IP News

Supreme Court Rejects Per Se Rule That a Patent Confers 'Market Power' in Antitrust Cases

On March 1, 2006, the U.S. Supreme Court issued its decision in Illinois Tool Works Inc. v. Independent Ink, Inc., 126 S. Ct. 1281 (2006) and eliminated the presumption that a patent confers market power on the patent owner in antitrust 'tying' cases. Under the new test, an antitrust plaintiff must provide proof that the defendant has market power in the tying product.

In this case, Trident, Inc., a subsidiary of Illinois Tool Works, Inc., manufactures printheads and ink for use in its printheads. The printheads are patent protected, but the ink is not. Trident required manufacturers who licensed its printhead technology to only purchase Trident ink. Independent Ink, which manufactures ink compatible with Trident printheads, sued Trident alleging that Trident violated Section 1 of the Sherman Act by tying sales of its non-patented ink to its patented printheads.

The district court granted Trident's motion for summary judgment and dismissed Independent's antitrust claims, reasoning that Independent had not proved that Trident exercised 'market power.' The district court rejected Supreme Court precedent that held that the tying of patented and unpatented products was presumed to be anticompetitive. In January 2005, the Federal Circuit partially overruled the district court and held that Independent did not have to prove market power to demonstrate a violation of Section 1 of the Sherman Act. Rather, the court noted that summary judgment would have to be granted to Independent unless Trident could rebut the presumption that it illegally exercised market power. The Federal Circuit noted that '[t]he time may have come to abandon the doctrine, but it is up to the Congress or the Supreme Court to make this judgment.'

Earlier Supreme Court cases had applied the presumption, which arose out of the patent misuse doctrine. Eventually, the doctrine became incorporated into antitrust law. Writing for a unanimous Court, Justice John Paul Stevens stated that '[the Supreme Court's] strong disapproval of tying arrangements has substantially diminished, as the Court has moved from relying on assumptions to requiring a showing of market power in the tying product.'

The Court relied on the fact that in 1988 Congress removed the assumption from the Patent Act as it applied to patent misuse. The Court also relied on the fact that the antitrust enforcement agencies and several economists have concluded that a patent does not necessarily confer market power upon the patentee.

The Court also rejected plaintiff's alternative argument that there should be a rebuttable presumption that patentees possess market power when they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively from the patentee.

As a result, because the plaintiff had relied on prior Court opinions and had not offered evidence of market power, the Court remanded the case to the district court to allow plaintiff to introduce such evidence.

A more detailed analysis of the Supreme Court's decision in Illinois Tool Works will appear in the May edition of the IP Strategist.

BlackBerry Case Settles for $612.5M

On March 3, it was announced that Research in Motion Ltd. ('RIM') has agreed to pay $612.5 million to settle its widely publicized patent dispute with NTP Inc. This figure was higher than the $450 million settlement that had been thrown out by Judge James Spencer last year, but lower than the $1 billion settlement that had been the subject of speculation in the press.

The settlement was reached a week after an injunction hearing was held before Judge Spencer. That hearing ended without a final decision. At the hearing, Judge Spencer heard arguments from RIM, NTP, and the U.S. government, and hinted that he would enter an injunction, although the terms of the injunction were unclear.

Federal Circuit Rules That Lack of Good Faith Explanation Not Enough for Inequitable Conduct

In M. Eagles Tool Warehouse, Inc. v. Fisher Tooling Co., Nos. 05-1224, -1228, 2006 WL 454355 (Fed. Cir. Feb. 27, 2006), the Federal Circuit overturned a summary judgment of inequitable conduct, holding that the lack of a good faith explanation for failure to disclose prior art was not enough by itself to prove an intent to deceive the USPTO.

The district court found, inter alia, that U.S. Patent 5,259,914 ('the '914 patent') is unenforceable due to inequitable conduct. The '914 patent is directed to a device (a combination of a pneumatic driver and an eraser wheel) for removing decals from motor vehicles. During prosecution of the '914 patent, the inventor submitted a declaration stating that he was not aware of any relevant prior art. The examiner allowed the claims at issue stating that 'none of the art of record shows all of the detailed inner workings of the instant claims. … '

M. Eagles Tool Warehouse, doing business as S&G Tool Aid Corp. ('S&G'), sued Fisher Tool Company, doing business as Astro Pneumatic Tool Company ('Astro'), in 1997 in the U.S. District Court for the District of New Jersey, requesting, inter alia, a judgment that it did not infringe the '914 patent. Astro counterclaimed that S&G contributorily infringed and induced infringement of the '914 patent.

In 1998, S&G filed a motion for summary judgment of invalidity and unenforceability of the '914 patent, and, in the alternative, non-infringement. The district court granted S&G's motion on inequitable conduct, finding that S&G had failed to disclose a device it had been selling for 20 years, which is known as the 'Model 220.' The district court found that the Model 220 was material because it contained some of the limitations of the claims and because the examiner approved the application after he could not find prior art that disclosed all of the limitations. The district court inferred intent to deceive from Astro's failure to disclose the Model 220, finding that the inventor must have known that the Model 220 was relevant and did not offer a good faith explanation for its omission.

On appeal, Astro argued that the district court erred in finding the '914 patent unenforceable because there was no evidence of intent to deceive the USPTO. S&G countered that Astro never presented any evidence that the failure to disclose was inadvertent and that the failure to provide any good faith explanation for that failure is evidence of intent.

The Federal Circuit agreed with Astro and held that a 'failure to disclose a prior art device to the PTO, where the only evidence of intent is a lack of a good faith explanation for the nondisclosure, cannot constitute clear and convincing evidence sufficient to support a determination of culpable intent.'

The Federal Circuit also rejected S&G's argument that Astro must have been aware of the relevancy of the Model 220 once the examiner stated that he was allowing the claims because no other prior art disclosed the inner workings of the instant claims. The Federal Circuit reasoned that important differences between the claims of the '914 patent and the Model 220 precluded a finding on summary judgment that Astro must have known that the Model 220 was relevant.

'Lower Priced Drugs Act' Would Affect 30-Month Stays in ANDA Cases

A bipartisan bill has been proposed that would affect the use of 30-month stays in ANDA cases. Senate Bill 2300, titled the 'Lower Priced Drugs Act,' contains several proposed changes to the Hatch-Waxman Act. The bill was co-sponsored by Senators Debbie Stabenow (D-MI) and Trent Lott (R-MS).

Section 2 would allow an ANDA applicant for a pre-1997 antibiotic (for which no patents are listed in the Orange Book) to redact from the proposed label an indication that is claimed in an unlisted patent. Currently, the FDA will not allow such indications to be removed from the proposed label, allowing the listed drug's owner to sue for inducement of infringement.

Section 3 is intended to make shortening or lengthening the 30-month period mandatory if either party fails to reasonably cooperate in expediting the action. With regard to the shortening of the 30-month period, Section 3 requires the court to consider the 'totality of the circumstances, including whether the plaintiff sought to extend the discovery schedule, delayed producing discovery, or otherwise acted in a dilatory manner, and the public interest.' Thirty-month stays are often granted to prevent approval of generic drugs by the FDA until the lawsuit is resolved. Current law allows courts to shorten the length of the stay, but according to Sen. Stabenow, this rarely occurs.

Section 4 of the bill is intended to reduce pediatric exclusivity to 3 months (currently 6 months). Section 4 would also limit the grant of pediatric exclusivity to those drugs for which the label is changed to provide specific, therapeutically meaningful information about the use of the drug in pediatric patients and would limit pediatric exclusivity to those dosage strengths for which the study was conducted and the label changed.

Section 5 provides that the filing of a citizen petition shall not delay the approval of an ANDA and forces the FDA to take final action with respect to the petition within 6 months.

Eric Agovino is an associate in the New York office of Kenyon & Kenyon. He can be reached at 212-908-6858.

Supreme Court Rejects Per Se Rule That a Patent Confers 'Market Power' in Antitrust Cases

On March 1, 2006, the U.S. Supreme Court issued its decision in Illinois Tool Works Inc. v. Independent Ink, Inc. , 126 S. Ct. 1281 (2006) and eliminated the presumption that a patent confers market power on the patent owner in antitrust 'tying' cases. Under the new test, an antitrust plaintiff must provide proof that the defendant has market power in the tying product.

In this case, Trident, Inc., a subsidiary of Illinois Tool Works, Inc., manufactures printheads and ink for use in its printheads. The printheads are patent protected, but the ink is not. Trident required manufacturers who licensed its printhead technology to only purchase Trident ink. Independent Ink, which manufactures ink compatible with Trident printheads, sued Trident alleging that Trident violated Section 1 of the Sherman Act by tying sales of its non-patented ink to its patented printheads.

The district court granted Trident's motion for summary judgment and dismissed Independent's antitrust claims, reasoning that Independent had not proved that Trident exercised 'market power.' The district court rejected Supreme Court precedent that held that the tying of patented and unpatented products was presumed to be anticompetitive. In January 2005, the Federal Circuit partially overruled the district court and held that Independent did not have to prove market power to demonstrate a violation of Section 1 of the Sherman Act. Rather, the court noted that summary judgment would have to be granted to Independent unless Trident could rebut the presumption that it illegally exercised market power. The Federal Circuit noted that '[t]he time may have come to abandon the doctrine, but it is up to the Congress or the Supreme Court to make this judgment.'

Earlier Supreme Court cases had applied the presumption, which arose out of the patent misuse doctrine. Eventually, the doctrine became incorporated into antitrust law. Writing for a unanimous Court, Justice John Paul Stevens stated that '[the Supreme Court's] strong disapproval of tying arrangements has substantially diminished, as the Court has moved from relying on assumptions to requiring a showing of market power in the tying product.'

The Court relied on the fact that in 1988 Congress removed the assumption from the Patent Act as it applied to patent misuse. The Court also relied on the fact that the antitrust enforcement agencies and several economists have concluded that a patent does not necessarily confer market power upon the patentee.

The Court also rejected plaintiff's alternative argument that there should be a rebuttable presumption that patentees possess market power when they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively from the patentee.

As a result, because the plaintiff had relied on prior Court opinions and had not offered evidence of market power, the Court remanded the case to the district court to allow plaintiff to introduce such evidence.

A more detailed analysis of the Supreme Court's decision in Illinois Tool Works will appear in the May edition of the IP Strategist.

BlackBerry Case Settles for $612.5M

On March 3, it was announced that Research in Motion Ltd. ('RIM') has agreed to pay $612.5 million to settle its widely publicized patent dispute with NTP Inc. This figure was higher than the $450 million settlement that had been thrown out by Judge James Spencer last year, but lower than the $1 billion settlement that had been the subject of speculation in the press.

The settlement was reached a week after an injunction hearing was held before Judge Spencer. That hearing ended without a final decision. At the hearing, Judge Spencer heard arguments from RIM, NTP, and the U.S. government, and hinted that he would enter an injunction, although the terms of the injunction were unclear.

Federal Circuit Rules That Lack of Good Faith Explanation Not Enough for Inequitable Conduct

In M. Eagles Tool Warehouse, Inc. v. Fisher Tooling Co., Nos. 05-1224, -1228, 2006 WL 454355 (Fed. Cir. Feb. 27, 2006), the Federal Circuit overturned a summary judgment of inequitable conduct, holding that the lack of a good faith explanation for failure to disclose prior art was not enough by itself to prove an intent to deceive the USPTO.

The district court found, inter alia, that U.S. Patent 5,259,914 ('the '914 patent') is unenforceable due to inequitable conduct. The '914 patent is directed to a device (a combination of a pneumatic driver and an eraser wheel) for removing decals from motor vehicles. During prosecution of the '914 patent, the inventor submitted a declaration stating that he was not aware of any relevant prior art. The examiner allowed the claims at issue stating that 'none of the art of record shows all of the detailed inner workings of the instant claims. … '

M. Eagles Tool Warehouse, doing business as S&G Tool Aid Corp. ('S&G'), sued Fisher Tool Company, doing business as Astro Pneumatic Tool Company ('Astro'), in 1997 in the U.S. District Court for the District of New Jersey, requesting, inter alia, a judgment that it did not infringe the '914 patent. Astro counterclaimed that S&G contributorily infringed and induced infringement of the '914 patent.

In 1998, S&G filed a motion for summary judgment of invalidity and unenforceability of the '914 patent, and, in the alternative, non-infringement. The district court granted S&G's motion on inequitable conduct, finding that S&G had failed to disclose a device it had been selling for 20 years, which is known as the 'Model 220.' The district court found that the Model 220 was material because it contained some of the limitations of the claims and because the examiner approved the application after he could not find prior art that disclosed all of the limitations. The district court inferred intent to deceive from Astro's failure to disclose the Model 220, finding that the inventor must have known that the Model 220 was relevant and did not offer a good faith explanation for its omission.

On appeal, Astro argued that the district court erred in finding the '914 patent unenforceable because there was no evidence of intent to deceive the USPTO. S&G countered that Astro never presented any evidence that the failure to disclose was inadvertent and that the failure to provide any good faith explanation for that failure is evidence of intent.

The Federal Circuit agreed with Astro and held that a 'failure to disclose a prior art device to the PTO, where the only evidence of intent is a lack of a good faith explanation for the nondisclosure, cannot constitute clear and convincing evidence sufficient to support a determination of culpable intent.'

The Federal Circuit also rejected S&G's argument that Astro must have been aware of the relevancy of the Model 220 once the examiner stated that he was allowing the claims because no other prior art disclosed the inner workings of the instant claims. The Federal Circuit reasoned that important differences between the claims of the '914 patent and the Model 220 precluded a finding on summary judgment that Astro must have known that the Model 220 was relevant.

'Lower Priced Drugs Act' Would Affect 30-Month Stays in ANDA Cases

A bipartisan bill has been proposed that would affect the use of 30-month stays in ANDA cases. Senate Bill 2300, titled the 'Lower Priced Drugs Act,' contains several proposed changes to the Hatch-Waxman Act. The bill was co-sponsored by Senators Debbie Stabenow (D-MI) and Trent Lott (R-MS).

Section 2 would allow an ANDA applicant for a pre-1997 antibiotic (for which no patents are listed in the Orange Book) to redact from the proposed label an indication that is claimed in an unlisted patent. Currently, the FDA will not allow such indications to be removed from the proposed label, allowing the listed drug's owner to sue for inducement of infringement.

Section 3 is intended to make shortening or lengthening the 30-month period mandatory if either party fails to reasonably cooperate in expediting the action. With regard to the shortening of the 30-month period, Section 3 requires the court to consider the 'totality of the circumstances, including whether the plaintiff sought to extend the discovery schedule, delayed producing discovery, or otherwise acted in a dilatory manner, and the public interest.' Thirty-month stays are often granted to prevent approval of generic drugs by the FDA until the lawsuit is resolved. Current law allows courts to shorten the length of the stay, but according to Sen. Stabenow, this rarely occurs.

Section 4 of the bill is intended to reduce pediatric exclusivity to 3 months (currently 6 months). Section 4 would also limit the grant of pediatric exclusivity to those drugs for which the label is changed to provide specific, therapeutically meaningful information about the use of the drug in pediatric patients and would limit pediatric exclusivity to those dosage strengths for which the study was conducted and the label changed.

Section 5 provides that the filing of a citizen petition shall not delay the approval of an ANDA and forces the FDA to take final action with respect to the petition within 6 months.

Eric Agovino is an associate in the New York office of Kenyon & Kenyon. He can be reached at 212-908-6858.