U.S. DOJ and FTC Issues Antitrust Guidelines for the Licensing of Intellectual Property
Be alert to competition concerns
14 December 2018
On January 13, 2017, the U.S. Federal Trade Commission (FTC) and Department of Justice (DOJ) published the Agencies' updated Antitrust Guidelines for the Licensing of Intellectual Property (2017 IP Guidelines). The 2017 IP Guidelines reaffirm some of the key principals from the original guidelines while providing important updates surrounding areas such as resale price maintenance, the use of partial exclusive licenses for intellectual property (IP), and the identification of "innovation markets."
The 2017 IP Guidelines
What Key Principals Remain Intact?
As with the first iteration of the IP Guidelines issued in April 1995, the 2017 IP Guidelines reiterate three fundamental principles. First, the Agencies rely on the same antitrust analysis when analyzing conduct involving IP as they do other forms of property (i.e. the burden-shifting rule of reason standard is used, except in limited circumstances when the conduct is per se unlawful). Second, "[t]he Agencies will not presume that a patent, copyright, or trade secret necessarily confers market power upon its owner," because in most instances there are sufficiently close substitutes for the relevant product or technology. Although the Agencies previously provided a caveat that the law was unclear in this area, as a result of Illinois Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006), the 2017 IP Guidelines have removed this disclaimer. Finally, the 2017 IP Guidelines reiterate that licensing IP can, and typically does, have procompetitive benefits. Even restrictions on IP, such as field-of-use and territorial restrictions, may protect the licensee, allow for the combination of multiple technologies, prevent free-riding, and incentivize advancements.
What Is New?
The 2017 IP Guidelines have replaced the concept of "innovation market" with "research and development markets." According to the 2017 IP Guidelines, agreements for IP can have competitive effects on research and development that must be analyzed separately from the markets for the underlying product and existing technology.
Also new, while the previous version of the IP Guidelines acknowledged that many IP licensing arrangements included exclusivity, the 2017 IP Guidelines recognize the increasing use of partially exclusive licenses, such as territorial or field-of-use licenses. As with broader exclusive licenses, even partially exclusive licenses may result in anticompetitive harm. Nevertheless, the 2017 IP Guidelines state that exclusive licenses, including partially exclusive licenses, raise potential antitrust concerns only if the parties have a horizontal relationship.
Following the Supreme Court's decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007), the 2017 IP Guidelines also address resale price maintenance ("RPM") in the context of IP. In line with the Leegin decision, the 2017 IP Guidelines now clarify that if RPM is contained in an IP license, such as conditioning the license on the resale of the finished product above a certain price-point, such an arrangement shall be adjudged under a rule of reason analysis.
What Should Companies Take-Away?
If nothing else, companies should have three take-aways from the updated IP Guidelines. First, the U.S. Agencies recognize that agreements concerning IP often have pro-competitive benefits. Whenever contemplating an IP agreement, companies should carefully consider these advantages and contemporaneously document them. Second, licensing of IP can raise antitrust concerns. However, exclusive licenses wherein all parties have only vertical relationships generally are not problematic and, as the 2017 IP Guidelines specifically state, "a non-exclusive license of [IP] that does not contain any restrictions on the competitive conduct of the licensor or the licensee generally does not present antitrust concerns." Finally, the 2017 IP Guidelines continue to provide for an "antitrust safety zone" for IP licenses. The U.S. Agencies will not challenge a license if: (a) the IP license is not facially anticompetitive (i.e. it does not provide for price-fixing, market allocation, bid rigging, or output restrictions) and (b) the licensor and all licensees do not have combined more than twenty percent of any relevant market.
As always, companies contemplating an IP licensing arrangement or other agreement should consult counsel, particularly if any of the parties have considerable market shares or the agreement may foreclose a not-insubstantial number of competitors from a potential market.
The U.S. DOJ and FTC has also updated its Antitrust Guidelines: Antitrust Guidelines for International Enforcement. Details of this as well as a printable version of this article can be found by clicking on the download button.