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Package Patent Licensing After Microsoft

By Nathaniel Durrance
September 02, 2003

The law governing package licensing of patents is currently undergoing a significant change. Historically, package licenses were subject to a 'per se' liability under the controlling legal doctrines. Using this per se test, a package license could be rendered unenforceable absent any inquiry into the actual market effects of the license. The recent case of United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001), marks, however, the emergence of an antitrust doctrine called the 'rule of reason' that is likely to become the dominant legal doctrine for testing package licensing of patents. This is a significant change because the rule of reason is a market-based approach that balances the anticompetitive and pro-competitive benefits of the licensing practice. Thus, a package license may be held to be enforceable even if it would have failed the traditional per se test of the patent misuse doctrine or antitrust laws.

The Uncertain Effects of Patent Bundling Drive Current Policy Decisions

Patents are commonly licensed in 'packages' or 'bundles.' For example, a license may include several distinct patents relating to a particular product for a single royalty rate. Courts have previously held mandatory package licensing of patents to be objectionable, however, because such an arrangement prevents the 'goods from competing directly for the consumer choice on their merits.' Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 13 (1984). The rationale is that by tying a desired product (the 'tying product') with unwanted products (the 'tied products'), market power of the tying product may be exploited thereby deterring innovation and diminishing competition in the tied product market. See Phillip Areeda & Louis Kaplow, Antitrust Analysis 686 (5th ed. 1997); Franklin M. Fisher & Daniel L. Rubinfeld, U.S. v. Microsoft ' An Economic Analysis, 46 Antitrust Bull. 1, 12 (2001).

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