In January, the Court of Appeals for the Federal Circuit issued an opinion in Independent Ink Inc. v. Illinois Tool Works, Inc. 1 Addressing the issue whether, in a Section 1 tying case, a rebuttable presumption arises from the possession of a patent over the tying product, the court answers in the affirmative. It concludes that it was bound to follow Supreme Court precedent in International Salt and Loew’s, which have not been expressly overruled by Jefferson Parish, or more recent case law. Because International Salt and Loew’s are not dispositive on the rebuttable nature of the presumption, however, the court looks to Supreme Court dicta, and concludes that on remand, the defendants may offer expert testimony or other credible economic evidence of cross-elasticity of demand, which, would negate the presumption.

Independent Ink involves an alleged unlawful tie by Trident, a subsidiary of Illinois Tool Works. The alleged tying product was patented printhead technology, used to place bar codes on cartons. The alleged tied product was unpatented ink, used in the printing process.

On cross motions for summary judgment, the district court2 held that the fact that the defendant held a patent did not, without more, establish the market power necessary to find an illegal tie under Section 1 of the Sherman Act. Plaintiff argued that a tying arrangement involving a patent as the tying product is conclusively presumed to be illegal per se, notwithstanding “that there are substitutable products that are in competition.” In denying plaintiff’s motion, and in granting defendant’s cross-motion for summary judgment, the district court held that in light of the Supreme Court decision in Jefferson Parish Hosp. Dist. No. 2 v. Hyde3, a plaintiff asserting that a patent confers market power must demonstrate the lack of close substitutes for the patented product.4 In an alternative holding, the district court held that if there is a presumption of market power, it is subject to rebuttal, and on the record before the district court, was rebutted.5

The Court of Appeals reversed, and held that the district court was bound to follow decisions by the United States Supreme Court, even generally considered to be “vintage”, or economically outmoded. Absent explicit reversal by the Supreme Court, inferior courts must apply the law that remains on the books. The Court of Appeals held that while Jefferson Parish has drastically modified the law relative to tying, it is only applicable to tying cases that do not involve patents. The court held that in light of such cases as International Salt Co. v. United States,6 and United States v. Loew’s, Inc.,7 where the tying product is patented or copyrighted, market power may be presumed, rather than proven.

Defendants argued that International Salt and Loew’s were distinguishable on the ground that they were cases brought by the government. The Court of Appeals found this unpersuasive. Defendants argued in the alternative that International Salt and Loew’s were no longer “good law”, and had been severely criticized by leading antitrust commentators, including Professors Areeda, Elhauge, and Hovenkamp. The Court of Appeals, cited Richard Posner’s decision in Khan v. State Oil Company8 where the court held that even where a Supreme Court precedent contains many “infirmities” and rests upon “wobbly, moth-eaten foundations,” it is nevertheless the sole prerogative of the Supreme Court, and not the inferior courts, to overrule a precedent. Thus, in Khan, Judge Posner dutifully applied Albrecht v. Herald Co.9 notwithstanding the fact that the court considered Albrecht to be “unsound when decided” and “inconsistent with later decisions”. Judge Posner was nevertheless constrained to follow the decision.10 Thus, the Court of Appeals felt constrained to apply International Salt and Loew’s and thus hold that the district court erred in dismissing plaintiff’s motion, even where the record contained evidence that the market for the patented product was competitive, and substitutable. The court held further that evidence in the record of a competitive market was insufficient rebuttal. It held:

“The presumption can only be rebutted by expert testimony or other credible economic evidence of the cross-elasticity of demand, the area of effective competition, or other evidence of lack of market power.” … “On the present record there is not sufficient evidence to rebut the presumption of market power resulting from the patent itself, or to create a genuine issue of material facts on the issue.”11

However, the court held that while not overruled, the body of law developed in Independent Salt and Loew’s, was inconclusive on the question whether the presumption of market power is conclusive or subject to rebuttal. The court then looked to Supreme Court dicta to determine whether the presumption is conclusive or rebuttable. It noted that in Jefferson Parish itself, the Supreme Court confirmed that International Salt created only a presumption of market power, but that it would stretch the language of the phrase “fair to presume” “beyond the breaking point” to conclude that such a presumption is irrebuttable. Accordingly, the court held that “we are obliged to follow such clearly articulated Supreme Court dicta.”12 The court also noted that in Digidyne Corp. v. Data Gen Corp.,13 the Ninth Circuit held that a presumption arising from a copyright is rebuttable.

Notwithstanding the district court’s finding that, assuming a presumption, it had been rebutted, it was necessary for the Court of Appeals to remand the case to the district court for better rebuttal. This would include “expert testimony or other credible economic evidence of the cross-elasticity of demand, the area of effective competition, or other evidence of lack of market power.14

While much of the legal commentary since Jefferson Parrish would place a patent on the same analytical level as any other tangible or intangible property, the Court of Appeals was, as were Judges Posner and Easterbrook, obeying the mandate of the Supreme Court in Khan. In applauding Judge Posner’s judicial restraint, Justice O’Connor, writing for a unanimous court stated:

“Despite what Chief Judge Posner aptly described as Albrecht’s “infirmaties, [and] its increasingly wobbly, moth-eaten foundations,” … there remains the question whether Albrecht deserves continuing respect under the doctrine of stare decisis. The Court of Appeals was correct in applying that principal despite disagreement with Albrecht, for it is this Court’s prerogative alone to overrule one of its precedents.”15

Since the increased emphasis on the use of economic analysis in antitrust cases since Continental T.V. and Brunswick,16 the Court of Appeals’ decision may seen pedantic. Nevertheless, it is carefully crafted. Indeed, it is representative of an earlier era where it was generally understood that presumptions were legal constructs to take the place of evidence that was otherwise, at no fault of the offering party, unavailable. When both parties are present and able to present evidence, the need for the presumption ceases, and accordingly, so does the presumption. As recognized and stated in the seminal case of Mackowik v. Kansas City, St. J & C.B.R. Co.:17

“Presumptions”, as happily stated by a scholarly counselor, ore tenus, in another case, “may be looked on as the bats of law, flitting in the twilight, but disappearing in the sunshine of actual facts.”18

Thus, as in Independent Ink, if there need be a presumption at all, it is surely a rebuttable presumption, and one that should be litigated by the parties to the action in the good old fashioned way: by the presentation of evidence. The presumption of market power arising from the grant of a patent may be alive, awaiting burial by the Supreme Court. Meanwhile, it may flitter in the twilight, but will more likely than not, succumb to the sunshine of actual facts in a properly augmented record.

  1. ___ F.3d ____, 2005 WL 147399, 2005-1 Trade Cas. (CCH) ¶741680 (Fed. Cir. 2005).
  2. Independent Ink, Inc. v. Trident, Inc., 210 F. Supp. 2d 1155 (C.D. Cal. 2002).
  3. 466 U.S. 2 (1984).
  4. Citing Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 10 N. 8 (1958).
  5. 210 F. Supp. 2d at 1166. The district court noted that the Ninth Circuit decision of Digidyne Corp. v. Data Gen. Corp., 734 (9th Cir. 1984) holds that a copyright creates only a rebuttable presumption of economic power.
  6. 332 U.S. 392 (1947).
  7. 371 U.S. 38 (1962). The court stated “the Loew’s court also stated that it needed not inquire into whether the distributors had market power. “The mere presence of competing substitutes for the tying product … is insufficient to destroy the legal, and indeed the economic, distinctiveness of the copyrighted product”. Id. at 49.
  8. 93 F. 3d 1358 (2d Cir. 1996), reversed sub nom State Oil Co. v. Khan, 522 U.S. 3 (1997).
  9. 390 U.S. 145 (1968).
  10. Judge Easterbrook made the same analysis in A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc. 881 F.2d 1396 (7th Cir. 1989). (“Separating a case that is dead but unburied from a case that is living on borrowed time is hard yet important.”) Id. at 1405.
  11. Independent Ink, Inc. at 17.
  12. Id. at 15.
  13. 734 F.2d 1336, 1344 (9th Cir. 1984) (copyright “created a presumption of economic power sufficient to render the tying arrangement illegal per se. The burden to rebut the presumption shifted to defendant.”)
  14. Id. at 17.
  15. State Oil Co. v. Khan at 20. See, 1995 Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual Property, Section 2.1 (“the agencies apply the same general antitrust principals to conduct involving intellectual property that they apply to conduct involving any other form of tangible or intangible property.” (Compare also, Abbott Laboratories v. Brennan, 952 F.2d 1346, 1354-55 (Fed. Cir. 1991) (no presumption of market power from intellectual property.)
  16. Continental T.V., Inc. v. GTE Sylvannia, Inc., 433 U.S. 36 (1977); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977).
  17. 94 S.W. 256, 262 (Mo. Sup. Ct. 1906).
  18. Id. at 262. With thanks to Suzanne Drennon in locating quote.

Authored by:
Don T. Hibner, Jr.