Intellectual Property and Antitrust

February 24, 2022

Is an Anticompetitive Contract Clause an Ancillary Restraint that will survive Antitrust Scrutiny?

As a regular reader of The Antitrust Attorney Blog, you understand that coordinating prices or allocating markets with your competitor is a terrible idea. Doing so is likely to lead to civil litigation and perhaps even criminal penalties.

Price fixing and market allocation agreements are per se antitrust violations. That means they are the worst of the worst of anticompetitive conduct.

There is, however, a limited circumstance in which what would normally be a per se antitrust violation is instead treated under the rule of reason by Courts and government antitrust agencies:

An ancillary restraint.

You shouldn’t put ancillary restraints in your agreements without the help of an antitrust lawyer. That would be like juggling knives that are on fire. You might be able to do it, but if you make a mistake, you won’t like the results.

What is an Ancillary Restraint?

This isn’t an easy question to answer and, in fact, if you can answer it, you will often know whether your restraint will survive antitrust scrutiny.

Let’s back up a little bit.

In a typical situation, if two competitors agree to fix prices or to split a market (perhaps they will agree to limit their competition for each other’s customers), they commit what is called a per se antitrust violation. What that means is that this type of restraint is so consistently anticompetitive that courts won’t even examine the circumstances—it is per se illegal.

Obviously you should avoid committing per se antitrust violations, unless, of course, you want to experience an antitrust blizzard.

Without further context, such a restraint is often called a naked restraint of trade. That doesn’t mean that the cartel meets at a nudist colony; it means that it is an anticompetitive agreement with nothing surrounding it. Such agreements are almost always done to gain supracompetitive profits from the restraint itself.

So what does a non-naked restraint of trade look like? Interesting question. I will answer it, but you have to read through most of this article to get it.

Sometimes two or more parties, even competitors, will put together a joint venture or collaboration that creates what antitrust lawyers often call efficiency. You might normally think of increased efficiency as running more smoothly or at the same or better result with fewer resources.

But when antitrust attorneys use the term “efficiency” or “efficiency enhancing,” they often mean that the venture or combination will create economic value for the marketplace as a whole that wouldn’t exist but for the agreement. The term often comes up in the merger context, as an antitrust analysis of a merger will examine whether the benefits through efficiency and more exceed any potential anticompetitive harm.

An Ancillary-Restraint Example

Sometimes it is easier to understand with an example: Let’s say you have a company called Research that is full of people with PhDs that spend all of their days trying to figure out how to make the world a better place. If someone at Research comes up with a good idea, the company will sometimes manufacture and sell the finished product itself.

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November 17, 2019

The Continuing Value of The Exorcist, Film Participant Agreements, and Hiring the Right Expert

by Bona Law PC

Author: Steven Madoff

Steven Madoff is a former Executive Vice President at Paramount Pictures and General Counsel for its Home Entertainment Subsidiary. He is Of Counsel at Bona Law.

When you see someone acting strangely, do you ever wonder if they are possessed? If you do, it might be because of the everlasting influence of a classic film that I am certain you know: The Exorcist.

One of the great joys of a film is that you can turn down the lights, let your problems disappear, and enter a meditative zone where you become engrossed in the movie and nothing else. You surely know that a lot goes into making a film and that it takes many talented people working really hard to do it well.

But do you ever think about how much thought, work, and fighting (yes, fighting) goes into marketing, distributing, and monetizing a film? Indeed, because films continue to make money for years and sometimes decades after they are made—especially for a classic film like the Exorcist—the battles over revenue and its dissemination can be everlasting.

During my decades at the studios and in the film industry, I had a front row seat to the methods, money, and machinations of the entertainment industry.

Even still, after I left Paramount Pictures, I did not think of myself as an “expert.” I had worked at Paramount for 20 years, the last ten of which I served as Executive Vice President of Worldwide Business and Legal Affairs for the Home Entertainment and Pay Television Divisions. I had also worked at the Motion Picture Association of America for five years in a business development position and then as International Counsel. The Motion Picture Association of America is the trade association representing the interests of the (at the time) seven major Hollywood Studios: Disney, MGM/United Artists, Paramount, Sony Pictures, Twentieth Century Fox, Universal and Warner Bros.

So after 25 years working for the major studios, I knew that I was very experienced and highly knowledgeable about certain aspects of the motion picture and television industries, but I did not think of myself as an “expert” on whose word courts should rely.

That was, anyway, until shortly after leaving Paramount, I started receiving phone calls from other studios involved in one form of litigation or another that were looking for someone who could qualify as an expert and would be willing to render an opinion and possibly testify in court in their litigation. Each one was certain that based on my 25 years of experience in motion picture and television industry business affairs (including all forms of licensing, sales, distribution and acquisition transactions), I would qualify as an ”expert.”

Malcolm Gladwell wrote about the 10,000 hour rule in this book “Outliers.” This rule states that it requires at least 10,000 hours of practice to become an expert in a particular field. I figured that my 25 years of practice in one industry, at a minimum of 40 hours per week, equates to about 50,000 hours that I had practiced in motion picture and television business affairs. Maybe these people were right. As it turns out, my qualifications as an “expert” in multiple cases have never been successfully challenged. That may, in part, be attributed to the fact that I have always been very selective in choosing which matters I offered my services for—I stick with what I truly know.

One of the more interesting cases on which I provided services as an expert witness involved the classic motion picture, “The Exorcist.” The case was before the U.S. District Court for the Central District of California.

For those that don’t know, “The Exorcist” is the 1973 Warner Bros. release which, for many years, was the highest box office grossing horror motion picture of all time. In fact, adjusted for inflation “The Exorcist” is probably still the highest box office grossing horror motion picture of all time. It is certainly in the top five. If you haven’t seen it, you should.

Film finance can be complicated and there are typically investors that put up money or creative services for the film, alongside a studio and others, and, in exchange, they receive a contractual right to participate in the profits of the particular film. These are commonly known as participation agreements.

As often happens in Hollywood, claims were made against Warner Bros., the distributor of “The Exorcist” by a party who has a right to participate in the profits of the film. Basically, the claim was that Warner Bros. had not been properly exploiting “The Exorcist” in subsequent media and therefore the film’s gross revenue and profits were less than they otherwise could have been.

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January 30, 2018

Antitrust-Style Analysis in Patent Law

by Bona Law PC

Author: Saurabh Vishnubhakat, Associate Professor of Law and Associate Professor of Engineering, Texas A&M University.

This guest post is based upon Professor Vishnubhakat’s innovative new paper applying antitrust concepts to patent law, which is now published in the Seton Hall Law Review: “The Antitrusting of Patentability”

Courts facing difficult questions of patent validity are increasingly turning to a form of decision-making that has long been familiar to antitrust lawyers: using per se analysis rather than the rule of reason. In this post, I will discuss the analytical origins of this trend, fresh empirical data on how it is emerging, and some thoughts for improvement.

The Patent-Antitrust Interface

To begin, it is worth noting the very fact that antitrust law and patent law are intersecting so directly. The complexity and specialization of these fields can often stand in the way of dialogue between them, though the need for such dialogue is plain. One of antitrust law’s main concerns is fostering competition and promoting economic efficiency. Meanwhile, patent rights by design restrict competition and efficiency in the short run. A patent owner can exclude others from quintessentially economic activities: making, using, selling, offering, and importing the patented invention.

This is meant to produce gains for inventor and society alike, but on different timelines. Market power and the ability to charge higher prices are today’s reward for the patent owner in return for developing the invention in the first place. Society’s reward comes tomorrow, when the patent expires and the technical know-how becomes freely available to make and sell, to use in follow-on innovation, and so on. Another important reward to society is the credible incentive to future would-be innovators that their efforts, too, will enjoy a similar benefit.

Theoretically, this tradeoff between static current losses to competition and efficiency in favor of dynamic future gains could be made entirely within patent law itself. However, antitrust has much to say on these systemic choices, too, and the proper treatment of so-called “patent monopolies” has been a source of perennial debate and even tension in the law since the 19th century.

**The Origins of Per Se Analysis in Patent Law**

In this longstanding debate, the use of per se-style analysis in patent law is a recent development aimed at solving a specific problem. Inventions are evaluated, and patents are granted, by Patent Office examiners with expertise in the relevant technology. Federal judges and juries who later confront these patents in litigation generally have no such expertise, but they must frequently decide whether a patent is valid. In doing so, they must pass judgment on whether an expert agency—one that deals every day with the law and the science of patents—got it wrong.

Under the best of circumstances, this is intimidating. Making this decision accurately is costly and time-consuming, even with compelling stories from attorneys and authoritative opinions from expert witnesses. If one could dispense with the thorny question of patent validity early in litigation, things would be simpler.

One straightforward way to front-loading an issue, of course, is to decide it as a matter of law without delving much into idiosyncratic facts. This is where per se analysis of patent validity begins. Of the major requirements for a patent to be granted—and for a granted patent to be found valid—most require a good deal of factual detail about the state of the art and what people trained in that art knew at the time of the invention. But one does not: the threshold question of the invention is even patent-eligible subject matter. This is primarily a legal question, and so the subject matter eligibility doctrine is a good candidate for reducing the decision costs associated with determining patent validity.

**How the Per Se Analysis of Patent Validity Actually Works**

The way it works, in essence, is that a court applies the subject matter eligibility doctrine to find a patent invalid rather than reaching the same conclusion through other, more fact-intensive doctrines. Patent lawyers tend to think of the different patentability requirements as separate hurdles to be cleared, but it turns out that these requirements reflect similar, overlapping concerns.

To be patentable, an invention must be useful and new as compared to the prior state of knowledge. It must be nonobvious, which means it must embody more than trivial combinations or extensions of existing inventions or pieces of knowledge. These requirements are intended to ensure that an invention is innovative enough to merit a patent.

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July 27, 2014

The Antitrust Law Journal, Patent Assertion Entities, and Politics

by Bona Law PC

As you know, I am a big fan of the Antitrust Law Journal, which is produced by the American Bar Association’s Antitrust Law Section. It is the journal where antitrust lawyering meets antitrust economics and academics. I like to hang out at this intersection.

A couple weeks ago, another issue of the Antitrust Law Journal arrived. I haven’t had a chance to read any of the articles yet—as I’ve been fortunately quite busy—but I skimmed it and it looks like a good one. Let’s review it together.

It is a double symposium issue, which is great because symposium issues can be a bummer if you don’t like the topic. This gives you twice the odds of liking at least some of the articles. The two topics are (1) Patent Assertion Entities, and (2) Politics and Antitrust.

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