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A Rebuttable Presumption of Market Power Arises from the Possession of a Patent on a Tying Product

04-1196
January 25, 2005

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Last Month at the Federal Circuit - February 2005

Judges: Dyk (author), Clevenger, and Prost

In Independent Ink, Inc. v. Illinois Tool Works, Inc., No. 04-1196 (Fed. Cir. Jan. 25, 2005), the Federal Circuit reversed a grant of SJ on a Sherman Act § 1 claim but affirmed a SJ on a Sherman Act § 2 claim.

Trident, Inc. (“Trident”), a wholly owned subsidiary of Illinois Tool Works, Inc. (“ITW”), manufactures printheads and holds a patent on its printhead technology. Original equipment manufacturers (“OEM”) typically use Trident’s printhead technology to manufacture printers. U.S. Patent No. 5,343,226 (“the ‘226 patent”) discloses an ink-jet device and a supply system using a hand-actuated peristaltic pump. Trident also manufactures ink for use with its patented printheads, and Trident’s standard form licensing agreement allowing OEMs to use the patented product requires OEMs to purchase their ink exclusively from Trident. The Federal Circuit characterizes this arrangement as an exclusive tying agreement conditioning the sale of the patented product (the printhead) on the sale of an unpatented one (the ink).

Independent Ink, Inc. (“Independent”) is a competing manufacturer of ink and manufactures ink usable in Trident’s printheads. In 1998, Independent filed a DJ action for noninfringement and invalidity against Trident’s patents. Independent then amended its complaint to allege illegal tying and monopolization in violation of sections 1 and 2 of the Sherman Act. The district court granted SJ in favor of Trident on both claims.

The Federal Circuit reviewed significant Supreme Court precedents concerning tying arrangements and concluded that Supreme Court cases establish that patent and copyright tying, unlike other tying cases, do not require an affirmative demonstration of market power. Rather, the necessary market power to establish a section 1 violation is presumed. The Court noted that although the time may have come to abandon this doctrine, it is up to the Congress or the Supreme Court to make that judgment.

The Defendants argued that the presumption of market power was rebutted in this case because the evidence showed that consumers use labels as substitutes for Trident’s printhead technology, and two competitors offer competing printheads. The Court ruled, however, that the mere presence of competing substitutes for the tying product was insufficient and the presumption can only be rebutted by expert testimony or other credible economic evidence of the cross-elasticity of demand, the area of effective competition, or other evidence of lack of market power. Accordingly, the Court reversed the district court’s grant of SJ on the Sherman Act § 1 claim and remanded the case to permit Defendants an opportunity to supplement the record with evidence that may rebut the presumption.

As to the section 2 claim, the Court ruled that to establish an attempted monopolization claim, Plaintiff must demonstrate that the Defendant had specific intent to monopolize a relevant market and a dangerous probability of success. Here, Plaintiff made only conclusory allegations as to a geographic market without supporting economic evidence. Therefore, no genuine issue of material fact existed as to the section 2 claim and SJ was proper.