Illinois Tool Works Inc., et al. v. Indepdendent Ink, Inc. (03/01/2006)

Questions presented: Whether, in an action under the Sherman Act, 15 U.S.C., section 1, alleging that the defendant engaged in unlawful tying by conditioning a patent license on the licensee's purchase of a non-patented good, the plaintiff must prove as part of its affirmative case that the defendant possessed market power in the relevant market for the tying product, or market power instead is presumed based solely on the existence of the patent of the tying product?

BY KEVIN ROYKO, MEDILL NEWS SERVICE

During his lifetime, Thomas Alva Edison amassed an unrivaled 1,093 patents, and, with a shrewd mind for marketing, turned his ideas into great fame and fortune.

But the days when an inventor could patent a product and enjoy a near monopoly over the fruits of his labor are long gone, according to James H. Wooten, Jr., general counsel for Illinois Tool Works, Inc.

"In today's world, patents don't necessarily convey any sort of market power," he said. "Anybody can go out and patent a product, but that doesn't mean people are going to buy it."

Wooten and ITW think the ability of a company to exert market power depends on a number of factors and should not be presumed simply because a patent is owned on a product.

But it is that presumption of market power that is at the heart of the lawsuit that Independent Ink brought against ITW in 1998.

Through one of its business units, Trident Industrial Inkjet, ITW holds a patent on an inkjet print-head. Printer manufacturers incorporate the print-head into machines they sell to companies that use them to place barcodes on cartons during assembly line production.

Wooten said that some of the businesses that use ITW's print-heads include major soft drink bottlers and companies that mass-produce packaged foods.

According to a licensing agreement between Trident and equipment manufacturers that purchase the print-heads, companies may "manufacture, use or sell inkjet printing devices supplied by Trident" only "when used in combination with ink and ink supply systems supplied by Trident."

That agreement raises the issue of patent tying, according to Independent Ink, and legal precedent holds that such arrangements are illegal under the Sherman Antitrust Act of 1890.

With that licensing agreement, "Trident basically locked [Independent] out of the market," according to Edward F. O'Connor, an attorney representing Independent.

Judge Cormac Carney of the U. S. District Court for the Central District of California ruled in 2002 against Independent Ink's claim that Trident violated Sections 1 and 2 of the Sherman Act, stating that Independent "failed to produce any evidence of market power over the tying product" (i.e., the print-head).

But in January 2005 a panel for the Court of Appeals for the Federal Circuit unanimously reversed the lower court's ruling regarding Section 1, holding that a "rebuttable presumption of market power arises from the possession of a patent over a tying product."

The court added that, "We thus have an explicit tying agreement conditioning the sale of a patented product … on the sale of an unpatented one (the ink)."

However, the Federal Circuit's decision, which was authored by Judge Timothy Dyk, upheld judgment against Independent regarding the Section 2 claim.

Section 2 of the Sherman Act forbids a company from attempting to monopolize a market, but proving such a claim requires a definition of the market allegedly being monopolized as well as the company's power within that market.

Independent's lawsuit alleged monopolization was over the tied product, the ink; not the tying product, the patented print-heads.

In finding against Independent's Section 2 claim, Dyk wrote that Independent "bears the burden of defining the market and proving [ITW's] power in that market," and made the "allegation of a geographic market without supporting economic evidence."

On June 20, 2005, the U.S. Supreme Court accepted review in the case.

The main issue before the Court will be the Section 1 claim, according to O'Connor.

Historically, the Court has interpreted the ownership of a patent as equivalent to possessing market power, and tying agreements a violation of the Sherman Act. And in ruling in favor of Independent's claim that ITW's patent creates market power, the Federal Circuit upheld Supreme Court precedent.

However, ITW attorneys cite a number of academic arguments against the presumption of market power and note inconsistency in Supreme Court opinions on the subject, and Dyk acknowledged that "precedent in this area has been subject to heavy criticism."

Ultimately, though, he wrote, "it is the duty of a court of appeals to follow the precedents of the Supreme Court until the Court itself chooses to expressly overrule them."

"[ITW] wants the patent to have zero effect," said O'Connor. "That's the battle line, and they'll have to overturn precedent to win."

According to O'Connor, Independent was not only able to reverse engineer Trident's ink but make it cheaper as well.

"Sales for this kind of ink run in the millions of dollars," he said. "It was a tremendous opportunity for [Independent] and this would have put their business on another plane."

But Trident's licensing agreement had all potential customers telling Independent that "their hands were tied," according to O'Connor, who added that according to "current precedent in federal law that practice is blatantly illegal."

Wooten said that it is time for the Court to break with that precedent.

"Essentially, our argument is that the precedent is no longer good law," Wooten said. "It evolved at a time when patents were frowned upon because they gave the manufacturer or inventor such an advantage. But there have been lots of doubts cast upon that theory since then."

The case has potentially significant implications for a number of industries prompting numerous amicus briefs to be filed with the Court.

"This is a good opportunity to speak to the Court about tying law and say how important it is not" to enforce unreasonable restrictions on companies regarding the presumption of market power, according to Richard G. Taranto, a Washington, D.C.-based attorney who filed an amicus brief supporting ITW on behalf of Verizon Communications.

In Verizon's brief, Taranto wrote that ownership of a patent does not justify presumption of market power, "because any such intellectual property right is not even a close proxy for the required market power – an economic concept,"

Chicago attorney Edward D. Manzo filed a brief in support of ITW on behalf of the Intellectual Property Law Association.

He wrote that presuming that a tie-in is illegal because a patent covers the tying product "is a disincentive to innovation and/or patenting and unfairly penalizes inventors."

And even the Federal Circuit's decision, though upholding historical precedent stated that, "[t]he time may have come to abandon the doctrine, but it is up to the Congress or the Supreme Court to make this judgment."

On March 1, 2006, the Court sided with ITW, holding that because a patent doesn't necessarily confer market power, a plaintiff must prove that a defendant has such power in the tying product before a court will conclude that such an arrangement is illegal.

Writing for an 8-0 Court, Justice John Paul Stevens conceded that the Court has been moving away from assuming that all such trying arrangements are illegal. Therefore, the Court remanded the case so the district court could consider evidence of market factors.

Justice Samuel Alito, who was not on the Court when the case was orally argued, did not participate in the decision.