The Informationist

The Supremes Get One Right

The Supreme Court released its opinion in Illinois Tool Works v. Independent Ink this morning.

Independent Ink arrived at the Court from the Federal Circuit as an important new addition at the patent/antitrust interface. The immediate reaction seems to be that it represents yet another elevation of IP rights over sound competition policy, and that it will retard the development of reasonable policies concerning aftermarkets.

I disagree.

Let’s back up a bit. The basic practice at issue concerns tying, or the insistence that a buyer who wishes to purchase a single item must also purchase another one as part of a fixed package deal. We’ve all found ourselves faced with such “bargains,” and by and large, we either put up with them, forego the purchase, or buy a competing product. The problem arises when that third option does not exist--namely when there is no viable competing product. In such cases, when the sell has market power in the underlying “tying” product, we could be witnessing an attempt to monopolize a second market, that of the “tied” product.

According to most informed observers (and more than a few ill-informed ones), the Supreme Court’s treatment of tying has long bordered on the irrational. Tying was once proclaimed per se illegal in all settings--IP-related and otherwise, horzontal, vertical, etc. Over time, the Court has retracted more and more of its per se stance in favor of a rule of reason. The situation now stands so that tying--a practice widely conceded to be economically beneficial at least sometimes--is illegal “per se but with numerous exceptions.” The best thing that the Court could do would be to bow to the weight of near-universal economic opinion and announce that tying arrangements are always subject to a rule of reason analysis.

Fortunately, the Court has been moving in precisely this direction. It is well established that in order to prevail in a tying claim, the plaintiff must show that the defendant was a monopolist--i.e., possessed market power--in the tying product. Well established, that is, with one exception. Prior to this morning, if the tying good was subject to a patent, the game was over. The Court simply concluded that patents confer market power and proceeded to ask whether or not the defendant had tied them to some unpatented product. This conclusion is nonsensical. Relatively few patents confer market power in a meaningful antitrust sense. When the case reached the Federal Circuit, Judge Dyk--joined by Judges Clevenger and Prost--followed Supreme Court precedent, explained why it led to the wrong conclusion, and pretty much asked the Supremes to fix it. This morning, Justice Stevens, writing for a unanimous court, obliged. From now on, the divergent treatment of patented and upatented products is over. Any plaintiff seeking to show an illegal tie will have to present evidence of market power whether the underlying product is patented or not.

Independent Ink is thus just one more baby step in the right direction. It takes us a little closer to a rational analysis of tying and overall aftermarket behavior. And that’s why I disagree with those who see thsi ruling as a blow to aftermarket analysis. Yes, it will make it harder for some plaintiffs--even plaintiffs with just cases--to win. But so what? No one can possibly believe that all patents confer market power in a relevant antitrust market. To pretend otherwise is to garble policy and to prohibit neutral and/or beneficial competitive practices. The Supreme Court got this one right. If anything, overt rule of reason analyses will help the law distinguish between pro-competitive aftermarket practices and anti-competitive aftermarket practices.

Posted by Bruce Abramson from on 03/01 at 01:44 PM in The Not-Quite-Yet Information Economy, American Government, Politics, and Domestic Policies