The Supreme Court Rules that Patents Do Not Create a Presumption of Market Power: Illinois Tool Works, Inc. v. Independent Ink, Inc.

©2006 Robins, Kaplan, Miller & Ciresi L.L.P. 

In a decision issued on March 1, 2006, in Illinois Toolworks Inc. v. Independent Ink, Inc., the U.S. Supreme Court abandoned its longstanding but increasingly criticized precedent that had placed intellectual property holders at increased risk of antitrust liability for product tying claims.  In an 8-0 decision authored by Justice John Paul Stevens, the Court reversed a decision by the U.S. Court of Appeals for the Federal Circuit, and effectively overturned its own 60-year old precedent, by holding that in the antitrust tying context, courts can no longer presume that a patent confers market power over the patented tying product.  Instead, as in every other tying case, the plaintiff must prove that the defendant had market power in a tying patented product.  This will aid patent holders in dismissing many unmeritorious antitrust counterclaims and will expand the range of efficient patent licensing arrangements.  In so holding, the Court brought its precedent in line with the majority of legal scholars, economists, and the federal antitrust agencies, and reconciled antitrust doctrine with 1988 Congressional amendments to the patent misuse standard.    

In the case below, Independent Ink, Inc. had asserted an antitrust tying claim against Trident, Inc., a subsidiary of Illinois Tool Works, Inc., based on an alleged tying arrangement involving its patented products. Trident manufactures and markets printing systems for barcodes, and requires its original equipment manufacturer customers to purchase unpatented Trident ink, to be used with Trident’s patented printheads and ink containers. But a competitor, Independent Ink, had developed ink that could be substituted for Trident’s unpatented ink.  Independent Ink claimed that Trident had effectively  excluded Independent Ink from this ink market by requiring customers of Trident’s patented products to also purchase Trident’s unpatented ink, in violation of the Sherman Antitrust Act. 

To establish a violation of the Sherman Act in a product tying case, a plaintiff must show that the defendant has "market power" in the market for the tying product.   Relying on the Supreme Court’s 1947 in International Salt Co. v. United States, 332 U.S. 392 (1947), and subsequent Supreme Court rulings (as recently as 1984) reaffirming that holding, Independent Ink argued that there is a rebuttable presumption that a patent confers market power over the patented product.  The district court dismissed Independent Ink’s tying claim, but the Federal Circuit reversed, holding that binding U.S. Supreme Court precedent required a presumption of market power for a patented product in a tying claim.

The Supreme Court reversed, however, and ruled there is no such presumption of market power for patented products in a tying claim.  The Court acknowledged that "the vast majority of academic literature recognizes that a patent does not necessarily confer market power.”  The "virtual consensus among economists" on this point persuaded the enforcement agencies not to presume that a patent "necessarily confers market power upon its owner." 

Perhaps more importantly, the Supreme Court observed that Congress amended the Patent Code in 1988 to eliminate the presumption of market power in the patent misuse context.  Viewing tying of a patented product as a subset of patent misuse, the Court considered the 1988 amendments to the Patent Code to invite a reappraisal of the per se rule first announced in International Salt, that a patent confers market power in an antitrust context.  Since Congress eliminated the presumption of market power in patent misuse for civil litigation, the Court concluded that it would be illogical to retain such a presumption in a criminal, antitrust context:

It would be absurd to assume that Congress intended to provide that the use of a patent that merited punishment as a felony [under the antitrust laws] would not constitute ‘misuse.’  Moreover, given the fact that the patent misuse doctrine provided the basis for the market power presumption, it would be anomalous to preserve the presumption in antitrust after Congress has eliminated its foundation. 

To be sure, in certain cases, a patent may confer market power.  But the Court rejected a per se rule, or a rule that would afford a plaintiff a rebuttable presumption that a patent automatically confers market power. The Court concluded: "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, and therefore hold that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant had market power in the tying product."  Consequently, plaintiffs asserted a tying claim over a patented product, must prove the relevant market and demonstrate market power, just as they would in asserting a tying claim over an unpatented product.