Patent Misuse and Antitrust: Rebirth or False Dawn?

Michigan Telecommunications and Technology Law Review Volume 20 | Issue 2 2014 Patent Misuse and Antitrust: Rebirth or False Dawn? Daryl Lim John Marshall Law School Follow this and additional works at: http://repository.law.umich.edu/mttlr Part of the Antitrust and Trade Regulation Commons, and the Intellectual Property Law Commons Recommended Citation Daryl Lim, Patent Misuse and Antitrust: Rebirth or False Dawn?, 20 Mich. Telecomm. & Tech. L. Rev. 299 (2014). Available at: http://repository.law.umich.edu/mttlr/vol20/iss2/2 This Article is brought to you for free and open access by the Journals at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in Michigan Telecommunications and Technology Law Review by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact . PATENT MISUSE AND ANTITRUST: REBIRTH OR FALSE DAWN? Daryl Lim† Cite as: Daryl Lim, Patent Misuse and Antitrust: Rebirth or False Dawn? 20 MICH. TELECOMM. & TECH. L. REV. 299 (2014). This manuscript may be accessed online at repository.law.umich.edu. This Article examines how two recent cases, F.T.C. v. Actavis and Kimble v. Marvel Enterprises Inc. could affect both the equitable defense of patent misuse and the patent-antitrust interface more generally. It begins by tracing the history of patent misuse and its reformulation into an “antitrust-lite” doctrine by the Federal Circuit. This Article presents new empirical data confirming this reformulation, and unveils the surprising influence of the Seventh Circuit and the Chicago School on that reformulation. The Article then explores Actavis and Kimble. It explains why Actavis will catalyze more antitrust challenges when patent rights are exercised, and why it also challenges the Federal Circuit’s formulation of patent misuse. The Article proceeds to observe Kimble’s misunderstanding of the patent policy underpinning the Supreme Court’s prohibition against post-expiration royalties. This Article confronts three key objections to a revival of misuse—its vagueness, lax standing requirements and punitive effects on patentees—and explains why these objections are misplaced. The Article concludes by recommending that judges and attorneys use the opportunity provided by Actavis to develop a more thoughtful framework for patent misuse that draws upon the strengths of its roots in patent policy and its interface with antitrust policy. TABLE OF CONTENTS I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II. EMPIRICAL METHODOLOGY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. Case Content Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III. ORIGIN AND EVOLUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. A Supreme Court Original . . . . . . . . . . . . . . . . . . . . . . . . . . . 300 303 303 307 308 314 † Assistant Professor, The John Marshall Law School. I am grateful to Bill McGrath, Josh Sarnoff, Dave Schwartz and Spencer Weber Waller for their valuable comments, to Chris Berry for permission to use graphs from the PricewaterhouseCoopers Patent Litigation Study 2013, and to Raizel Liebler for footnote assistance. I also thank Sarah Cork and her Board for their outstanding editorial contributions in bringing the article to print. All errors and omissions are my own. 299 300 Michigan Telecommunications and Technology Law Review IV. V. VI. VII. [Vol. 20:299 B. Patent Misuse under the Federal Circuit: Windsurfing and its Progeny . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C. Grafting Antitrust: Seventh Circuit Genesis . . . . . . . . . . . . REFORMULATING THE PATENT-ANTITRUST DOUBLE HELIX . . A. The Patent-Antitrust Interface after Actavis . . . . . . . . . . . B. Kimble: What if Brulotte Was Right? . . . . . . . . . . . . . . . . . C. A Pause for Thought . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ANSWERING THE CRITICS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A. “An Open-Ended Pitfall for Commerce” . . . . . . . . . . . . . . 1. The Surprising Benefits of Vagueness . . . . . . . . . . . . . 2. Is Antitrust Really Less Vague? . . . . . . . . . . . . . . . . . . 3. An Identity Crisis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B. Disarming “Private Attorney Generals” . . . . . . . . . . . . . . . 1. Empirical Observations . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Protecting the Public Interest . . . . . . . . . . . . . . . . . . . . . C. Punitive Disproportionality . . . . . . . . . . . . . . . . . . . . . . . . . . . 1. Patent Misuse is about Deterrence . . . . . . . . . . . . . . . . 2. Judicial Sensitivity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . WHAT JUDGES AND ATTORNEYS CAN DO . . . . . . . . . . . . . . . . . . CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 322 330 337 338 350 360 363 363 364 370 372 373 374 377 380 381 382 385 388 I. INTRODUCTION In F.T.C. v. Actavis, the U.S. Supreme Court recently revitalized the debate on how the law should operationalize policy dichotomies underlying the patent-antitrust interface.1 The Court held that “pay-for-delay” settlements between patent-owning drug companies and their generic competitors could be anticompetitive even if these settlements were within the scope of the owners’ patent rights.2 The Actavis decision has been hailed as potentially “one of the most important patent/antitrust rulings of all time,”3 recog1. F.T.C. v. Actavis, Inc., 133 S. Ct. 2223 (2013). See also generally Herbert Hovenkamp, IP and Antitrust Policy: A Brief Historical Overview (Univ. of Iowa Legal Studies, Working Paper No. 05-31, 2005), http://papers.ssrn.com/sol3/papers.cfm?abstract_id= 869417 (describing the early twentieth century as “an era of IP expansion and antitrust accommodation,” to “antitrust aggressiveness” “beginning during the New Deal and extending through the Warren era [where] the Supreme Court was more inclined to view patents as inherently anticompetitive and to interpret the antitrust laws expansively,” to the 1960s and 1970s, when antitrust was scaled back to focus “on identifying serious threats to competition that were not justified by explicit provisions of the IP laws,” to the present when “we once again live in an era of IP expansionism.”). 2. Actavis, 133 S. Ct. at 2226, 2230. 3. Michael Carrier, The U.S. Supreme Court Issues First Ruling on Antitrust Legality of Reverse-payment Drug Patent Settlements (Actavis), E-COMPETITIONS BULLETIN (July 2013), http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2293867; see also Supreme Court Issues Significant Patent Antitrust Decision Rejecting the “Scope of the (...truncated)