1995

 IP  Guidelines  Examples  

Hanno  F.  Kaiser
Latham  &  Watkins  LLP  (San  Francisco)
UC  Berkeley,  Boalt  Hall  School  of  Law

This work is licensed under the Creative Commons Attribution 3.0 United
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Contact me at: hanno [at] wobie.com

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FOU  and  territorial  restraints  (intra-­‐brand)  
Example  1
• SoOware  vendor  licenses  inventory  
management  program  to  hospitals  and  
:;<<=*"-5 :><=*"-5
doctors’  offices
• Field  of  use  restricTons
• Territorial  restricTons
• Different  royalTes  (hospitals  pay  more)

• No  compeTTve  concerns
!"#$%&'( !"#$)"'*"+ • Hospitals  and  doctors  are  neither  present  nor  likely  
!"#$)"'*"+ 6".-#-'" future  compeTtors  in  the  market  for  inventory  
management  soOware  (verTcal)
• Intra-­‐brand  restraint.  Nothing  prevents  hospitals  or  
doctors  from  using  a  compeTng  product  (no  exclusivity,  
no  possibility  of  foreclosure)
,-./0&'1/- 7'/8&1- • Nothing  keeps  hospitals  or  doctors  from  developing  
2-*3/145&1 ,-1-9- their  own  compeTng  products
• Cost  of  license  is  so  small  that  it  cannot  facilitate  
coordinaTon  in  the  downstream  (healthcare)  market  
among  hospitals  or  doctors

2
 Technology  and  goods  markets
Example  2

• A  and  B  have  developed  compeTng,  

6 7 patented  processes  for  manufacturing  
(off-­‐patent)  drug  X.  They  form  a  JV  to  (a)  
2,*/(0."0 license  the  patents  to  third  parTes  and  (b)  
produce  drug  X.
!"#$%&'(#)'*+#",($ • A  and  B  are  horizontal  compeTtors  in  the  
-".*/00%-'+/(+0 licensing/technology  and  goods  market
• Is  the  JV  a  device  for  per  se  illegal  price  fixing?  
2,*/(0//03
Depends  on  whether  it  is  also  an  efficient  integraTon.
&'(#)'*+#"/"0

• CompeTTve  effects?  Depends  on:

!"#$%5 !"#$%1 • AlternaTve  sources  for  similarly  efficient  IP

4.(0#&/"0 • AlternaTves  to  drug  X,  here  drug  Y.  The  more  
compeTTve  the  downstream  (goods)  market,  the  
lower  the  ability  of  A  and  B  to  raise  prices  vis-­‐a-­‐vis  the  
consumers

3
Cross  licensing  future  patents,  innovaTon  
markets.  Example  3

• A  and  B  are  engaged  in  advanced  

metallurgy  R&D.  They  cross-­‐license  future  
#$%&&'()*+,&+-%. patents  for  high-­‐strength  materials  for  
! ./0/$+-120+,0&
" aircraO  turbines.
• A  and  B  are  current  R&D  compeTtors
• Per  se  illegal  agreement?  No.  No  price  fixing  or  other  
agreement  not  to  compete.

• CompeTTve  effects  depend  on:

• IncenTves  of  A  and  B  to  each  invest  less  in  R&D,  as  
each  benefits  from  the  other’s  efforts  (the  cross-­‐
license  creates  some  measure  of  free-­‐rider  
disincenTve)
• If  there  is  a  large  number  of  firms  (5  or  more  in  
addiTon  to  A  and  B)  with  the  ability  and  incenTve  to  
engage  in  the  same  R&D,  then  the  incenTves  to  slow  
roll  are  probably  trumped  by  the  incenTves  to  
accelerate  development

4
 Exclusive  R&D  JV,  innovaTon  markets
Example  4
• A,  B,  and  C  set  up  a  R&D  JV  for  the  
development  of  a  new  product  
technology.  The  JV  will  license  all  patents  
! # " and  know  how  to  A,  B,  and  C  but  no  one  
else.
• A,  B,  C  are  current  R&D  compeTtors
• No  per  se  issues  here.  The  agreement  does  not  
implicate  price  fixing  or  overt  output  reducTon

• CompeTTve  effects  depend  on:

$%&'()*+,-./0-12 • Number  of  other  R&D  compeTtors.  Safe  haven  if  4  or  
more,  i.e.,  a  6-­‐5  “merger”  is  fine.
• Efficiencies  from  the  JV,  such  as  greater  likelihood  of  
successful  R&D  and  more  rapid  development,  cost  
savings.
• Absence  of  restraints  on  compeTTon  in  the  goods  
market,  i.e.,  A,  B,  and  C  are  free  to  compete  in  
downstream  sales  of  the  product.

5
 VerTcal  v.  horizontal  agreements
Examples  5  and  6
• A  and  B  are  compeTng  farm  equipment  
#$%&'(&)*+)(,-&.$+. manufacturers.  A  grants  B  a  patent  license  
&/$(($+')%+'*.+0
*&%1'+0+23)45.+67
to  A’s  new  emission  control  technology.  B  
! -6*&'*)%06$/8
" grants  A  a  license  to  its  valve  technology.
• The  emission  license  is  verTcal
• B’s  technology  does  not  constrain  the  price  of  A’s  much  
superior  technology.  Since  B’s  technology  is  no  
subsTtute,  A  and  B  are  not  current  compeTtors.
#$%&'(&)*+)%+/-6.650&
<60<&)*&%1'+0+23)
• A’s  patent  claim  is  broad  such  that  B’s  likely  
4'6..+=)-6*&'*)%06$/8
improvements  to  its  own  technology  would  infringe  A’s  
patents.  B  is  thus  not  a  likely  future  compeTtor.

!9():6./)
&;,$-/&'*
"9():6./)
&;,$-/&'*
• The  valve  license  is  horizontal
• A’s  valve  technology  constrains  the  price  of  B’s  
comparable  technology.  A  and  B  are  actual  
compeTtors.
• B’s  patent  claims  do  not  stand  in  the  way  of  A’s  likely  
improvements.  A  is  thus  a  likely  future  compeTtor.
• This  does  not  mean  that  the  license  poses  a  problem.

6
Sham  restraints,  per  se  illegal  agreements
Example  7
• A  sells  widgets  using  a  patented  process  in  
compeTTon  with  other  vendors.  A  licenses  
" its  process  to  every  other  widget  vendor,  
assigning  exclusive  territories.  The  
licensees  do  not  use  A’s  process,  but  they  
abide  by  the  license  restricTons.
!" #$ %& • Per  se  illegal  territorial  allocaTon
• A  and  the  other  vendors  are  compeTtors  in  the  widget  
market
• The  “licensees”  do  not  care  about  A’s  technologies.  
They  care  about  the  restricTons  that  come  with  it.
• The  agreement  is  horizontal,  because  the  licensees  
would  be  compeTtors  in  the  absence  of  the  
(restricTons  that  come  with  the)  license

• If  A’s  technology  was  demonstrably  

superior,  the  ROR  would  apply
• Using  A’s  technology  would  be  efficiency  enhancing

7
 Exclusive  license  and  exclusive  dealing
Example  8
• A  is  the  inventor  and  vendor  of  new  flat  
% panel  technology.  To  commercialize  the  
product,  A  licenses  the  product  to  B.  B  is  
not  developing  technology  similar  to  A’s.
• The  license  contains  two  restraints
!8#$9$&'()$*+)$(2// !"#$%$&'()$*+)$,-.*)$.
:-+;'1)($1+&:2<*, /012*(2$)+$.*3+*2$2/(2 • A  must  not  grant  a  license  to  anyone  else  (exclusive  
=0)>$)>+(2$2&?+;30*, 4251/'(062$/012*(27 license,  restraint  on  the  licensor)
%@($)21>*+/+,3 • B  must  not  sell  products  compeTng  with  those  
4251/'(062$;2./0*,7
embodying  A’s  technology  (exclusive  dealing,  restraint  
on  the  licensee)

•
9 Exclusive  licenses  in  a  verTcal  senng  are  
almost  always  procompeTTve
• Exclusive  dealing  may  restrict  compeTTon  
from  others,  depending  on  the  level  of  
foreclosure
• Here,  there  are  several  technologies  compeTng  with  
B’s  products,  so  there  are  no  foreclosure  concerns.

8
Patent  pooling:  Blocking  and  subsTtute  patents
Examples  9  and  10
• A  and  B  sell  compeTng  patented  widgets.  
They  also  license  their  widget  patents  to  
# third  party  widget  manufacturers.  A  and  B  
create  C  as  a  50/50  JV  and  assign  all  
widget  patents  for  licensing  to  C.  C  sets  
the  price,  revenues  are  split  between  A  
and  B.

! " • Example  9:  Patents  assigned  to  C  are  non-­‐

blocking
• The  JV  eliminates  compeTTon  for  widget  IP  licensing  
between  A  and  B.  If  no  producTon  or  licensing  
efficiencies,  per  se  illegal  price  fixing  agreement.  If  
efficiency-­‐enhancing  integraTon,  then  ROR  analysis

• Example  10:  Patents  are  blocking

• A  and  B  are  not  in  a  horizontal  relaTonship  with  
respect  to  these  patents,  because  neither  could  
pracTce  the  technology.  No  anTtrust  concerns.

9
 License  in  lieu  of  acquisiTon
Example  11

• A  is  the  only  vendor  of  a  drug  for  the  

! " treatment  of  a  parTcular  disease.  B  has  

developed  a  compeTng  drug  that  is  close  
to  FDA  approval.  Before  FDA  approval,  B  
licenses  its  drug  to  A.  The  license  is  non-­‐
exclusive,  but  B  has  rejected  all  requests  
by  other  potenTal  licensees.
• The  agreement  is  horizontal,  because  but  
for  the  license,  B  would  have  been  a  
compeTtor  to  A
• Merger  analysis  will  be  applied  to  the  
license  agreement
• A  effecTvely  “acquires”  a  likely  future  compeTtor  B  

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