ANTITRUST GUIDELINES FOR THE LICENSING OF
INTELLECTUAL PROPERTY
R. Mark Halligan, Esq.
On April 6, 1995, the U.S. Department of Justice and the Federal Trade
Commission jointly issued Antitrust Guidelines for the Licensing of Intellectual
Property ("IP Antitrust Guidelines"). See Department of Justice and
Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual
Property (1995), reprinted in 4 Trade Reg. Rep. (CCH) par. 13,132. The IP
Antitrust Guidelines refine and replace the "Intellectual Property
Licensing Arrangements" section (and specific hypothetical cases) contained
in the Department of Justice Antitrust Enforcement Guidelines for International
Operations --1988.
The IP Antitrust Guidelines set forth the antitrust enforcement policy for
both the Department of Justice and the FTC regarding the licensing of
intellectual property protected by patents, copyrights, trade secrets and
know-how agreements.
The IP Antitrust Guidelines embody three core principles: (1) intellectual
property is essentially comparable to any other form of property for purposes of
antitrust analysis; (2) there is no presumption that intellectual property
creates market power in the antitrust context; (3) the licensing of intellectual
property will generally be recognized as procompetitive.
The IP Antitrust Guidelines expressly recognize that the protection of
intellectual property rights is in accord with the objectives of antitrust law,
i.e., the promotion of technological advancements and the protection of consumer
welfare. Intellectual property laws promote innovation and commercial activity
by establishing enforceable property rights for the creators of (and investors
in) new and useful products, more efficient processes, and original works of
expression. Without such protection, imitators (and misappropriators) will
exploit and copy the work of others without just compensation. This, in turn,
will reduce the commercial value of innovation and ultimately deprive U.S.
consumers of the best quality products and services at the lowest possible cost.
The Importance of Licensing Intellectual Property
Intellectual property (e.g., a trade secret formula) is typically only one
component necessary in the production process. Therefore, intellectual property
derives its value from its combination with what the IP Antitrust Guidelines
call "complimentary factors" of production-manufacturing, distribution
facilities, marketing and sales. The IP Antitrust Guidelines expressly approve
of the use of licensing, cross-licensing, and other contractual arrangements to
combine intellectual property with other necessary "complimentary
factors" to realize its commercial value.
Antitrust Concerns in Three Types of Markets
The IP Antitrust Guidelines make it clear, however, that a licensing
arrangement can run afoul of the antitrust laws if the licensing agreement
includes unreasonable restraints that adversely affect competition in (1)
"goods" markets, (2) "technology" markets or (3)
"innovation" markets. The "goods" markets are the
traditional markets for the sales of different goods and services.
"Technology" markets are defined as markets consisting of the
intellectual property that is licensed (the "licensed" technology) and
its close substitutes. An "innovation" market, in turn, is defined as
"the research and development directed to particular new or improved goods
or processes."
Although the IP Antitrust Guidelines recognize the basic tenet that the owner
of intellectual property is not required "to create competition in its own
technology" the IP Antitrust Guidelines also make it clear that antitrust
concerns may arise in a licensing agreement if the restraints harm competition
among entities that would have been actual (or likely) potential competitors in
one of these three types of markets. Further, a restraint in a licensing
agreement will be subject to antitrust scrutiny "if it facilitates market
division or price-fixing" in one of these three types of markets.
In vertical relationships, the IP Antitrust Guidelines state that licensing
restrictions relating to one type of market may harm such competition in another
type of market by anticompetitively foreclosing access to, or significantly
raising the price of, other "inputs." The IP Antitrust Guidelines
reflect the government's experience with Microsoft. See United States v. Microsoft
Corp., 59 Fed. Reg. 42,845 (August 19, 1994). Under Microsoft's "per
processor" license arrangement, original equipment manufacturers (OEMs) of
personal computers paid for use of Microsoft's operating system on every
computer they shipped within certain broad classifications whether or not the PC
used the software. The government concluded that OEMs faced with paying
Microsoft for its operating system (regardless of whether they used it) were
likely to use the Microsoft operating system to the exclusion of competing
operating systems rather than pay twice for the same input.
WHAT DOES ALL THIS MEAN?
Licensing Agreements involving intellectual property must now be drafted with
a two considerations in mind: (1) maximizing the commercial value of
intellectual property rights, and (2) minimizing antitrust risks.
The IP Antitrust Guidelines define a "safety zone." Absent
extraordinary circumstances, the government will not challenge a restraint in an
intellectual property licensing arrangement if (1) the restraint is not
"facially anticompetitive" and (2) the licensor and its licensee
collectively account for no more than 20% of each relevant market significantly
affected by the restraint. However, this "safety zone" will often be
inapplicable in intellectual property licensing arrangements because there will
often exist more than 20% collective market share in at least one relevant
market. Periodic review of licensing arrangements is also now required. The IP
Antitrust Guidelines specifically state: "The status of a licensing
arrangement with respect to the safety zone may change over time."
CONCLUSION
Technology licensing, technology transfer agreements and strategic alliances
are essential in today's economy for U.S. companies to remain globally
competitive and to market the products that knowledge assets help to create. The
Justice Department's rekindled interest in intellectual property licensing
arrangements now requires that companies factor antitrust considerations into
the drafting and review of intellectual property licensing agreements.
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