Antitrust Guidelines for the Licensing of Intellectual Property

On January 12, 2017, the Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued updated Antitrust Guidelines for the Licensing of Intellectual Property (the Guidelines). The Guidelines replace those issued by the same agencies more than 20 years ago,[1] and incorporate changes in the antitrust and IP laws over this period.

The Guidelines are an important tool that can help businesses better understand licensing options and other arrangements involving intellectual property (IP).[2] They maintain three basic principles:

• IP is comparable to other types of property. As such, for the purpose of antitrust analysis, the DOJ and FTC will continue to “apply the same analysis to conduct involving IP as to conduct involving other forms of property, taking into account the characteristics of a particular property right.”
• The DOJ and FTC do not presume that IP necessarily confers market power in the antitrust context. The Guidelines define “market power” as the ability to maintain prices above, or output below, competitive levels for a significant period of time.[3]
• IP licensing, cross-licensing, or other transfers of IP, offers procompetitive benefits, such as allowing firms to combine complementary factors of production. The DOJ and FTC recognize that antitrust enforcement should not necessarily interfere with these activities.

Antitrust Concerns:

Although the Guidelines acknowledge the procompetitive benefits of IP licensing, they also recognize antitrust concerns that may arise when a licensing arrangement impedes competition that would have likely taken place in the absence of the arrangement. For example, broad areas of concern regarding licensing arrangements that adversely affect competition include:

1. License arrangements that effectively merge the activities of two actual or potential competitors in research and development in the relevant field;
2. Restrictions on goods or technologies other than licensed technology;
3. License provisions that deter licensees from dealing with suppliers or products that compete with the licensor; and
4. Acquisitions of IP that lessen competition in a relevant manner.

Standards of Review:

1. In evaluating restraints in IP licensing of these types and others, the majority of cases are evaluated under the rule of reason — whether it is likely to have anticompetitive effects and, if so, if the restraint is reasonably necessary to achieve procompetitive benefits that outweigh those anticompetitive effects.
2. Restraints that are considered per se unlawful include price-fixing, output restraints, and market division among horizontal competitors.
3. Under the Guidelines, the DOJ and FTC have maintained the antitrust “safety zone” to provide some degree of certainty for IP licenses. The “safety zone” applies:
   1. where the restraint is not the type which warrants “per se” review (it is not facially anticompetitive); and
   2. in instances where the licensor and licensees collectively account for no more than 20% of each relevant market affected by the restraint. The “safety zone” does not apply to mergers or acquisitions.

Examples and More:

1. The Guidelines include several examples of particular licensing restraints that are likely to receive antitrust scrutiny, including:
   1. horizontal restraints (typically between competitors[4]);
   2. resale price maintenance (which refers to vertical pricing arrangements[5]);
   3. tying arrangements (may not condition a license on the purchase of unpatented supplies from licensor/patentee);
   4. exclusive dealing (may not prevent licensee from licensing, selling, distributing, or using other technologies);
   5. cross-licensing and pooling arrangements (may lessen competition; may be considered an unlawful restraint if no efficiencies are gained); and
   6. grant backs (may lower investment or competition in innovation/technology market).
2. The Guidelines were also updated to address certain transfers of IP rights.[6] A merger analysis will be applied to an outright sale by an IP owner of all of its rights to the IP, and to a transaction in which one obtains through grant, sale, or other transfer an exclusive license for IP. Other agreements that substantially transfer IP rights and lessen competition in a relevant market may potentially raise antitrust concern.
3. Last, the Guidelines maintain that the DOJ and FTC may challenge the enforcement or attempted enforcement of invalid IP rights as antitrust violations. The violations include Walker Process – type claims involving fraud on the U.S. Patent and Trademark Office, and infringement claims that are “objectively baseless” and brought in bad faith (where the complainant knows the IP right is invalid).

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[1] Antitrust Guidelines for the Licensing of Intellectual Property, Issued by the DOJ and FTC, April 6, 1995.

[2] The Guidelines cover IP protected by patent, copyright, and trade secret law, and of know-how; they do not cover the antitrust treatment of trademarks.

[3] Market power may also be exercised in other areas, such as quality, service, and the development of new or improved goods and processes. Importantly, market power does not obligate an IP owner to license the use of the property to others.

[4] The Supreme Court, in FTC v. Actavis, Inc. (2013), noted that there is a sliding scale in appraising reasonableness; accordingly, the quality of proof of competitive effects of the conduct should vary with the circumstances.

[5] The Supreme Court, in Leegin Creative Leather Products, Inc. v. PSKS, Inc. (2007), held that resale price maintenance agreements are no longer considered per se illegal.

[6] The DOJ and FTC will apply the standards used to analyze mergers, such as those in the DOJ and FTC, Horizontal Merger Guidelines (2010).