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June 21, 2005

Does The Market Power Presumption Hold?

On Monday, the U.S. Supreme Court agreed to review the Federal Circuit's decision in Independent Ink, Inc. v. Illinois Tool Works, Inc., U.S., No. 04-1196, 1/25/2005, which holds that a patent in a tying action under Section 1 of the Sherman Act creates a rebuttable presumption of market power for the patented tying product.  Trident (a subsidiary of Illinois Tools) licenses its patented print heads on the condition that the licensees purchase Trident's ink as well.  Competitor Independent Ink, which makes ink that can be used on Trident's print heads, alleged that Trident engaged in illegal tying in violation of Sections 1 and 2 of the Sherman Act.  The district court dismissed Independent Ink's claims on summary judgment, ruling that it failed to prove Trident's market power.   The Federal Circuit overturned the summary judgment and rejected the district court's inference that the Supreme Court precedent creating a presumption of market power was no longer good law. 

The Federal Circuit's decision was based on 43-year-old precedent, which has been criticized for making it easy for competitors to sue patent holders for patent infringement based on the presumption of market power.  Although at one point Congress considered abrogating the presumption of market power in tying cases, that language was removed from the Patent Act by House amendment.  Accordingly, the Federal Circuit acknowledged in January 2005 that the Patent Act requires proof of actual market power to establish a patent misuse defense based on tying.  Although Federal Circuit Judge Timothy Dyk stated that this precedent is based on "wobbly, moth-eaten foundations", he explained that it is up to the Supreme Court to overturn its own precedent.

Now the Supreme Court has an opportunity to do just that.  Next term's Court will decide whether a plaintiff must prove as part of its affirmative case that the defendant possessed market power in the relevant market, or will that market power be presumed based on the existence of a patent on the tying product alone. Time will soon tell whether the market presumption will hold.

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