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Antitrust Law Can Curtail or Trump a Patent - Patent Lesson One, by marbux
Thursday, December 30 2004 @ 07:03 PM EST

I asked marbux, one of Groklaw's retired attorneys, if he would explain a bit more to us about the connection between patents and antitrust law. He will be writing a number of articles, because it is a complex area of law, explaining it piece by piece. It matters that we understand it, because if Microsoft intends to use patents as a weapon against free and open source software, it is prudent to know what weapons the community has in return that it can use.

The law, in my experience, can usually be summed up like this -- what's fair? And the question that is always on the table, particularly now that Microsoft has been found guilty of antitrust violations not only in the US but in Europe as well, is: is it fair for a company like Microsoft to use patents, including standards encumbered by patents, against FOSS for anticompetitive purposes? It doesn't feel fair. But what does the law say? Does it care? Take a look at this, from Atari Games Corp. v. Nintendo of America, Inc., 897 F.2d at 1576:

"The fact that a patent is obtained does not wholly insulate the patent owner from the antitrust laws. When a patent owner uses his patent rights not only as a shield to protect his innovation, but as a sword to eviscerate competition unfairly, that owner may be found to have abused the grant and may become liable for antitrust violations when sufficient power in the relevant market is present."

Hello. Think that information might come in handy one rainy day?

I confess that I have never found patent law rivetingly interesting before, but when I read that, I felt invigorated and intensely relieved. There is something the community can do, even if it doesn't have a patent portfolio. You don't always get to pick your weapons. If Microsoft want to use patents, then patents it is. But isn't it reassuring to know that there is something that can be done, that some pushback is possible? So I'm going to grit my teeth and just force myself to learn all I can about patent and antitrust law.

Here, in the opening article on patent law, the important points marbux makes are: patent rights can be curtailed when asserted for anti-competitive purposes; and there is such a thing as patent misuse. That is my takeaway. Other things may strike you, but I'm sure you can extrapolate as to why those two are relevant in a Microsoft context.

It's possible such a strategy will never be played out, but as the article marbux highlights puts it, when there are more and more patents being granted, eventually there has to be a real food fight:

"As more and more copyrights and patents are issued, more and more 'mini-monopolies' are created. In this crowded room of IP holders, each exercising the power to exclude, toes will eventually get stepped on. At some point, the protection of intellectual property rights produces serious legal quarreling. Perhaps more importantly, it raises the risk that enforcement will stifle that which the IP laws were designed to promote in the first instance: creativity and innovation."

When that point is reached, then what?

"At some point in the spectrum of enforcement of IP rights, the antitrust laws will, and do, surface to preclude certain conduct by IP rights holders."

Let's see what marbux has found in our first installment:

********************************

Antitrust Law Can Curtail or Trump a Patent - Patent Lesson One, by marbux

In the coming days, we'll be looking more and more at the rather fluid boundary between patent and antitrust law, and at the real-world ramifications for any Microsoft effort to squelch free and open source software using software patents. The truly important point is that under U.S. law (and elsewhere), patent rights can be curtailed when asserted for anti-competitive purposes. In other words, antitrust law can limit and even trump patent rights, either defensively when someone is sued, or offensively to challenge blocking patents.

To get you started, here is a fairly short article that gives some snapshots of U.S. case law on that subject. The article was written by an experienced patent-antitrust law litigator, Robert G. Badal, who works for a large law firm on the United States' west coast. It's entitled, “Be Careful What You Ask For: When Enforcement of Intellectual Property Rights Trigger Potential Antitrust Exposure.” That is precisely the area of concern for F/OSS developers and advocates looking at Microsoft's looming software patent portfolio. I suggest reading the entire article, so here are a few excerpts to whet your appetite:

"On the surface, there is a curious paradox in the co-existence of the IP and antitrust regimes – one seeks to promote creation and innovation by granting monopoly-like rights; the other seeks to do so by encouraging aggressive competition and eliminating monopoly power. The Federal Circuit observed this apparent tension in the patent context, but attempted to resolve the conundrum by emphasizing the shared underlying goals of each group of laws: 'the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition.' Atari Games Corp. v. Nintendo of America, Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990). . . .

"That antitrust concerns may serve to limit intellectual property rights is hardly a novel concept. For years, antitrust law has provided remedies where a rights owner engaged in what would traditionally be considered anti-competitive conduct in an effort to enlarge the scope of the original IP right. As early as 1917, for example, the Supreme Court addressed the problem of patent misuse when movie projector companies attempted to 'tie' their films to their projectors unlawfully, forcing projector buyers to purchase the companies’ films as well. See Motion Picture Patents Co. v. Universal Film Mfg., 243 U.S. 502 (1917). Later, the Supreme Court went so far as to hold that patent misuse was prima facie evidence of an antitrust violation. See id. (referring to Mercoid Corp. v Mid-Continent Inv. Co., 320 U.S. 661 (1944) (Mercoid I) and Carbice Corp. v. American Patents Dev. Corp., 283 U.S. 27 (1931). . . .

"Employing or altering an interface between two products in a way that is anticompetitive may trigger antitrust exposure, even if one has valid rights in the products and the interface. For example, in Telex Corp. v. IBM Corp., a maker of peripherals for IBM computers alleged that IBM’s frequent changes to the interfaces that allowed peripherals to plug into IBM computers helped IBM to monopolize the market for IBM-compatible peripherals. Although the district court found IBM liable for its interface changes, the Tenth Circuit reversed, because it determined IBM lacked market power. See Telex Corp. v. IBM Corp., 367 F. Supp. 258 (N.D. Okla. 1973), rev’d, 510 F.2d 894 (10th Cir. 1975).

"An interface change that deliberately weakens product performance may be seen as presumptive evidence of an anticompetitive motive. See In re IBM Peripheral EDP Devices, 481 F. Supp. 965, 1007-08 (1979) (finding an IBM interface change degraded its system’s performance and “the only effect of the degradation was the preclusion of competition”), aff'd on other grounds, 698 F.2d 1377, 1382 (9th Cir. 1983). Even there, however, a court will not find liability if it determines the company making the anticompetitive interface change does not have the requisite market power." See id.

If Mr. Badal's article leaves you interested in reading more, you may also find the history of patent law interesting. Apparently the first patent system was developed in Renaissance Italy. See Constitutionalizing Patents: From Venice to Philadelphia [PDF]. You might also enjoy reading a speech [PDF] given at Boston University's School of Law by former FTC Commissioner Mary L. Azcuenaga in 2000 on the subject of antitrust and intellectual property law.

But stay tuned; there's lots more coming about software patents and antitrust law.


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