The Supreme Court, in Illinois Tool Works Inc. v. Independent Ink, Inc., has unanimously set a new legal standard for antitrust challenges to intellectual property owners who use tying arrangements. The term “tying arrangement” refers to the business practice of conditioning the sale of one product on the purchase of additional products from the same seller.
In the Illinois Tool Works case, the tying arrangement involved an ink jet printer. Illinois Tool Works, which sells the printer, requires its customers to purchase their ink refills exclusively from the company. Independent Ink, the other party to the suit, sells ink that also works in those printers but costs significantly less.
Independent Ink claimed that Illinois Tool Works’ tying arrangement violated antitrust law, alleging that it allowed Illinois Tool Works to unfairly restrain competition in the replacement ink market.
Before the Illinois Tool Works decision, the law favored Independent Ink’s position. The Supreme Court had developed an antitrust rule in cases involving patented products, whereby the patent holder was presumed to have so-called “market power,” a necessary element for tying to be illegal.
This “patent equals market power” presumption was based on two fundamental principles. First was the Supreme Court’s view that tying arrangements “serve hardly any purpose beyond the suppression of competition.” Second was the generally held belief that the benefits conferred by a patent were tantamount to a grant of “market power,” or even a monopoly, in a particular industry. This second premise lasted for the better part of half a century.
Over time, however, the prevailing view about patent owners’ ability to manipulate the market changed. In recent years, legal experts and economists have publicly criticized the “patent equals market power” presumption and urged the Supreme Court to abolish it entirely. Those opposed to the antitrust rule include the Federal Trade Commission and the Department of Justice (the agencies responsible for antitrust enforcement) and even some courts. Furthermore, in 1988, Congress amended the patent law to remove the “patent equals market power” presumption from that area of the law. This was a noteworthy development because the presumption initially existed solely in the Patent Code before migrating into antitrust law. Thus, there were clear signals even before the Illinois Tool Works decision that the antitrust presumption was in trouble.
Rightly sensing that the presumption’s days were numbered, Independent Ink argued that the presumption should be modified to keep pace with recent developments. It offered the Court several alternatives to the “patent equals market power” presumption in an effort to limit its application and effect. One such alternative involved the replacement of the unrebuttable presumption of “market power” with a rebuttable presumption that could be overcome by evidence offered by the patentee.
Ultimately, the Supreme Court decided to eliminate the “patent equals market power” presumption altogether, recognizing that its very foundation had eroded over time. The written opinion in the Illinois Tool Works case shows that the Court relied heavily on the arguments presented by non-parties, some of whom had convinced the Court to create the presumption in the first place. Concluding that a patent does not automatically bestow “market power” the Court ruled that “market power” should be proven, not presumed.
The consequences of the opinion are significant and will likely result in more tying arrangements. By requiring plaintiffs to prove “market power” in all tying cases, pursuing these claims will become a more expensive and difficult undertaking in many cases. Many competitors hurt by product tying will simply find the prospect of raising an antitrust challenge impractical.
In addition to abolishing the “patent equals market power” presumption, the Illinois Tool Works decision sends an unmistakable signal that tying arrangements are no longer viewed in a negative light by the Supreme Court. After decades of holding that tying arrangements were essentially intended for the “suppression of competition,” the Supreme Court has now declared that “[m]any tying arrangements … are fully consistent with a free, competitive market.” Consequently, the Illinois Tool Works decision indicates that tying arrangements are currently enjoying a level of acceptability unseen in modern legal history.