U.S. Issues New Intellectual Property Licensing Guidelines for Avoiding Antitrust Violations


On August 8th, the U.S. Department of Justice proposed new antitrust guidelines for the licensing and acquisition of intellectual property. The guidelines, which will be adopted in final form after a sixty-day public comment period commencing shortly, cover the licensing and acquisition of intellectual property protected by patents, copyrights, and trade secret law. The guidelines will also replace the intellectual property portions of the 1988 Antitrust Enforcement Guidelines for International Operations.

Preliminarily, these guidelines state that the Department will approve the delineation of relevant market and the measurement of market share in the intellectual property area in the same way that it treats such questions under Section 1 of the 1992 Horizontal Merger Guidelines. When complicating factors preclude the delineation of a relevant market in which the licensed technology competes, the Department may focus its attention on effects in the associated goods markets both downstream and upstream.

The guidelines also define the horizontal and vertical aspect of licenses involving intellectual property. A licensing arrangement has a horizontal component if it involves the acquisition of rights to technologies that are economic substitutes for the technologies that the licensee owns or controls. When a licensing arrangement affects the activities that are in a complementary relationship, the license arrangement has a vertical component. Some examples given by the guidelines for a vertical relationship are when the licensee and licensor stand in a buyer-seller relationship or operate at different levels of the chain of production and distribution.

According to the guidelines, there are three types of licensing arrangements that may raise antitrust concerns and therefore might be viewed as restraints on competition. They include the restriction on collateral or competing goods or technologies, contractual provisions that penalize licensees for dealing with suppliers of substitute technologies, and acquisitions of intellectual property that lessen competition in a relevant antitrust market.

The guidelines delineate three views that the Department will take when analyzing a licensing restraint. In addition to the time tested per se and rule of reason analyses, the Department has created a "Safety Zone." Among the restraints that have been held per se unlawful are naked price-fixing, output restraints, and market division among horizontal competitors, as well as, certain group boycotts and resale price maintenance. If there is no "efficiency-producing integration of economic activity" and the restraint is one that is usually scrutinized with per se treatment, the Department will challenge the restraint under the per se rule. The guidelines specifically state however, that horizontal restraints in licensing arrangements that constitute price-fixing, allocation of markets or customers, agreements to reduce output, and certain group boycotts may merit per se treatment. Otherwise, licensing arrangements will be afforded the "rule of reason" analysis.

Under the "rule of reason" analysis, the Department states that it will first inquire as to whether the restraint has an anti-competitive effect and, if so, whether the restraint is reasonably necessary to achieve pro-competitive benefits that outweigh those anti-competitive effects. A restraint in a licensing arrangement may increase the risk of coordinated pricing, output restrictions, or the acquisition or maintenance of monopoly power.

The guidelines also create a "safety zone" stating that the Department will not challenge a restraint in a licensing agreement if (1) the restraint is not of a type that normally warrants condemnation under the per se rule and (2) the licensor and its licensees collectively account for no more than 20% of each relevant market affected by the restraint. This safety zone, though, does not apply to transactions that amount to mergers or acquisitions which are governed by the Department's 1992 Horizontal Merger Guidelines.

The guidelines go on to discuss in detail the Department's view of exclusive licenses and exclusive dealings arrangements and then briefly summarize the Department's views on horizontal restraints, resale price maintenance, tying arrangements, exclusive dealing, cross-licensing, pooling arrangements, grant backs, acquisition of intellectual property rights, and enforcement of invalid intellectual property rights.

Anyone involved in the licensing of patents, copyrights, or trade secrets should be familiar with these new antitrust guidelines.