*NEWS*CHEAPER REFILLS VS. PATENT PROFITS

[Anonymous]

Cheaper refills vs. patent profits
The high court will decide if patent holders can protect products from cheaper suppliers.
NEW
YORK – At first blush, you may think it’s a little spat about printer
ink. But don’t be fooled … it’s a Supreme Court battle that could
change how you buy everything from car parts to razor blades to generic
drugs.
The case, which will be argued Tuesday, is Illinois Tool
Works v. Independent Ink. The court will determine whether Illinois
Tool Works violated antitrust laws under the Sherman Act by forcing
consumers of its patented ink jet printer to buy a certain type of
printer ink for use with its printer – a practice known as tying.
For
consumers the case boils down to a central question: If you buy a
company’s patented printer, should you also have to buy that company’s
ink … even if there is a compatible and cheaper ink available from a
small aftermarket supplier? And if you have to do it for printer ink,
do you also have to do it for other supplies tied to a bigger product?
Of
course for major patent holders (and their investors), there is an
equally straightforward counter-question: Shouldn’t a company that has
invested time and money into developing a patented printer have the
right to protect the quality of its technology – as well as its profits
– by requiring a user to only buy its brand of ink?
“This is a big
case because intellectual property is growing in importance for
business,” said David Price, attorney with Washington Legal Foundation.
“If the Supreme Court accepts the lower court’s decision, it will make
it difficult for companies to enforce their patents and raise worries
that they will be liable on antitrust grounds.”
The consumer side
The
defendant, Independent Ink president Barry Brucker, said big business
is essentially hoping to put small after-market players out of business
by asking the Supreme Court to overturn decades-old law.
“If the
Supreme Court rules against us, before the ink is even dry on the
ruling, companies in virtually every industry from drug companies to
automotive firms to service organizations will start to condition the
sale of their patented equipment on non-patented service parts,” he
said. “Car companies could say: ‘If you buy my car, you have to buy all
spare parts and motor oil changes from us as well’.”
He said film
distributors could condition the sale of blockbuster movies on theater
owners by requiring them to also show poorly reviewed movies that are
unlikely to drive much traffic. And pharmaceutical companies could
attempt to prohibit drug stores from carrying generic drugs in exchange
for their patented drugs.
Indeed, Pfizer and The Motion Picture
Association of America were among the organizations that filed
friends-of-the-court briefs in favor of Illinois Tool Works.
“A
simple antitrust case between a Goliath and a David has turned into an
opportunity for Fortune 100 companies to begin to tie the sales of
their patented goods to non-patented consumables,” Brucker said. “We’re
up against a trillion dollars worth of businesses.”
While tying
itself isn’t illegal, the practice can run into trouble if a company is
considered to have a monopoly, forcing consumers to buy the product at
whatever price is set. Independent Ink, which sold compatible printer
ink at a lower price, said the Illinois Tool Works’ patent implies
market power and by requiring its consumers to sign a licensing
agreement prohibiting the use of any other ink, Illinois Tool Works was
guilty of antitrust violations.
Change the law
Kevin McDonald, an
attorney at the law firm Jones Day who filed an amicus brief in favor
of Illinois Tool on behalf of the American Bar Association, said
previous interpretations of patent law and tying have since been
discarded by most economists and the Supreme Court should, likewise,
review its earlier ruling.
“There are good business reasons for some
types of tying arrangements, including quality assurance and
convenience,” he said. “As long as consumers have some choices in the
printer head market, it’s not a monopoly.”
The U.S. Court of Appeals
of the Federal Circuit, however, disagreed, citing Supreme Court
precedent from a 1962 case, United States v. Loew’s, that said if a
product has a patent or copyright, by definition, it has market power
that makes it illegal to tie the sale of a patented product to another.
But now Illinois Tool Works is hoping to convince the high court to reconsider its decision.
Price
of the Washington Legal Foundation said a ruling against Illinois Tool
Works could open the door for other companies to challenge tying
arrangements across industries. That could mean increased pressure on
corporate profits if companies are unable to tie the sale of legitimate
products to each other. And if patent-holders are considered guilty of
antitrust violations, they could be liable for treble damages.
McDonald
added that while the high court is usually hesitant about changing
precedents, in antitrust cases it has recognized that older cases may
be wrong based on new economic thinking and developments and overturned
prior rulings.
“In this case, there is just no basis in economic
theory for the presumption that a patent holder has market power in the
sale of that product,” he said.
Bad for small business, bad for consumers
But
Independent Ink’s Brucker is supported by a variety of service dealers
associations, tire manufacturers and large consumer advocacy
organizations.
Albert Foer, president of American Antitrust
Institute, a non-profit think-tank which filed an amicus brief in favor
of Independent Ink, said the case essentially would shift the burden of
proof in determining whether a corporation has market power onto
smaller players rather than on the patent holder.
“Shifting the
burden could do tremendous damage to what competition is,” he said. “A
lot of manufacturers held their punches because under traditional law,
they knew they’d be facing antitrust issues. But now we have
conservative economists and attorneys who want to strengthen IP law at
the expense of competition.”
For smaller players, the financial
burden alone of trying to prove market power in court could be
devastating, Foer said. And if small business is forced to shutter its
doors, consumers would be left with fewer options to choose from which
could the pave the way for higher priced goods, he said.
But observers speculate that the Supreme Court may not take such a black and white view of the case.
James
Day, an associate at Latham & Watkins who specializes in IP
litigation said It’s more likely that the Supreme Court will modify the
language of the earlier ruling to provide more clarity for future cases.
“Illinois
Tool Works argues that upholding the earlier ruling will stifle
innovation while the counter-argument is that it’s been the law for 50
years and the world hasn’t come to a standstill,” he said. “I think its
more likely the Supreme Court’s opinion would indicate that there was
some unfortunate language in the prior ruling and would see it as
correcting the direction of the law” rather than overturning the law
altogether.

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November 30, 2005 at 10:58 AM