*NEWS*CHEAPER REFILLS VS. PATENT PROFITS

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*NEWS*CHEAPER REFILLS VS. PATENT PROFITS

 user 2005-11-30 at 10:58:00 am Views: 67
  • #13328

    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
    .