Ebook Antitrust law and intellectual property rights: Part 1

(BQ) Part 1 book Antitrust law and intellectual property rights has contents: The foundations of the intersection between antitrust law and intellectual property rights, the antitrust implications of unilateral conduct by intellectual property owners, the antitrust implications of horizontal agreements involving intellectual property

Antitrust Law and Intellectual Property Rights This page intentionally left blank Antitrust Law and Intellectual Property Rights CASES AND MATERIALS CHRISTOPHER R LESLIE 1 Oxford University Press, Inc., publishes works that further Oxford University’s objective of excellence in research, scholarship, and education Oxford New York Auckland Cape Town Dar es Salaam Hong Kong Karachi Kuala Lumpur Mexico City Nairobi New Delhi Shanghai Taipei Toronto Madrid Melbourne With offices in Argentina Austria Brazil Chile Czech Republic France Greece Guatemala Hungary Italy Japan Poland Portugal Singapore South Korea Switzerland Thailand Turkey Ukraine Vietnam Copyright © 2011 by Oxford University Press, Inc Published by Oxford University Press, Inc 198 Madison Avenue, New York, New York 10016 Oxford is a registered trademark of Oxford University Press Oxford University Press is a registered trademark of Oxford University Press, Inc All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of Oxford University Press, Inc Library of Congress Cataloging-in-Publication Data Leslie, Christopher R Antitrust law and intellectual property rights : cases and materials / Christopher R Leslie p cm Includes bibliographical references and index ISBN 978-0-19-533719-8 ((hardback) : alk paper) Intellectual property—United States Antitrust law—United States I Title KF3116.L47 2010 346.7304'8—dc22 2010020812 Printed in the United States of America on acid-free paper Note to Readers This publication is designed to provide accurate and authoritative information in regard to the subject matter covered It is based upon sources believed to be accurate and reliable and is intended to be current as of the time it was written It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services If legal advice or other expert assistance is required, the services of a competent professional person should be sought Also, to confirm that the information has not been affected or changed by recent developments, traditional legal research techniques should be used, including checking primary sources where appropriate (Based on the Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.) You may order this or any other Oxford University Press publication by visiting the Oxford University Press website at www.oup.com For Tony This page intentionally left blank CONTENTS Preface and Acknowledgments xix part one: the foundations of the intersection between antitrust law and intellectual property rights A Primer on Intellectual Property Law A Patents B Copyrights 11 C Trademarks 14 D Trade Secrets 18 E Other Forms of Intellectual Property 19 Comments and Questions 19 Bibliography of Additional Resources 21 A Primer on Antitrust Law 23 A Sherman Act (1890) 25 Section One of the Sherman Act 25 Section Two of the Sherman Act Monopolization 27 28 vii viii Contents Attempted Monopolization Conspiracies to Monopolize B Clayton Act (1914) 33 Tying Arrangements 33 Mergers 34 Other Aspects of the Clayton Act 35 C Federal Trade Commission Act (1914) 35 Remedies 31 32 35 Comments and Questions 36 Bibliography of Additional Resources 37 The Tension Between Antitrust and Intellectual Property 39 A A Brief History on the Relationship Between Antitrust Law and Intellectual Property Rights 39 Atari Games Corp v Nintendo of America, Inc 44 Comments and Questions 46 B The Relationship Between Intellectual Property and Market Power 46 DOJ-FTC Antitrust Guidelines for the Licensing of Intellectual Property, Sec 2.2 47 Illinois Tool Works v Independent Ink, Inc 47 Comments and Questions 54 Bibliography of Additional Resources 56 C Antitrust Law and the Misuse of Intellectual Property 56 Patent Misuse County Materials Corp v Allan Block Corp Comments and Questions 57 57 60 Copyright Misuse Lasercomb America, Inc v Reynolds Comments and Questions 61 61 64 Trademark Misuse 66 Bibliography of Additional Resources 67 Contents ix D Economic Concepts Price Discrimination Note on the Robinson-Patman Act Comments and Questions 68 70 71 Efficiency Thomas O Barnett, Interoperability Between Antitrust and Intellectual Property Comments and Questions 72 Networks Effects U.S v Microsoft Corp Comments and Questions 73 73 83 Bibliography of Additional Resources 84 part two: the antitrust implications of unilateral conduct by intellectual property owners 68 72 73 87 Enforcement of Intellectual Property Rights 89 A Enforcement of a Fraudulently Procured Patent 89 Walker Process Equipment v Food Machinery & Chemical Corp Comments and Questions 89 92 Dippin’ Dots, Inc v Mosey Comments and Questions 94 99 Brunswick Corp v Riegel Textile Corp Comments and Questions 100 103 Bibliography of Additional Resources 104 B Sham Litigation 104 CVD, Inc v Raytheon Co Comments and Questions 104 110 Note on the Noerr-Pennington Doctrine 111 Professional Real Estate Investors v Columbia Pictures Comments and Questions 113 118 Note on Filmtec Corp v Hydranautics 120 372 Antitrust Law and Intellectual Property Rights the all-purpose household cleaning market Sterling acquired the Lysol mark in 1966 Reckitt purchased Sterling’s assets in 1994, including the Lysol line As of June 1996, Reckitt enjoyed close to fifteen percent of the all-purpose household cleaning market, in contrast to Clorox’s market share of thirty-seven percent The Lysol brand name arrived on the market a few decades before Pine-Sol Lysol has been a federally registered trademark for disinfectants since 1906, and for cleaning products in general since the 1920s Lysol is famous as an aerosol spray disinfectant *** The Lysol name has become virtually synonymous with household disinfectants The Lysol aerosol spray disinfectant is in a class of its own, as only small brand-name products compete against it B The History of the Dispute The Lysol and Pine-Sol marks have not coexisted amicably The owners of these marks have been battling ever since the owners of Pine-Sol sought to register the trademark with the U.S Patent office in the 1940s When the maker of Pine-Sol products initially attempted to register the Pine-Sol mark, the owner of the Lysol mark opposed the registration The Examiner in Chief of the U.S Patent Office denied registration of Pine-Sol on account of what the Examiner determined to be a confusing similarity between the Pine-Sol and Lysol marks At the time, Pine-Sol was written as one word, similar to the way Lysol appears The Examiner reasoned that “Pine” can be slurred as “Pi” and “Pi-Sol” can thereby be confused with “Lysol.” [citation omitted] Despite the Examiner’s decision, the owners of the Pine-Sol mark continued to use it [The owner of the Lysol mark brought a trademark infringement suit, which settled.] The 1967 Agreement prohibited the use of the Pine-Sol mark on any “disinfectant product,” including “any product which is offered for sale, sold or promoted solely or in part” as a disinfectant or “as possessing or containing any disinfectant.” In return, the 1967 Agreement granted Cyanamid the right to introduce various cleaning products under the Pine-Sol name, including “soaps or detergents, laundry preparations, finishing products for hard or soft surfaces, or deodorants.” It also allowed Cyanamid to introduce agricultural fungicides, and insecticides and rodenticides, under the Pine-Sol mark The 1967 Agreement provided that Cyanamid could continue to promote Pine-Sol as primarily a liquid cleaner with disinfecting properties, subject to the same limitations provided in the 1956 Agreement Cyanamid agreed to discontinue manufacturing the Pine-Sol spray disinfectant, the subject of the 1965 lawsuit Nearly two decades later, in 1983, the battle resumed Cyanamid sued Sterling for marketing a product called Lysol PINE ACTION in a bottle similar to the one used by Pine-Sol Cyanamid argued that the 1967 Agreement contained a negative covenant prohibiting Sterling from introducing Lysol in the pine-oil product category Cyanamid also claimed that Sterling’s actions constituted unfair competition and trade dress infringement A few years later, with the 1983 action still pending, Cyanamid attempted to market a non-aerosol pump spray disinfectant under the Pine-Sol name Market Allocation and Intellectual Property Rights 373 As a result, Sterling sued Cyanamid in 1987 Sterling and Cyanamid resolved both lawsuits in the 1987 Agreement The 1987 Agreement modified the terms of the 1967 Agreement in important ways Cyanamid obtained the ability to market a “multi-purpose pump spray household cleaner with disinfecting properties.” Cyanamid obtained this limited consent from Sterling subject to many conditions, however These include the following, which Clorox now characterizes as the 1987 Agreement’s “most anticompetitive provisions: ã ả 3(c)-(d) and ả 4(e)-restricts the sale of “disinfectant products” under the Pine-Sol mark: only the basic liquid cleaner and a pump spray may be sold “in part” as disinfectants under the mark The product restrictions allow only one “form, scent or formula” of these two Pine-Sol products to be sold “in a single geographic area at the same time.” The provisions permit Clorox to market other disinfectant products with the Pine-Sol mark used as an endorsement mark for products sold under other trademarks, subject to limitations on the size and placement of the mark ã ả 4(a)-requires that the original Pine-Sol product be “sold, advertised, and promoted primarily as a cleaner rather than primarily as a disinfectant product.” This includes the requirement that the words “cleans” or “cleaner” be set forth before the words “disinfectant” or “disinfects” and that the words “cleans” or “cleaner” be more prominent ã ả 4(c)-prevents Pine-Sol products from being sold as anything other than generic cleaners, as opposed to special purpose cleaners like bathroom cleaners In return for allowing Cyanamid to market the disinfectant spray, Sterling obtained Cyanamid’s permission to market Lysol Pine Action Cleaner Clorox purchased the Pine-Sol assets in 1990, subject to the 1987 Agreement C Proceedings Below Clorox brought this action alleging that the 1987 Agreement serves no legitimate trademark purpose because there is no longer the likelihood of consumers confusing the Lysol and Pine-Sol marks Clorox claims that in restricting the way Clorox can use the Pine-Sol mark to compete, it violates the prohibition in Section One of the Sherman Act of unlawful agreements in restraint of trade See 15 U.S.C § *** The high barrier to introducing new household cleaning products, in the form of advertising costs and high risk, according to Clorox, requires that Clorox be allowed to use the already famous Pine-Sol mark to compete effectively against Reckitt in the alleged markets Lysol products dominate *** [The district court granted summary judgment to the defendant and Clorox appealed.] II Discussion On appeal, Clorox pursues its claim that the 1987 Agreement between Cyanamid and Sterling serves no valid trademark purpose and is therefore an illegal agreement in restraint of trade *** 374 Antitrust Law and Intellectual Property Rights B Agreement in Restraint of Trade: Sherman Act Section One Section One of the Sherman Antitrust Act makes illegal “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations .” 15 U.S.C § Clorox argues that the 1987 Agreement is unlawful because it serves no legitimate trademark purpose in preventing Clorox from advertising Pine-Sol products primarily as disinfectants and prohibiting Clorox from producing certain disinfectant products under the Pine-Sol name We must first determine the proper framework for analyzing Clorox’s Section One claim We begin with the fact that Clorox challenges a trademark agreement Such agreements are common, and favored, under the law [citation omitted] Unlike trademark agreements that in reality serve to divide markets, see, e.g., Timken Roller Bearing Co v United States, 341 U.S 593 (1951), and thus have been condemned as illegal per se under the antitrust laws, the agreement at issue here merely regulates the way a competitor *56 can use a competing mark Contrary to Clorox’s argument, the agreement does not effect any of the types of restraints that have historically been condemned as illegal per se, such as price fixing, market divisions, tying arrangements, or boycotts Accordingly, we must examine the summary judgment evidence in accordance with “rule of reason” analysis [citation omitted] Applying rule of reason analysis, we must determine whether the restraints in the agreement are reasonable in light of their actual effects on the market and their pro-competitive justifications [citation omitted] As we outlined in K.M.B., “[e]stablishing a violation of the rule of reason involves three steps.” 61 F.3d at 127 First, the “ ‘[p]laintiff bears the initial burden of showing that the challenged action has had an actual adverse effect on competition as a whole in the relevant market .’ ” Id [citation omitted] Then, “[i]f the plaintiff succeeds, the burden shifts to the defendant to establish the ‘pro-competitive “redeeming virtues” ‘of the action Should the defendant carry this burden, the plaintiff must then show that the same pro-competitive effect could be achieved through an alternative means that is less restrictive of competition.” Id [citation omitted] Ultimately, the goal is to determine whether restrictions in an agreement among competitors potentially harm consumers See SCFC ILC, Inc v Visa USA, Inc., 36 F.3d 958, 965 (10th Cir.1994) The focus of the inquiry on consumers “cannot be overemphasized and is especially essential when a successful competitor,” as here, “alleges antitrust injury at the hands of a rival.” Id We examine Clorox’s Section One claim according to this analytical framework Adverse Effects We begin by noting that Clorox faces a difficult task of proving that the 1987 Agreement harms competition in general As other courts and commentators have observed, trademarks are by their nature non-exclusionary A trademark, unlike other intellectual property rights, does not confer a legal monopoly on any good or idea; it confers rights to a name only Because a trademark “merely enables Market Allocation and Intellectual Property Rights 375 the owner to bar others from use of the mark, as distinguished from competitive manufacture and sale of identical goods bearing another mark, the opportunity for effective antitrust misuse of a trademark, as distinguished from collateral anti-competitive activities on the part of the manufacturer or seller of the goods bearing the mark, is so limited that it poses a far less serious threat to the economic health of the nation.” Carl Zeiss Stiftung v V.E.B Carl Zeiss, Jena, 298 F.Supp 1309, 1314 (S.D.N.Y.1969), aff’d in relevant part, 433 F.2d 686 (2d Cir.1970); see also McCarthy § 31:96, at 31–145 (“[B]ecause the economic exclusivity of a trademark is far less than that of a patent, there is far less opportunity for a trademark to play and integral role in violations of the antitrust laws.”) As Judge Mansfield noted in Carl Zeiss, “in almost every reported instance where the antitrust misuse of a trademark has been raised as a defense [in a trademark infringement suit], it has been rejected In the great majority of such cases the evidence revealed the antitrust activities to be collateral” to trademark protection See 298 F.Supp at 1314 The trademark agreement at issue here does no more than regulate how the name Pine-Sol may be used; it does not in any way restrict Clorox from producing and selling products that compete directly with the Lysol brand, so long as they are marketed under a brand name other than Pine-Sol Accordingly, at first blush it would not appear to restrict Clorox’s, much less any other competitor’s, ability to compete in the markets Lysol products allegedly dominate *** [I]t is difficult to show that an unfavorable trademark agreement raises antitrust concerns Even if such an agreement only marginally advances trademark policies, the antitrust laws not exist to protect competitors from agreements that in retrospect turn out to be unfavorable to the complaining party The antitrust laws protect consumers by prohibiting agreements that unreasonably restrain overall competition; thus, in order to fulfill the requirement of showing an actual adverse effect in the relevant market, “the plaintiff must show more than just that he was harmed by the defendant’s conduct.” See K.M.B., 61 F.3d at 127 Accordingly, Clorox cannot make a case under the antitrust laws unless it demonstrates that the 1987 Agreement may significantly harm competition as a whole, regardless of whether the agreement is entirely necessary to protect Reckitt’s trademark rights *** Clorox is free to market a cleaner-disinfectant that competes head-to-head against Lysol liquid disinfectant cleaner Clorox is only hampered by the restriction that Pine-Sol be advertised primarily as a cleaner rather than primarily as a disinfectant There is no prohibition on Clorox promoting the original Pine-Sol product-a product that has enjoyed enormous success despite the limitations imposed by the 1987 Agreement-in part as a disinfectant It did so until recently Although the agreement prohibits Clorox from producing an aerosol disinfectant spray under the Pine-Sol name, it does not prevent Clorox from producing such a spray using an endorsement mark indicating that the product is from the makers of Pine-Sol, although Clorox’s ability to so is subject to limitations on the size and placement of the mark It may well be that the restrictions in the agreement prevent Clorox from competing as effectively as it otherwise might Endorsement marks may not be as 376 Antitrust Law and Intellectual Property Rights effective as using a name brand as a primary mark, advertising a product primarily as a disinfectant may be more lucrative, and using the Clorox name may be less effective than using the popular Pine-Sol name to market disinfectant products The antitrust laws not guarantee competitors the right to compete free of encumbrances, however, so long as competition as a whole is not significantly affected [citation omitted] *** In light of the fact that the agreement leaves many other companies who produce cleaning products capable of competing against Reckitt’s Lysol products, including Clorox, we find unavailing Clorox’s attempt to bolster its Section One claim with evidence of Reckitt’s market power in various alleged cleaner-disinfectant categories *** [E]ven if true, Clorox’s claim that Reckitt maintains a seventy-percent share of the alleged pure liquid disinfectant cleaner market, and over a ninetypercent share of the alleged aerosol spray disinfectant market, and that Lysol products now earn super-competitive profits, does not establish that the restrictions in the 1987 Agreement violate Section One The agreement simply does not significantly restrict Clorox’s, or other competitors’, ability to enter these alleged markets Pro-Competitive Justifications Only if a plaintiff succeeds in establishing the actual adverse effects of an alleged restraint does the burden shift to the defendant to establish its pro-competitive redeeming virtues [citation omitted] Accordingly, as Clorox has not shown that the 1987 Agreement can significantly affect competition as a whole, it is immaterial whether the Agreement is entirely necessary to protect the senior Lysol mark [citation omitted] We note, however, that the pro-competitive justifications of the agreement bolster our conclusion that the agreement does not violate the antitrust laws As we stated previously, trademark agreements are favored in the law as a means by which parties agree to market products in a way that reduces the likelihood of consumer confusion and avoids time-consuming litigation Parties such as Clorox, Sterling, and their predecessors, are in a position to structure such agreements in the way that the parties believe best accommodates their interests in light of trademark law Accordingly, in the absence of any evidence that the provisions relating to trademark protection are auxiliary to an underlying illegal agreement between competitors-such as the territorial market division condemned in Timkenand absent exceptional circumstances, we believe the parties’ determination of the scope of needed trademark protections is entitled to substantial weight At the time of the execution of such an agreement, the parties are in the best position to determine what protections are needed and how to resolve disputes concerning earlier trademark agreements between themselves While the intent of the parties may not always be determinative, it is usually unwise for courts to second-guess such decisions In the absence of evidence to the contrary it is reasonable to presume that such arms-length agreements are pro-competitive Market Allocation and Intellectual Property Rights 377 The fact is, Clorox now complains about the antitrust consequences of the very agreement its predecessor freely entered, and which it voluntarily assumed, an agreement Clorox now claims harms its ability to compete There is no evidence that Cyanamid entered the agreement under duress Although Clorox raises some ambiguous evidence to suggest Sterling’s anticompetitive intent, there is not a scintilla of evidence that Cyanamid intended to conspire with Sterling to violate the antitrust laws in any way Rather, each competitor bargained freely over the potential use of the Pine-Sol name, in light of prior trademark agreements and the history of the trademark dispute between the owners of the competing Lysol and Pine-Sol marks While it is settled that a good intention will not relieve a party from civil antitrust liability, intent is nonetheless important in judging the pro-competitive purposes, and thus the likely overall competitive effects, of an alleged restraint [citation omitted] Efforts to protect trademarks, even aggressive ones, serve the competitive purpose of furthering trademark policies Where large competitors each represent their respective trademark interests, unless one party is irrational, the result should accord with how the parties view their respective rights *** Comments and Questions Clorox brought this case because Sterling had convinced a New Jersey state court to issue obtained a preliminary injunction against a television commercial for one of Clorox’s Pine-Sol products Sterling had argued that the commercial violated the 1987 Agreement because the commercial emphasized Pine-Sol’s disinfectant properties Are pine-scented cleaners a relevant product market? Why or why not? How does the answer affect the antitrust analysis? “Cyanamid argued that the 1967 Agreement contained a negative covenant prohibiting Sterling from introducing Lysol in the pine-oil product category.” Is that a form of market allocation? If so, why isn’t the restraint per se illegal? The Second Circuit discusses intent What should intent play in a case like this? Does it matter whether the court is using a per se or rule-of-reason approach? The Second Circuit cited earlier case law for the proposition that a trademark agreement, such as the one before it, “did not restrict a competitor’s ability to market products under names other than the one precluded by the agreement” and thus “did not state an antitrust claim.” (The court cited California Packing Corp v Sun-Maid Raisin Growers, 165 F.Supp 245 (S.D.Cal.1958), aff’d, 273 F.2d 282 (9th Cir.1959), and The Seven-Up Co v No-Cal Corp., 183 U.S.P.Q 165, 1974 WL 886 (E.D.N.Y.1974) At one point, the Second Circuit asserted that “trademarks are non-exclusionary.” Is that necessarily true? Clorox also brought a Section claim, asserting that the defendant had used the previous settlement agreement to illegally monopolize “various disinfectant cleaning markets.” The Second Circuit affirmed summary judgment for the defendant by referring to its Section analysis and concluding that the challenged 378 Antitrust Law and Intellectual Property Rights agreement left “Clorox, as well as other viable competitors in the household-cleaning industry, free to compete against Reckitt’s Lysol brand in the markets these products allegedly dominate.” After losing its Section claim, does Clorox’s Section have to fail as a matter of law? How is the agreement in Clorox, which the Second Circuit found lawful, distinguishable for the agreements in Timken, Sealy, Topco, and Palmer, all of which the Supreme Court condemned as violating Section of the Sherman Act? C Copyrights and Market Allocation Auwood v Harry Brandt Booking Office, Inc 850 F.2d 884 (2nd Cir 1988) KEARSE, Circuit Judge: Plaintiffs William Auwood and Neal S Ossen, as Trustees in bankruptcy for Liberty Theatre Corporation (“Liberty”), appeal from a final judgment entered in the United States District Court for the District of Connecticut following a jury trial before Peter C Dorsey, Judge, awarding them $3.00 as treble damages for injury suffered by Liberty as a result of an agreement or conspiracy among the defendants to allocate “first-run” films among theatres other than Liberty, in violation of § of the Sherman Antitrust Act, 15 U.S.C § (1982), 647 F.Supp 1551 On appeal, plaintiffs contend that the district court erred (1) in denying their motion for a new trial on the issue of damages, and (2) in reducing the jury’s damage award of $75,000, labeled by the jury as “nominal,” to $1 Defendants Harry Brandt Booking Office, Inc (“Brandt”), Groton Cinema, Inc (“Groton Cinema”), and United Artists Communications, Inc (“UA Communications”), cross-appeal, contending (1) that the court should have granted judgment in their favor notwithstanding the verdict (“n.o.v.”) because plaintiffs failed to prove a conspiracy of which defendants were members and failed to prove injury, *** I Background From 1976 to 1981, Liberty operated a movie theatre in Uncasville, Connecticut, midway between the cities of Norwich and New London In the operation of its business, Liberty sought to license motion pictures for exhibition on a “first-run” basis, i.e., to give the first exhibition of a film released by a major film distributor in a given geographical market It secured few first-run films, and in 1981 it declared bankruptcy In 1979, Liberty and Auwood, its principal, commenced the present action against several theatre chains and film distributors, alleging that the defendants had entered into an agreement among themselves to allocate the rights to license first-run films among the exhibitor parties to the agreement, to the exclusion of Liberty, thereby causing injury to Liberty in its business and property in violation of § of the Sherman Act, 15 U.S.C § *** Market Allocation and Intellectual Property Rights 379 After some years of discovery, several of the defendants entered into settlement agreements with plaintiffs They paid plaintiffs a total of at least $97,000 and were dismissed from the case The case proceeded to trial against the present defendants: Groton Cinema, which operated a movie theatre in New London; UA Communications, which is Groton Cinema’s parent (also referred to as “UATC”); and Brandt, which was a booking agent for Groton Cinema and a theatre in Norwich (the “Norwich Cinema”) *** A 13-day jury trial was held, with the jury considering separately the issues of liability and damages *** On the liability issues, the jury found that Brandt, Groton Cinema, and UA Communications had formed, joined, or participated in a conspiracy, combination, or agreement which was intended to and did constitute an unreasonable restraint of trade It found that these actions adversely affected Liberty’s opportunities to obtain a fair allocation of first-run films and proximately caused injury to Liberty’s business *** II Discussion On the present appeals, defendants contend principally that the district court should have granted their motions for judgment n.o.v because plaintiffs failed to prove (a) the existence of a conspiracy to allocate first-run films, (b) the participation by the defendants in such a conspiracy, or (c) any quantifiable injury resulting from unlawful conduct on the part of the defendants *** A The Denial of Judgment N.O.V as to Liability Defendants’ contentions that they were entitled to judgment in their favor notwithstanding the jury’s findings against them on the issues of liability need not detain us long *** As the district court noted, there was ample evidence that the first-run exhibition of acclaimed films was more profitable than the subsequent exhibition of such films or the first exhibition of so-called “dogs.” Despite the evidence that Liberty’s gross income potential for first-run films was comparable to that of Norwich Cinema, Liberty received less than half as many first-run films as Norwich Cinema; it received only some 60% as many first-run films as other theatres whose gross income potential was less than that of Liberty The evidence as to the cause of Liberty’s receipt of so few first-run films included the testimony of a witness experienced in the film distribution business who testified that an agreement among distributors and theatres to allocate, or “split,” first-run films among participating theatres caused certain first-run films bid on by Liberty to be licensed to Groton Cinema or other participating theatres and not to Liberty From about 1967 to 1980, James Engle had been employed at various times in New England as a branch manager for Warner Brothers Pictures, or as an assistant branch manager and branch manager for Paramount Pictures; he had been a partner in Jed Parker Films, an independent film distribution company in Boston, and had owned his own film distribution company As Boston branch manager for Warner Brothers 380 Antitrust Law and Intellectual Property Rights Pictures in 1976–1978, Engle’s territory included the New London-Norwich area He testified that [t]he splitting had been going on for some time in that area, long before I ever reached Warner Brothers I found that out working at Jed Parker Films and also at Paramount Pictures Q When you were at Warner Brothers, would exhibitors call up from time to time and say anything that would indicate that there might be a split? A Yes I would get calls from RKO and Warner, “It’s my picture, put it in on a particular availability date.” I would get calls from UATC, from Nat Harris [UATC’s booker], telling me the same thing As an example of the denial of films to Liberty because of the allocation agreement, Engle testified that when he had been at Warner Brothers some two and one-half months, Liberty made a bid on “All the President’s Men,” and Engle recommended that Liberty be allowed to show that film at the same time as Groton Cinema His recommendation was met by “a very irate” telephone call from his division manager, asking “who the hell the Liberty Theater was.” Q Did he say anything? A He said, “Don’t be stupid.” He said, “The picture belongs to UATC and that’s where it’s going to play Q Did you have any understanding with respect to how that picture was sold? A That picture was awarded on a split basis Engle testified that even when the ostensible reason for licensing a film to another theatre instead of to Liberty was a higher bid or guarantee from the other theatre, the latter often in fact paid less than the amount of Liberty’s bid The motive for distributors to adhere to the allocation agreement was that the participating theatres were required to show “dogs” as well as acclaimed films, thereby assuring distributors of outlets for all of their films, not just the most popular We conclude that the evidence in the record as a whole was sufficient to permit the jury to infer that there existed a conspiracy to allocate first-run films, that the defendants were parties to that conspiracy, and that the operation of the conspiracy caused injury to Liberty Although there was also evidence that there might have been other reasons for Liberty’s failure to receive more first-run films, the district court properly noted that the resolution of the conflicting evidence was a matter for the jury The jury was not required to accept defendants’ explanations, and we are not entitled to overturn the jury’s credibility evaluations or the inferences it chose to draw The motions for judgment n.o.v were properly denied *** Comments and Questions The 2nd Circuit reinstated the jury award of $75,000, which was trebled to $225,000, and then deducted the previous settlements from it Market Allocation and Intellectual Property Rights 381 How is the split arrangement similar to and different from block-booking? Where is the anticompetitive effect? Should antitrust care about movie splits? D International Intellectual Property Regimes and Market Allocation Metro Industries, Inc v Sammi Corp 82 F.3d 839 (9th Cir 1996) WIGGINS, Circuit Judge: Metro Industries, Inc (“Metro”), an importer and wholesaler of kitchenware, sued Sammi Corp (“Sammi”), a South Korean exporting company, and two of its American subsidiaries alleging, inter alia, that a Korean design registration system, which gives Korean holloware producers the exclusive right to export a particular holloware design for three years, constituted a market division that is a per se violation of section of the Sherman Antitrust Act, 15 U.S.C § Metro alleges that Sammi used this registration system in 1983 to prevent Metro and other kitchenware importers from acquiring Korean-made stainless steal steamers from any of Sammi’s competitors in Korea Metro appeals the district court’s grant of Sammi’s motion for summary judgment on Metro’s Sherman Act § claim, which was based on the district court record from Vollrath Co v Sammi Corp., F.3d 1455 (9th Cir.1993), cert denied, 511 U.S 1142, 114 S.Ct 2163, 128 L.Ed.2d 886 (1994), a case in which another importer of Korean kitchenware sued Sammi for alleged violations of §§ and of the Sherman Act We have jurisdiction pursuant to 28 U.S.C § 1291 and AFFIRM Facts and Procedural History Metro is an importer and distributor of kitchenware products Metro started a stainless steel kitchenware business in about 1977, importing mixing bowls from a Korean supplier called Haidong In 1978 it began to purchase bowls from Sammi, and over the next few years, expanded its business to include other kitchenware By 1981, importing and selling stainless steel kitchenware constituted Metro’s principal business activity Sammi is a large Korean trading company that purchases a wide variety of finished products, including stainless steel steamers, for export to the United States and other countries Sammi is a member of the Korea Holloware Association See Vollrath, F.3d at 1462 This association, through a thirteen-member design registration committee, grants pattern and design registration rights for particular products based on the shape, appearance, and color of the products Id The registration committee consists of members from manufacturing companies, trading companies, the Korea Association of patent attorneys, and three members of 382 Antitrust Law and Intellectual Property Rights Korean government organizations A trading company, such as Sammi, can only hold a pattern design right jointly with a manufacturer Id Registration gives the design holder the exclusive right to export a particular design for three years, and the rights can be extended for three additional years According to Metro, in late 1981, it raised the idea of a line of stainless steel steamers with Sammi, provided Sammi with models, and asked Sammi to develop samples and to prepare to supply the steamers Sammi registered the steamer design and began to supply Metro with steamers Metro experienced a disruption of steamer deliveries from Sammi at some time during 1983 Metro alleges that its attempts to order the steamers from another company were blocked by Sammi Eventually, in late 1983, Metro was able to secure a source of steamers from a Korean company called Sambo and apparently had no further disruptions in its steamer shipments In December 1983, Metro filed a complaint in the United States District Court for the Central District of California against Sammi and two of its American subsidiaries alleging violations of §§ and of the Sherman Act (15 U.S.C §§ and 2) and §§ 2, 3, and of the Clayton Act (15 U.S.C §§ 13, 14, and 18), and various violations of California law In June 1984, the claims against Sammi were dismissed for lack of personal jurisdiction *** [After a related case was decided] Metro began arguing a new theory-that the Korean design registration system under which Sammi had the exclusive rights to manufacture a particular steamer design constituted a market division that was illegal per se under § of the Sherman Act In May 1994, Sammi filed a motion to dismiss all claims against Sammi and its subsidiaries pursuant to Rules 52(c) and 56(b) of the Federal Rules of Civil Procedure Metro filed an opposition and cross-motion for partial summary judgment on the liability portion of the market division claim, relying entirely on the Vollrath record The district court granted Sammi’s motion for summary judgment and denied Metro’s cross-motion, finding that Metro had failed to present sufficient evidence to carry its burden on any of its claims Discussion Metro appeals only the district court’s grant of summary judgment in favor of Sammi on Metro’s Sherman Act § market division claim and the court’s denial of Metro’s cross-motion for summary judgment We review a district court’s grant of summary judgment de novo [citation omitted] Section of the Sherman Antitrust Act, as amended in 1990, reads, in relevant part: Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal 15 U.S.C § (1994) Metro alleges that the Korean Holloware Association registration system constitutes a “naked” market division agreement, which is per se illegal Market Allocation and Intellectual Property Rights 383 under the Sherman Act Thus, Metro argues, an examination of the impact of the registration system on competition in the United States is not necessary to find a violation of § Because conduct occurring outside the United States is only a violation of the Sherman Act if it has a sufficient negative impact on commerce in the United States, per se analysis is not appropriate *** I Per Se Treatment is Inappropriate in This Case “Ordinarily, whether particular concerted activity violates § of the Sherman Act is determined through case-by-case application of the so-called rule of reason-that is, ‘the factfinder weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition.’ “Business Elecs Corp v Sharp Elecs Corp., 485 U.S 717, 723 (1988) (quoting Continental T.V., Inc v GTE Sylvania Inc., 433 U.S 36, 49 (1977)) “Certain categories of agreements, however, have been held to be per se illegal, dispensing with the need for case-by-case evaluation.” Id “Such agreements are those that always or almost always tend to restrict competition and decrease output.” United States v Brown, 936 F.2d 1042, 1045 (9th Cir.1991) (internal citations omitted) In general, “[a] market allocation agreement between competitors at the same market level is a classic per se antitrust violation.” Id A The Korean Registration System is Not Illegal Per Se Where the conduct at issue is not a garden-variety horizontal division of a market, we have eschewed a per se rule and instead have utilized rule of reason analysis Northrop Corp v McDonnell Douglas Corp., 705 F.2d 1030, 1050 (9th Cir.) [citation omitted] In deciding whether to extend the per se rule to a previously unexamined business practice, we are to examine whether “the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output, or instead one designed to ‘increase economic efficiency and render markets more, rather than less, competitive.’ “Broadcast Music, Inc v Columbia Broadcasting Sys., 441 U.S 1, 19-20 (1979) (quotation omitted) The Korean registration system is not a classic horizontal market division agreement in which competitors at the same level agree to divide up the market for a given product Metro does not point to, and we have not found, a single instance in which an arrangement similar to the Korean manufacturer-exporter design registration system has undergone judicial scrutiny in the Sherman Act context The novelty of this arrangement, “strongly supports application of rule-of-reason analysis.” Northrop, 705 F.2d at 1051; see also United States v Topco Assoc., Inc., 405 U.S 596, 607–08 (1972) (“It is only after considerable experience with certain business relationships that courts classify them as per se violations of the Sherman Act.”) Further, as discussed below, there is no evidence of a negative effect on competition, which also militates against extension of the per se rule Northrop, 705 F.2d at 1052; Cascade Cabinet Co v Western Cabinet & Millwork Inc., 710 F.2d 1366, 384 Antitrust Law and Intellectual Property Rights 1372 (9th Cir.1983) The record reveals that the registration protection was limited to particular designs of a product “based on shape, appearance, and color of the products.” Vollrath, F.3d at 1462 The protection extends for only three years, renewable for three additional years Contrary to Metro’s assertions, the record does reveal the output increasing potential of the registration system Sammi’s general manager of housewares indicated that tooling and production of a new product takes several years Thus, the limited protection could encourage manufacturers to develop and produce new products, knowing that they would have the exclusive right to export a particular design for a limited period of time Finally, there is no evidence that the purpose of the design registration system was to restrain trade, which also counsels in favor of rule of reason analysis Northrop, 705 F.2d at 1053 The Korean association was apparently a quasigovernmental group (in that it was sanctioned by the Korean government and three of its thirteen members were representatives of the Korean government) that was formed to ensure product and design quality and to protect from copying Sammi’s general manager of housewares indicated that the system was designed “to promote the manufacturer to develop better quality product, a better quality design, and protect them from copy[ing] by other manufacturers.” Accordingly, rule of reason analysis is appropriate in this case B Foreign Conduct Cannot Be Examined Under the Per Se Rule Even if Metro could prove that the registration system constituted a “market division” that would require application of the per se rule if the division occurred in a domestic context, application of the per se rule is not appropriate where the conduct in question occurred in another country Determining whether the registration system was a violation of the antitrust laws would still require an examination of the impact of the system on commerce in the United States “The Sherman Act does reach conduct outside our borders, but only when the conduct has an effect on American commerce.” Matsushita Elec Indus Co v Zenith Radio Corp., 475 U.S 574, 582 n (1986) See also Hartford Fire Ins Co v California, 509 U.S 764, 796 (1993) (“[I]t is well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.”) According to a leading treatise: [T]he conventional assumptions that courts make in appraising restraints in domestic markets are not necessarily applicable in foreign markets A foreign joint venture among competitors, for example, might be more “reasonable” than a comparable domestic transaction in several respects: the actual or potential harms touching American commerce may be more remote; the parties’ necessities may be greater in view of foreign market circumstances; and the alternatives may be fewer, more burdensome, or less helpful The fact that foreign conduct would be a per se offense-one that is condemned without proof of particular effects and with little regard for possible justifications in the particular case-when entirely domestic does not call for a fundamentally different analysis Domestic antitrust policy uses per se rules for conduct that, in most of Market Allocation and Intellectual Property Rights 385 its manifestations, is potentially very dangerous with little or no redeeming virtue That rationale would be inapplicable to foreign restraints that, in many instances, either pose very little danger to American commerce or have more persuasive justifications than are likely in similar restraints at home For example, price fixing in a foreign country might have some but very little impact on United States commerce Phillip Areeda & Donald F Turner, Antitrust Law ¶ 237 (1978) Thus, the potential illegality of actions occurring outside the United States requires an inquiry into the impact on commerce in the United States, regardless of the inherently suspect appearance of the foreign activities Consequently, where a Sherman Act claim is based on conduct outside the United States, we apply rule of reason analysis to determine whether there is a Sherman Act violation *** [The court went on to conclude that, despite the foreign origin of the restraint, federal courts have jurisdiction to review that challenged arrangement under the rule of reason, but that Metro’s claim nevertheless failed because it produced no evidence of injury to competition in the United States.] Comments and Questions Can you define the relevant market in a way that the defendants have market power? What type of evidence would you need to develop? Should the Sherman Act reach foreign-based conduct? If so, under what circumstances? The court noted that “Sammi’s general manager of housewares indicated that tooling and production of a new product takes several years.” If that is true, why they need three years of protection? E DOJ-FTC Antitrust Guidelines for the Licensing of Intellectual Property, Sec 5.1 5.1 Horizontal restraints The existence of a restraint in a licensing arrangement that affects parties in a horizontal relationship (a “horizontal restraint”) does not necessarily cause the arrangement to be anticompetitive As in the case of joint ventures among horizontal competitors, licensing arrangements among such competitors may promote rather than hinder competition if they result in integrative efficiencies Such efficiencies may arise, for example, from the realization of economies of scale and the integration of complementary research and development, production, and marketing capabilities Following the general principles outlined in section 3.4, horizontal restraints often will be evaluated under the rule of reason In some circumstances, however, that analysis may be truncated; additionally, some restraints may merit per se treatment, including price fixing, allocation of markets or customers, agreements to reduce output, and certain group boycotts 386 Antitrust Law and Intellectual Property Rights EXAMPLE Situation: Two of the leading manufacturers of a consumer electronic product hold patents that cover alternative circuit designs for the product The manufacturers assign their patents to a separate corporation wholly owned by the two firms That corporation licenses the right to use the circuit designs to other consumer product manufacturers and establishes the license royalties None of the patents is blocking; that is, each of the patents can be used without infringing a patent owned by the other firm The different circuit designs are substitutable in that each permits the manufacture at comparable cost to consumers of products that consumers consider to be interchangeable One of the Agencies is analyzing the licensing arrangement Discussion: In this example, the manufacturers are horizontal competitors in the goods market for the consumer product and in the related technology markets The competitive issue with regard to a joint assignment of patent rights is whether the assignment has an adverse impact on competition in technology and goods markets that is not outweighed by procompetitive efficiencies, such as benefits in the use or dissemination of the technology Each of the patent owners has a right to exclude others from using its patent That right does not extend, however, to the agreement to assign rights jointly To the extent that the patent rights cover technologies that are close substitutes, the joint determination of royalties likely would result in higher royalties and higher goods prices than would result if the owners licensed or used their technologies independently In the absence of evidence establishing efficiency-enhancing integration from the joint assignment of patent rights, the Agency may conclude that the joint marketing of competing patent rights constitutes horizontal price fixing and could be challenged as a per se unlawful horizontal restraint of trade If the joint marketing arrangement results in an efficiency-enhancing integration, the Agency would evaluate the arrangement under the rule of reason However, the Agency may conclude that the anticompetitive effects are sufficiently apparent, and the claimed integrative efficiencies are sufficiently weak or not reasonably related to the restraints, to warrant challenge of the arrangement without an elaborate analysis of particular industry circumstances (see section 3.4) ... 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