Issue 78 August 2012 Inside This Issue ABA Antitrust Section Intellectual Property E-Bulletin The Intellectual Property Committee is pleased to present the latest issue of our monthly E-Bulletin, providing updates and information on intellectual property-related antitrust developments and policy. Please send any comments, suggestions, and items to be noted in the next issue by e-mail to Katherine Ambrogi (KAmbrogi@ftc.gov) or Ken Vorrasi (Kenneth.Vorrasi@dbr.com). U.S. Cases - The Third Circuit Rules that Pay for Delay Settlements are Subject to Antitrust Scrutiny - Antitrust Lawsuit by Former NFL Players Against NFL and NFL Teams Dismissed - Seventh Circuit Rules on Reach of Foreign Trade Antitrust Improvement Act U.S. Agencies - FTC Criticizes Import Bans in Standard Essential Patent Cases EU and International Developments - European Commission Closes Investigation into Areva and Siemens Non-Compete Agreement Following distribution to the AT-IP Listserv, E-Bulletins are posted to the AT-IP Committee Website as section member content at http://apps.americanbar.org/dch/comadd. cfm?com=at315000&pg=2. Contributors Katherine Ambrogi Federal Trade Commission 601 New Jersey Avenue, N.W. Washington, DC 20001 [P] 202-326-2205 [E] KAmbrogi@ftc.gov Eric S. O Connor Sheppard Mullin 30 Rockefeller Plaza New York, NY 10112 [P] 212-634-3077 [E] eoconnor@sheppardmullin.com Matthew R. Maddox Davis Polk & Wardwell LLP 450 Lexington Avenue New York, NY 10017 [P] 212-450-4138 [E] Matthew.Maddox@davispolk.com Craig Zieminski Vinson & Elkins LLP 2001 Ross Avenue, Suite 3700 Dallas, TX 75201-2975 [P] 214-220-7865 [E] CZieminski@velaw.com Gregory Butler WilmerHale 1875 Pennsylvania Avenue, N.W. Washington, DC 20006 [P] 202-663-6535 [E] Greg.Butler@wilmerhale.com Lee Roach Drinker Biddle & Reath LLP 1500 K Street, N.W. Washington, DC 20005 [P] 202-230-5129 [E] Lee.Roach@dbr.com Wendy Fu Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 [P] 212-310-8193 [E] Wendy.Fu@weil.com Neeraj K. Gupta Davis Polk & Wardwell LLP 450 Lexington Avenue New York, NY 10017 [P] 212-450-4799 [E] Neeraj.Gupta@davispolk.com
U.S. Cases The Third Circuit Rules that Pay for Delay Settlements are Subject to Antitrust Scrutiny In re K-DUR Antitrust Litigation, No. 10-4571 (3d Cir. July 16, 2012) In a ruling that departed from the Second, Eleventh and Federal Circuit Courts of Appeal, the Third Circuit in In re K-DUR Antitrust Litigation held that a quick look rule of reason applies to payments from patent holders to a generic patent challenger who agrees to delay entry into the market. The Third Circuit disagreed with the reasoning of the Eleventh Circuit, which ruled on the same settlement agreement in Schering-Plough Corp. v. FTC, 402 F.3d 1056 (11th Cir. 2005). The Eleventh Circuit had applied a scope of the patent test, which allows for antitrust evaluation of only those portions of a settlement agreement that go beyond the scope of the patent involved. The Second and Federal Circuit Courts have applied the same test. Under the quick look rule of reason identified by the Third Circuit, a finder of fact must treat any payment from a patent holder to a generic patent challenger who agrees to delay entry into the market as prima facie evidence of an unreasonable restraint of trade, which could be rebutted by showing that the payment (1) was for a purpose other than delayed entry or (2) offers some pro-competitive benefit. The Federal Trade Commission filed an amicus brief in the case. In a statement released after the court s ruling, FTC Chairman Jon Leibowitz said, The Third Circuit Court of Appeals seems to have gotten it just right: These sweetheart deals are presumptively anticompetitive. As our Bureau of Economics has estimated, they cost American consumers $3.5 billion a year in higher health care costs. Restricting these arrangements, as many in Congress have proposed, would reduce federal government debt by $5 billion over 10 years, according the Congressional Budget Office. It s time for the pharmaceutical companies to return to the side of consumers. Statement by Federal Trade Commission Chairman Jon Leibowitz on the U.S. Court of Appeals for the Third Circuit Ruling in the K-Dur 20 Matter (July 16, 2012), available at http://www.ftc.gov/opa/2012/07/ kdur.shtm. Antitrust Lawsuit by Former NFL Players Against NFL and NFL Teams Dismissed Washington v. National Football League, No. 11-3354 (D. Minn. June 13, 2012) On June 13, 2012, the U.S. District Court for the District of Minnesota granted defendants motion to dismiss the antitrust claims of former professional football players who sought to represent a class of similarly situated individuals. Defendants were the National Football League, NFL Ventures, L.P., NFL Productions, LLC, NFL Enterprises, LLC, and each of the 32 NFL teams. Plaintiffs alleged that the defendants violated the antitrust laws by constraining the sale of their images and likenesses. The former players contended that, by not allowing them the rights to game films and images from the games in which they played, the defendants monopolized the market for former players likenesses in violation of the Sherman Act. The court found that the intellectual property involved was historical football game footage that the entities had to cooperate to produce and sell, and which the NFL owns and the individual teams have never 2
separately owned. The court held that the NFL and its individual teams can conspire under the antitrust laws to market each teams individually owned property, but not property the teams and the NFL can only collectively own. Thus, the court held that plaintiffs could not establish any concerted action that is unlawful under the Sherman Act. Seventh Circuit Rules on Reach of Foreign Trade Antitrust Improvement Act Minn-Chem v. Agrium Inc., No. 10-1712, 2012 WL 2403531 (7th Cir. June 27, 2012) On June 27, 2012, the Seventh Circuit ruled that the Foreign Trade Antitrust Improvement Act ( FTAIA ) relates to the merits of a Sherman Act claim, but does not place limitations on jurisdiction. The FTAIA precludes application of the Sherman Act to conduct involving trade or commerce with foreign nations unless (1) such conduct has a direct, substantial, and reasonably foreseeable effect (A) on [domestic import commerce]; or (B) on export trade or export commerce... of a person engaged in such trade or commerce in the United States; and (2) such effect gives rise to a [Sherman Act claim]. 15 U.S.C. 6a. The court also held that the term direct in 15 U.S.C. 6a(1) does not mean an effect that must follow as an immediate consequence of the defendant s activity, as the Ninth Circuit had ruled in United States v. LSL Biotechnologies, 379 F.3d 672 (9th Cir. 2004), but that the term direct means only a reasonably proximate causal nexus. As a result, the Seventh Circuit s Minn-Chem ruling created a circuit split on the reach of the FTAIA. In Minn-Chem, a purported class of consumers of potash (i.e., potassium-rich mineral and chemical salts mined from naturally occurring ore deposits and used in agricultural fertilizers) alleged a worldwide conspiracy by producers to restrict global output of potash, and thereby to artificially inflate prices. The complaint described a 600 percent increase in potash prices as a result of the conspiracy, and detailed the manner in which the defendants allegedly managed their collective output in order to achieve this increase. Ruling en banc and reversing an earlier panel decision, the Seventh Circuit upheld a trial court s order denying a motion to dismiss the class action. In doing so, the court held that the complaint sufficiently alleged conduct involving trade or commerce with foreign nations that had a direct, substantial, and reasonably foreseeable effect on domestic or import U.S. commerce. The court analyzed two prevailing school[s] of thought regarding what it takes to show direct effects. First, the court considered and rejected the Ninth Circuit s ruling in LSL Biotechnologies. In LSL Biotechnologies, the Ninth Circuit had adopted and applied the Supreme Court s interpretation of the term direct in the Foreign Sovereign Immunities Act ( FSIA ). According to the Seventh Circuit in Minn- Chem, the Ninth Circuit had jumped too quickly to its assumption that the FSIA and the FTAIA use the word direct in the same way. The Seventh Circuit instead adopted a competing standard articulated by the U.S. Department of Justice in a 2005 article on the FTAIA and in an appellate brief submitted in LSL Biotechnologies. According to this alternate view, the term direct means only a reasonably proximate causal nexus. According to the Seventh Circuit, that definition is more consistent with the language of the statute, in which the word direct addresses the classic concern about remoteness. The Seventh Circuit did also note, though, that [j]ust as tort law cuts off recovery for those whose injuries are too remote from the cause of an injury, so does the FTAIA exclude from the Sherman Act foreign activities that are too remote from the ultimate effects on U.S. domestic or import commerce. Applying this standard, the court held that the plaintiffs had sufficiently pled a conspiracy to fix worldwide prices for potash that would have had a direct, substantial and reasonably foreseeable impact on U.S. potash imports. 3
US Agencies FTC Criticizes Import Bans in Standard Essential Patent Cases The U.S. Federal Trade Commission ( FTC ) recently weighed in on the use of import bans in two cases pending before the U.S. International Trade Commission ( ITC ). Both cases concern a dispute over the use of standard-essential patents, or patents embodying technology that is a necessary component of a certain industry standard. Owners of standard-essential patents who participant in standard setting organizations generally agree that they will license the technology on reasonable and non-discriminatory ( RAND ) terms in exchange for the inclusion of the company s technology in the industry standard. In both cases, Google seeks to capitalize upon its ownership of standard-essential patents acquired through its acquisition of Motorola Mobility. The technology underlying these standard essential patents are necessary components of the industry standards applicable to Apple s iphone and Microsoft s Xbox. Though Google made a RAND commitment concerning the standard essential patents at issue, the companies have yet to reach a licensing agreement, and Google now urges the ITC to place an import ban on both the iphone and the Xbox. The FTC urged the ITC not to issue the import ban. The FTC warned that import bans in favor of RANDcommitted, standard essential patent holders could allow for hold-ups in favor of those patent holders. Supported by an import ban, a standard essential patent holder could extract royalties far beyond the true value of the patent since licensees would likely pay a high royalty rate rather than face the significant switching costs associated with creating and conforming to a new industry standard that excludes the standard essential patent. The FTC warned of negative economic consequences associated with hold-ups. According to the FTC, hold-ups overvalue inventions, increase costs and uncertainty for industry participants, many of whom are innovators, and raise market prices. To stave off these negative consequences, the FTC recommended that the ITC refuse to impose an import ban on the iphone and the Xbox. If the ITC follows the FTC s recommendation in these two cases and other future cases, the ruling could provide an advantage to companies negotiating for licenses to use standard essential patents. Third Party United States Federal Trade Commission s Statement on the Public Interest, In the Matter of Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof, Inv. No. 337- TA-752 (June 6, 2012), available at http://www.ftc.gov/os/2012/06/1206ftcgamingconsole.pdf. Press Release, Federal Trade Commission, FTC Testimony Expresses Concern that Owners of Standard- Essential Patents May Obtain Injunctions Enabling Them to Hold Up Other Firms (July 11, 2012), available at http://www.ftc.gov/opa/2012/07/septestimony.shtm. 4
EU and International Developments European Commission Closes Investigation into Areva and Siemens Non-Compete Agreement The European Commission ( EC ) has closed its investigation into the competitive implications of a noncompete agreement between Siemens and Areva by making legally binding certain commitments made by the two companies. In 2001, Areva and Siemens launched a joint venture named Areva NP SAS, which designed and built parts for nuclear islands in nuclear power plants. In 2009, Siemens exited the joint venture and triggered a non-compete agreement. After conducting its investigation, the EC found that the non-compete was excessive to the extent that it prevented Siemens from selling products where the joint venture was only a reseller of certain products. For the remaining products, the EC found that the proposed duration 11 years after the joint venture s expiration was also excessive. In March 2012, Siemens and Areva offered to limit their non-compete agreement to three years after Siemens left the joint venture and to limit the scope of agreement to the joint venture s core products and services. The EC accepted this offer and made it legally binding. If the companies do not abide by these commitments, the EC can levy a fine of up to 10 percent of the companies total annual turnover without having to prove an antitrust violation. Press Release, European Commission, Commission Makes Legally Binding Commitments by Siemens and Areva Concerning Nuclear Technology Markets (June 18, 2012), available at http://europa.eu/rapid/ pressreleasesaction.do?reference=ip/12/618&format=html&aged=0&language=en&guilanguage=en. 5