Antitrust and Unfair Competition Law

Competition: 2016, Vol 25, No. 2


By Emilio Varanini2 and Cheryl Johnson3


The United States Department of Justice and the Federal Trade Commission (the "Agencies") issued in August of this year the Proposed Update to the Antitrust Guidelines for Licensing Intellectual Property (the "Proposed Update") and sought comments from the public.4 Though the official comment period closed on September 26, 2016, it is anticipated that the finalization of the Proposed Update will take some time.

States like California are on the front lines in finding the appropriate mix between intellectual property ("IP") and antitrust so as to continue the unprecedented growth of industries in their states, such as the high-technology industry, the biotech industry, and the creation of new content and services.5 It is therefore important for states that the balance be struck true in rewarding innovation through the grant of IP rights without allowing the anticompetitive leveraging of those rights to create entrenched monopolies and cartels that hinder competition.6 States like California have brought important cases in the areas of pharmaceuticals and high-technology involving the intersection of IP and antitrust.7 And as guardians of federalism and the resulting split of sovereignty in the U.S. Constitution,8 states like California have a strong interest in reconciling and harmonizing the workings of IP laws with other laws and doctrines, including state and federal antitrust law.9 As antitrust enforcers for the State of California with a substantial background in IP, we set out our own personal views on this Proposed Update against this backdrop.


We support substantial aspects of the Proposed Update, including: the importance of closely reviewing acquisitions or transfers of IP; the application of a rule of reason analysis in Sherman Act Section 2 monopoly cases;10 and, within the rule of reason framework for Sherman Act Section 1 joint conduct and Section 2 monopoly cases, the need for the determination not just of a restraint’s "fit" but also whether practical and significantly less restrictive alternatives exist.11 Our comments focus on the following issues:

Overbroad presumption that IP licensing agreements are procompetitive. The Proposed Update presumes that all IP licensing agreements are procompetitive such that the first step for the Agencies will be to rule out plausible efficiencies for those agreements before proceeding with a more in-depth analysis. Such a presumption may be appropriate in certain instances, such as a vertical IP licensing agreement in which an IP rights holder licenses its property to a product using that IP absent concerns about foreclosure or raising a rival’s costs.12 The presumption, however, should not apply when the licensing agreement (1) sweeps beyond the scope of the IP grant; or (2) involves a horizontal arrangement between competitors. Although there are certain horizontal licensing agreements, such as patent pools, that may be procompetitive, the Agencies should insist, as they historically have, that the participants provide safeguards to avoid possible anticompetitive effects.

The failure to spell out how IP licensing conduct such as fixing resale prices (known as resale price maintenance or "RPM") and tying can be likely anticompetitive under certain circumstances. The Proposed Update would better serve the public interest and the business community by delineating those circumstances under which IP licensing conduct is likely anticompetitive. Given that RPM can be used, for example, to evade the first sale or exhaustion doctrines, it should be presumed to be anti-competitive when used in an IP licensing agreement at least when RPM restraints cover more than 50% of a market, are imposed by dominant firm, or were initiated by licensees.

The failure to address licensing arrangements when the licensor has monopoly power. The Agencies need to set out a more specific inquiry under the rule of reason of licensing-related conduct that present special concerns of anticompetitive effects in the context of Section 2. For example, the Agencies may wish to infer anticompetitive effects under the rule of reason in Section 2 cases involving tying/bundling and exclusive dealing and neither assume actual efficiencies nor reject practical, significantly less restrictive alternatives absent adequate explanations supplied by the licensor.

Trinko13 does not compel the Agencies to recognize an extremely wide scope for IP holders to condition access to their IP even when those firms have market power. While we certainly agree that a firm can refuse to license its IP in the first instance, it is another matter whether Trinko can or should be read for the broader proposition that a firm has a wide scope in how it conditions access to its IP14—even when it has market power.15 Actavis16 and Microsoft17 do not support such an expansive view on access. Moreover, Trinko itself was a narrow decision involving competitor access in a highly regulated industry. We believe that these proposed clarifications would signal to the business community the kind of licensing conduct they should avoid in highly concentrated and cartelized markets.18


At multiple points in both the Proposed Update and the original Guidelines, licensing agreements are presumed to be procompetitive. The Proposed Update could be clarified to state that this presumption does not apply if the IP licensing agreement sweeps beyond the scope of the IP grant or if the IP licensing agreement involves competitors.

A. Licensing Agreements Cannot Be Assumed to Be Procompetitive When They Sweep Beyond the Scope of the Underlying IP Grant

IP rights encourage and safeguard innovation and further competition in the development of new technologies and products by affording a government grant of exclusivity.19 But the extent of the IP grant must be carefully respected to prevent entrenching monopolies that restrain competition and innovation.20 A trade secret can be protected forever—as long as reasonable steps are taken to ensure its confidentiality—but may be subject to reverse engineering.21 A copyright can only protect an expression of an idea rather than the underlying idea itself——and is subject to an exception for fair use.22 And under the first sale doctrine in copyright law as well as the doctrine of exhaustion in patent law, a purchaser of a product containing an already-licensed IP right may resell that product freely without running afoul of IP laws.23

Patents themselves can be found to be invalid if they patent laws of nature, natural phenomenon, or abstract ideas.24 Because of concerns over the validity and quality of patent grants25—not to mention difficulties in ascertain the existence and scope of patents reading on a potential product prior to its manufacture—patents can be subject to post hoc challenge not just in court but via a new statutory administrative process.26

The Supreme Court has repeatedly signaled its concern about exceeding the scope of IP grants, most recently by rejecting the argument that a firm can charge royalties for the use of a patent that exceeded the underlying term of the patent, finding such an arrangement to be an impermissible extension of the underlying grant.27 Similarly, the Proposed Update should expressly recognize that a licensing agreement can be used to extend an IP right past the terms of a government grant, such as, but not limited to, the following circumstances: (1) barring challenges to a patent’s validity; (2) requiring an overbroad reciprocal grant of other IP rights; or (3) by using the IP right to engage in anticompetitive bundling or discrimination against rivals.

Such agreements can be anticompetitive when a firm has market power.28 And it can’t be assumed in these circumstances, under either economic teaching or case law, that licensing agreements which extend the scope of a government grant of IP are presumptively procompetitive and thus exempt from the antitrust laws.29

B. Licensing Agreements Cannot Be Presumed to Be Procompetitive When Between Competitors

The Proposed Update suggests that IP licensing agreements between competitors will be presumed to be procompetitive.30 Historically, they were viewed in the same fashion as other horizontal agreements between competitors. Patent pools, for example, could be used to implement per se illegal price-fixing and market allocation cartels.31 And patent pools can otherwise still be anticompetitive when (1) an excluded firm from a pool cannot compete absent access; (2) limitations on access to the pool are not a reasonable fit; or (3) the net competitive effects are negative.32 But pool participants could show that their patent pool deserved to be treated as being procompetitive, and subject to a rule of reason analysis, only if they provided facts to explain how the pool was designed to accomplish procompetitive ends based on market realities and only if they explained how they planned to institute safeguards against anticompetitive ends.33

The Proposed Update appears to depart from this practice in two ways. First, it starts from the premise—that must then be disproven—that such pools all serve procompetitive ends. Second, it states that the presence or absence of safeguards may be of no moment in focusing prosecutorial resources on those pools that are the most problematic. That approach is not supported by economic teaching or prior experience34 and is in considerable tension with Supreme Court case law on the review of joint ventures among competitors involving licensing of copyrights. In such cases, not only were defendants required to supply evidence of efficiencies, but the existence of effective safeguards to avoid anticompetitive effects was highlighted when permitting participants in such ventures to independently license their rights to third parties.35 A licensing venture between competitors, including a patent pool, lacking appropriate safeguards, or the failure by the licensing parties to that venture to advance procompetitive justification based on market realties for it, warrants a closer look at that venture from antitrust enforcers.36

Generally speaking, there is no reason to assume that horizontal licensing agreements between competitors are generally procompetitive any more than there is a reason to assume horizontal agreements between competitors involving any other type of product, service, or property right are generally procompetitive. Even the one example in Section 2.3 of the Proposed Update of a horizontal agreement between competitors to address blocking patents assumes that the patents are valid and that they are blocking, even though historically the burden of providing facts sufficient to verify such claims in this context would have fallen on the parties to this arrangement.37


We further believe the public interest would be better served by clearly delineating circumstances where the full rule of reason may not be applied because of licensing conduct which is more likely to be anticompetitive and less likely to be procompetitive. That conduct is likely in cases involving RPM, tying, and certain conduct involving the illegal acquisition or maintenance of monopoly.

Resale Price Maintenance. RPM in the licensing scheme context may be anticompetitive when it is an end-run around the important first sale and patent exhaustion doctrines.38 To apply a full rule of reason inquiry here incentivizes agreements that exceed limits on IP grants without a corresponding economic benefit.39 At the very least, economic teaching would support viewing RPM as likely leading to anticompetitive effects when it is implemented by upstream by licensor firms having 50 percent or more market share of a relevant market,40 when it is implemented by a market dominant firm,41 or when it originates downstream from licensees.42 And economic teaching would also suggest not only an inquiry into whether there are actual efficiencies that correlate to the market in which the RPM scheme is being implemented,43 but also whether practical and significantly less restrictive alternatives, such as vertical territorial restrictions,44 do not exist.45

Tying. The courts have found tying to be anticompetitive without the need to show foreclosure.46 Recent economic scholarship support this findings (i.e. when a firm has market power in the tying product market).47 The Proposed Update suggests that tying should warrant investigation only under a full rule of reason analysis in which the analysis of the degree of actual foreclosure in the affected markets would be required.48 This approach, motivated by the view that package licensing of multiple IP rights in a licensing agreement can be procompetitive "in some circumstances," does not address whether de facto or de jure coerced licensing of multiple IP rights, or of IP rights with the use of a product,49 should be analyzed under the full rule of reason with a required foreclosure inquiry. Such efficiencies can, however, often be achieved by practical and less restrictive non-coercive alternatives, as is often the case for patent pool and copyright licensing schemes.50 The Proposed Update cites to the Microsoft decision, which involved a Section 1 (of the Sherman Act) claim of software tying, to support its proposed full rule of reason analysis, including a foreclosure analysis. But Microsoft articulates a different standard for a Section 2 (of the Sherman Act) claim involving illegal monopoly maintenance,51 and its articulation of a special standard for software tying has been rejected by commentators.52

Section 2 (Illegal Acquisition or Maintenance of Monopoly). We commend the Agencies for continuing to recognize that special concerns involving IP licensing activities by monopolists, where the IP may be invalid, support causes of action recognized by the courts.53 We would suggest that the Agencies build on this by also considering whether certain specific conduct might pose higher risks of anticompetitive effects, and a lower likelihood of benefits, than if that conduct involved non-monopolists.54 Specifically, tying/bundling55 and exclusionary dealing are likely to have anticompetitive effects when a firm has monopoly power in a relevant market.56 For monopolistic conduct with such special concerns, the Agencies may want to consider stating that procompetitive efficiencies—or the fit between individual restraints and such efficiencies—will not be assumed57 and that monopolistic licensors should be required to explain how practical, significantly less restrictive alternatives do not support inferences of liability or of their conduct having a net negative competitive effect.58


The recognized right to try to exclude in an IP grant59 is distinct from the question of how a firm with market power can condition access to its IP rights. Actavis recognized that a patent grant did not allow a branded drug manufacturer to settle on whatever terms it wished with a competing generic drug manufacturer, no matter the anticompetitive effects involved.60 Microsoft similarly recognized that the copyright grant to Microsoft did not allow Microsoft to condition access to its operating system on any act designed to disable competition from rival web browser manufacturers.61 On a whole range of actions by firms with market power, such as barring challenges to IP rights of questionable validity or scope or discriminating among competitors in affording access, the right to try to exclude may be used to cloak acts having a net anticompetitive impact.62

We suggest that the Proposed Update need not view Trinko as requiring such an expansive view of how a firm with market power can condition access to its IP rights. Trinko rejected a Section 2 claim that competitors be afforded access to a telecommunication company’s infrastructure because an extensive regulatory scheme had already been put into place governing when and under what circumstances such access must be afforded.63 Trinko did not rule out liability for a firm with market, let alone monopoly, power conditioning access to its IP in a manner that had an anticompetitive effect. And Trinko was not seen in Actavis as a bar to the Court’s holding that the grant of an IP right to a firm with market power did not allow its holder to do whatever it wanted with that right, no matter how anticompetitive, so long as it did not exceed the scope of the IP grant.64


Protecting innovation and the development of new products and services65 is important to the continued growth of the United States economy in the 21st century,66 and IP rights can play a key role in that effort.67 It is the United States’ advantage in innovation that is aiding in the reshoring of manufacturing into the U.S. in a striking reversal of historical trends.68 The recognition and enforcement of IP rights enables the grant of IP rights to be effective in meeting that goal of furthering innovation and the development of products and services.69

But the increased concentration and de facto cartelization of the United States economy raises its own concerns that have called for policies enhancing competition as well as increased enforcement of antitrust laws.70 IP can’t be exempt from these concerns as IP does not confer some sort of special exemption in that regard.71 If cross-border recognition, and enforcement, of IP rights is going to be an inherent component of furthering trade and the growth of exports from the United States,72 then it is essential to the credibility of such a strategy for the Agencies to be more proactive in recognizing the circumstances under which IP can be used for anticompetitive ends.73



1. The comments expressed in this Article are the personal views of the authors and should not be ascribed in any way to the California Office of the Attorney General. The authors also wish to thank Luminita Nodit and Neal Luna of the Washington Attorney General’s Office for their comments and suggestions from which this Article greatly benefitted.

2. Emilio Varanini is a senior Deputy Attorney General in the California Attorney General’s Office who has taken the lead in several investigations involving copyright and trade secrets as well as high technology markets. He has been lead counsel in such IP cases as People of the State of California v. Pratibha Synthex, People of the State of California v. Ningbo Beyond, and Bunner v. DVDCCA. He is currently Secretary, and a Member of the Executive Committee, for the International Law Section of the State Bar of California.

3. Cheryl Johnson is a senior Deputy Attorney General in the California Attorney General’s Office who has taken the lead in several pharmaceutical and Non-Practicing Entity cases involving antitrust, unfair competition, and patents and authored the amicus curiae brief of the California Attorney General’s Office in In re Cipro Cases I & II, 348 P.3d 845 (Cal. 2015). She is a member of the patent bar, and is a Past Chair of the Section of Antitrust, Unfair Competition, and Privacy of the State Bar of California.

4. See U.S. Dep’t of Justice and Fed. Trade Comm’n, Proposed Update, Antitrust Guidelines for the Licensing of Intellectual Property, August 12, 2016, antitrust-guidelines-licensing-intellectual-property-proposed-update-1995-guidelines-issued-us/ip_ guidelines_published_proposed_update.pdf.

5. See, e.g., Economy of California, Wikipedia, (last visited Oct. 10, 2016) (discussion of Silicon Valley); Uber (company), Wikipedia, https://en.wikipedia. org/wiki/Uber_(company) (last visited Oct. 10, 2016); Rich Taylor, Video Game Industry Adds Billions to U.S. Economy, Huffington Post, (Nov. 13, 2014, updated Jan. 13, 2015) (discussing how seven states, including California, employ 80% of the workers in this industry); Junfu Zhang & Nikesh Patel, The Dynamics of California’s Biotechnology Industry (Pub. Policy Inst. of Cal. 2005) (discussing origins of biotech industry in California as well as California’s accounting for 40% of the market).

6. See, e.g., In re Cipro Cases I & II, 348 P.3d 845, 855-56, 858, 863 (Cal. 2015) (analyzing the reach of federal patent law in addressing the legality of reverse payment pharmaceutical settlements under state antitrust law).

7. See, e.g., United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) (en banc); Press Release, California Office of the Att’y Gen., Attorney General Kamala D. Harris Files Lawsuit Against Pharmaceutical Company for Inflating Prices for Opioid Addiction Treatment (Sept. 22, 2016), news/press-releases/attorney-general-kamala-d-harris-files-lawsuit-against-pharmaceutical-company; Abbott Labs. Settle States’ Tricor Generics Suit for $22.5 Million, 17 No. 11 Andrews Antitrust Litig. Rep. 8 (Feb. 11, 2010).

8. See Alden v. Maine, 527 U.S. 706, 714 (1999) (discussing the dual sovereignty of the states and federal government).

9. See In re Cipro I & II, 348 P.3d at 855-56, 858-62; Peter Lee, The Supreme Assimilation of Patent Law, 114 Mich. L. Rev. 1413, 1425-26 (2016).

10. See Diana De Leon, The Judicial Contraction of Section 2 Doctrine, 45 Loy. L.A. L. Rev. 1105, 1122 (2012) (discussing the increased use of the rule of reason by lower courts in assessing monopoly claims); id. at 1164-65 (arguing in favor of a modified rule of reason test for Section 2 monopolization claims in accordance with the views of the late Commissioner Rosch of the Federal Trade Commission).

11. See, e.g., Proposed Update, § 4.2. We also agree with Section 3.1, at note 25, of the Proposed Update that access to IP can be required to remedy anticompetitive conduct.

12. We commend the Proposed Update for recognizing the concerns that can accompany vertical licensing agreements in upstream and downstream markets involving products or research and development. The Supreme Court has also found that business conduct can have differing impacts on upstream and downstream markets that warrant a different analysis of the impact on each of these markets. See Weyerhaeuser Co. v. Ross-Simmons Hardware Co., 549 U.S. 312, 321-22 & n.2 (2007). But the Agencies should not presume that a justification for this conduct, when these concerns are present, exists. See ZF Meritor LLC v. Eaton Corp., 696 F.3d 254, 277-78 (3d Cir. 2012) (discussing alleged lower costs as a justification for exclusive dealing).

13. Verizon Commc’ns v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004).

14. We take no position on the issue of whether, and under what conditions, access must be afforded to standard-essential patents though we interpret the more general Proposed Update as not addressing the more specific issues of antitrust, unfair competition, IP, and contract law involved with standard-essential patents.

15. We also agree with the proposition that market power does not flow solely from the IP right itself as well as with the discussion of market power set out in the Proposed Update. Proposed Update, § 2.2.

16. Federal Trade Commission v. Actavis, 133 S.Ct. 2223 (2013).

17. United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2001) (en banc).

18. The Proposed Update refers to the Agencies’ assumption that IP licensing agreements are procompetitive as a presumption. Presumptions are used in litigation to structure the burdens of production and proof either according to statutory requirements, see, e.g., Halo Elec. v. Pulse Elecs., 136 S.Ct. 1923 (2016); Octane Fitness LLC v. Icon, 134 S.Ct. 1749 (2016), or according to economic teachings, market realities, and administrability concerns, see, e.g., United States v. Delta Dental of R.I., 943 F. Supp. 172, 190 (D.R.I. 1996) ("’legal presumption that rest on formalistic distinctions rather than actual market realities are generally disfavored in antitrust law’") (quoting Eastman Kodak Co. v. Image Technical Servs., 504 U.S. 451, 466-67 (1992)); see also Kimble v. Marvel Entertainment LLC, 135 S.Ct. 2401, 2412-13 (2015) (noting that the Supreme Court has revised its legal analysis in antitrust law as economic understanding evolves). We recognize that the Agencies have declared that the statements made in the Proposed Update may not accord with the positions they take in litigation such that these Guidelines will be nothing more than helpful statements of prosecutorial intent. Proposed Update, § 5.3 & n.73. But the courts have nonetheless referred in the past to the original Guidelines as support for changes in the law. See Illinois Tool Works Inc. v. Independent Ink, Inc. , 547 U.S. 28, 45 (2006). The Agencies should keep this point in mind as they update the original Guidelines.

19. See, e.g. , Proposed Update, § 1.0 (explaining that IP rights confer exclusivity for the purpose of promoting innovation and enhancing consumer welfare).

20. See Kimble v. Marvel Entertainment LLC, 135 S.Ct. 2401, 2406-07 (2015) ("Patents endow their holders with superpowers, but only for a limited time. Congress struck a balance between fostering innovation and ensuring public access to discoveries. . . . But a patent typically expires 20 years from the day the application for it was filed. And when the patent expires, the patentee’s prerogatives expire too, and the right to make or use the article, free from all restrictions, passes to the public. This Court has carefully guarded that cut-off date, just as it has the patent laws’ subject-matter limits: In case after case, the Court has construed those laws to preclude measures that prevent free access to formerly patented, as well as unpatentable, inventions.") (internal citations omitted). Similarly, other courts have observed that there is "a fundamental right to compete through imitation of a competitor’s product, which right can only be temporarily denied by the patent or copyright laws." Leatherman Tool Group, Inc. v. Cooper Indus., Inc., 199 F.3d 1009, 1011-12 (9th Cir. 1999) (internal citations and quotation marks omitted).

21. See, e.g., Defend Trade Secrets Act, 18 U.S.C. § 1839; see also Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 483-91 (1974).

22. See, e.g., Oracle America, Inc. v. Google, Inc., 750 F.3d 1339 (Fed. Cir. 2014); Oracle America, Inc. v. Google, Inc., 2016 WL 3181206 (N.D. Cal. June 8, 2016).

23. See Kirtsaeng v. John Wiley & Sons, Inc., 133 S.Ct. 1351, 1363-67 (2013) (applying the first sale doctrine to copies of copyrighted works lawfully made abroad); Quanta Computer, Inc. v. LGElectronics, Inc., 553 U.S. 617, 621, 625-29 (2008) (applying the patent exhaustion doctrine to method patents).

24. See Intellectual Ventures LLC I v. Symantec Corp., Nos. 2015-1769, 2015-1770, 2015-1771 (slip. op.) (Fed. Cir. Sept. 30, 2016), Opinion.9-28-2016.1.PDF (explaining the legal standard for distinguishing laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts).

25. See, e.g., In re Cipro Cases I & II, 348 P.3d 845, 859-60 (Cal. 2015) (discussing the process of reviewing patent applications and of allowing challenges to a patent’s validity); see also, e.g., Actavis, 133 S.Ct. at 2230-31 (recognizing that a valid patent carries with it the right to exclude only products that are infringing and noting that no such right exists if the patent is invalid).

26. See Cuozzo Speed Technologies, LLC v. Lee, 136 S.Ct. 2131 (2016).

27. Kimble, 135 S.Ct. at 2407-08, 2409-10, 2411-12, 2415. In Actavis, the Supreme Court rejected immunity for settlement conduct claimed to be within the scope of the underlying patent, 133 S.Ct. at 2230-33, thus further reinforcing the notion that a procompetitive presumption for conduct outside of the scope of an IP grant is improper.

28. See, e.g., Thomas Cheng, Antitrust Treatment of the No Challenge Clause, 5 NYU J. Int. Property and Ent. Law 437, 506-508 (2016) (proposing a market power screen no analyze no challenge clauses).

29. See, e.g., Kimble, 135 S.Ct. at 2414 ("While we recognize that post-patent royalties are sometimes not anticompetitive, we just cannot say whether barring them imposes any meaningful drag on innovation. . . . Neither Kimble nor his amici have offered any empirical evidence connecting Brulotte [v. Thys Co., 379 U.S. 29 (1964) (charging post patent expiration royalties violated the patent laws)] to decreased innovation; they essentially ask us to take their word for the problem."). This principle does not go completely unacknowledged in the Proposed Update, as Example 4 of Section 3.3 contemplates that the validity of the patent at issue plays a role in the antitrust analysis of that hypothetical.

30. Compare, e.g., Proposed Update, § 3.4 (using the example of a vertical licensing agreement between an IP holder and a manufacturer of a product to illustrate the procompetitive efficiencies of such agreements but not limiting the scope of its presumption of procompetitive efficiencies to such arrangements) with e.g., Proposed Update, § 4.1.2 (in discussing certain arrangements involving exclusivity, noting that such arrangements "generally" raise concerns when they have a horizontal aspect such as cross-licenses among competitors with collective market power, grantbacks, and acquisitions); see also Proposed Update, §§ 4.1-4.3. It may well be that certain agreements between competitors such as price-fixing, market allocation, output limitation, or bid rigging that do not involve a joint venture, or concealment or deception as with a typical cartel, may be subject to a "check" such as an abbreviated market impact analysis to confirm that they should be treated as being per se illegal for purposes of civil liability. See United States v. Apple, Inc., 791 F.3d 290, 310 (2d Cir. 2015) (discussing hub and spoke conspiracy with vertical and horizontal elements). But such a "check" is not the same thing as self-imposing an apparent requirement to disprove the existence of any or all plausible procompetitive efficiencies as a threshold matter even if not (apparently) advanced by defendants.

31. See United States v. Glaxo Group, Ltd., 410 U.S. 52 (1973); Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969); United States v. United States Gypsum, 333 U.S. 364 (1948); Vulcan Powder Co. v. Hercules Powder Co., 96 Cal. 510 (Cal. 1892).

32. See Proposed Update, §§ 4.2, 5.5.

33. See, e.g., U.S. Dep’t of Justice, Bus. Rev. Ltr. to MPEG-LA (Jun. 26, 1997), atr/public/busreview/1170.htm.

34. See Scott Sher, Jonathan Lutinski, and Bradley Tennis, The Role of Antitrust in Evaluating the Competitive Impact of Patent Pooling Arrangements, 13 Sedona Conf. L. 111, 114-23, 130-31 (2011); Richard Gilbert, Antitrust for Patent Pools: A Century of Policy Evolution, 2004 Stan. Tech. L. Rev. 3, 108 (2004).

35. See Broadcast Music, Inc. v. Columbia Broadcast System, Inc. et al., 441 U.S. 1, 8-16, 20-24 (1979).

36. See, e.g., Philip Goter, Princo, Patent Pools, and the Risk of Foreclosure: A Frameworkfor Assessing Misuse, 96 Iowa L. Rev. 699, 711-12 (2011) (mentioning the need for safeguards to enable individual licensing and avoid the inclusion of non-essential patents); id. at 731 (noting that the possible justifications for patent pools depend greatly on the facts of the case). The provisions of the Proposed Update on grantbacks suffer from a similar problem. Historically, the Agencies have insisted on safeguards for such grantbacks to avoid them being used for anticompetitive ends. See Proposed Update, § 5.6 n.85. And the Proposed Update—properly in our view—recognize that grantbacks involving horizontal competitors may have anticompetitive effects. Proposed Update, § 4.1.2. Yet, the Proposed Update fails to recognize that appropriate safeguards should be present as one precondition to presuming such arrangements to be procompetitive.

37. Cf., e.g. , Cheng, supra note 28, at 498-506, 508-10 (explaining that a lot of the procompetitive justifications for no challenge clauses to a patent’s validity fall away when the firm requiring such a clause has market power).

38. Cf. Kirtsaeng, 133 S.Ct. at 1363-67 (discussing how the first sale doctrine in the copyright context protects the freedom to resell and how the freedom to resell is important to global trade).

39. See, e.g., Jarad Daniels, Don’t Discount Resale Price Maintenance: The Needfor FTC Guidance on the Rule of Reasonfor RPM Agreements, 84 Geo. Wash. L. Rev. 182, 213 (2016).

40. See, e.g. , Brief for William S. Comanor and Frederic M. Scherer in Support of Neither Party, 2007 WL 173679, *10, Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007) (hereinafter "Comanor-Scherer Brief); see also Daniels, supra note 39, at 214; Org, for Econ. Coop. & Dev. ("OECD") Policy Roundtables, Resale Price Maintenance, DAF/Comp(2008)37, 43, 46-48 (Sept. 10, 2008).

41. See Leegin Creative Leather Prods., Inc. v. PSKS, Inc. , 551 U.S. 877, 893-94 (2007); see also Daniels, supra note 39, at 214 (citing statements of the Agencies); OECD Policy Roundtables, supra note 40, at 43, 46-48.

42. Daniels, supra note 39, at 213 (citing statements of the Agencies); see Leegin, 551 U.S. at 897-98; see also Comanor-Scherer Brief, supra note 40, at *8-9; OECD Policy Roundtables, supra note 40, at 43-44, 46-48.

43. See Marina Lao, Internet Retailing and Free-Riding: A Post-Leegin Analysis, 14 J. Internet L. 1 (2011).

44. We agree with the discussion in Section 2.3 of the Proposed Update on vertical territorial and field-of-use restrictions associated with vertical licensing agreements.

45. We do understand that new entry as a procompetitive justification for RPM does not raise the same concerns the availability of significantly less restrictive alternatives if evidence is provided that this efficiency is a real one based on market realities. See, e.g., Leegin, 551 U.S. at 917-18 (Breyer, J., dissenting); see also Daniels, supra note 39, at 215 (citing statements of the Agencies).

46. The Supreme Court has held that tying can be per se illegal as long as the defendant has market power in the market for the tying product and the tie affects a not insubstantial amount of sales in the tied product. Jefferson Parish v. Hyde, 466 U.S. 2, 15-17 (1984).

47. E.g., Einer Elhauge, Rehabilitating Jefferson Parish: Why Ties Without a Substantial Foreclosure Share Should Not Be Per Se Legal, 80 Antitrust L.J. 463 (2016); Barack Richman & Steven Usselman, Elhauge on Tying; Vindicated by History, 49 Tulsa L. Rev. 689, 693-95, 698-99, 701, 703, 706, 711 (2014); Nicolas Economides, Tying, bundling, and loyalty/requirement rebates, in Research Handbook of the Economics of Antitrust Law 5 (Einer Elhauge ed., 2012); Einer Elhauge, Tying, Bundled Discounts, and the Death of the Single Monopoly Profit Theory, 123 Harv. L. Rev. 397 (2009).

48. Proposed Update, § 5.3.

49. Tying arrangements condition the sale of one distinct product or service (the "tying product") on the sale of another distinct product or service (the "tied product") or the agreement not to purchase the tied product or service from any other supplier. See, e.g., Illinois Tool Works, 547 U.S. at 33-34; Eastman Kodak, 504 U.S. at 461-462; IBM v. United States, 298 U.S. 131, 135 (1936).

50. See, e.g., Rehabilitating Jefferson Parish, supra note 47, at 494-95, 515 (characterizing the Court’s jurisprudence on tying as imposing a presumption that tying can’t be justified because of the likelihood of less restrictive alternatives). We believe it not to be an accident that outside of the franchise context, the only case to have apparently accepted an efficiencies defense to tying—and notably cited by the Proposed Update—is United States v. Jerrold Electronics Corp., 187 F.Supp. 545, 560 (ED. Pa. 1960), affd 365 U.S. 567 (1961) (per curiam), involving new entry.

51. Microsoft, 253 F.3d at 60-62, 64-67, 95-97.

52. See, e.g., Philip Areeda & Herbert Hovenkamp, Antitrust Law, ^ 1728f2, at 326 (2004).

53. See Proposed Update, § 6. The Walker Process line of decisions mentioned in this Section require evidence that a patent was secured by fraud as part of a Section 2 claim involving illegal leveraging of a IP right. This is because that doctrine functions as a sword, exposing the monopolist to trebled damages.

54. Conduct committed by a monopolist can be viewed as anticompetitive even when that same conduct might be viewed as procompetitive if committed by a non-monopolist. See Eastman Kodak Co. v. Image Technical Services., 504 U.S. 451, 488-89 (1992) (Scalia, J., dissenting) (discussing tying); ZF Meritor LLC, 696 F.3d at 270-71 (discussing exclusive dealing); cf. Death of the Single Monopoly Profit Theory, supra note 47, at 436-37 n.104 (the application of the consumer welfare standard to antitrust law does not require the assessment of consumer welfare standards on a case-by-case basis but rather can support rules and standards).

55. Bundling can present competition concerns in this space. See, e.g., Goter, supra note 36, at 713-14 (patent pools can be used to foreclose competition with existing patented products or to foreclose competition with licensors in specified markets or fields-of-use).

56. See C. Scott Hemphill & Tim Wu, Parallel Exclusion, 122 Yale L. J. 1182, 1200, 1201-03, 1205-06 (2013); see also Michal Gal & Daniel Rubinfeld, The Hidden Costs of Free Goods: Implications for Antitrust Enforcement, 80 Antitrust L.J. 521, 533-35, 541-42 (2016); cf. Death of the Single Monopoly Profit Theory, supra note 47, at 445-47 (explaining that even in the set of very limited circumstances in which tying shouldn’t be struck down under Section 1 of the Sherman Act’s quasi-per se or structured rule of reason theory, it can be struck down as illegal monopolization under Section 2 of the Sherman Act); id. at 476 n.50 (noting the position of Areeda and Hovenkamp that foreclosure from exclusionary conduct should be presumed unreasonable when it reaches a total of 50 percent for five or fewer sellers).

57. See, e.g., Brief of Amicus Curiae Frederic Scherer, at 9-10, Illinois Tool Works, Inc. v. Independent Ink, Inc. , 547 U.S. 28 (2006) (advocating based on quick look cases, Section 2 cases, and the U.S. Merger Guidelines that burden be placed on defendants to come forward with evidence justifications for tying conduct); see also In re Cipro Cases I & II, 348 P.3d at 869-70; C. Scott Hemphill, Less Restrictive Alternatives in Antitrust Law, 116 Colum. L. Rev. 927, 983 (2016).

58. See Hemphill, supra note 57, at 979-83; see also Jefferson Parish, 466 U.S. at 266 n.42 (discussing tying); Fortner Enterprises, Inc. v. U.S. Steel Corp., 394 U.S. 495, 503 (1969) (same); see also Philip Areeda, Einer Elhauge, & Herbert Hovenkamp, Antitrust Law, ^ 1760f at 357 (2d ed. 2004) (same). New entry as a procompetitive justification for tying does not raise the same concerns about fit and the availability of practical, significantly less restrictive alternatives if defendants provide evidence showing that this efficiency is a real one based on market realities. See Proposed Update, § 4.2.

59. See Actavis, 133 S.Ct. at 2230-31 (recognizing that a valid patent carries with it the right to try to exclude products that are infringing).

60. Actavis, 133 S.Ct. at 2230-2233.

61. Microsoft, 253 F.3d at 64-67.

62. Cf. Actavis, 133 S.Ct. at 2232-33 (discussing overly restrictive patent licensing agreements struck down under the antitrust laws); Cheng, supra note 28, at 498-506, 508-10.

63. Trinko, 540 U.S. at 409-11, 415-16.

64. Avoiding reliance on an expansive interpretation of Trinko also avoids treating patents as conferring an absolute right to exclude and thereby working an end run around the conditional nature of patent grants.

65. Innovation goes beyond traditional research and development in including the development of new products such as new kinds of entertainment content such as Netflix and Amazon Prime, and new services such as product delivery—see, e.g., Andy Pasztor, Package-Delivery Drones Likely Years Away from Federal Approval, Wall St. J. (Sep. 29, 2016).

66. See, e.g., Thomas Nicholas, What Drives Innovation? 77 Antitrust L.J. 787 & nn.1-2 (2011) (collecting materials on how innovation "matters for just about everything.").

67. See, e.g., Stephen Haber, Patents and the Wealth of Nations, 23 Geo. Mason L. Rev. 811 (2016) (collecting studies and historical analysis); Alden Abbott, Abuse of Dominance by Patentees: A Pro-Innovation Perspective, 14 Antitrust SouRce 1 (Oct. 2014) (same); but cf. Nicholas, supra note 66 (suggesting that whether IP rights enhance innovation involves a more complex analysis of welfare trade-offs and that antitrust laws should consider the other means by which innovation can be furthered such as prizes).

68. E.g., Jackie Northam, As Overseas Costs Rise, More U.S. Companies Are ‘Reshoring,’ All Things Considered, NPR (Jan. 27, 2014), as-overseas-costs-rise-more-u-s-companies-are-reshoring; Reshoring Manufacturing: Coming Home, A Growing Number of American Companies Are Moving Their Manufacturing Back to the United States, The Economist (June 19, 2013); Special Report, TD Economics, Offshoring, Onshoring, and the Rebirth of American Manufacturing (Oct. 15, 2012) (report on file with the author).

69. See, e.g., H.R. Rep. No. 113-657, Trade Secrets Protection Act of 2014, pp. 5-6; see also, e.g., Altavion v. Konka Minolta Sys. Lab., Inc., 171 Cal. Rptr. 3d 714, 719, 737 (Cal. App. 2 Dist. 2014); Brief of the California Attorney General as Amicus Curiae, Bunner v. DVDCCA, 75 P.3d 1 (Cal. 2003); sources cited in note 62 supra.

70. See, e.g., Benefits of Competition and Indicators of Market Power, Council of Economic Advisers Issue Brief (Apr. 2016); Too Much of a Good Thing, THe Economist, 23-28 (Mar. 26, 2016).

71. See Microsoft, 253 F.3d. at 63 (finding Microsoft’s claim of "absolute and unfettered right to use its intellectual property as it wishes . . . borders upon the frivolous.").

72. See, e.g., Trans-Pacific Partnership Agreement chs. 9 & 18, Aust.-Brunei-Can.-Chile-Japan-Mex.-N.Z-Peru-Sing.-U.S.-Viet., Feb. 4, 2016, U.S. Trade Representative, free-trade-agreements/trans-pacific-partnership/tpp-full-text.

73. See, e.g., Press Release, U.S. Dep’t of Justice, Justice Department Withdraws Report on Antitrust Monopoly Law: Antitrust Division to Apply More Rigorous Standard with Focus on the Impact of Exclusionary Conduct on Consumers (May 11, 2009),

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