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Module VI Case Laws

INTRODUCTION ............................................................................................................................................... 1
TENSION BETWEEN COMPETITION AND INTELLECTUAL PROPERTY LAW ............................................................................... 4
SAFE HARBOUR | SAFETY ZONE ................................................................................................................................. 5
United States ............................................................................................................................................................... 5
Canada......................................................................................................................................................................... 6
European Union .......................................................................................................................................................... 7
United Kingdom........................................................................................................................................................... 8
India............................................................................................................................................................................. 9
REFUSAL TO LICENSE .............................................................................................................................................. 10
Outright refusal to License ........................................................................................................................... 10
United States ............................................................................................................................................................. 10
Canada....................................................................................................................................................................... 13
European Union ........................................................................................................................................................ 14
United Kingdom......................................................................................................................................................... 16
India........................................................................................................................................................................... 17
Exclusive Licenses ......................................................................................................................................... 21
United States ............................................................................................................................................................. 22
Canada....................................................................................................................................................................... 22
European Union ........................................................................................................................................................ 24
United Kingdom......................................................................................................................................................... 25
India........................................................................................................................................................................... 25
CASE STUDIES ................................................................................................................................................ 28
US: IN RE: CARDIZEM CD ANTITRUST LITIGATION. LOUISIANA WHOLESALE DRUG CO. (PLAINTIFF) V. HOECHST MARION
ROUSSEL, INC. AND ANDRX PHARMACEUTICALS, INC. (DEFENDANT) 332 F.3D 896 .......................................................... 28
US: IMAGE TECHNICAL SERVICES (PLAINTIFFS) V. EASTMAN KODAK CO. (DEFENDANT) 125 F.3D 1195 ............................... 34
IN RE INDEPENDENT SERVICE ORGANIZATIONS ANTITRUST LITIGATION (CSU, L.L.C. V. XEROX CORP.) 203 F.3D 1322 (FED. CIR.
2000) ................................................................................................................................................................ 43
VERIZON COMMUNICATIONS INC. V. LAW OFFICES OF CURTIS TRINKO LLP (TRINKO) 540 US 398 (2004) ........................... 46
PACIFIC BELL TELEPHONE COMPANY (AT&T) V. LINKLINE COMMUNICATIONS (LINKLINE) 555 US 438 (2009) ..................... 49

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Introduction
Competition law, by contrast remains largely national in focus. Each country (or jurisdiction,
in the case of European Union) applies its laws to conduct having effects within the
territory. A single restraint with effects in multiple jurisdictions may be subject to
competition laws of several countries. Furthermore, despite significant progress in reducing
inconsistencies among various national laws, substantial differences remain. Common
licensing issues, such as package licensing and grant backs, can be handled very differently
by regulatory authorities in various countries. Thus, a single restraint may be found to
violate the competition laws of one jurisdiction but not those of another.
In recent years, a number of cases involving application of national competition law to cross
border IP licensing practices have captured attentions. Microsofts practices of tying and
integrating various types of software have subjected it to sanctions under the antitrust and
competition laws of the United States, the European Union, Japan, and Korea, although the
various jurisdictions did not challenge the same tying and integration practices. In the
United States, both the Federal Trade Commission (FTC) and private litigants challenged
Intels practice of refusing to supply certain copyrighted product information unless the
recipient agreed to license certain patent rights both to Intel and to Intels customers on
favourable terms. No other jurisdiction challenged Intels practices. More recently, the
Japan Fair Trade Commission challenged similar practices of Microsoft and Qualcomm.
To date no other jurisdiction has followed the lead of the Japan Fair Trade Commission.
Certain private litigants in the United States and Korea Fair Trade Commission challenged
certain royalty based provisions of Qualcomms licensing agreements, but based on
somewhat different theories; the European Commission also investigated royalty provisions
of Qualcomms licensing agreements, although apparently based on its own variation of
theory of violation. Arrangements for package licensing of broadcast rights to films and
music libraries have also been considered in various jurisdictions.
As more companies are licensing patents and copyrights in the international arena, and
competition regulators in many countries focus greater attention to intellectual property
licensing transactions, there is a rising need for regulators, practitioners and corporate
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counsel to understand the intersection of intellectual property and competition law in
multiple countries.

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Tension between Competition and Intellectual Property Law

Many practitioners perceive an inherent tension between competition law and intellectual
property law. Both schemes seek to promote innovation. Competition law attempts to
achieve both short term competition and long term innovation, however, Intellectual
property law, by contrast, generally involves the sacrifice of short term competition in an
effort to promote innovation. This leads to questions of whether one legal scheme must
yield to the other or, if not how one should accommodate the other.
The question arises most concretely in the form of whether the exercise of intellectual
property rights should be exempt from competition laws, and if so, what the breadth of
such an exemption should be. Some (but not all) jurisdictions have provided for some form
of exemption or safe harbour for certain practices relating to the exercise of intellectual
property, but the scope of applicable exemption or safe harbour varies widely.
In the absence of, or outside of, scope of such an exemption, it is necessary to determine
the circumstances in which practices relating to the exercise of intellectual property rights
might violate competition laws. The laws of most jurisdiction are consistent in providing that
the majority of arrangements relating to the licensing of (or refusal to license) intellectual
property do not violate competition laws. The laws of most jurisdictions are also consistent,
however, in providing that certain licensing practices will violate competition laws and will
not be saved by rights associated with intellectual property. Although there are many
common elements to the way in which various competition regimes approach specific
issues, there nevertheless remain significant differences with respect to the particular
licensing practices that might give rise to violation of a countrys competition laws and the
specific circumstances in which a violation might be found.
In order to provide the necessary background for analysis of interplay of competition and
intellectual property law in each jurisdiction.

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Safe Harbour | Safety Zone
The law or administrative practice of certain jurisdictions provides a safe harbour or safety
zone for restrictions imposed on the exploitation of intellectual property rights. For
example, the law or administrative practice of a number of jurisdictions provide that the
competition laws generally will not apply (or the enforcement agency will not commence
enforcement actions) if the companies involved account for less than a certain share of
technology or product market in question and/or if a certain number of companies hold or
make available rights to alternative technologies.
United States
US case laws do not provide any safe harbour for IP licensing arrangements. Rather the test
for applicability of antitrust law to a particular IP licensing arrangement will be whether it
causes anticompetitive harm in a relevant market (except for the rare circumstance when
an arrangement is considered to be a per se violation).
In re Cardizem CD Antitrust Litigation, Louisiana Wholesale Drug Co. v. Hoechst Marion
Roussel Inc, 332 F.32 896, 908, 915 (6
th
Cir. 2003), an agreement pursuant to which a brand
name manufacturer pays a generic manufacturer not to sell any generic version of the
product and which excludes other potential generic entrants, is a per se violation of the
Sherman Act.
To provide more specific guidance with respect to the agencies enforcement intentions, the
FTC and DOJs IP Guidelines provide for an antitrust safety zone for licensing arrangement
meeting certain qualifications. The IP Guidelines state that, absent extraordinary
circumstances, the agencies will not challenge a restraint in an intellectual property
licensing arrangement if:
(i) the restraint is not facially anticompetitive, and;
(ii) the licensor and its licensee collectively account for no more than 20% of each
relevant market significantly affected by the restraint.
1


1
US Antitrust Guidelines for the Licensing of Intellectual Property
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Similarly, intellectual property licensing arrangements that may affect competition in
research and development (referred to as an innovation market) will not be challenged,
absent extraordinary circumstances, if:
(1) the restraint is not facially anticompetitive and;
(2) for or more independently controlled entities in addition to the parties to the
licensing agreement possess the required specialized assets or characteristics and
the incentive to engage in research and development activities of the parties to the
licensing agreement.
The agencies emphasize that they will not presume that licensing arrangements falling
outside of this safety zone are anticompetitive, and that it is likely that the great majority
of licenses falling outside the safety zone are lawful and precompetitive.
Canada
The general provisions of the Competition Act do not apply to conduct consisting solely of
the mere exercise of an IP right. That said, the Canadian Competition Act does not contain a
specific safe harbour for practices involving IP.
Unlike the approach taken in the US and the EU, the IP Guidelines
2
do not specifically
recognise a competition safety zone or safe harbour. Nevertheless, the Bureaus
enforcement approach with respect to abuse of dominance recognizes that where a firm (or
a group of firms acting together) possesses less than 35% share of a relevant market, the
Bureau will not challenge the conduct of such firm.
Leading decisions of the Tribunal demonstrate its reluctance to have competition laws
interfere with the exclusive rights and privileges conferred by IP laws. Specifically, the
Tribunal has held that the mere exercise of an IP right to refuse to license IP to a
complainant is not an anticompetitive act.
3
Competitive harm must stem from the more
than the mere refusal to license.
According to IP Guidelines the Bureau determines whether the mere exercise of an IP right
meets the threshold for intervention by analysing the situation in two steps. In the 1
st
step,

2
Canada Intellectual Property Enforcement Guidelines
3
Director of Investigation & Research v. Warner Music Canada Ltd. [1997] 78 CPR 3d 321 (Comp. Trib.) (Can)
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the Bureau determines whether the mere refusal (typically the refusal to license IP) has
adversely affected competition to a degree that would be considered substantial in a
relevant market that is different or significantly larger than the subject matter of IP or the
products and service which result directly from the exercise of IP. The Bureau must be
satisfied that:
(i) the holder of the IP is dominant in the relevant market; and
(ii) the IP is an essential input or resource for firms participating in the relevant
market; and
(iii) the IP is an essential input or resource for firms participating in relevant market,
i.e. the refusal to allow others to use the IP prevents other firms from effectively
competing in the relevant market.
In the second step, the Bureau balances the goals of IP law and competition law by
determining whether invoking a special remedy against the IP holder would not adversely
alter the incentives to invest in research and development in the economy.
European Union
For the purpose of the EU competition rules, a technology transfer agreement is an
agreement where one party (the licensor) authorizes another party (or parties, the
licensee(s) to use its technology (patent, know-how, software license) for the production of
goods and services. In assessing restrictive provisions in the license agreements, the
Commission bears in mind the substantial investment and significant risks often associated
with creating IPRs, and the consequential need to maintain investment incentives in light of
both successful and failed projects. In addition, the Commission acknowledges that most
license agreements do not restrict competition, and, even if they do, the benefits arising
from the dissemination of the technology and the promotion of innovation through the
agreement can outweigh the negative restrictive effects and, therefore render it compatible
with Article 101.
The EU competition rules for licensing agreements are set out in Article 101 of the Treaty on
the Functioning of the European Union. Article 101 prohibits agreements between
companies which lead to an appreciable restriction of competition. Enforcement of this
primary rule is complemented by two instruments, the technology transfer block exemption
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regulation ("TTBER") and accompanying Guidelines, The Commission has codified its
administrative practice in the TTBER.
4
The TTBER creates a safe harbour for technology
transfer agreements under EU competition law. The Guidelines
5
provide guidance on the
application of the TTBER as well as on the application of EU competition law to technology
transfer agreements that fall outside the safe harbour of the TTBER. The competition rules
aim to strengthen the incentives for initial R&D, facilitate diffusion of intellectual property
and generate market competition.
6

Conceptually, in assessing whether an IP licensing agreement is in compliance with EU
competition rules, the parties have to determine
(i) Whether the arrangement infringes the prohibition of Article 101(1);
(ii) If it does, whether the TTBER provides for a safe harbour, and;
(iii) If the agreement is outside of the safe harbour, if the general exemption criteria
of Article 101(3) apply.
7

Regarding Article 101, the TTBER provides for a safe harbour that is based on market shares.
In addition the guidelines provide for an alternative safe harbour based on the number of
technologies available.
United Kingdom
Parties should follow EU rules (TTBER and Guidelines) with respect to technology licenses)
as the primary source of official guidance. Parties should also conduct an economic and legal
assessment of the IP agreement in accordance with the principles of UK law. The United

4
COMMISSION REGULATION (EC) No 772/2004 on the application of Article 81(3) of the Treaty to categories of
technology transfer agreements
5
Guidelines on the Application of Article 81 of the EC Treaty to Technology Transfer Agreements, 2004 OJ (C
101) 2
6
These instruments will expire on 30 April 2014. In order to prepare the regime to be applied after that date
and to ensure that it both reflects current market realities and provides for the possibility of non-competitors
and competitors to enter into technology transfer agreements where it contributes to economic welfare
without posing a risk for competition, the Commission has invited stakeholders to present their views on their
experiences in applying the BER and the accompanying Guidelines in practice. In light of stakeholders'
submissions, the Commission will adopt a new regime before April 2014.
7
The TTBER provides for an exemption to the prohibition of Article 101(1), so that the TTBER cannot
technically apply where Article 101(1) is not infringed.
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Kingdom does not offer any official or quasi-official guidance. The OFTs stated position is
that the parties should not rely on the draft guidelines that it published in November 2001.
8

The TTBER provides for a safe harbour for horizontal agreements if the parties combined
market share does not exceed 20% and for vertical agreement if each partys individual
market share does not exceed 30% of any relevant market share. The European
Commissions guidelines further state that Article 101 of the TFEU is unlikely to be infringed
if there are four or more independently controlled technologies, in addition to those
controlled by the parties, available at comparable cost.
The safe harbours provided by the EU competition rules are the only safe harbours that may
be available in the United Kingdom.
India
The Competition Act 2002 does not permit any unreasonable condition forming a part of
protection or exploitation of intellectual property rights. According to the section 3(5)
nothing in the Section 3 shall restrict the right of any person to restrain any infringement of,
or to impose reasonable conditions, as may be necessary for protecting any of his rights
which have been or may be conferred upon him by IP laws. The term reasonable conditions
have not been defined and hence left on the enforcers or the judiciary to decide what falls
within the ambit of term unreasonable where Competition Act can be invoked. The
unreasonable conditions may vary ranging from imposing unfair pricing, limiting market
access, and continued royalties even after expiry of IP rights, price fixing, rent seeking,
territorial restrictions etc.
In other words, licensing arrangements likely to affect adversely the prices, quantities,
quality or varieties of goods and services will fall within the contours of competition law as
long as they are not in reasonable juxtaposition with the bundle of rights that go with IPRs.
Therefore the reasonability of the conditions in agreements involving IPRs has to be there to
avail the exception under Section 3 (5) of Indian Competition Act or otherwise CCI may be
called upon to take note of anti-competitive agreement under Section 19 of the Act and it
may pass order of divesture of intellectual property or compulsory licensing under the
provisions of the Act.

8
OFT, Intellectual Property Rights: A Draft Competition Act 1998 Guidelines, OFT 418
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Refusal to License
Outright refusal to License
Most jurisdictions accept that, as a general principle, the holder of intellectual property has
the right to refuse to license its IP if it wishes. However, a number of countries provide an
obligation to license intellectual property under certain limited circumstances. This section
explores whether, and if so under what circumstances, the competition laws of the
jurisdiction in question may require an intellectual property owner to license its IP.
United States
The prevailing view is that a unilateral, unconditional refusal to license intellectual property
rights does not violate the antitrust laws, there is still some uncertainty on the subject. To
the extent that an IP holders decision to refuse to license its IP might involve antitrust
issues, it would most likely implicate Section 2 of the Sherman Act.
Two cases in particular support the view that an IP holder may be exposed to antitrust
liability for refusing to license its intellectual property under certain limited circumstances. It
is unclear, however, whether these cases are still good law.
In Data General Corporation v. Grumman Systems Support Corporation
9
, the First Circuit
evaluated a monopolization claim involving a unilateral refusal to license a copyright and
held that, an authors desire to exclude others from use of its copyrighted work is
presumptively valid business justification for any immediate harm to consumers, although
there may be rare cases where an antitrust plaintiff could rebut the presumption.
In Image Technical Services v. Eastman Kodak Co. (Kodak)
10
, the Ninth Circuit, in adopting a
modified version of Data Generals rebuttable presumption test, held that this presumption
could be rebutted by evidence of test, held that this presumption could be rebutted by
evidence of pretext. In upholding a jury verdict that Kodak had violated Section 2 of the
Sherman Act by withholding patented and copyrighted parts from independent services
organizations, the court explained that evidence regarding the state of mind of the
defendants employees may throw pretext when such evidence suggests that the proffered
business justification played no part in the decision to act.

9
36 F. 3d 1147 (1
st
Cir. 1994)
10
125 F.3d 1195 (9
th
Cir. 1997)
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In a case based on comparable facts to Kodak the Federal Circuit held in CSU v. Xerox
Corporation (Xerox)
11
that it would not inquire into the patent holders subjective
motivation for exerting his statutory rights, even though his refusal to sell or license his
patented invention may have an anticompetitive effect, so long as that anticompetitive
effect is not illegally extended beyond the statutory patent grant. Thus the court endorsed
the view that in absence of any indication of illegal tying, fraud in the Patent and
Trademark Office, or sham litigation, the patent holder should be immune from the
antitrust laws.
Recently Supreme Court cases support the Federal Circuit position in Xerox. Even though the
case did not involve intellectual property, the Supreme Court in Verizon Communications
Inc. v. Law Offices of Curtis Trinko LLP (Trinko)
12
addressed refusals to deal in a broader
context an endorsed the view that courts should be very cautious in recognizing exception
to the general rule that even monopolists may choose with whom to deal. The court held
that the facts in Trinko did not justify creating another exception to this general rule. The
Court explained that the exception recognized by the Court in Aspen Skiing v. Aspen
Highlands Skiing Corporation
13
was at or near the outer boundary of Section 2 liability,
and stated that the Court had never recognized the doctrine of essential facilities.
More recently, the Supreme Courts decision in Pacific Bell v. linkLine Communications
(linkLine)
14
expanded its holding in the Trinko to apply to price-squeeze claims.
15
The court
explained that when a defendant has no antitrust duty to deal with its rivals at wholesale, a
price squeeze claim cannot be brought under Section 2 of the Sherman Act. It is likely that
linkLine will further limit the ability of an antitrust plaintiff to assert Section 2 claims against
a rival that refuses to provide it with necessary inputs, including intellectual property. Trinko

11
203 F.3d 1322 (Fed. Cir. 2000)
12
540 US 398 (2004)
13
472 US 585 (1985)
14
555 US 438 (2009)
15
A price squeeze, or margin squeeze, is a theory of antitrust liability that concerns the pricing practices of
a vertically integrated monopolist that sells its upstream bottleneck input to rms that compete with the
monopolist in the production of a downstream product sold to end users. Gregory Sidak, Abolishing the Price
Squeeze as a Theory of Antitrust Liability, Journal of Competition Law & Economics, 4(2), 279309
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and linkLine may indicate that the court would be more likely to endorse the Federal
Circuits view in Xerox than the Ninth Circuits view of Kodak.
16

Conditional refusals to license have been treated differently than unconditional refusal to
license by both the courts and agencies. For example in United States v. Microsoft
17
,
Microsoft defended its policy of refusing to license its intellectual property except on
specific terms that prevented customers from removing icons, altering the initial boot
sequence, or otherwise altering the appearance of the Windows desktop. The DC Court
rejected Microsofts argument that the owner of lawfully obtained intellectual property has
an absolute and unfettered right to use its intellectual property as it wishes, without
giving rise to antitrust liability. The court stated that such an argument is no more correct
than the proposition that use of ones personal property, such as a baseball bat, cannot give
rise to tort liability. The agencies also concluded in the Innovation and Competition Report
that there are circumstances in which imposing conditions for a license may be
anticompetitive and that view is consistent with a long line of antitrust cases.
18

One example of court and agency treatment of a conditional refusal to deal arose in
Intergraph Corporation v. Intel Corporation
19
and In re Intel Corporation
20
respectively.
According to FTCs allegation, Intel supplied patent and copyrighted protected technical
information and specifications regarding future products to customers in advance of the
release date of microprocessors. However, according to FTCs complaint, Intel refused to
provide advance technical information and specifications to three customers Intergraph,
Digital Equipment and Compaq because those companies refused to grant Intel and Intels
licensees royalty free licenses to their microprocessors related patents. Intergraph sued
Intel in a private suit. The Federal Circuit reversed a district courts entry of preliminary
injunctive relief against Intel, ruling that Intergraph and Intel were not direct competitors in
any downstream product market and therefore Intel could not be held liable for

16
It has been suggested in the Article in footnote 15 above that the price-squeeze theory of antitrust liability
should be abolished in American antitrust law. The theory is incompatible with contemporary antitrust
jurisprudence, and on economic grounds the threat of such liability discourages investment, retail price
competition, and the voluntary provision of inputs on negotiated terms by vertically integrated monopolists to
current and potential rivals otherwise unable to obtain or self-provide them. p. 282.
17
253 F.3d 34 (DC Cir. 2001)
18
US Dept. of Justice and Federal Trade Commission, Antitrust Enforcement and Intellectual Property Rights:
Promoting Innovation and Competition (2007)
19
195 F.3d 1346 (Fed. Circ. 1999)
20
128 FTC 213 (1999)
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monopolizing the market for workstations in which Intergraph competed. The FTC, in
contrast, alleged that Intels conduct had the effect of maintaining its monopoly power in
the market for microprocessors by diminishing the incentives of other companies to develop
new microprocessor related technologies that might erode Intels monopoly position. The
matter was settled by a consent decree ordering Intel to cease refusing to supply advance
technical information to any customer for reasons relating to dispute over intellectual
property unless a customer refused to agree not to pursue injunctive relief against Intel.
Canada
In two decisions on point, the Tribunal established that a unilateral refusal to license will
rarely, if ever, violate the Competition Act. This is consistent with the Bureaus IP Guidelines.
In Canada (Director of Investigation and Research) v. Tele-Direct (Publications) Inc
21
, the
Bureau alleged that Tele-Directs refusal to license its trademark, which included Yellow
Pages and the walking fingers logo, to competitors amounted to engaging in
anticompetitive acts contrary to Section 79 (abuse of dominant position) of the Competition
Act. The Tribunal held that Tele-Directs selective refusal to license its trademark did not
constitute an anticompetitive act. Recognizing the importance of an IP owners right to
refuse licensing, the Tribunal stated:
The respondents' refusal to license their trade-marks falls squarely within their
prerogative. Inherent in the very nature of the right to license a trade-mark is the
right for the owner of the trademark to determine whether or not, and to whom, to
grant a licence; selectivity in licensing is fundamental to the rationale behind
protecting trade-marks. The respondents' trade-marks are valuable assets and
represent considerable goodwill in the marketplace. The decision to license a trade-
mark -- essentially, to share the goodwill vesting in the asset -- is a right which rests
entirely with the owner of the mark. The refusal to license a trade-mark is
distinguishable from a situation where anti-competitive provisions are attached to a
trade-mark licence.

21
[1997] 73 CPR 3d 1 (Comp. Trib.) (Can)
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Following Tele-Direct, the Tribunal in Director of Investigation and Research v. Warner
Music Canada Ltd.
22
, held that the right to exclude others is fundamental to IP rights and
that such behaviour cannot be considered anticompetitive. Despite the urgings from the
Bureau, the Tribunal refused to have Section 75 operate as a compulsory licensing provision
for intellectual property.
European Union
In general, an IP holder has no obligation to license its IP, and in most circumstances will not
violate EU competition law by unilaterally refusing to license another company. In a series of
decision, however the European Court of Justice (ECJ), the General Court (GC), and the
Commission established a narrow exception, pursuant to which an IP holder might violate
Article 102 for a unilateral refusal to license in exceptional circumstances.
The exact nature of these circumstances is far from clear, but past ECJ and GC judgments
suggest that an outright refusal to license violates Article 102 if:
(i) The IP holder is dominant in a relevant market;
(ii) The intellectual property is indispensable to an activity in a downstream market;
(iii) The refusal eliminates effective competition in that downstream market;
(iv) The would-be license seeks to sell products or services not currently being
offered for which there is customer demand, and;
(v) The refusal to license is not objectively justified.
Current law governing refusal to license developed in a series of three cases: Radio Telefis
Eireann and Independent Television Publications Ltd v. Commission (Magill)
23
; IMS Health
GmbH & Co. OHG v. NDC Health GmbH & Co. KG
24
; and Microsoft Corp. v. Commission
25

Magill involved a British company, Magill TV Guide Ltd., which intended to produce a new
product, namely a weekly TV guide that would have included the programming of all
important broadcasting companies. At that time, each broadcasting company produced its
own TV guide that included only its own programming. The broadcasting companies refused
to grant Magill a license to include their TV programming within the Magills proposed

22
[1997] 78 CPR 3d 321
23
Joined Cases C-241/91 P & C-242/91 P, 1995 ECR 743
24
Case C-418/01, 2004 ECR I-5039
25
Case T-201/04, 2004 ECR II-4463
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guide. Magill filed a complaint with the commission with respect to this behaviour, claiming
that the other broadcasting companies were infringing Article 102. The Commission found
that the action of the broadcasting company was indeed an infringement of Article 102, and
instructed the companies to provide licensing rights to Magill. This decision was later
confirmed by the GC and the ECJ. The ECJ in Magill held that an IP holder could be liable for
a refusal to license its IP if:
(i) The refusal to license prevents the appearance of a new product which the
appellants (the dominant business) did not offer and for which there was a
potential consumer demand;
(ii) There is no objective justification; and
(iii) The refusal puts the dominant business in a position to reserve a secondary
market to itself by excluding all competition in the market.
The ECJ had no opportunity to revisit this standard in the IMS decision. IMS and NDC were
engaged in tracking sales of pharmaceutical and health care products. The reports were
formatted according to what was called a brick structure in which each brick designated
represented a designated geographical area. The IMS structure with 1860 bricks became the
industry standard. When NDC wanted to use a similar structure, IMS attempted to prohibit
such use through the courts under the argument that the brick structure was protected by
German copyright law.
In 2001, the Landgericht Frankfurt (Germany) referred the case to the ECJ for a preliminary
ruling, which the ECJ issued in 2004. In its judgment, the ECJ confirmed that a refusal to
license cannot amount to an abuse unless the business requesting the license intends to
produce new goods or services not offered by the owner of the right and for which there is a
potential consumer demand.
The most recent court judgment involving a refusal to license relates to the Commissions
Microsoft decision. In 1998, Sun Microsystems notified the Commission that Microsoft had
refused to provide Sun Microsystems with interface information that would allow it develop
software compatible with Microsofts operating system. After more than five years of
investigation, the Commission concluded that Microsoft had deliberately refused to provide
this information to several companies as part of the strategy to eliminate competition and
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push itself to the forefront of the work group server operating system market. The
Commission held that Microsoft abused its market power and harmed competition and
innovation in the market place. Not only did the Commission impose a fine of 497.2
million, it also ordered Microsoft to license interface information necessary for competitors
to develop Windows compatible products and compete on an equal footing alongside
Microsoft in the market for workgroup server operating systems. The GC confirmed the
Commissions decision. Microsoft did not apply to the ECJ.
When the Commission defended its decision at the GC, it asserted that applying the
traditional EU criteria for refusal to license would be problematic and argued that there
were additional circumstances in which refusal to license could support finding a violation.
In contrast to the Commissions approach, the GC found the Magill and IMS criteria
appropriate for 102 but interpreted these criteria broadly. With reference to Article 102(b),
which prohibits as an abuse the limitation of production, markets or technical
developments to the.prejudice of consumers, the court emphasized that the rationale of
a new product requirement in Magill and IMS was related to the prospect that
interference with the introduction of a new would cause consumer harm. The GC specifically
stated, however, that the prevention of a new product from emerging is not the only
parameter of consumer harm. The GC found that the Microsofts refusal to license
interoperability information discouraged competitors from developing and marketing
workgroup server operating system with innovative features to the prejudice of consumers.
On this basis, the GC concluded that it is sufficient for a product to be a new product if it is
distinguished from the products of the IPR holder with respect to parameters which
consumer consider important.
Concerning the indispensability of the licensed technology, the GC took the view in
Microsoft that competitors must be in a position to compete with Microsoft on an equal
footing and that they require access to complete interoperability information for this
reason.
United Kingdom
A refusal to license by a dominant undertaking may infringe Article 102 of the TFEU. In
assessing whether this is the case, the OFT and UK Courts are guided by the principles set
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out by the ECJ and GC. The extent to which the UK competition law can compel a
compulsory license will therefore be the same as under the EU competition law.
The leading UK case is the Intel Corporation v. Via Technology Inc.
26
that was decided by
the Court of Appeal in 2002. Intel sued Via Technologies for patent infringement defended
the action on the basis that Intel had refused to grant a license in breach of competition law.
Intel was awarded summary judgment. The matter then came up to Court of Appeal.
Via Technologies alleged that Intels refusal to license constituted an abuse of dominant
position on the basis that it was impossible for a competitor to enter or compete in the
chipset or CPU market in the UK unless it had access to Intels patented technology.
Finding in favour of Via Technologies, the Court of Appeal overturned the summary
judgement. It stated that there was no EU or English authority holding that a refusal to grant
a license to intellectual property was an abuse in itself unless exceptional circumstances
were present. The Court of Appeal referred to establish EU case law, particularly the Magill
case, and held that a claim of exceptional circumstances does not require the complete
elimination of all competition within the relevant market. The court also held that it was
arguable that competition in the relevant market would in fact be impossible without a
license from Intel.
India
Before the Competition Act came into existence, section 15 of MRTP Act excluded the
application of provisions of the Act to patented products similar to that of Section 3(5) of
the Competition Act. In Vallal Peruman v. Godfrey Philips (India) Limited
27
the Commission
observed that the provisions of the Monopolies and Restrictive Trade Practices Act would be
attracted only when there is an abuse in exercise of the right protected.
The Competition Act and the Patents Act have no direct link with each other i.e., cross
referencing provisions. However, certain commercial transactions could be scanned by the
CCI and called in question. The Competition Act does not explicitly provide for issue of
Compulsory Licences as a remedy for anticompetitive practices. However, Section 27(g)
empowers the CCI to pass such other order or issue such other directions as it may deem fit.

26
[2002] EWHC 1159
27
MRTP Commission - UTPE 180/92
P a g e | 18
Further Section 90(ix) of the Patents Act recognizes that Compulsory License can be granted
to remedy a practice determined, after judicial or administrative process to be
anticompetitive.
Under section 28 also the commission may provide for divesture or transfer of property
rights including IPRs. Such an approach especially after Bayer v. Natco
28
could be considered
if there is blatant abuse of dominance by a company in related matter. Following situations
may attract compulsory licensing where IP holder:
(i) Charges unfair and discriminatory prices; or
(ii) Limits production of goods and services; or
(iii) Restricts technical or scientific development of goods and services; or
(iv) Desecrates consumer welfare
Similarly, section 84(1) read along with section 84(7) of the Indian Patents Act mentions
various circumstances such as non-affordability, non-availability, non-working, restrictive
licensing conditions etc., where Government of India already has the right to judiciously
intervene to decide on the matter of issuance of Compulsory license.
The Controller General of Patents Designs and Trademarks of India (Controller) recently
granted Natco Pharma Limited (Natco), an Indian drug manufacturer, a compulsory license
for Bayer AGs (Bayer) Nexavar (sorafenib), an oncology drug that extends the patients life
but does not cure the underlying condition.
The Controller held that:
(i) Bayer had made the drug available to a small percentage of eligible patients
(approximately slightly above 2 percent), which did not meet the requirements of
the public;
(ii) The price of Rs. 2,80,000 per month was not reasonably affordable. The term
reasonably affordable had to be construed predominantly with reference to the
purchasing power of the public;
(iii) Natco may sell the drug within India at a price of not more than Rs. 8,800 for a pack
of 120 tablets required for one months treatment;

28
Compulsory Licence Application No 1/2011
P a g e | 19
(iv) Bayers patent was not being worked in India as Nexavar was not being
manufactured in India. Importation from manufacturing facilities outside India did
not satisfy the mandatory requirement of working the patent in India;
(v) Natco is required to pay a 6% royalty to Bayer
In FICCI - Multiplex Association v. United Producers/ Distributors Forum (UPDF)
29
a plea
was raised by UPDF that a feature film is subject matter of copyright under the Copyright
Act, 1957 and section 14 thereof permits the owner of copyright to exploit such copyright in
a manner as he deems fit. It was further argued that it is entirely up to the copyright owner
as to how to communicate his film to the public. Further it was argued that no multiplex
owner can demand that the film be released in a theatre let alone dictate the commercial
terms on which such film must be released. It was also argued that it is discretion and right
of the copyright owner to decide as to how many copies of the films to communicate to the
public through theatre or multiplexes and a demand by a theatre or multiplex owner of a
right to exhibit the film cannot be sustained.
In this regard, attention was drawn to the provisions contained in section 3(5) of the Act
which through the use of non obstante clause excludes such rights from the purview of the
Act and accordingly the opposite parties were within their rights to impose reasonable
conditions for protecting any of the rights which have been conferred upon them under the
Copyright Act, 1957.
30


29
CCI Case No. 1/2009
30
It was noted that section 2 (f) of the Copyright Act, 1957 states that cinematograph film means any work of
visual recording on any medium produced through a process from which a moving image may be produced by
any means and includes a sound recording accompanying such visual recording and cinematograph shall be
construed as including any work produced by any process analogous to cinematography including video films.
Section 13(1) (b) of the Copyright Act, 1957 further provides that subject to the provisions of this section and
the other provisions of this Act, copyright subsists in cinematograph films. According to Section 14 of the
Copyright Act, 1957, copyright means the exclusive right subject to the provisions of the Copyright Act, 1957
to do or authorize the doing of anything (in the case of cinematograph films) to make a copy of the film,
including a photograph of any image forming part thereof; to sell or give on hire, or offer for sale or hire, any
copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions and to
communicate the film to the public. Further section 16 of the Copyright Act, 1957 lays down that no person
shall be entitled to copyright or any similar right in any work, whether published or unpublished, otherwise
than under and in accordance with the provisions of this Act or any other law for the time being in force, but
nothing in this section shall be constructed as abrogating any right or jurisdiction to restrain a breach of trust
or confidence.
P a g e | 20
It was further canvassed that any action for the benefit of multiplex owners to claim as a
matter of right that the producers should exhibit the film through them will tantamount to
compulsory licensing of the film and, therefore, the Commission would not have the
jurisdiction over such issues.
It was further submitted by the opposite parties that as a copyright owner, a film producer
can, at his sole discretion, determine the manner of communicating his film to the public
and this includes commercial terms on which the film is permitted to be communicated to
the public. It is also stated that this is an internationally recognized principle of copyright
law.
Held, after cumulative reading of all these provisions, it makes it clear that copyright is a
statutory right subject to the provisions of the Copyright Act, 1957. It is not an absolute
right. It is, therefore, abundantly clear that a protectable Copyright (comprising a bundle of
exclusive rights mentioned in Section 14(1) (c) of the Act) comes to vest in a cinematograph
film on its completion which is said to take place when the visual portion and audible
portion are synchronized.
31

In the present case, neither any question of infringement of rights of producers/distributors
conferred under the Copyright Act, 1957 arises nor does the question of imposing
reasonable conditions to protect such right arise. In the light of the facts of the case and the
evidence gathered during the course of the investigation, it is clear that the producers/
distributors acted in concert to determine revenue sharing ratio with multiplex owners and
to this end they also limited/controlled supply of films to multiplex owners. Such a conduct
on their part squarely falls within the mischief of section 3(3)(a) and (b) of the Act and any
plea based on copyright is wholly misplaced and has to be rejected.
It may be observed that multiplex owners are not in any manner infringing the rights of the
producers/distributors under the Copyright Act, 1957. On the contrary, the multiplex
owners, by seeking to release films in multiplexes, are only facilitating the rights of the
producers/ distributors under the Copyright Act, 1957. As multiplex owners have not

31
Reliance was also placed upon a decision of Honble Supreme Court of India in the case of Indian Performing
Right Society Ltd. v. Eastern Indian Motion Pictures Association, wherein it was held that each feature film is
nothing but a bundle of copyrights.
P a g e | 21
infringed or threatened to infringe the rights of producers/distributors under the Copyright
Act, 1957 in any manner, the plea of the producers/distributors based on section 3(5) of the
Act is thoroughly untenable in law for the reasons stated above.
It may be mentioned that the intellectual property laws do not have any absolute overriding
effect on the competition law. The extent of non obstante clause in section 3(5) of the Act is
not absolute as is clear from the language used therein and it exempts the right holder from
the rigours of competition law only to protect his rights from infringement. It further
enables the right holder to impose reasonable conditions, as may be necessary for
protecting such rights.
Moreover, the producers/distributors have failed to produce any evidence to show the
impugned act as a reasonable condition to protect their right under the Copyright Act, 1957.
It has come in the reports of the DG that as a result of the action of the
producers/distributors the price of tickets of multiplex theatres was increased which,
ultimately, are to be borne by the common man. In such a scenario, it is wholly
preposterous on the part of the producers/distributors to invoke the plea based on the
rights protected under the provisions of the Copyright Act, 1957 by taking recourse to the
overriding effect of such law under section 3(5) of the Act. For the same reason, the plea of
the opposite parties that any direction of the Commission for release of films in multiplexes
shall tantamount to compulsory licensing of the film is also baseless and is rejected.
In the EU a refusal would be considered abusive only in 'exceptional circumstances', when
the refusal prevents the emergence of a new product on a secondary market for which
there is potential consumer demand. Such a refusal would be subject to a stricter standard
still in the US. Whether the CCI will follow either the EU or US approach remains to be seen;
however, both the Controller's Natco decision and the general attitude of the CCI seem to
suggest a more consumer-oriented approach in India.
Exclusive Licenses
The issue of a refusal to license may also arise in the context of a decision to license the
intellectual property to certain parties on exclusive terms, which thereby establishes a
contractual obligation on the owner to refuse to license all other potential users. This
section considers how the competition law of each jurisdiction treat exclusive licenses.
P a g e | 22
United States
Exclusive licenses are agreements that restrict the right of the licensor to licenses other;
such licenses may also restrict the right of the licensor to use the patented technology itself.
US patent laws expressly provide that a patentee may grant and convey an exclusive right
under his application for patent, or patents, to the whole or any specified part of the United
States.
32

As reflected in the IP Guidelines and in court decisions, antitrust concerns are only likely to
arise when evaluating exclusive licenses between a licensor and a licensee that are in a
horizontal relationship.
33
Specifically, exclusive licensees will likely come under antitrust
scrutiny only if the licensor and licensee are actual or potential competitors and the
exclusive license creates or enhances the exercise of market power. The agencies will apply
the same principles and standards used to evaluate mergers and acquisitions when
examining exclusive licenses provided that the license precludes all persons, including the
licensor from using the licensed intellectual property.
34

Canada
A key issue that arises in the licensing context is the nature of the person (s) to whom the
license is granted. The IP Guidelines make clear that, while the right refuse to license is the
fundamental right of the IP owner, the right to grant a license to a competitor may not be.
The Bureau provides an example in its IP Guidelines:
A hypothetical company called SHIFT which has recently developed a new gear system
for mountain bikes. Two other firms manufacture systems that compete with SHIFTs. All
three of these firms manufacture several varieties of bicycle gear systems and are
engaged in research and development to improve gear system technology. SHIFT grants
licenses for the use of its patented gear system technology to manufacturers of
mountain bikes as it does not have the ability to manufacture mountain bikes itself.
Demand for mountain bikes is supplied by three large firms, which account for
approximately 80 percent of sales, plus six smaller firms. SHIFT has just granted
ADVENTURE, the largest mountain bike manufacturer (accounting for 30 percent of

32
35 USC 261
33
Zenith Radio Corp. v. Hazeltine Research, 395 US 100
34
Exclusive licenses are related
P a g e | 23
sales), an exclusive license to use its new patented gear system technology on its
mountain bikes. ADVENTURE does not own or have the ability to develop gear system
technology. Although SHIFTs new gear system offers a number of features not available
on other current products, the demand for mountain bikes with these new features is
uncertain. In addition, ADVENTURE expects to incur significant expense developing and
promoting mountain bikes that use SHIFTs new gear system technology. SHIFT has
refused requests from other mountain bike manufacturers for a license for this
technology. As a result of ongoing research and development, alternative gear system
technologies are likely to become available in the future.
Analysis
The Bureau is likely to examine the conduct of both firms under the abuse-of-dominant-
position provision (section 79) of the Competition Act.
SHIFT and ADVENTURE relate as supplier and customer, and are neither actual nor
potential competitors in the markets for gear systems or mountain bikes. Since the firms
do not compete, the exclusive license would likely not lessen competition between the
two firms. The Bureau would nonetheless examine the markets for gear systems and
mountain bikes to determine if the exclusive license lessened or prevented competition
substantially in either or both of those markets.
Even though SHIFTs technology is not available to ADVENTUREs two principal rivals and
the markets for gear systems and mountain bikes are concentrated, SHIFTs rivals in the
gear system market may still sell to ADVENTURE. Furthermore, the other mountain bike
manufacturers have access to other gear systems from SHIFT and to gear systems from
other suppliers. The exclusive license may have been granted in consideration for
ADVENTUREs agreement to incur significant expense in the development and
promotion of mountain bikes that use SHIFTs technology
In the course of its assessment, the Bureau would consider the competitiveness of the
mountain bike market before and after the license. Since SHIFT is not a mountain bike
manufacturer and has no obligation to license its gear system to a mountain bike
manufacturer, any licensing agreement would enhance competition. In this case, the
P a g e | 24
technology license mandated the development and promotion of mountain bikes using
the technology, thereby enhancing competition without in any way limiting the ability of
other mountain bike manufacturers to access or use competing technologies.
Consequently, the Bureau would conclude, given the facts of this case, that the exclusive
license arrangement did not raise any competition issues.
European Union
A technology license is exclusive if the licensee is the only one who is permitted to produce
on the basis of the licensed technology within a given territory. Where the licensor
undertakes not to license third parties to produce within the given territory but retains the
right to produce there itself, the license is considered to be a sole license.
The ECJ has taken a stricter view on exclusive license agreements between non-competitors
in Football Association Premier League Ltd v. Karen Murphy
35
.
The Football Association Premier League (FAPL) operates the leading professional football
league competition in England (Premier League) and markets the television broadcasting
rights for Premier League Matches in the UK and abroad. FAPL granted broadcasters in the
EU exclusive broadcasting for those matches on a territory by territory basis (typically, one
broadcaster per member state). Additionally, each broadcaster undertook in its license
agreement with FAPL to encrypt the satellite signal and to transmit the signal only to
subscribers in the licensed territory. Customers needed to purchase decoder cards that
decrypt the program, and FAPL imposed an obligation on the broadcasters not to supply
those devices for use outside of their respective territory.
Some publicans in the United Kingdom purchased decoder cards and boxes from a Greek
broadcaster who offered the cards and boxes at lower prices compared to Sky, the UK
broadcaster. The FAPL brought civil and criminal actions against pubs that screened Premier
League matches on their premises by using Greek decoder cards. The High Court of Justice
England referred the EU aspect of two of those proceedings to the ECJ.
The ECJ acknowledged that EU competition law does, as a general rule, not prohibit
exclusive licenses for sporting events in single member states. The ECJ, therefore, did not

35
Joined cases C 403/08 and C 429/08
P a g e | 25
find fault with the exclusive licenses for the broadcasting of Premier League Matches, which
is not called into question. The Court objected, however, to the additional obligations in the
agreements between FAPL and the broadcaster that were designed to ensure compliance
with the territorial limitation (in particular, the obligation on the broadcaster not to supply
decoder cards and boxes with a view to their use outside the territory covered by the
license agreement). With regards to those ancillary restrictions, the ECJ identified a restraint
of competition by virtue of the object of the agreements:
Such clauses prohibit the broadcasters from effecting any cross border provision of services
that relate to those matches, which enables each broadcaster to be granted absolute
territorial exclusivity in the area covered by its license and, thus, all, competition between
broadcasters in the fields of those services to be eliminated.
United Kingdom
The OFT and the courts have not yet had to decide on exclusive licenses and veto rights over
additional licenses. The OFT and the courts can be expected to treat these issues similarly to
how the European courts and the Commission approach them.
India
Examples of arrangements involving exclusive licensing that may give rise to competition
concerns include cross licensing by parties collectively possessing market power and grant
backs. A few such practices as described in the advocacy booklet
36
by the CCI are described
below. However, it should be noted that CCI has not yet come with IP Guidelines as those in
prevailing in mature jurisdictions discussed above. The list below is not exhaustive but
illustrative.
1) Patent Pools It happens when the firms in a manufacturing industry decide to pool
their patents and agree not to grant licenses to third parties, at the same time fixing
quotas and prices. They may earn supra-normal profits and keep new entrants out of
the market. In particular, if all the technology is locked in a few hands by a pooling
agreement, it will be difficult for outsiders to compete.

36
The Advocacy Booklet published by the CCI should in no way, be treated as official views of the Commission
or of its officials.
P a g e | 26
2) Tying Arrangement It happens when the licensee may be required to acquire
particular goods (unpatented materials e.g. raw materials) solely from the patentee,
thus foreclosing the opportunities of other producers. There could be an
arrangement forbidding a licensee to compete, or to handle goods which compete
with those of the patentee.
3) Royalty Provisions An agreement may provide that royalty should continue to be
paid even after the patent has expired or that royalties shall be payable in respect of
unpatented know-how as well as the subject matter of the patent.
4) Restriction affecting R&D There could be a clause, which restricts competition in R
& D or prohibits a licensee to use rival technology.
5) No-Challenge Clauses A licensee may be subjected to a condition not to challenge
the validity of IPR in question.
6) Grantback Obligations A licensee may require to grant back to the licensor any
knowhow or IPR acquired and not to grant licenses to anyone else. This is likely to
augment the market power of the licensor in an unjustified and anti-competitive
manner.
7) Price Restrictions A licensor may fix the prices at which the licensee should sell.
8) Territorial Restraints - The licensee may be restricted territorially or according to
categories of customers.
9) Package Licensing A licensee may be coerced by the licensor to take several
licenses in intellectual property even though the former may not need all of them.
10) Quality Limitations A condition imposing quality control on the licensed patented
product beyond those necessary for guaranteeing the effectiveness of the licensed
patent may be an anti-competitive practice.
11) Customer Restraint Restricting the right of the licensee to sell the product of the
licensed know-how to persons other than those designated by the licensor may be
violative of competition.
12) Trade Mark Requirement Imposing a trade mark use requirement on the licensee
may be prejudicial to competition, as it could restrict a licensee's freedom to select a
trade mark.
13) Indemnification Indemnification of the licensor to meet expenses and action in
infringement proceedings is likely to be regarded as anticompetitive.
P a g e | 27
14) Undue Restrictions Undue restriction on licensee's business could be anti-
competitive. For instance, the field of use of a drug could be a restriction on the
licensee, if it is stipulated that it should be used as medicine only for humans and not
animals, even though it could be used for both.
15) Usage Limits - Limiting the maximum amount of use the licensee may make of the
patented invention may affect competition.
16) Chosen Staff A condition imposed on the licensee to employ or use staff
designated by the licensor is likely to be regarded as anti-competitive.


P a g e | 28
Case Studies
US: In re: CARDIZEM CD ANTITRUST LITIGATION. Louisiana Wholesale Drug
Co. (Plaintiff) v. Hoechst Marion Roussel, Inc. and Andrx Pharmaceuticals,
Inc. (Defendant) 332 F.3d 896
37

Facts: Hoescht Marion Roussel, Inc. ("HMR") manufactures and markets Cardizem CD, a
brand-name prescription drug which is used for the treatment of angina and hypertension
and for the prevention of heart attacks and strokes. The active ingredient in Cardizem CD is
diltiazem hydrochloride, which is delivered to the user through a controlled-release system
that requires only one dose per day. HMR's patent for diltiazem hydrochloride expired in
November 1992.
On September 22, 1995, Andrx filed an ANDA with the FDA seeking approval to manufacture
and sell a generic form of Cardizem CD. On December 30, 1995, Andrx filed a paragraph IV
certification stating that its generic product did not infringe any of the patents listed with
the FDA as covering Cardizem CD. Andrx was the first potential generic manufacturer of
Cardizem CD to file an ANDA with a paragraph IV certification, entitling it to the 180-day
exclusivity period once it received FDA approval.
In November 1995, the United States patent office issued Carderm Capital, L.P. ("Carderm")
U.S. Patent No. 5,470,584 ("'584 patent"), for Cardizem CD's "dissolution profile," which
Carderm licensed to HMR. JA 1796-1810. The dissolution profile claimed by the '584 patent
was for 0-45% of the total diltiazem to be released within 18 hours ("45%-18 patent").
38

In January 1996, HMR and Carderm filed a patent infringement suit against Andrx in the
United States District Court for the Southern District of Florida, asserting that the generic
version of Cardizem CD that Andrx proposed would infringe the '584 patent'. The complaint
sought neither damages nor a preliminary injunction. Id. However, filing that complaint
automatically triggered the thirty-month waiting period during which the FDA could not
approve Andrx's ANDA and Andrx could not market its generic product.

37
United States Court of Appeals for the Sixth Circuit
38
Two other patents for the dissolution profile of Cardizem CD had previously been issued, one in February
1994 and one in August 1995. Neither is relevant to the present litigation.
P a g e | 29
In February 1996, Andrx brought antitrust and unfair competition counterclaims against
HMR. In April 1996, Andrx amended its ANDA to specify that the dissolution profile for its
generic product was not less than 55% of total diltiazem released within 18 hours ("55%-18
generic"). HMR nonetheless continued to pursue its patent infringement litigation against
Andrx in defence of its 45%-18 patent. On June 2, 1997, Andrx represented to the patent
court that it intended to market its generic product as soon as it received FDA approval.
On September 15, 1997, the FDA tentatively approved Andrx's ANDA, indicating that it
would be finally approved as soon as it was eligible, either upon expiration of the thirty-
month waiting period in early July 1998, or earlier if the court in the patent infringement
action ruled that the '584 patent was not infringed.
Nine days later, on September 24, 1997, HMR and Andrx entered into the Agreement. It
provided that Andrx would not market a bioequivalent or generic version of Cardizem CD in
the United States until the earliest of:
(1) Andrx obtaining a favourable, final and unappealable determination in the patent
infringement case;
(2) HMR and Andrx entering into a license agreement; or
(3) HMR entering into a license agreement with a third party.
Andrx also agreed to dismiss its antitrust and unfair competition counterclaims, to diligently
prosecute its ANDA, and to not "relinquish or otherwise compromise any right accruing
thereunder or pertaining thereto," including its 180-day period of exclusivity. In exchange,
HMR agreed to make interim payments to Andrx in the amount of $ 40 million per year,
payable quarterly, beginning on the date Andrx received final FDA approval.
39
HMR further

39
The payments were scheduled to end on the earliest of:
(1) a final and unappealable order or judgment in the patent infringement case;
(2) if HMR notified Andrx that it intended to enter into a license agreement with a third party, the earlier
of:
a) the expiration date of the required notice period or
b) the date Andrx effected its first commercial sale of the Andrx product; or
(3) if Andrx exercised its option to acquire a license from HMR, the date the license agreement became
effective.
P a g e | 30
agreed to pay Andrx $ 100 million per year,
40
less whatever interim payments had been
made, once:
(1) there was a final and unappealable determination that the patent was not infringed;
(2) HMR dismissed the patent infringement case; or
(3) there was a final and unappealable determination that did not determine the issues
of the patent's validity, enforcement, or infringement, and HMR failed to refile its
patent infringement action.
41

HMR also agreed that it would not seek preliminary injunctive relief in the ongoing patent
infringement litigation.
42

On July 8, 1998, the statutory thirty-month waiting period expired. On July 9, 1998, the FDA
issued its final approval of Andrx's ANDA. Pursuant to the Agreement, HMR began making
quarterly payments of $ 10 million to Andrx, and Andrx did not bring its generic product to
market. On September 11, 1998, Andrx, in a supplement to its previously filed ANDA, sought
approval for a reformulated generic version of Cardizem CD. Andrx informed HMR that it
had reformulated its product; it also urged HMR to reconsider its infringement claims. On
February 3, 1999, Andrx certified to HMR that its reformulated product did not infringe the
'584 patent.
On June 9, 1999, the FDA approved Andrx's reformulated product. That same day, HMR and
Andrx entered into a stipulation settling the patent infringement case and terminating the
Agreement. At the time of settlement, HMR paid Andrx a final sum of $ 50.7 million,
bringing its total payments to $ 89.83 million. On June 23, 1999, Andrx began to market its
product under the trademark Cartia XT, and its 180-day period of marketing exclusivity

40
HMR and Andrx stipulated that, for the purposes of the Agreement, Andrx would have realized $ 100 million
per year in profits from the sale of its generic product after receiving FDA approval.
41
HMR had to notify Andrx within thirty days of such a determination that it continued to believe that Andrx's
generic version of the drug infringed its patent and that it intended to refile its patent infringement action.
42
HMR also agreed that it would give Andrx copies of changes it proposed to the FDA regarding Cardizem CD's
package insert and immediate container label, that it would notify Andrx of any labeling changes pending
before or approved by the FDA, and that it would grant Andrx an irrevocable option to acquire a nonexclusive
license to all intellectual property HMR owned or controlled that Andrx might need to market its product in
the United States.
P a g e | 31
began to run. Since its release, Cartia XT has sold for a much lower price than Cardizem CD
and has captured a substantial portion of the market.
Summary of Facts: This antitrust case arises out of an agreement entered into by the
defendants, Hoescht Marion Roussel, Inc. ("HMR"), the manufacturer of the prescription
drug Cardizem CD, and Andrx Pharmaceuticals, Inc. ("Andrx"), then a potential manufacturer
of a generic version of that drug. The agreement provided, in essence, that Andrx, in
exchange for quarterly payments of $ 10 million, would refrain from marketing its generic
version of Cardizem CD even after it had received FDA approval (the "Agreement"). The
plaintiffs are direct and indirect purchasers of Cardizem CD who filed complaints challenging
the Agreement as a violation of federal and state antitrust laws.
Procedural History: The first complaint challenging the legality of the Agreement was filed
in August 1998, shortly after the FDA issued its final approval for Andrx's generic version of
Cardizem CD. That complaint, and the other complaints that were subsequently filed, have
been consolidated by the Judicial Panel on Multidistrict Litigation for coordinated or
consolidated pretrial proceedings in the Eastern District of Michigan. For all of the plaintiffs,
the foundation for their claims is the allegation that but for the Agreement, specifically the
payment of $ 40 million per year, Andrx would have brought its generic product to market
once it received FDA approval and at a lower price than the patented Cardizem CD sold by
HMR. They further allege that the Agreement protected HMR from competition from both
Andrx and other potential generic competitors because Andrx's delayed market entry
postponed the start of its 180-day exclusivity period, which it had agreed not to relinquish
or transfer. The Sherman Act Class Plaintiffs and the Individual Sherman Act Plaintiffs bring
claims under the federal antitrust laws, specifically section 1 of the Sherman Act; they seek
treble damages under section 4 of the Clayton Act. The State Law Class Plaintiffs bring
claims under various state antitrust laws.
Of relevance to the present appeal, the defendants argued that all of the plaintiffs had failed
to allege and could not allege an "antitrust injury" cognizable under section 1 of the
Sherman Act or under the respective state antitrust statutes. The district court concluded
that the plaintiffs had adequately alleged "antitrust injury." In reaching its conclusion, the
district court first considered whether the plaintiffs' allegations satisfied the test articulated
P a g e | 32
by the Supreme Court in Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.
43
In Brunswick, the
Supreme Court defined "antitrust injury" as "injury of the type the antitrust laws were
intended to prevent and that flows from that which makes defendants' acts unlawful."
Accordingly, the district court denied the defendants' motions to dismiss for failure to allege
antitrust injury.
The plaintiffs then moved for partial summary judgment on the issue of whether the
Agreement was a per se illegal restraint of trade. The district court concluded that the
Agreement, specifically the fact that HMR paid Andrx $ 10 million per quarter not to enter
the market with its generic version of Cardizem CD, was a naked, horizontal restraint of
trade and, as such, per se illegal.
Issues before the Appellant Court:
1. In determining whether plaintiffs properly pleaded antitrust injury, did the language
of two appellate decisions
44
require dismissal of plaintiffs' antitrust claims at the
pleading stage if plaintiffs could not allege facts showing that defendants' alleged
anticompetitive conduct was a "necessary predicate" to their antitrust injury; and
2. In determining whether Plaintiffs' motions for partial judgment were properly
granted, whether the Defendants' September 24, 1997 Agreement constitutes a
restraint of trade that is illegal per se under section 1 of the Sherman Antitrust Act,
15 U.S.C. 1, and under the corresponding state antitrust laws at issue in this
litigation..
Answer to First Issue: As framed, the certified question was not susceptible to a yes or no
answer because it incorporated a definition of "necessary predicate" that was rejected.
Hodges and Valley Products stand for the proposition that in order to survive a motion to
dismiss for failure to allege antitrust injury, a plaintiff must allege that the antitrust violation
is either the "necessary predicate" for its injury or the only means by which the defendant
could have caused its injury. Under the "necessary predicate" option, dismissal is warranted
only where it is apparent from the allegations in the complaints that the plaintiffs' injury

43
429 U.S. 477
44
Valley Products Co. v. Landmark, 128 F.3d 398, 404 (6th Cir. 1997) and Hodges v. WSM, Inc., 26 F.3d 36, 39
(6th Cir. 1994)
P a g e | 33
would have occurred even if there had been no antitrust violation. Here, Andrx could have
made a unilateral and legal decision to delay its market entry, but the plaintiffs have alleged
it would not have done so but for the Agreement and HMR's payment to it of $ 40 million
per year. The plaintiffs' allegations satisfy the "necessary predicate" test. The defendants'
claim that Andrx's decision to stay off the market was motivated not by the $ 40 million per
year it was being paid by HMR, but by its fear of damages in the pending patent
infringement litigation, merely raises a disputed issue of fact that cannot be resolved on a
motion to dismiss. Accordingly, the district court properly denied the defendants' motions
to dismiss for failure to allege antitrust injury.
Answer to Second Issue: Yes. The Agreement whereby HMR paid Andrx $ 40 million per
year not to enter the United States market for Cardizem CD and its generic equivalents is a
horizontal market allocation agreement and, as such, is per se illegal under the Sherman Act
and under the corresponding state antitrust laws. Accordingly, the district court properly
granted summary judgment for the plaintiffs on the issue of whether the Agreement was
per se illegal.
Conclusion: The court answered both questions as follows: the district court properly
resolved the questions it put to the appellate court in the course of denying defendants'
motions to dismiss and granting the plaintiffs' motions for summary judgment that the
defendants had committed a per se violation of the antitrust laws.

P a g e | 34
US: Image Technical Services (Plaintiffs) v. Eastman Kodak Co. (Defendant)
125 F.3d 1195

Facts: Kodak manufactures sells and services high volume photocopiers and micrographic
(or microfilm) equipment. Competition in these markets is strong. In the photocopier
market Kodak's competitors include Xerox, IBM and Canon. Kodak's competitors in the
micrographics market include Minolta, Bell & Howell and 3M. Despite comparable products
in these markets, Kodak's equipment is distinctive. Although Kodak equipment may perform
similar functions to that of its competitors, Kodak's parts are not interchangeable with parts
used in other manufacturers' equipment. Kodak sells and installs replacement parts for its
equipment. Kodak competes with ISOs in these markets. Kodak has ready access to all parts
necessary for repair services because it manufactures many of the parts used in its
equipment and purchases the remaining necessary parts from independent original-
equipment manufacturers. In the service market, Kodak repairs at least 80% of the
machines it manufactures. ISOs began servicing Kodak equipment in the early 1980's, and
have provided cheaper and better service at times, according to some customers. ISOs
obtain parts for repair service from a variety of sources, including, at one time, Kodak. As
ISOs grew more competitive, Kodak began restricting access to its photocopier and
micrographic parts. In 1985, Kodak stopped selling copier parts to ISOs, and in 1986, Kodak
halted sales of micrographic parts to ISOs. Additionally, Kodak secured agreements from
their contracted original-equipment manufacturers not to sell parts to ISOs. These parts
restrictions limited the ISOs' ability to compete in the service market for Kodak machines.
Competition in the service market requires that service providers have ready access to all
parts.
Kodak offers annual or multi-year service contracts to its customers. Service providers
generally contract with equipment owners through multi-year service contracts. ISOs claim
that they were unable to provide similar contracts because they lack a reliable supply of
parts. Some ISOs contend that the parts shortage forced them out of business. In 1987, the
ISOs filed this action against Kodak, seeking damages and injunctive relief for violations of
the Sherman Act. The ISOs claimed that Kodak both:
P a g e | 35
(1) unlawfully tied the sale of service for Kodak machines with the sale of parts in
violation of 1 of the Sherman Act, and
(2) monopolized or attempted to monopolize the sale of service for Kodak machines in
violation of 2 of the Sherman Act.
Kodak moved for summary judgment prior to discovery. The district court allowed brief
discovery and then granted summary judgment in Kodak's favour. Kodak appealed to the
Supreme Court, which affirmed the denial of summary judgment. The Court held that the
record disclosed sufficient factual disputes to survive summary judgment on both the 1
and 2 claims. The Supreme Court also held that Kodak's lack of market power in the
market for high volume photocopiers and micrographic equipment did not preclude, as a
matter of law, the possibility of market power in the derivative aftermarkets for parts and
service. The Court recognized that resolution of other key issues required a more complete
record. The Court concluded:
In the end, of course, Kodak's arguments may prove to be correct. It may be that its parts,
service, and equipment are components of one unified market, or that the equipment
market does discipline the aftermarkets so that all three are priced competitively overall, or
that any anticompetitive effects of Kodak's behaviour are outweighed by its competitive
effects. But we cannot reach these conclusions as a matter of law on a record this sparse.
After remand, the case proceeded to trial in the district court. Before closing arguments, the
ISOs withdrew their 1 tying and conspiracy claims. The remaining 2 attempted
monopolization and monopolization claims were submitted to the jury. A unanimous verdict
awarded damages to the ISO's totalling $ 71.8 million after trebling. Ten ISOs were awarded
damages covering lost service profits in the amount of $ 12,172,900 (before trebling) and six
ISOs were awarded damages covering lost profits for used equipment sales totalling $
11,775,400 (before trebling).
Summary of Facts:
Plaintiffs-Appellees Image Technical Services, and ten other independent service
organizations ("ISOs") that service Kodak photocopiers and micrographic equipment sued
the Eastman Kodak Co. ("Kodak") for violations of the Sherman Act. The ISOs alleged that
P a g e | 36
Kodak used its monopoly in the market for Kodak photocopier and micrographic parts to
create a second monopoly in the equipment service markets. The district court awarded
plaintiffs treble damages, permanent injunctive relief and denied defendant's post-trial
motions. On appeal, the court affirmed in part, reversed in part, and granted some
attorney's fees to plaintiffs. While the appellate court reasoned judgment was proper as to
all of the liability issues, it determined, based on the evidence, damages were not
appropriate to one plaintiff and reversed damages awarded for lost sales of used equipment
and remanded for a new trial on used equipment damages. Plaintiffs' injunctive relief was
modified to prevent free riding on defendant's inventory costs.
Conclusion: Against this factual and legal background, the Supreme Court affirmed by a 6 to
3 vote. Justice Blackmun, writing for the majority, began his analysis by noting that tying
arrangements violate section 1 of the Sherman Act if the seller has appreciable economic
power in the tying product and if the arrangement affects a substantial volume of
commerce in the tied product market. Kodak did not dispute that the second prong of the
legal standard had been satisfied; Kodak did, however, argue that no tying arrangement
existed and that there was no market power in any alleged tying product.
Because analysis of the market power question would be unnecessary regarding the section
1 tying claim if, in fact, no tying arrangement was presented, Justice Blackmun first
considered whether a reasonable fact finder could conclude that service and replacement
parts were two distinct products and whether their sale had been tied. Relying upon the
majority rather than the concurrence in Hyde, the Court applied the character of demand
approach to the question and asked whether there was sufficient consumer demand "so
that it is efficient for a firm to provide service separately from parts." The record reflected
the fact that Kodak had sold parts and service separately in the past and continued to sell
parts separately to self-service equipment owners. Further, the Court deemed the evolution
of a high technology service industry probative regarding the efficiency benefits of a
separate service market.
Kodak argued that because there was no demand for parts separate from service, it
followed that there could not be separate parts and service markets. Justice Blackmun
rejected this contention; however, noting that functionally linked products which are
P a g e | 37
useless without the other can still be the subject of tying arrangements. In addition, the
majority challenged the accuracy of Kodak's factual contentions, observing that some
consumers will buy service without replacement parts because some service does not
require parts. Conversely, self-service customers will buy parts without requesting
service. Given the foregoing, summary judgment was an inappropriate method of resolving
this disputed material fact question of market definition. The majority then gave short shrift
to the argument that no tie existed: the refusal to sell parts to third parties unless they
agreed to avoid ISO service sufficed.
After dealing with these threshold issues, Justice Blackmun turned to the most critical
element of tie-in litigation: "appreciable economic power in the tying [product]
market." The majority defined market power as the ability to force purchasers to "do
something that [they] would not do in a competitive market." Justice Blackmun explained
that on other occasions the Court had defined market power as the ability to raise price and
restrict output, and ordinarily had inferred market power from possession of a
"predominant share of the market."
Applying these definitions to the facts, the Court acknowledged that the ISOs were
contending that Kodak had sufficient power in the parts market to force purchasers of parts
to accept unwanted service. This power was derived from the fact that certain parts could
only be obtained from Kodak, while others were subject to Kodak's restrictive policy
regarding parts it did not manufacture. More specifically, Kodak had allegedly prohibited
independent manufacturers from selling Kodak parts to ISOs, pressured Kodak equipment
owners and independent parts distributors to deny ISOs Kodak parts, and taken other steps
to limit the availability of used machines. The ISOs contended that through these practices
Kodak excluded service competition, raised service prices, and compelled consumers to
accept unwanted service from Kodak. Consumers allegedly switched to Kodak service
despite their preference for lower priced, higher quality ISO service, and ISOs were driven
out of business by these practices. Thus, the evidence submitted by the ISOs to support the
foregoing assertions was sufficient to withstand a summary judgment motion.
Kodak argued that even if it did have a monopoly share of an alleged parts market, the
conceded high level of competition in the equipment market precluded any exercise of
P a g e | 38
market power. Kodak asserted that the presence of competition in the equipment market,
causing consumers to shift to equipment manufacturers with more attractive service
packages, would thwart any attempt to exercise putative market power in the parts market
by raising prices for parts and services. This threatened loss of profits in the equipment
market would prevent Kodak from attempting to increase profits by exploiting any
perceived power in the parts market. Based upon this economic theory, and in the absence
of specific data on the equipment, parts, or service markets, Kodak asserted that the
competitive equipment market necessarily precluded any real power in an aftermarket and
supported summary judgment in its favour. The majority, however, declined to oblige
Kodak.
Justice Blackmun responded to Kodak's highly theoretical argument by first emphasizing the
Court's preference for a case-by-case fact intensive approach: "Legal presumptions that rest
on formalistic distinctions rather than actual market realities are generally disfavoured in
antitrust law." The Court would require actual proof of cross-elasticity of demand or its
absence, not mere economic theory. Consequently, the majority rejected Kodak's reliance
on the Court's approval of summary judgment for defendants in Matsushita Electric
Industrial Co. v. Zenith Radio Corp. by distinguishing that decision and taking a rather
narrow view of its implications. More specifically, the majority noted that Matsushita did
not create any "special burden" on antitrust plaintiffs opposing a motion for summary
judgment. While Matsushita does require that a plaintiff's claim make "economic sense," it
does not stand for the proposition that defendants advancing any economic theory in
support of their conduct could win a motion for summary judgment. Rather, Justice
Blackmun interpreted Matsushita to require "only that the non-moving party's inferences be
reasonable in order to reach the jury," as opposed to a theory that was "economically
senseless" and subject to summary disposition.
Applying this reasonableness standard to the record in Kodak, the Court attempted to
"unravel the factual assumptions underlying [Kodak's] proposed rule that lack of power in
the equipment market necessarily precludes power in the aftermarkets." Focusing on the
issue of cross-elasticity and rejecting Kodak's assertion that nothing could be gained from
attempts to exploit power in the aftermarkets, the Court noted that "[e]ven if Kodak could
P a g e | 39
not raise the price of service and parts one cent without losing equipment sales, that fact
would not disprove market power in the aftermarkets."
The majority correctly recognized that even a true monopolist loses some sales when it
charges super competitive prices; however, the lower volume of sales does not change the
fact that the fewer, higher-priced sales yield a monopolist's profit-maximizing
return. Accordingly, the Court rejected Kodak's "false dichotomy" of either a competitive
price or a ruinous one, and it recognized that Kodak could choose an "optimum" price that
would allow super competitive prices for parts and service to more than compensate for
losses in equipment sales revenue. Some restraining effect by the equipment market on the
parts and service markets did not preclude a finding of power in those markets, and Kodak's
economic theory was therefore not irrefutable.
The majority then considered what it termed "the more narrowly drawn question: Does
Kodak's theory describe actual market behaviour so accurately that [the ISOs'] assertion of
Kodak market power in the aftermarkets, if not impossible, is at least
unreasonable?" Responding in the negative, Justice Blackmun emphasized that despite
Kodak's economic theories, the record reflected that while service prices for Kodak
customers had risen as a result of Kodak's practices, the evidence reflected no reduction in
Kodak equipment sales. Both Kodak and the United States, asamicus curiae, attempted to
explain away this result, but the Court would have none of it.
Kodak argued that it could charge equipment buyers subcompetitive prices while
simultaneously charging high prices for service, resulting in an overall competitive price
spread over time. This theory, however, found no support in the record, as Kodak had never
claimed to recoup low equipment profits from higher priced service. Rather, Kodak had
asserted that it sought profits in both equipment and service and priced its equipment
comparably to its competition. Further, Kodak's policies towards self-service customers
contradicted its assertions; if equipment were underpriced, Kodak could not afford to sell
parts without service to those users. The actual market behavior in which Kodak engaged
did not fit its own economic theory.
The ISOs offered their own "forceful reason" to explain why Kodak's economic theory might
prove inconsistent with economic reality. In markets for complex durable goods, significant
P a g e | 40
information and switching costs could limit the responsiveness of equipment buyers to parts
and service price increases. If increases in the cost of replacement parts and service are to
affect the demand for equipment, prospective purchasers must know the total package
costs. That is, at the time of purchase, buyers must engage in "accurate lifecycle
pricing." For complex durable equipment, however, it is both difficult and expensive to
engage in lifecycle pricing, as the relevant information often may be impossible to acquire
or very customer specific.
Kodak responded to this lifecycle pricing argument by suggesting that consumers'
information needs would be satisfied by the presence of competitors in the equipment
market. The Court stated, however, that fulfilment of information needs was a question of
fact. It was not undisputed that competitors either could or would be inclined to provide the
necessary information. Further, consumers might choose to avoid the expense of acquiring
the information or find it difficult to compute the complete cost of a package at the time of
initial purchase. The Court also rejected Kodak's contention that a few large and
sophisticated buyers would engage in the necessary information gathering and thus protect
other consumers. Kodak could either let the few knowledgeable buyers go elsewhere, or it
could engage in price discrimination by varying prices on its packages to continue exploiting
the uninformed. The Court was therefore unwilling to accept the bald proposition that
equipment purchasing decisions reflected an accurate assessment of lifecycle costs.
The Court then focused on the ISOs' evidence that Kodak did price discriminate by selling
parts to high volume self-service users while refusing to sell parts to smaller volume users
employing the ISOs. The high volume users were most likely to be the ones in possession of
needed information costs. Further, the majority noted that some equipment purchasers
were "locked-in" because of high switching costs, and they were better off accepting
somewhat higher service costs if these costs were lower than the cost of switching to
another brand of equipment. As a result, a seller could profitably pursue a strategy of super
competitive pricing for parts and service if switching costs exceeded the higher service costs
and if the number of locked-in customers was high relative to the number of new
purchasers. This strategy is enhanced if Kodak could price discriminate between the locked-
in customers and new patrons. Importantly, the ISOs had presented evidence of high
switching costs, and Kodak itself confirmed significant variances in package prices for Kodak
P a g e | 41
equipment, parts and service. The majority concluded that plaintiffs raised a fact question
regarding the impact of information and switching costs on defendant's assumption that a
competitive equipment market precludes a finding of power in aftermarkets.
All of the foregoing led the majority inexorably to the conclusion that the ISOs' inferences of
market power in the parts and service markets were not unreasonable. Further, as the ISOs
had presented evidence of power in these aftermarkets, and because the ISOs' theory
regarding the misuse of this power made economic sense, summary judgment for Kodak
was inappropriate. The Court rejected Kodak's reliance on Matsushita for the proposition
that denial of summary judgment threatened to deter procompetitive behavior.
Unlike Matsushita, which involved an arguably beneficial lowering of
prices, Kodak contained allegations of conduct designed to raise prices and foreclose
markets. Although Kodak alleged that its marketing strategies actually enhanced
competition, the Court responded by stating that this was not entirely clear and that a trier
of fact would have to decide that question:
We need not decide whether Kodak's behaviour has any procompetitive effects and, if so,
whether they outweigh the anticompetitive effects. We note only that Kodak's service and
parts policy is simply not one that appears always or almost always to enhance competition,
and therefore to warrant a legal presumption without any evidence of its actual economic
impact. In this case, when we weigh the risk of deterring procompetitive behavior by
proceeding to trial against the risk that illegal behaviour go unpunished, the balance tips
against summary judgment.
While the Court acknowledged that "[m]onopoly power under 2 requires . . . something
greater than market power under 1," it nevertheless found the evidence that Kodak
controlled nearly 100 percent of the parts market and eighty to ninety-five percent of the
service market sufficient to survive summary judgment. Significantly, the Court flatly
rejected Kodak's claim that a single brand of a product or service may never constitute a
relevant market. Instead, the majority concluded that "[t]he relevant market for antitrust
purposes is determined by the choices available to Kodak equipment owners." Recognizing
that narrow market definitions have been approved in other antitrust cases, the Court
utilized the reasonable interchangeability standard and noted that the "commercial
P a g e | 42
realities" facing Kodak equipment owners could well narrow the parts and service
markets. The implications of this approach to market definition could be quite profound, not
only in section 2 litigation, but also in tying and other section 1 cases where market
definition and market power may be the critical and determinative issues.
While concluding that the foregoing analysis made summary judgment inappropriate, the
Court did acknowledge that after trial all of Kodak's assertions might prove to have
merit. That is, it left open the possibility that a trier of fact might conclude that parts,
service, and equipment were "components of one unified market," that the equipment
market did affect pricing in the aftermarkets, or that Kodak's policies were actually
procompetitive. Consequently, the scope of the majority's decision could prove to be rather
narrow and its impact more procedural than substantive.

P a g e | 43
In re Independent Service Organizations Antitrust Litigation (CSU, L.L.C. v.
Xerox Corp.) 203 F.3d 1322 (Fed. Cir. 2000)

Facts: Xerox is in the business of designing, manufacturing, selling, and servicing
photocopiers and laser printers. CSU (formerly Copier Services Unlimited) is one of a
number of independent service organizations (ISOs) that compete with Xerox to service
these copiers and printers after the initial warranty period.
In 1984 Xerox decided that it would sell parts used to service its copiers and printers to
authorized resellers and service providers and to end users of its equipment, but that it
would not sell parts directly to its competitors. This refusal to deal was purely unilateral.
End users remained free to supply the parts they purchased to any service provider,
including ISOs, and to use any service provider they desired to install the parts. Xerox thus
never agreed with parts purchasers that they would not use ISO service, and indeed some
parts purchasers utilized CSUs service. Although Xerox unilaterally limited the quantity of
parts it would sell to any one end user to the quantity reasonably necessary to repair the
users equipment, end users were free to resell the parts they purchased to ISOs.
In 1994, as part of a settlement of a class action brought by end users and ISOs, Xerox
changed its parts policy. Xerox agreed to sell parts directly to ISOs (including providing them
with quantity discounts) and to license diagnostic software to copier and printer end users,
who could utilize ISOs as their agents to order and use the software. Since 1994, Xerox has
not refused to sell parts or license diagnostic software. Although CSU has claimed that Xerox
discriminated against ISOs vis a vis end users in sale and licensing terms (a claim that has
been picked up by some critics of the Xerox decision), CSU introduced no evidence of such
discrimination. Rather, all ISOs and all end users pay the same prices (and receive the same
quantity discounts).
CSU opted out of the settled 1994 class action and filed its own antitrust claims against
Xerox, challenging as antitrust violations Xeroxs past refusal to sell parts and license
software, as well as its post-1994 pricing of parts and software. All of CSUs claims were
under 2 of the Sherman Act; CSU did not allege any tying arrangement or that Xerox had
conspired with any other party to deny CSU parts or software. Although CSUs refusal to
P a g e | 44
deal claims were based on both patented and unpatented parts; CSU and its experts
eventually conceded that CSUs alleged injury was attributable solely to Xerox refusal to sell
patented parts and to license Xeroxs diagnostic software, which was protected by both
patents and copyrights.
Xerox responded to CSUs antitrust claims by arguing that its prior unilateral refusal to sell
patented parts and to license patented and copyrighted diagnostic software (and its post-
settlement pricing of such items) were a lawful unilateral exercise of its intellectual property
rights and hence could not violate 2. Xerox did not claim that its refusal to deal was in fact
motivated by its intellectual property rights, but asserted that the existence of such IP rights
immunized its conduct. Xerox did not assert an IP Defence with regard to unpatented
parts, but argued that CSU could not show it was actually injured by Xeroxs refusal to sell
such parts. Xerox also asserted patent and copyright infringement counterclaims against
CSU based on CSUs use of unlicensed diagnostic software and infringing parts purchased
from third party parts vendors. CSU did not contest either the validity of Xeroxs patents or
its infringement; rather, it defended the infringement with a patent and copyright misuse
defence based on the same conduct that underlay its antitrust claims Xeroxs prior refusal
to sell or license and its current pricing of parts and software.
Summary of Facts: Plaintiff sued defendant, claiming that defendant's refusal to sell
patented parts and copyrighted manuals and to license copyrighted software violated
federal antitrust laws. The district court granted summary judgment for defendant and, on
appeal, the court upheld the decision of the district court. The court held that, in the
absence of any indication of illegal tying, fraud in the Patent and Trademark Office, or sham
litigation, a patent holder could enforce its given statutory right to exclude free from
antitrust liability. The court determined that plaintiff had failed to raise a genuine issue of
material fact as to the existence of such exceptional circumstances. The court also
concluded that plaintiff had failed to present evidence which would overcome the
applicable presumption that plaintiff's desire to exclude others from use of its copyrighted
work was a presumptively valid business justification for any immediate harm to consumers.
Issue: CSU, L.L.C. appeals the judgment of the United States District Court for the District of
Kansas, dismissing on summary judgment CSU's claims that Xerox's refusal to sell patented
P a g e | 45
parts and copyrighted manuals and to license copyrighted software violates the antitrust
laws. Because US Court of Appeals agree with the district court that CSU has not raised a
genuine issue as to any material fact and that Xerox is entitled to judgment as a matter of
law.
Outcome: Although the district court initially denied Xeroxs motion for summary judgment,
two weeks later it reconsidered its decision and granted summary judgment to Xerox, and
CSUs motion for reconsideration of that decision was denied. The district court rejected
CSUs arguments (discussed below) that Xeroxs refusal to license was an unlawful attempt
to leverage a parts monopoly into a service monopoly and that Xeroxs subjective intent
underlying its refusal to deal was relevant to a determination of the legality of Xeroxs
conduct. Instead, the district court adopted a rule of per se legality for unilateral refusals to
license. On appeal, the Federal Circuit affirmed. But it purported to recognize several
exceptions to the right of an intellectual property owner to refuse to license, holding that
*i+n the absence of any indication of illegal tying, fraud in the Patent and Trademark Office,
or sham litigation, the patent holder may enforce the statutory right to exclude others from
making, using, or selling the claimed invention free from liability under the antitrust laws.

P a g e | 46
Verizon Communications Inc. v. Law Offices of Curtis Trinko LLP (Trinko)
540 US 398 (2004)

Background: In order to promote competition among telecommunications providers at the
local level, Section 101(a) of the Telecommunications Act of 1996 imposes upon a local
exchange carrier (LEC) the duty to provide interconnection with its network that is at least
equal to that provided by the local exchange carrier to itself ... to any requesting
telecommunications carrier. The 1996 Act also requires that before a LEC can enter the
market for the provision of long-distance telecommunications service, it certify, by means of
a competitive checklist, that it has complied with the interconnection mandate, which
includes a requirement that it provide access to operations support systems (OSS). State
regulators (in this case, the New York Public Service Commission (PSC)) approve
interconnection agreements, and the application to provide long-distance services is made
to the FCC. After the PSC and the FCC investigated complaints from Verizons competitors
that Verizon was not meeting its OSS obligations and that their orders were not being
fulfilled, the FCC entered a consent decree pursuant to which Verizon paid a $3 million fine;
the PSC issued orders requiring Verizon to pay $10 million to its competitors. Both
regulatory bodies imposed heightened reporting requirements on Verizon. Trinkos
complaint was filed as a class action the day after the FCCs consent order was entered.
Summary of Facts: The customer alleged that the incumbent LEC filled rivals' orders on a
discriminatory basis as part of an anticompetitive scheme to discourage customers from
becoming or remaining customers of competitive LECs, thus impeding the competitive LECs'
ability to enter and compete in the market for local telephone service. The Court
determined that the complaint alleging breach of the incumbent LEC's duty under the
Telecommunications Act of 1996 to share its network with competitors failed to state a
claim under 2 of the Sherman Act. The incumbent LEC's alleged insufficient assistance in
the provision of service to rivals was not a recognized antitrust claim under existing refusal-
to-deal precedents. Traditional antitrust principles did not justify adding the present case to
the few existing exceptions from the proposition that there is no duty to aid competitors.
P a g e | 47
Conclusion: Respondent's complaint alleging breach of an incumbent LEC's 1996 Act duty to
share its network with competitors does not state a claim under 2 of the Sherman Act.
(a) The 1996 Act has no effect upon the application of traditional antitrust principles. Its
saving clause--which provides that "nothing in this Act . . . shall be construed to
modify, impair, or supersede the applicability of any of the antitrust laws," preserves
claims that satisfy established antitrust standards, but does not create new claims
that go beyond those standards.
(b) The activity of which respondent complains does not violate pre-existing antitrust
standards. The leading case imposing 2 liability for refusal to deal with competitors
is Aspen Skiing Co. v. Aspen Highlands Skiing Corp., in which the Court concluded
that the defendant's termination of a voluntary agreement with the plaintiff
suggested a willingness to forsake short-term profits to achieve an anticompetitive
end. Aspen is at or near the outer boundary of 2 liability, and the present case does
not fit within the limited exception it recognized. Because the complaint does not
allege that Verizon ever engaged in a voluntary course of dealing with its rivals, its
prior conduct sheds no light upon whether its lapses from the legally compelled
dealing were anticompetitive. Moreover, the Aspen defendant turned down its
competitor's proposal to sell at its own retail price, suggesting a calculation that its
future monopoly retail price would be higher, whereas Verizon's reluctance to
interconnect at the cost-based rate of compensation available under 251(c)(3) is
uninformative. More fundamentally, the Aspen defendant refused to provide its
competitor with a product it already sold at retail, whereas here the unbundled
elements offered pursuant to 251(c)(3) are not available to the public, but are
provided to rivals under compulsion and at considerable expense. The Court's
conclusion would not change even if it considered to be established law the
"essential facilities" doctrine crafted by some lower courts. The indispensable
requirement for invoking that doctrine is the unavailability of access to the "essential
facilities"; where access exists, as it does here by virtue of the 1996 Act, the doctrine
serves no purpose.
P a g e | 48
(c) Traditional antitrust principles do not justify adding the present case to the few
existing exceptions from the proposition that there is no duty to aid competitors.
Antitrust analysis must always be attuned to the particular structure and
circumstances of the industry at issue. When there exists a regulatory structure
designed to deter and remedy anticompetitive harm, the additional benefit to
competition provided by antitrust enforcement will tend to be small, and it will be
less plausible that the antitrust laws contemplate such additional scrutiny. Here
Verizon was subject to oversight by the FCC and the PSC, both of which agencies
responded to the OSS failure raised in respondent's complaint by imposing fines and
other burdens on Verizon. Against the slight benefits of antitrust intervention here
must be weighed a realistic assessment of its costs. Allegations of violations of
251(c)(3) duties are both technical and extremely numerous, and hence difficult for
antitrust courts to evaluate. Applying 2's requirements to this regime can readily
result in "false positive" mistaken inferences that chill the very conduct the antitrust
laws are designed to protect.

P a g e | 49
Pacific Bell Telephone Company (AT&T) v. linkLine Communications
(linkLine) 555 US 438 (2009)

Facts: AT&T owns infrastructure and facilities needed to provide "DSL" service, a method of
connecting to the Internet at high speeds over telephone lines. As a condition for a recent
merger, the Federal Communications Commission requires AT&T to provide wholesale DSL
transport service to independent firms at a price no greater than the retail price of AT&T's
DSL service. The plaintiffs in this case, respondents here, are independent Internet service
providers that compete with AT&T in the retail DSL market in California. The plaintiffs do not
own all the facilities needed to supply DSL service, and must lease wholesale DSL transport
service from AT&T. They filed suit under 2 of the Sherman Act, asserting that AT&T
unlawfully "squeezed" their profit margins by setting a high price for the wholesale DSL
transport service it sells and a low price for its own retail DSL service. This maneuver
allegedly placed the plaintiffs at a competitive disadvantage, allowing AT&T to maintain
monopoly power in the DSL market. AT&T moved for judgment on the pleadings, arguing
that the plaintiffs' claims were foreclosed by Verizon Communications Inc. v. Law Offices of
Curtis V. Trinko, LLP, in which this Court held that a firm with no antitrust duty to deal with
its rivals has no obligation to provide those rivals with a "sufficient" level of service. The
District Court found that AT&T had no antitrust duty to deal with the plaintiffs, but
nonetheless denied the motion, holding that Trinko did not address price-squeeze claims.
The court certified its order for interlocutory appeal on the question whether Trinko bars
price-squeeze claims when the parties are required to deal by federal communications law,
but not antitrust law. The Ninth Circuit affirmed, holding that Trinko did not address the
viability of price-squeeze claims, and thus the plaintiffs' complaint stated a potentially valid
2 claim.
The providers participated in both the wholesale and retail markets for DSL service and,
while the providers were otherwise not required to deal with the ISPs, federal approval of a
prior merger required the providers to provide wholesale DSL service to the ISPs at a price
no greater than retail. The ISPs contended that the providers raised wholesale prices while
cutting retail prices, resulting in the ISPs being forced to pay the higher wholesale price
while cutting their own retail prices to compete with the providers. The U.S. Supreme Court
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held that the ISPs' price-squeeze claim could not brought under 2 since the providers were
under no antitrust obligation to sell wholesale DSL service to the ISPs and there was no
showing of predatory retail pricing. The providers' duty to sell to the ISPs arose from federal
regulations rather than antitrust obligations under 2, there was no allegation that the
providers' retail price was below cost, and, in the absence of a duty to deal at the wholesale
level and no predatory pricing at the retail level, the providers were not required to set both
wholesale and retail prices in a manner which preserved the ISPs' profit margins.
Issue: Whether a price-squeeze claim may be brought under 2 when the defendant has no
antitrust duty to deal with the plaintiff at wholesale?
Conclusion: Businesses are generally free to choose the parties with whom they will deal, as
well as the prices, terms, and conditions of that dealing. But in rare circumstances, a
dominant firm may incur antitrust liability for purely unilateral conduct, such as charging
predatory prices. There are also limited circumstances in which a firms unilateral refusal
to deal with its rivals can give rise to antitrust liability. Here, plaintiffs do not allege
predatory pricing, and the District Court concluded that there was no antitrust duty to deal.
Plaintiffs challenge a different type of unilateral conduct in which a firm squeezes its
competitors profit margins. This requires the defendant to operate in both the wholesale
(upstream) and retail (downstream) markets. By raising the wholesale price of inputs
while cutting its own retail prices, the defendant can raise competitors costs while putting
downward pressure on their revenues. Price-squeeze plaintiffs assert that defendants must
leave them a fair or adequate margin between wholesale and retail prices
Where there is no duty to deal at the wholesale level and no predatory pricing at the retail
level, a firm is not required to price both of these services in a manner that preserves its
rivals profit margins.
Any challenge to AT&Ts wholesale prices is foreclosed by a straightforward application of
Trinko. The claim in Trinko addressed the quality of Verizons support services, while the
claims in this case challenge AT&Ts pricing structure. But for antitrust purposes, there is no
meaningful distinction between price and nonprice components of a transaction. The nub of
the complaint in both cases is identicalthe plaintiffs alleged that the defendants
(upstream monopolists) abused their power in the wholesale market to prevent rival firms
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from competing effectively in the retail market. But a firm with no antitrust duty to deal in
the wholesale market has no obligation to deal under terms and conditions favorable to its
competitors. Had AT&T simply stopped providing DSL transport service to the plaintiffs, it
would not have run afoul of the Sherman Act. Thus, it was not required to offer this service
at the wholesale prices the plaintiffs would have preferred.
The other component of a price-squeeze claim is the assertion that the defendants retail
prices are too low. Here too plaintiffs claims find no support in existing antitrust doctrine.
*C+utting prices in order to increase business often is the very essence of competition. To
avoid chilling aggressive price competition, the Court has carefully limited the circumstances
under which plaintiffs can state a Sherman Act claim by alleging that the defendants prices
are too low. The complaint at issue here has no allegation that AT&Ts conduct met either
Brooke Group requirement. Recognizing a price-squeeze claim where the defendants retail
price remains above cost would invite the precise harm the Court sought to avoid in Brooke
Group: Firms might raise retail prices or refrain from aggressive price competition to avoid
potential antitrust liability.
Institutional concerns also counsel against recognizing such claims. This Court has
repeatedly emphasized the importance of clear rules in antitrust law. Recognizing price-
squeeze claims would require courts simultaneously to police both the wholesale and retail
prices to ensure that rival firms are not being squeezed. Courts would be aiming at a moving
target, since it is the interaction between these two prices that may result in a squeeze.
Moreover, firms seeking to avoid price-squeeze liability will have no safe harbor for their
pricing practices. The most commonly articulated standard for price squeezes is that the
defendant must leave its rivals a fair or adequate margin between wholesale and retail
prices; this test is nearly impossible for courts to apply without conducting complex
proceedings like rate-setting agencies. Some amici argue that a price squeeze should be
presumed if the defendants wholesale price exceeds its retail price. But if both the
wholesale price and the retail price are independently lawful, there is no basis for imposing
antitrust liability simply because a vertically integrated firms wholesale price is greater than
or equal to its retail price.
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The judgment which held that the ISPs' price-squeeze claim was cognizable under 2 was
reversed and the case was remanded for further proceedings.