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DOJ and FTC Issue New Antitrust Guidelines for Licensing of Intellectual Property

January 16, 2017Alerts Antitrust Alert

Updating policies that had been on the books for more than two decades, the U.S. Department of Justice and the Federal Trade Commission on Jan. 12, 2017, issued new Antitrust Guidelines for the Licensing of Intellectual Property that replace guidelines issued by the same agencies in April 1995. Such guidelines state the antitrust enforcement policy of the agencies relating to the licensing of intellectual property protected by patent, copyright and trade secret law, and of know-how. They do not cover the antitrust treatment of trademarks. 

These modernized guidelines will be fundamental to the agencies’ review and analysis of the licensing of intellectual property rights and provide guidance to businesses and the public about the agencies’ enforcement approach to intellectual property licensing. The agencies had announced the proposed update of the guidelines and made a draft available for public comment in August 2016.  During a 45-day comment period, the agencies received comments from academics, industry, law associations and nonprofit organizations. After considering the comments, the agencies have revised and promulgated the Guidelines.

The 2017 guidelines embody three general principles for the purpose of antitrust analysis, stating that the agencies:

  • Apply the same analysis to conduct involving intellectual property as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right;
  • Do not presume that intellectual property creates market power in the antitrust context; and
  • Recognize that intellectual property licensing allows businesses to combine complementary factors of production and is generally procompetitive. 

The guidelines contain a number of substantive changes which reflect changes in the law since the 1995 guidelines were issued. In particular, they reflect a number of significant changes in statutory and case law, and intervening changes in enforcement and policy work, including the 2010 Horizontal Merger Guidelines promulgated by the Department of Justice and the Federal Trade Commission. Among other changes, the 2017 guidelines revise the treatment of resale price maintenance provisions in intellectual property licensing agreements, include updates concerning market definitions and market power, and contain changes relating to situations where an intellectual property license or transfer will be treated as a merger.

With regard to resale price maintenance provisions in intellectual property license agreements, the 2017 Guidelines reflect the Supreme Court’s 2007 decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877 (2007) which changed prior law – in existence for nearly a century – that had declared vertical price restraints to be per se unlawful under Section 1 of the Sherman Act, and established that vertical price restraints are now to be analyzed under the rule of reason.  The Guidelines now permit intellectual property license agreements to explicitly include provisions on resale price without being per se illegal.  The Guidelines acknowledge that maximum or minimum vertical price restraints in licensing agreements will now be analyzed under the rule of reason.

As with the 1995 guidelines, the 2017 guidelines contemplate that in certain circumstances, even when there is not a merger, the Agencies will analyze an intellectual property license or transfer as if a merger took place.  Specifically, the agencies will apply a merger analysis to the outright sale by an intellectual property owner of all of its rights to that intellectual property and to a transaction in which a person obtains through grant, sale or other transfer an exclusive license for intellectual property (i.e., a license that precludes all other persons, including the licensor, from using the intellectual property). The agencies may also apply a merger analysis to a transaction involving a license that does not fall within the traditional definition of an exclusive license but in substance transfers intellectual property rights and raises the same potential antitrust concern.  In such circumstances, the 2017 Guidelines cite to the newer 2010 Horizontal Merger Guidelines.

The 2017 guidelines continue to include an antitrust “safety zone”. The agencies maintain that because licensing agreements often promote innovation and enhance competition, an antitrust “safety zone” is useful to provide some degree of certainty and thus to encourage such activity. Absent extraordinary circumstances, the agencies will not challenge a restraint in an intellectual property licensing arrangement if (1) the restraint is not facially anticompetitive and (2) the licensor and its licensees collectively account for no more than twenty percent of each relevant market significantly affected by the restraint.  The “safety zone” does not apply to those transfers of intellectual property rights to which a merger analysis is applied.

In addition to the guidelines, practitioners or the business community can consult a wide body of DOJ and FTC guidance available to the public, including published agency reports, statements, speeches and enforcement decisions.  Nevertheless, analysis of antitrust issues is fact specific. Accordingly, as with all guidelines, businesses should rely on qualified counsel to assist them in evaluating the antitrust risk associated with any contemplated agreement, transaction or activity. A party who wishes to know the agencies’ specific enforcement intentions with respect to a particular contemplated transaction or agreement in which they are involved can also seek a DOJ Business Review Letter or a FTC Advisory Opinion.

For more information about this alert, please contact Theodore H. Jobes at 215.299.2786 or [email protected] or any member of the firm’s Antitrust Practice or Intellectual Property Practice.