Dick Co. See 38 Stat. Universal Film Mfg. Mid-Continent Investment Co. In the years since A. Dick , four different rules of law have supported challenges to tying arrangements.
As we explained in Jefferson Parish , U. Rather than relying on assumptions, in its more recent opinions the Court has required a showing of market power in the tying product.
United States Steel Corp. After the Court remanded the suit in Fortner I , a bench trial resulted in judgment for the plaintiff, and the case eventually made its way back to this Court.
Like the product at issue in the Fortner cases, the tying product in Jefferson Parish —hospital services—was unpatented, and our holding again rested on the conclusion that the plaintiff had failed to prove sufficient power in the tying product market to restrain competition in the market for the tied product—services of anesthesiologists.
In rejecting the application of a per se rule that all tying arrangements constitute antitrust violations, we explained:. Thus, application of the per se rule focuses on the probability of anticompetitive consequences.
United States v. Any effort to enlarge the scope of the patent monopoly by using the market power it confers to restrain competition in the market for a second product will undermine competition on the merits in that second market.
Thus, the sale or lease of a patented item on condition that the buyer make all his purchases of a separate tied product from the patentee is unlawful. Notably, nothing in our opinion suggested a rebuttable presumption of market power applicable to tying arrangements involving a patent on the tying good.
See infra , at 14; cf. In her opinion, she questioned not only the propriety of treating any tying arrangement as a per se violation of the Sherman Act, id. That doctrine had its origins in Motion Picture Patents Co. Although Motion Picture Patents Co. American Patents Development Corp.
The presumption that a patent confers market power migrated from patent law to antitrust law in International Salt Co. United States , O. Building on its assertion that International Salt was logically indistinguishable from Morton Salt , the Government argued that this Court should place tying arrangements involving patented products in the category of per se violations of the Sherman Act. United States Brief 26— Columbia Steel Co. And in subsequent cases we have repeatedly grounded the presumption of market power over a patented device in International Salt.
Although the patent misuse doctrine and our antitrust jurisprudence became intertwined in International Salt , subsequent events initiated their untwining. Shortly thereafter, Congress codified the patent laws for the first time.
See 66 Stat. Four years after our decision in Jefferson Parish repeated the patent—equals—market—power presumption, U. The relevant provision reads:. While the amendment does not expressly refer to the antitrust laws, it certainly invites a reappraisal of the per se rule announced in International Salt. See 15 U. Areeda, H. While some such arrangements are still unlawful, such as those that are the product of a true monopoly or a marketwide conspiracy, see, e.
Paramount Pictures, Inc. Rather than arguing that we should retain the rule of per se illegality, respondent contends that we should endorse a rebuttable presumption that patentees possess market power when they condition the purchase of the patented product on an agreement to buy unpatented goods exclusively from the patentee.
Respondent recognizes that a large number of valid patents have little, if any, commercial significance, but submits that those that are used to impose tying arrangements on unwilling purchasers likely do exert significant market power. Respondent also offers a narrower alternative, suggesting that we differentiate between tying arrangements involving the simultaneous purchase of two products that are arguably two components of a single product—such as the provision of surgical services and anesthesiology in the same operation, Jefferson Parish , U.
In International Salt , it was the existence of the patent on the tying product, rather than the use of a requirements tie, that led the Court to presume market power. Moreover, the requirements tie in that case did not involve any price discrimination between large volume and small volume purchasers or evidence of noncompetitive pricing.
As we have already noted, the vast majority of academic literature recognizes that a patent does not necessarily confer market power.
See n. Similarly, while price discrimination may provide evidence of market power, particularly if buttressed by evidence that the patentee has charged an above-market price for the tied package, see, e.
We are not persuaded that the combination of these two factors should give rise to a presumption of market power when neither is sufficient to do so standing alone.
Rather, the lesson to be learned from International Salt and the academic commentary is the same: Many tying arrangements, even those involving patents and requirements ties, are fully consistent with a free, competitive market. See supra , at 8. While that choice is not binding on the Court, it would be unusual for the Judiciary to replace the normal rule of lenity that is applied in criminal cases with a rule of severity for a special category of antitrust cases.
Congress, the antitrust enforcement agencies, and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee. Today, we reach the same conclusion, and therefore hold that, in all cases involving a tying arrangement, the plaintiff must prove that the defendant has market power in the tying product. In this case, respondent reasonably relied on our prior opinions in moving for summary judgment without offering evidence defining the relevant market or proving that petitioners possess power within it.
Accordingly, the judgment of the Court of Appeals is vacated, and the case is remanded for further proceedings consistent with this opinion. Justice Alito took no part in the consideration or decision of this case. Illinois Tool did not acquire Trident until February 19, , approximately six months after this action commenced.
While our opinions have made clear that such an invitation is not necessary with respect to cases arising under the Sherman Act, see State Oil Co. Khan , U. Our imposition of this requirement accords with the vast majority of academic literature on the subject. The court of appeals emphasized their duty to follow the precedents of the Supreme Court until the Court itself chooses to overrule them.
Since the Supreme Court has established a presumption of market power in patent tying cases, Id. On June 20, the Supreme Court granted certiorari to review the case. Critically, Illinois Tool Works, Inc. They do not argue against the existence of the market power presumption in patent tying cases. Instead, they insist that the rule must be overturned, first by attacking the foundation on which the presumption rests.
In earlier tying cases, the Court concluded that, since a patent resembles a monopoly in some respects, it must convey market power the way a monopoly does. Brief for the Petitioners at This conclusion ignores the fact that patents themselves only protect a unique form of a given product.
Even when a patented device is initially unique, it encourages competitors to develop substitute products that do not infringe on the patent. The market power requirement exists to distinguish between tying arrangements which serve benign, pro-competitive forces, and those where a company uses its dominance in one market to force a product on consumers in a different, generally competitive market.
By eliminating the market power requirement in patent tying cases, Illinois argues that the presumption robs federal courts of the ability to tell good tying from bad. Illinois next argues that, historically, the Court's decisions establishing the presumption rule were based on a hostility to tying that the Court has since discarded. Historically, the Court has grown increasingly aware of the beneficial effects of tying-buyers often prefer a package deal, and a seller may provide them merely to stay competitive, not to force its products on its customers.
As a result, the Court's recent decisions have demanded a stronger showing of market power to support a finding of illegal tying. In addition, the Court has never applied the presumption that a patent confers market power outside the tying context. In sum, the rule has become obsolete-if the Court were deciding the issue for the first time, it would never adopt such a rule.
Illinois also argues that "distinguished commentators from every point on the antitrust spectrum" feel that the Court should discard the presumption. Obviously, scholarly opinion does not bind the Court. However, when the Court finds a general scholarly consensus against its past antitrust rules, it has relied on such consensus as one factor supporting a rule's abolition.
Illinois urges the Court to do so in this case as well. In State Oil Co. Khan , for example, the Court took notice of the "great weight" of scholarly authority in overruling a decision that vertical maximum price fixing constituted a per se violation of the Sherman Act. Regardless of the economic reality, Illinois argues that the presumption improperly distributes burdens in antitrust litigation. The presumption is difficult to rebut-parties cannot merely show that substitutes for the patented product exist, they must conduct and present a "full-blown antitrust market analysis," Id.
As a result, many companies may decide to settle a claim, even when faced with "the sketchiest allegation[s]" of anti-competitive practices. As a result, the rule encourages plaintiffs with sketchy claims to sue, in hopes of extorting a favorable settlement and thereby encourages frivolous litigation.
Finally, Illinois argues that other federal actors have seen the light and abandoned the presumption long ago. Federal antitrust enforcement agencies, in two presidential administrations with quite different political and economic ideologies, have refused to bring antitrust actions against companies, absent a showing of market power. Again, while these agencies' actions do not bind the Court, it has found such evidence a relevant factor in past decisions, such as Copperweld Corp.
Independence Tube Corp. Brief for Respondent at The doctrine applies with full force here because the decisions recognizing a market power presumption do not merely reflect evolving common law reasoning, but judicial interpretations of explicit congressional commands embodied in federal antitrust law.
As a result, the party challenging the rule must show that it defies "practical workability," that changes in the law make the rule obsolete, or that changed circumstances have rendered the rule insignificant or unjustified. Casey , U. First, Independent claims that while many patents may have little or no value, and thus confer no market power, patents used in tying arrangements are a unique subset of patents. Every patent, because it embodies a limited government-granted monopoly, contains the potential for market power.
Patents used in tying arrangements have realized this potential-if such products were not valuable, the tying requirement would be useless. Since consumers would normally prefer an unconditional license to a conditional one, their acceptance of a conditional license demonstrates the value of the patented product. Because valuable products confer market power, it is therefore quite reasonable to presume, in the context of patent tying, that the existence of a patented product demonstrates the existence of market power.
Independent also asserts that the presumption rule itself increases efficiency and fairness. Generally, proving a positive assertion is easier than proving a negative one, but the opposite is true when proving market power. Courts normally require parties to present elaborate and costly market share analysis to establish market power. The current presumption therefore puts the burden on the party best positioned to bear it, advancing meritorious claims while promptly dispatching meritless ones.
Next, Independent addresses Illinois' policy concerns. First, abolishing the rule would mark a substantial change in statutory policy, suggesting this is a decision that Congress, not the Court, should make. Congress's enactment of the Patent Misuse Protection Act does not undermine the presumption-since the House deleted provisions in the Senate Bill designed to eliminate the presumption, the resulting act should be interpreted as intent to affirm the presumption.
The Department of Justice enforcement guidelines relied on by Illinois provide no illumination-they deal with governmental enforcement policy, reflecting administration priority, not evidentiary burdens in civil litigation. Empirically, the presumption does not discourage innovation-since the Court affirmed Jefferson Parish in , patent applications have only skyrocketed. The law, regardless of the presumption, has other mechanisms to protect beneficial tying arrangements.
For example, the requirement that illegal tyings bind economically separate products protects legitimate tying arrangements that are created to capitalize on economies of scale. Finally, even if the rule changes, Independent argues that it affirmatively proved Illinois' market power, and is, therefore, entitled to its verdict.
Market power can be proven by "direct evidence" of its exercise, which the record in this case clearly reflects-how else could Illinois have persuaded Independent and other companies to buy its ink, when chemically identical alternatives offered by other companies sold for roughly one-third of their price? The case raises two questions, a policy question and a legal question.
The first is the soundness of the presumption that tying a patented product to an unpatented one demonstrates market power. A company wields market power when it has significant influence over the price of goods in a particular market.
A monopolist, for example, clearly has market power. Since it is the only entity selling a particular good, it can price the good at the highest price that consumers are willing to pay regardless of lower prices by competitors. Illinois contends that presuming the existence of market power in tying arrangements involving patents simply fails to reflect economic reality.
Since many patents have no value and thus no demand , patent protection alone cannot establish the existence of market power. Independent counters that tying cases do not involve "most patents," they involve patents on unique and valuable products. When a company patents a valuable product, they are, in effect, exercising a government-granted monopoly over a desirable good. In such circumstances, it is perfectly reasonable to presume that they have market power, especially where the presumption is rebuttable.
As a result, a rule requiring their opponents in litigation to prove such power would be absurd. Even if the presumption represents economic reality, the question remains whether it provides a helpful rule for antitrust litigation.
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