U.S. AND E.C. ANTITRUST APPROACHES TO PATENT UNCERTAINTY

Law and Policy in International Business, Summer 2003 by Tom, Willard K, Gilman, Alexis J

The European Commission's Technology Transfer Block Exemption Report ("TTBE Report")1 represents another step in the continuing convergence of U.S. and European approaches to the relationship between antitrust and intellectual property law. In the pre-1996 block exemption framework, intellectual property licensing arrangements in the European Communities were governed by extensive "black," "white," and "grey" lists of forbidden, permitted, and questionable license restrictions that had more in common with the "Nine No-No's" approach that dominated U.S. antitrust thinking from the 1940's to the mid1970's than with the more economically based perspective represented in the 1988 U.S. Department of Justice Guidelines for International Operations2 or the 1995 DOJ-FTC Intellectual Property Guidelines ("IP Guidelines")3 The 1996 Technology Transfer Block Exemption ("TTBE") pared those lists down and, like its U.S. counterpart, treated intellectual property licensing agreements more favorably than in the past. The TTBE Report takes another large step in the direction of the U.S. approach, particularly by seeming to endorse one of the most fundamental concepts under the U.S. IP Guidelines-that the relationship between two parties to a transaction is horizontal only if there would have been competition between those parties absent a license between them.4

Neither the U.S. IP Guidelines nor the TTBE Report, however, deal adequately with an important difference between intellectual property and other forms of property: that the boundaries and even the validity of intellectual property are often highly uncertain. This is a key deficiency because, as the U.S. IP Guidelines make clear, a key antitrust concept-whether a relationship between two parties to a transaction is horizontal or vertical"-depends in many cases on whether there would have been competition between the two parties absent a license between them. Whether there would have been such competition or not may, in turn, depend on the scope and validity of the patents owned by one or both of the parties: if the scope is narrower than the patent owner claims, the patent may not be infringed and competition could have flourished without a license; if the patent is infringed but is invalid, competition again does not require a license. Thus, if the scope or validity of the patents owned by one or both of the parties is uncertain, then it may not be known-either by the parties at the time of the conduct or by the court at the time of hearing an antitrust challenge-whether the parties are horizontal competitors or not, and hence whether the conduct is lawful or not. How should an antitrust authority treat a situation in which either it or the parties literally don't know, or didn't know at the relevant time?

Not including merger cases,6 such situations have come before U.S. courts and agencies more than a dozen times in the last few years,7 often in cases involving hundreds of millions of dollars of commerce. Analyses of this issue to date have been less than comprehensive, however, and no single approach to dealing with this issue has secured a consensus. Part I of this article will provide a brief background on E.G. competition law and its convergence with U.S. law. It will also explain why the laudable convergence of E.G. and U.S. approaches to the antitrust/intellectual property interface will force the Europeans, too, to confront this problem.

Part II will survey the different approaches that U.S. courts and competition authorities have used or might use to analyze agreements between companies whose ability to compete with each other absent the agreement depends on patents of undetermined validity and scope, and the problems and issues raised by each approach. Because the centrality of the "competition absent the license" issue is currently a feature only of U.S. law-the E.G. having only hinted at it in a non-binding study report and draft guidelines-this survey will concentrate on U.S. cases.

Part III discusses important considerations in devising a sensibleapproach to such cases, including the need to reward innovation, the costs of decisional rules that either under-deter anticompetitive conduct or over-deter procompetitive conduct, and the need for certainty in the application of relevant enforcement laws.

Finally, Part IV offers concluding comments and notes some possible options for dealing with patent uncertainty.

I. BACKGROUND: THE CONVERGENCE OF EUROPEAN COMMISSION AND U.S. APPROACHES TO THE APPLICATION OF ANTITRUST TO INTELEECTUAL PROPERTY

From private practitioners and scholars8 to antitrust enforcement officials9 there is general consensus that the U.S. and E.G. approaches to antitrust issues have been converging. It has been written that:

[T]he concurrence of ... regulatory and policy developments on both sides of the Atlantic, coupled with the expressly recognized goal of coordination and cooperation by authorities in both the EU and the United States, emphasizes the similarities between [the TTBE] and the IP Guidelines. Indeed, one may safely argue that that there currently exists a greater degree of convergence in antitrust policy, regulation and enforcement than ever before between the EU and the United States.10