40

Gandal, Neil 38

Gellhorn, Ernest 39

Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F.

Supp. 1116 (S.D.N.Y. 1970) 46

Gifford, Daniel J. 34, 40

Gilbert, Richard J. 4, 34, 38, 62, 63, 97, 107, 118, 120

Gleklen, Jonathan I. 15-21, 23, 25, 26, 28, 29, 31

Golden Bridge Technology, Inc. v. Nokia, Inc., 416 F.

Supp. 2d 525 (E.D. Tex. 2006) 51

Goods 46, 67, 71, 81, 99, 100, 106-108

finished 46
202 INDEX

patented 81, 99, 106

substitutable 71

unpatented 100, 106

Gordon, George G. 119, 122

Grantbacks 5, 10, 19, 46, 59, 66, 80, 81, 85, 88-94,

97-99, 101, 104, 115, 116

clauses 72, 89, 90, 92, 93

exclusive 19, 80, 90-92

requirements 66

tailored 81

Grid Systems Corp. v. Tex. Instruments Inc., 771 F. Supp.

1033 (N.D. Cal. 1991) 26

Grimes, Warren S. 109

Grindley, Peter 39, 58-61, 64, 65, 76, 81, 83, 84, 89

Grosman, Sanford J. 35

Group boycott 51

H

Hall, Bronwyn H. 59

Harm

innovation 6, 58, 66, 67, 71, 74, 92, 95, 96, 101,

102, 112, 116

Harrison, Jeffrey L. 51

Hart, Oliver D. 35

Hartford-Empire Co. v. United States, 323 U.S. 386

(1945) 29, 66

Heaton-Peninsular Button-Fastener Co. v. Eureka

Specialty Co., 77 F. 288 (6th Cir. 1896) 29

Heller, Michael A. 92-95, 117

Hold up 5, 7, 8, 35-49, 52-55, 57, 58, 62, 64, 90, 121 

Holleman, Richard 40- 42, 47, 50, 54, 55

Hovenkamp, Herbert 11, 18, 19, 26, 30, 31, 52, 81,

92, 93, 105, 107, 109, 111-113, 115, 117, 118, 122

Hynix Semiconductor Inc. v. Rambus Inc., 441 F. Supp.

2d 1066 (N.D. Cal. 2006) 45

I

Illinois Tool Works Inc. v. Independent Ink, Inc., 126 S.

Ct. 1281 (2006) 2, 11, 22, 25, 27, 39, 63, 99, 100, 104,

105, 109, 110, 113, 115

Image Technical Services, Inc. v. Eastman Kodak Co., 125

F.3d 1195 (9th Cir. 1997) 5, 15-20, 22, 25, 30, 32

Incentives 1, 2, 8, 12, 13, 19-21, 23-25, 27, 40, 47, 48,

79, 81, 85, 90, 91, 96-99, 108, 118, 119

Independent Ink, Inc. v. Illinois Tool Works, Inc., 396 F.3d

1342 (Fed Cir. 2005) 113

In re Independent Service Organizations Antitrust

Litigation, 203 F.3d 1322 (Fed. Cir. 2000) 5, 15-20, 

22, 25, 26, 32

In re Independent Service Organizations Antitrust

Litigation, 989 F. Supp. 1131 (D. Kan. 1997) 26

In re Independent Service Organizations Antitrust

Litigation, 964 F. Supp. 1479 (D. Kan. 1997) 16

Industrial Promotion Co. v. Versa Products, Inc., 467

N.W.2d 168 (Wis. Ct. App. 1991) 121

Industry

biomedical 96

biotechnology 59, 60, 95

computer 59, 60, 91

semiconductor 59, 60

standards 6, 7, 33, 34, 39, 40, 43-46, 64, 76

Infringement 19-21, 23, 25, 26, 31, 44-46, 59-61, 65,

73, 84, 93, 96, 101, 102, 111, 117

Injunctions 60

Innovation 1-4, 6, 8, 12, 13, 16-18, 20-26, 32-36,

52-54, 56-58, 60-62, 66-68, 74-82, 84, 85, 90-102,

116-118

and consumer welfare 6, 33

cost-reducing process 67

downstream 8, 46, 51, 75, 81, 85, 92-96, 102, 117

effects 6, 8, 9, 12, 20, 21, 24, 33, 38, 46, 58, 80, 92,

97, 101, 102, 104, 110, 111

foreclosure of 8, 58

incentives 1, 8, 12, 13, 21, 23-25, 53, 81, 85, 91, 96,

98, 101, 118, 122

preserving 12, 13, 122

independent 5, 55, 68, 80, 90

investments 2, 35, 46, 60, 64, 67

Intellectual property

bottleneck 25

bundling 5, 10, 11, 63, 103-116, 121, 122

disclosure rules 7, 42, 43

exploitation of 25, 100, 107

holders 7, 8, 17, 35, 36, 40-43, 48-50, 54, 55, 57, 90,

94, 100

infringement 21, 23, 25, 44, 46, 60, 61, 65, 111, 117

investments 2, 35, 60, 80

licenses 5, 8, 9, 12, 24, 40, 46, 48, 50, 57-59, 61-63,

79, 83-85, 89, 99, 101

pooled 58, 74, 79, 84, 100

tying 11, 107, 114

Intergraph Corp. v. Intel Corp., 195 F.3d 1346 (Fed. Cir.

1999) 25, 29

International Salt Co. v. United States, 332 U.S. 392

(1947) 21, 104, 105, 109
INDEX 203

Internet 6, 33, 46-48, 59, 65, 76, 95, 107, 108

Interoperability 33

Inventions 1, 2, 20, 29-31, 39, 46, 59, 80, 81, 94, 95,

117

follow-on 80, 92

upstream 94, 95

Inventors 8, 31, 57

Investments 2, 17, 21, 25, 29, 35, 46, 58, 60, 64, 67,

74, 80, 85, 91, 101

long-term 60

relationship-specific 35, 64

standards-specific 35

sunk 35, 60, 74

J

Jacobson, Jonathan M. 104, 105, 109, 111-113

James, Charles A. 13, 68

Janis, Mark D. 11, 30, 31, 81, 92, 93, 105, 107, 115,

117, 122

Japan 62, 69, 87

Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S.

2 (1984) 11, 104-106, 109, 112

Joint ventures 34, 51, 116

K

Kartell v. Blue Shield of Massachusetts, Inc., 749 F.2d 922

(1st Cir. 1984) 22

Kattan, Joseph 40, 48, 52

Katz, Michael L. 33, 34, 38, 64, 104, 108, 116, 122

Kelly, Christopher J. 58, 69, 75, 77, 79, 83, 84

Khan v. State Oil Co., 93 F.3d 1358 (7th Cir. 1996) 112

King v. Anthony Pools, Inc., 202 F. Supp. 426 (S.D. Cal.

1962) 66

Kirsch, Paul F. 15, 17, 18, 24, 29, 31

Kirschner, Michael K. 95

Klamer, J. Mark 38

Klein, Benjamin 15, 24, 35

Klein, Joel I. 68, 84

Klevorick, Alvin K. 115

Kobayashi, Bruce H. 18

Kobe v. Dempsey Pump Co., 198 F.2d 416 (10th Cir.

1952) 66

Kohn, Robert H. 95

Kolasky, William J. 112

Kulbaski, James J. 58, 64, 65, 75, 76, 80

L

Law, Stephen M. 118

Lear v. Adkins, 395 U.S. 653 (1969) 90

Lemley, Mark A. 11, 30, 31, 33, 36, 38, 39, 42-44, 46,

47, 49, 53, 81, 92, 93, 105, 107, 115, 117, 122

Lerner, Josh 58, 64, 74, 76, 77, 79, 80, 83, 85

Leverage 94, 104

Levin, Richard C. 115

Levine, Gail 15, 39, 40, 52, 58, 88

Liability rules 23, 29, 65

Liberal licensing 60

License

agreements 5, 22, 52, 53, 57, 61-64, 66, 76, 78, 80,

84, 89, 92, 94-96, 118, 119, 121

claims 16, 17, 20, 25, 26, 44, 45, 62

compulsory 6, 21-24

copyrights 29, 121

fees 46, 61, 74, 76

implied 27, 30, 44

know-how 23, 89, 98, 120, 121

negotiation 48, 53, 89

nonexclusive 42, 62, 74, 78-81, 89, 91, 92

one-stop 65

partial 57, 76, 83, 84

perpetual 45

portfolio 57, 59-62, 66, 92, 98

reach-through 5, 94-97, 99, 101, 102

reciprocal 48

royalty 5, 12, 23, 40, 46-48, 57, 61, 65, 66, 69, 70,

74, 75, 79, 80, 83-85, 89, 94-97, 118, 119

third-party 73

Licensees

exclusive 78-80, 119

freedom 54, 61

Licensing 

administrator 68-70, 82

agreements 3, 5, 8-10, 50, 51, 55, 57-59, 61-64, 66,

67, 76, 84, 85, 87-89, 91-96, 98-102, 116-118, 121,

122

efficiencies 8, 11, 57-59, 64, 71, 73, 84, 85, 88, 89,

92, 94, 101, 102, 104, 105, 109, 110, 114, 121, 122

negotiations 7, 8, 37, 38, 41, 49-55, 57, 59, 61, 84

regime 62, 99, 121

Licensors 8, 16, 22, 28, 41, 47, 48, 59, 61, 67, 69-71,

78-82, 84, 85, 89-93, 95, 96, 117-119

Lipsky, Abbott B., Jr. 98, 104, 105, 111-114

Lister, Penelope M. 26

Litigation costs 40, 61, 65, 84
204 INDEX

Lo, Allen M. 40, 41, 48

Long term contracts 119

Lynch, Patrick 73

M

MCA Television Ltd. v. Public Interest Corp., 171 F.3d

1265 (11th Cir. 1999) 108

MPEG-2 Business Review Letter 68, 69, 71, 72,

76-79, 81-83

MacKie-Mason, Jeffrey K. 15, 17-20, 29, 31

Majewski, Suzanne E. 15, 35

Majoras, Deborah Platt 52, 54

Mandatory package licensing 107

Mansfield, Edwin 121

Manufacturing 4, 30, 49, 55, 60, 62, 65, 75, 81

Marasco, Amy A. 6, 33, 39, 43, 50, 53

Marginalization, double 96

Marshall, Frances 58, 59, 88

Market 

analysis 8, 9, 11, 12, 17, 20, 35, 39, 57, 62, 73, 87,

97-101, 103, 105, 113-115, 122

competitive 24, 35, 39, 48, 75, 81, 95, 97, 104, 105,

107, 109, 122 

conditions 11, 22, 49, 104, 105, 119

defined 20, 23, 99

definition 20, 111

division 2, 10, 19, 62, 63, 82, 116, 123

downstream 24, 75, 81, 82, 95

effects 9, 11, 12, 20, 21, 34, 38, 39, 52, 58, 63, 67,

97, 99, 104-106, 109-111, 114

power 1, 2, 4, 8, 11, 12, 16, 17, 20-24, 29, 34-36,

39, 46-48, 52-54, 63, 97-100, 104-106, 109-123

price 8, 10, 19, 21-24, 49, 53, 58, 62, 63, 67, 73, 81,

83, 85, 100, 106

relevant 11, 20, 26, 64, 67, 83, 97, 99, 102, 106,

110, 111

Masoudi, Gerald F. 101

Mathias, Sarah 58, 88

Matsushita Electrical Industrial Co. v. Cinram

International, Inc., 299 F. Supp. 2d 370 (D. Del. 2004)

67, 79

Matthew Bender & Co. v. West Publishing Co., 158 F.3d

693 (2d Cir. 1998) 113

McCarthy, J. Thomas 4

McCullen, Sharon Brawner 26

McCurdy, Daniel 43

McDermott, Inc. v. AmClyde, 511 U.S. 202 (1994) 91

McFalls, Michael 58, 80, 88-92, 97, 98

McGarey, Barbara M. 58, 88, 92-96

McGowan, David 58, 75, 78-81, 84, 85

MedImmune, Inc. v. Genentech, Inc., 127 S. Ct. 764

(2007) 90, 91

Meehan v. PPG Industries, Inc., 802 F.2d 881 (7th Cir.

1986) 117

Melamed, A. Douglas 15, 17, 19, 20, 23, 25, 27-29,

31

Mercoid Corp. v. Mid-Continent Investment Co., 320 U.S.

661 (1944) 21, 29

Merges, Robert P. 58, 65, 76

Microeconomics 62, 71, 97, 107, 118, 121

Micron Technology, Inc. v. Rambus Inc., 189 F. Supp. 2d

201 (D. Del. 2002) 45

Milgrim, Roger M. 4

Miller, Joseph Scott 108

Miller Insituform, Inc. v. Insituform of North America,

Inc., 830 F.2d 606 (6th Cir. 1987) 30

Misappropriation 21, 119

Misuse 25, 26, 33, 44, 96, 97, 108, 111, 112, 115, 117

Monopolist 22-24, 27, 30, 65, 108, 120

Monopolization 21, 25, 35

Monopoly

lawful 2, 19, 23

power 1, 2, 12, 16, 20-23, 29-31, 44, 97, 99, 104,

110, 117, 120, 122

prices 1, 22-24

Monopsony 48, 49, 51, 52

Morse, M. Howard 58, 63, 71, 72, 74, 76, 80, 82, 83,

85, 92

Motion Picture Patents Co. v. Universal Film

Manufacturing Co., 243 U.S. 502 (1917) 30

Mozart Co. v. Mercedes-Benz of North America, Inc., 833

F.2d 1342 (9th Cir. 1987) 106

Mueller, Janice M. 33, 34, 93, 94, 95, 96, 97

Muris, Timothy J. 35

N

Naked agreements 50, 51, 55, 106

National Collegiate Athletic Association v. Board of

Regents of the University of Oklahoma, 468 U.S. 85

(1984) 11, 39, 105

National Society of Professional Engineers v. United

States, 435 U.S. 679 (1978) 50

Negotiations 7, 8, 28, 37, 38, 41, 49-55, 57, 59, 61,

64, 84

bilateral 8, 41, 54, 57

Nelson, Richard R. 115
INDEX 205

Network effects 33, 34, 38

Network industries 34, 38

Networks 6, 19, 27, 33, 38, 40

Newberg, Joshua A. 58, 63, 74

Nielsen, Jane 92, 94

Noerr-Pennington 45, 122

Non-assertion 5, 10, 59, 88-93, 97-101, 116

Non-disclosure 40, 44

Nondiscriminatory 7, 36, 46, 47, 49, 70

Northern Pacific Railway Co. v. United States, 356 U.S. 1

(1958) 104, 112

O

Oehler, Ross 95

Oligopolistic 62

One monopoly rent 24

Ordover, Janusz A. 58, 60, 62, 88, 92, 96, 98, 99

Output 8, 58, 64, 82, 100

P

Package license 12, 84, 107, 108, 110, 112

Partial-pool licenses 83

Pate, R. Hewitt 15, 18, 20, 54, 82, 90, 101

Patent

applications 42, 43, 104

biotechnology 59, 65, 93, 95

claims 16, 17, 20, 25, 26, 31, 44, 45, 62, 66, 67, 76,

90, 93

competing 74-76, 79

complementary 5, 9, 48, 62, 63, 66, 71, 74, 76-78,

81, 83, 84, 96

disclosure rule 43

essential 21, 54, 64-66, 68-71, 74-78, 81, 83, 85, 92,

108

expert 65, 68-71, 78, 113

expiration 12, 97, 115-122

hold-up 8, 35, 42

infringement 19, 44, 73, 93, 96, 117

invalid 71, 78, 90, 91, 96

misuse 25, 26, 33, 44, 96, 97, 108, 111, 115, 117

doctrine 26, 44, 97, 115, 117

rules 97

pooling 5, 8, 9, 52, 57-59, 62, 64, 66-69, 71, 72,

77-79, 82, 84, 85, 99, 100

portfolio 8, 41, 43, 57-63, 66, 67, 77, 84, 85, 91, 92,

96, 98-100

rival 65, 74, 79

royalty-free 42, 47, 48, 61, 74, 89

scope 19, 20, 59, 72, 80, 81, 90, 91, 93, 96, 120

substitutable 64, 71, 77 

tying cases 111

unenforceable 78, 90

valid 4, 66, 71, 78

validity 51, 78, 90

Patent Act 6, 25, 31

Patent breadth 62, 93

Patterson, Mark R. 39, 40, 46, 52, 53

Perloff, Jeffrey M. 103, 119

Peterson, Scott K. 33, 40, 46, 47, 49, 53, 55

Pfaff v. Wells Electronics, Inc., 525 U.S. 55 (1998) 113

Piccolo, Joe 65, 74

Pitney Bowes, Inc. v. Mestre, 701 F.2d 1365 (11th Cir.

1983) 117, 121

Pitofsky, Robert 34

Polk, C. Edward 15, 104, 116

Pool 

administrator 68, 69, 82, 84

agreement 63, 64, 68, 69, 72-74, 78, 80, 85

anticompetitive effects of 9, 58

business review letters 67-69, 72, 77, 78

of complementary patents 66, 74, 77

partial 57, 83, 84

royalty rates 66, 80, 85

Poppen, Joel 60

Portfolio cross-licensing agreements 57, 58, 91, 92,

96, 100

Posner, Richard A. 2

Potential competitors 8, 10, 32, 37, 39, 51, 58, 63, 67,

99, 102

Predatory 17, 28

Price

bundled 11, 107, 112

competition 8, 20, 24, 28, 31, 37, 38, 48, 51-55, 67,

71, 73, 74, 78, 83, 99-102, 106

discrimination 24, 109

fixing 8, 10, 19, 21, 37, 51, 52, 58, 62, 63, 85

terms 7, 8, 21, 24, 28, 37, 47, 49, 52-55, 82, 83

Price fixing 19, 51, 55, 74, 78, 113

Price fixing, naked 37, 52, 62, 63

Procompetitive 4, 5, 7, 9, 11, 19, 37, 42, 52-55, 58,

62, 63, 67, 76, 84, 85, 87-89, 109, 110

activity 52, 54, 55, 62, 87, 100

benefits 9, 37, 42, 52, 54, 58, 63, 67, 84, 85, 110

conduct 19, 37, 63, 100, 105

effects 5, 9, 11, 12, 58, 63, 76, 109, 110

Product
206 INDEX

complex 60, 106

homogeneous 81

market 2-4, 8, 11, 20, 22, 33, 34, 38, 39, 41, 42, 49,

57, 62, 64, 75, 82, 95, 97-101, 103-106, 109-112,

115, 119, 120

noninfringing 96, 115

platform software 112

prices of 51, 71, 74, 82

rival 79

second-generation 81

standardized 36, 55

Production

complementary factors of 4, 62, 76, 87

costs 4, 61, 65, 76

facilities 4, 99

Professional Real Estate Investors, Inc. v. Columbia

Pictures Industries, Inc., 508 U.S. 49 (1993) 21

Profits 20, 24, 28, 38, 48, 79, 95, 108

Property, tangible 3, 4, 21, 63, 107, 108

Proprietary information 71, 81, 82, 121

Pure bundling 103

Putnam, Jonathan D. 58

Q

Quélin, Bertrand V. 38

Qureshi, Abid 109

R

RAND (reasonable and nondiscriminatory) 7, 36, 42,

46, 47, 49, 53, 54, 64, 70

R&D 2, 8, 17, 48, 57, 59-62, 64, 67

Radiant Burners, Inc. v. Peoples Gas Light & Coke Co.,

364 U.S. 656 (1961) 35, 50

In re Rambus, Inc., No. 9302 (F.T.C. July 31, 2006) 36,

37, 44

Rambus Inc. v. Infineon Technologies AG, 164 F. Supp.

2d 743 (E.D. Va. 2001) 44

Ramos, Carey R. 68

Ramseyer, J. Mark 120

Rapp, Richard T. 38, 39

Rasmusen, Eric B. 120

Reach-through 5, 10, 59, 88, 92-97, 99, 101, 102,

116, 117

Refusals 5, 6, 15-32, 63, 84

conditional 6, 19, 31

unconditional 6, 18, 19, 22, 23, 27, 29-32

Relief 25, 112

Rents 35, 90, 119

Research 15, 39, 40, 45, 57-60, 66, 67, 81, 91-97, 101,

115-117

biotechnology 59, 60, 66, 93

tool 91-97, 101, 116, 117

Restraint 9, 10, 29, 51, 52, 63, 64, 73, 93, 99, 102, 122

Restrictions 5, 8, 19, 24, 31, 58, 67, 96, 98, 100, 101,

119, 121, 122

Rey, Patrick 24, 25

Royalties 7-9, 10, 12, 23, 35, 36, 40, 41, 44-48, 53, 54,

57-61, 64-66, 69-71, 77, 79, 80, 82-85, 93-97, 101,

116-119

charge 23, 45, 48, 101, 117-11

cumulative 8, 95, 101

distributing 64

excessive 82, 96, 101

fixed 36, 61

legitimate 101

negotiated 69, 84, 97

post-expiration 113, 117, 118

reach-through 59, 88, 93-97, 101, 116, 117

reasonable 7, 36, 46, 70, 80, 82, 83, 94

running 61

stacking 8, 57, 58, 61, 65, 95, 96

up-front 94, 95

Royalty rates 12, 23, 36, 40, 51, 54, 61, 66, 70, 77, 80,

83, 85, 92, 97, 118, 119

Royalty-free 42, 46-48, 61, 74, 89, 92

Rule, Charles F. (Rick) 58, 62, 88, 90, 92, 93, 94, 96-

100, 102, 118

S

SCM Corp. v. Xerox Corp., 645 F.2d 1195 (2d Cir. 1981)

30

SSO (Standard-setting organizations) 7, 8, 33-47,

49-55

intellectual property policies 43

policies 42-44

requirements 7, 37, 42, 53

rules 7, 36, 40, 42, 43, 45, 50, 51, 53, 54

Safeguards 9, 46, 58, 72

Safety zone 112

Salinger, Michael 103, 122

Saloner, Garth 38

Samsung Electronics Co. v. Rambus Inc., 439 F. Supp. 2d

524 (E.D. Va. 2006) 45

Scheffman, David L. 58, 88, 104, 116
INDEX 207

Scheiber v. Dolby Laboratories, Inc., 293 F.3d 1014 (7th

Cir. 2002) 25, 26, 97, 113, 118

Scherer, F. M. 95

Schor v. Abbott Laboratories, 457 F.3d 608 (7th Cir.

2006) 101

Scope 19, 20, 34, 59, 72, 80, 81, 90, 91, 93, 96, 120

Scotchmer, Suzanne 81

Segal, Ilya R. 120

Semiconductors 43, 44, 59-62

Sham 5, 17, 18, 44, 51, 55, 63, 102, 121, 123

Shapiro, Carl 15, 17-19, 21-23, 28, 29, 33-36, 38, 40,

42, 47, 50, 57-62, 64, 65, 74, 83, 85, 88, 91, 96, 97,

99, 107, 117, 118, 120

Sherman Act 8, 15, 16, 21, 26-28, 30, 31, 35, 37, 39,

51, 52, 54, 79, 101, 106

Sherry, Edward F. 48

Sibley, David S. 104, 105, 116, 119

Sidak, J. Gregory 104, 105, 107, 112

Simmons, Ian 73

Simon, James 60

Simpson, John 120

Simpson v. Union Oil Co. of California, 377 U.S. 13

(1964) 30

Skitol, Robert A. 52, 53, 55

Software 16, 38, 51, 59, 68, 81, 95, 104, 108, 109, 112

Sony Electronics, Inc. v. Soundview Technologies, Inc.,

157 F. Supp. 2d 180 (D. Conn. 2001) 51

Spengler, Joseph J. 65

Sprigman, Christopher J. 15, 17, 19-21, 23-25, 29, 31

Southco, Inc. v. Kanebridge Corp. (Southco II), 390 F.3d

276 (3d Cir. 2004) (en banc) 113

Southco, Inc. v. Kanebridge Corp. (Southco I), 258 F.3d

148 (3d Cir. 2001) 113

Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 476

U.S. 409 (1986) 27

Standard Oil Co. v. United States, 337 U.S. 293 (1949)

105

Standard Oil Co. v. United States, 283 U.S. 163 (1931)

66

Standard Sanitary Manufacturing Co. v. United States,

226 U.S. 20 (1912) 34, 66

Standard setting 7, 33-43, 45, 49, 50, 52-55

Standard-setting process 7, 35-39, 41-43, 45, 49, 50,

52, 53, 55

Standards 5-7, 33-36, 38-48, 50-55, 64, 69, 76, 79, 81,

96, 110, 114

de facto 34, 36

development 34, 42, 46, 47, 50, 51, 53, 64

interoperability 33

war 34

Stanton, Brian 65, 74

State Oil v. Khan, 522 U.S. 3 (1997) 113

Steinman, David R. 44

Stiroh, Lauren J. 39, 40

Stoeppelwerth, Ali M. 17, 19, 25, 28, 29

Stoner, Robert D. 95

Substitutes 2, 4, 7, 9, 12, 22, 34, 36, 38, 63, 66-69, 71,

74-79, 85, 100, 106, 111, 115, 116, 122

economic 66, 71, 111

noninfringing 115

partial 76

patents 7, 9, 66-71, 74-78, 85

products 2, 7, 12, 34, 67, 69, 71, 74, 85, 116, 122

technological 77 

technologies 2, 7, 66, 67, 71, 75, 76

Sullivan, Mary 58

In re Summit Technology, Inc., 127 F.T.C. 208 (1999)

67, 73, 74, 76-79

Sung, Lawrence M. 58, 59, 66

Surplus 64, 81, 108

Swanson, Daniel G. 36, 40, 46-48

Symbol Technologies, Inc. v. Proxim Inc., No. Civ.

01-801-SLR, 2004 WL 1770290 (D. Del. July 28,

2004) 44

T

Tacit agreement 51, 64

Tassey, Gregory 33

Technology 

blocking 61, 71, 73, 74, 84, 89, 92

competing 74-76

complementary 2, 4, 48, 62, 66, 71, 74, 76, 84

developing 35, 38, 52, 55, 109

disseminate 97, 118

public domain 52, 121

Technology markets 36, 64

Teece, David J. 39, 43, 48, 59-61, 89

Telecky, Fredrick J., Jr. 44, 61, 62, 90

Telecommunications 6, 33, 40, 46, 68

Television 11, 68, 106-108

Temporal extensions 104, 115

Territories 121

Thompson, Earle 40, 41, 47, 49, 50

Tie 11, 103-107, 109-112, 114, 118, 119, 122

technological 11, 103, 107, 109

Tied product 11, 106, 107, 110, 111

Tirole, Jean 24, 77, 80, 83
208 INDEX

Townshend v. Rockwell International Corp., 2000-1 Trade

Cas. (CCH) ¶ 72,890, 2000 WL 433505 (N.D. Cal.

2000) 19

Trade secrets 4, 12, 23, 116, 120, 121

Trademarks 4

Transaction 

costs 8, 10, 34, 57, 61, 65, 75, 79, 84, 89, 95, 121

efficiencies 57, 84, 89, 121

Tying 

arrangements 5, 11, 12, 31, 63, 104, 105, 109, 110, 

114, 122

product-to-patent 109

product 2, 10-12, 22, 31, 39, 63, 103-107, 109-112

sales 106

Tyson, Karin 65, 74

U

USM Corp. v. SPS Technologies, Inc., 694 F.2d 505 (7th

Cir. 1982) 26

U.S. Philips Corp. v. International Trade Commission, 424

F.3d 1179 (Fed. Cir. 2005) 109, 117, 121

Unilateral 

refusals 5, 6, 15-23, 25, 27-32, 63

termination 28

In re Union Oil Co. of California, No. 9305 (F.T.C. Nov.

25, 2003) 36, 45

United Mine Workers v. Pennington, 381 U.S. 657 (1965)

45, 122

United States v. Colgate & Co., 250 U.S. 300 (1919) 27

United States v. Grinnell Corp., 384 U.S. 563 (1966) 100

United States v. Jerrold Electronics Corp., 187 F. Supp.

545 (E.D. Pa. 1960) 106

United States v. Line Material Co., 333 U.S. 287 (1948)

21, 66

United States v. Loew’s, Inc., 371 U.S. 38 (1962) 103,

106, 108

United States v. Masonite Corp., 316 U.S. 265 (1942) 21

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir.

2001) (en banc) 18, 104, 107-109, 112

United States v. Microsoft Corp., 87 F. Supp. 2d 30

(D.D.C. 2000) 46, 107

United States v. New Wrinkle, Inc., 342 U.S. 371 (1952)

66

United States v. Paramount Pictures, Inc., 334 U.S. 131

(1948) 109

United States v. Pilkington plc, No. 94-345, 1994-2

Trade Cas. (CCH) ¶ 70,842, 1994 WL 750645 (D.

Ariz. Dec. 22, 1994) 121

United States v. Socony-Vacuum Oil Co., 310 U.S. 150

(1940) 51, 52

United States v. Singer Manufacturing Co., 374 U.S. 174

(1963) 66

United States v. U.S. Gypsum Co., 333 U.S. 364 (1948)

66

United States v. United Shoe Machinery Co. of New

Jersey, 247 U.S. 32 (1918) 29

United States v. Univis Lens Co., 316 U.S. 241 (1942) 21

United States v. Westinghouse Electric Corp., 648 F.2d

642 (9th Cir. 1981) 30

Updegrove, Andrew 33, 40, 41, 43, 46-48

V

In re VISX, Inc., 127 F.T.C. 236 (1999) 67, 73, 74, 76-79

Validity 46, 51, 78, 90, 108

Varian, Hal R. 34, 36, 71

Verizon Communications Inc. v. Law Offices of Curtis V.

Trinko, LLP, 540 U.S. 398 (2004) 6, 22, 23, 27-29, 32

Vertical integration 20, 35, 65

Vishny, Paul 40, 46, 47, 50

Vistnes, Gregory 104, 107, 121

Vogel v. American Society of Appraisers, 744 F.2d 598

(7th Cir. 1984) 55

W

Ware, Roger 34

Walker Process Equipment, Inc. v. Food Machinery &

Chemical Corp., 382 U.S. 172 (1965) 21

Welfare 1, 6, 33, 66, 74, 76, 104, 108, 109

Wells Real Estate, Inc. v. Greater Lowell Board of Realtors,

850 F.2d 803 (1st Cir. 1988) 106

Wetzner, Daniel J. 40, 46, 47

Whinston, Michael D. 120

Whitener, Mark D. 15, 17-19, 22, 23, 28, 29, 31

Wickelgren, Abraham 120

Wiley, John Shepard, Jr. 15, 24, 120

Williamson, Dean V. 35

Williamson, Oliver E. 35, 64

Wilson, Bruce B. 98

Winston, Tor 39, 40

Winter, Sidney G. 115

Worley, Regis C. 76

Y

Yao, Dennis A. 39, 40
INDEX 209

Z

Zanfagna, Gary 43

Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S.

100 (1969) 97, 117
210

Acknowledgments:

The Agencies thank the Hearings participants for the contribution of their expertise and time to

this project. The Agencies also thank the U.S. Patent and Trademark Office for participating in

many of the panels at the Hearings.

The Agencies thank the Competition Policy Center and the Berkeley Center for Law and

Technology at the University of California at Berkeley for providing facilities to allow some of

the Hearings to be held on the west coast.

Cover:

The clip art on the cover was obtained under license from Microsoft Corporation.

The image of Article I of the U.S. Constitution is from the website of the National Archives.

Patent on front cover: 

Patent No. U.S. Pat. No. 2,221,776 – Electron Photography (Nov. 19, 1940)
 
U.S. Department of Justice Federal Trade Commission

www.usdoj.gov/atr www.ftc.gov