Federalism, substantive preemption, and limits on antitrust: An application to patent holdup

Journal of Competition Law and Economics

Volumn 5, Issue 3, 2009, Pages 469-516

  Kobayashi, Bruce H ^a   Wright, Joshua D ^a,b  

^a GEORGE MASON UNIVERSITY   (United States)

^b UNIVERSITY OF TEXAS AT AUSTIN   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 69549098449     PISSN: 17446414     EISSN: 17446422     Source Type: Journal    
DOI: 10.1093/joclec/nhp006     Document Type: Article

References (237)

1. Credit Suisse Sec. (USA) LLC v. Billing, 127 S. Ct. 2383 (2007).
2. See Benjamin Klein, Robert G. Crawford & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & ECON. 297 (1978)
3. OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALSIM: FIRMS, MARKETS, RELATIONAL CONTRACTING 52-56 (1985).
4. Benjamin Klein and others have emphasized the distinction between contract law and antitrust law in resolving holdup by emphasizing that the correct competitive analysis in cases of ex-post opportunism occurs ex-ante at the time of contracting. For instance, in the case of ex-post contractual opportunism by franchisors against franchisees, the opportunism is generally a contract problem and not an antitrust problem because franchisors generally do not have antitrust market power at the time the agreement was entered into. See, e.g., Benjamin Klein, Market Power in Antitrust: Economic Analysis after Kodak, 3 SUP. CT. ECON. REV. 43, 85 (1993)
5. Benjamin Klein, Market Power in Franchise Cases in the Wake of Kodak: Applying Post-Contract Hold-Up Analysis to Vertical Relationships, 67 ANTITRUST L.J. 283 (1999).
6. In re Dell Computer Corp., 121 F.T.C. 616 (1995).
7. In re Rambus, FTC Dkt. No. 9302 (Liability Opinion, July 31, 2006), rev'd, Docket Nos. 07-1086, 07-1124 (D.C. Cir. 2007), available at http://pacer.cadc.uscourts.gov/docs/common/ opinions/200804/07-1086-1112217.pdf).
8. In re Union Oil Co. ("Unocal"), 2004 FTC LEXIS 115 (F.T.C. 2004), available at http://www.ftc.gov/os/adjpro/d9305/ 040706commissionopinion.pdf.
9. In re Negotiated Data Solutions LLC (N-Data), No. 051-0094 (F.T.C. January 23, 2008) (Majority Statement), available at http://www.ftc.gov/os/caselist/0510094/080122statement.pdf.
10. Chairman Majoras and Commissioner Kovacic dissented from the Commission opinion, available at http://www.ftc.gov/os/caselist/0510094/ 080122majoras.pdf (Majoras dissent), and http://www.ftc.gov/os/caselist/ 0510094/080122kovacic.pdf (Kovacic dissent).
11. Broadcom Corp. v. Qualcomm Inc., 501 F. 3d 297 (3d Cir. 2007).
12. U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION 33-56 (April 2007) [hereinafter Antitrust/IP Report], available at www.usdoj.gov/atr/public/hearings/ip/222655.pdf
13. Fed. Trade Comm'n & U.S. Dep't of Justice, Hearings on Section 2 of the Sherman Act: Single-Firm Conduct As Related to Competition: Hearing on Misleading and Deceptive Conduct (December 6, 2006)
14. ABA SECTION OF ANTITRUST LAW, HANDBOOK ON THE ANTITRUST ASPECTS OF STANDARD SETTING 60-64 (2004).
15. See also M. Sean Royall, Standard Setting and Exclusionary Conduct: The Role of Antitrust in Policing Unilateral Abuses of the Standard Setting Processes, ANTITRUST, Spring 2004, at 44.
16. The antitrust treatment of ex-ante efforts to prevent patent holdup has also been the subject of considerable discussion. See, e.g., Antitrust/IP Report, supra, at 49-56
17. Letter from Thomas O. Barnett, Assistant Attorney Gen., U.S. Dep't of Justice, to Robert A. Skitol, Esq. (October 30, 2006) (business review letter), available at http://www.usdoj.gov/atr/public/busreview/ 219380.htm
18. Letter from Thomas O. Barnett, Assistant Attorney Gen., U.S. Dep't of Justice, to Michael A. Lindsay, Esq. (April 30, 2007) (business review letter), available at http://www.usdoj.gov/atr/public/busreview/ 222978.htm.
19. See, e.g., J. Gregory Sidak, Patent Holdup and Oligopsonistic Collusion in Standard Setting Organizations (January 8, 2008) (working paper), available at http://ssrn.com/abstract=1081997
20. Robert Skitol, Concerted Buyer Power: Its Potential for Addressing the Patent Hold-up Problem in Standard Setting, 72 ANTITRUST L.J. 727 (2005).
21. Daniel Swanson & William Baumol, Reasonable and Nondiscriminatory (FRAND) Royalties, Standards Selection, and Control of Market Power, 73 ANTITRUST L.J. (2005)
22. Joseph Farrell et al., Standard Setting, Patents, and Hold-Up, 74 ANTITRUST L.J. 603 (2007)
23. Damien Geradin & Anne Layne-Farrar, The Logic and Limits of Ex Ante Competition in a Standard Setting Environment, 3 COMPETITION POL'Y INT'L 79 (2007)
24. Damien Geradin & Miguel Rato, Can Standard Setting Lead to Exploitative Abuse? A Dissonant View on Patent Holdup, Royalty Stacking, and the Meaning of FRAND (April 2006), available at http://www.ssrn.com/abstract=946792
25. Damien Geradin, Anne Layne-Farrar & A. Jorge Padilla, The Ex Ante Auction Model for the Control of Market Power in Standard Setting Organizations (CEMFI Working Paper No. 0703, 2007).
26. Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991 (2007)
27. Mark A. Lemley & Carl Shapiro, Reply: Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 2163 (2007)
28. Mark A. Lemley, Ten Things to Do About Patent Holdup of Standards (And One Not To), 48 B.C. L. REV. 149 (2007)
29. John M. Golden, Patent Trolls and Patent Remedies, 85 TEX. L. REV. 2111 (2007)
30. J. Gregory Sidak, Holdup, Royalty Stacking, and the Presumption of Injunctive Relief for Patent Infringement: A Reply to Lemley and Shapiro 92 MINN. L. REV. 713 (2008).
31. See generally David S. Evans & A. Jorge Padilla, Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach, 72 U. CHI. L. REV. 27 (2005) (discussing application of the error-cost approach). In the antitrust context, false positives are the erroneous condemnation of pro-competitive business conduct and are also known as type I errors. False negatives, or type II errors, refer to the mistaken failure to condemn anticompetitive behavior.
32. Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).
33. Id. at 220-24.
34. See also Bruce H. Kobayashi, The Law and Economics of Predatory Pricing, in THE LAW AND ECONOMICS OF ANTITRUST (K. Hylton ed., forthcoming)
35. Frank Easterbrook, Predatory Strategies and Counterstrategies, 48 U. CHI. L. REV. 263 (1981)
36. JOHN R. LOTT, JR., ARE PREDATORY COMMITMENTS CREDIBLE? WHO SHOULD THE COURTS BELIEVE? (1999)
37. John S. McGee, Predatory Price Cutting: The Standard Oil (N.J.) Case 1 J.L. & ECON. 137 (1958)
38. John S. McGee, Predatory Pricing Revisited, 23 J.L. & ECON. 289 (1980).
39. See, e.g., James Cooper et al., Vertical Restrictions and Antitrust Policy: What About the Evidence?, 1 COMPETITION POL'Y INT'L 45 (2005)
40. Francine Lafontaine & Margaret Slade, Exclusive Contracts and Vertical Restraints: Empirical Evidence and Public Policy, in HANDBOOK OF ANTITRUST ECONOMICS, X (Paola Buccirossi ed., 2006).
41. 127 S. Ct. 1069, 1078 (2007).
42. NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998)
43. Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007).
44. Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955 (2007).
45. On error-cost analysis as a feature of the Roberts Court's antitrust jurisprudence, see Joshua D. Wright, The Roberts Court and the Chicago School of Antitrust: The 2006 Term and Beyond, 3 COMPETITION POL'Y INT'L 24 (2007).
46. Leah Brannon & Douglas H. Ginsburg, Antitrust Decisions of the U.S. Supreme Court 1967-2007, 3 COMPETITION POL'Y INT'L 3 (2007).
47. Credit Suisse Sec. (USA) LLC v. Billing, 127 S. Ct. 2383 (2007).
48. Billing v. Credit Suisse First Boston Ltd., 426 F.3d 130 (2d Cir. 2005).
49. Credit Suisse, 127 S. Ct. at 2387, 2389-92
50. (citing Gordon v. New York Stock Exch., Inc., 422 U.S. 659, 682 (1975)
51. United States v. Nat'l Ass'n of Sec. Dealers, Inc., 422 U.S. 694 (1975)
52. Silver v. N.Y. Stock Exch., 373 U.S. 341 (1963)). Justice Stevens concurred in the judgment on the grounds that the defendants' alleged conduct would not violate the antitrust laws, but did not join the majority with respect to its finding of implied repeal. Justice Thomas dissented on the grounds that the savings clause in Section 16 of the Securities Act of 1933 and Section 28 of the 1934 Act preserves antitrust remedies. Justice Thomas therefore would not reach the issue of reconciling any conflict between antitrust and securities regulation. Justice Kennedy did not participate in the decision.
53. Different standards are likely to result because "the sole aim of antitrust legislation is to protect competition, whereas the SEC must consider, in addition, the economic health of the investors, the exchanges, and the securities industry." Gordon, 422 U.S. at 689.
54. Credit Suisse, 127 S. Ct. at 2396.
55. Id. Justice Breyer's analysis of the marginal benefit of antitrust enforcement in Credit Suisse is consistent with Justice Scalia's assessment of the "slight benefits of antitrust intervention" in Trinko. Justice Scalia explicitly calls for an evaluation of these benefits against "a realistic assessment of its costs," noting that "one factor of particular importance is the existence of a regulatory structure designed to deter and remedy anticompetitive harm," and relying upon error cost analysis to determine the appropriate scope of antitrust laws.
56. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 412 (2004).
57. Credit Suisse Sec. (USA) LLC v. Billing, 127 S. Ct. 2383 (2007).
58. The premise of the error cost framework is that it is socially optimal to adopt the legal rule that minimizes the expected social cost of false acquittals, false convictions, and administrative costs. See generally Frank Easterbrook, The Limits of Antitrust, 65 TEX. L. REV. 1 (1984).
59. Subsequently, several commentators have adopted this framework as a useful tool for understanding the design of antitrust rules. See, e.g., David Evans & Jorge Padilla, Designing Antitrust Rules for Assessing Unilateral Practices: A Neo-Chicago Approach, 72 U. CHI. L. REV. 73, 98 (2005)
60. C. Frederick Beckner III & Steven C. Salop, Decision Theory and Antitrust Rules, 67 ANTITRUST L.J. 41 (1999)
61. Keith N. Hylton & Michael Salinger, Tying Law and Policy: A Decision-Theoretic Approach, 69 ANTITRUST L.J. 469 (2001)
62. Luke Froeb et al., Vertical Antitrust Policy as a Problem of Inference, 23 INT'L J. INDUS. ORG. 639 (2005).
63. NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998).
64. Id. at 135.
65. While the Court's decision primarily addresses whether NYNEX's conduct constituted a per se violation of the antitrust laws under the Court's boycott jurisprudence in Klor's, Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, (1959), the Court also held that the same conduct would not violate Section 2 unless Discon could prevail on its Section 1 claim, which was remanded.
66. On remand, the district court agreed that such an increase in price did not constitute an adverse "effect on competition" that could support a violation of Section 2. 86 F. Supp. 2d 154, 163-64 (W.D.N.Y. 2000).
67. For our purposes, the critical feature of NYNEX is that the Court suggests that the conduct, evasion of a pricing constraint through regulatory fraud, was outside the scope of the antitrust laws. We believe NYNEX is properly interpreted to apply to antitrust analysis of unilateral conduct under Section 2. Accord Rambus, supra note 4.
68. NYNEX Corp., 525 U.S. at 135.
69. Id. at 137.
70. Id.
71. Indeed, a similar issue is generated by the existence of multiple antitrust laws that apply to the same transaction or conduct. These include duplicate state and federal enforcement of the antitrust laws, and the simultaneous and uncoordinated enforcement of the antitrust laws of different countries. For the analysis of the problem of overlapping and duplicative enforcement of the antitrust laws, see COMPETITION LAWS IN CONFLICT: ANTITRUST JURISDICTION IN THE GLOBAL ECONOMY (Richard A. Epstein & Michael S. Greve eds., AEI Press 2004).
72. E. R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127 (1961).
73. Parker v. Brown, 317 U.S. 341 (1943).
74. See generally Frank H. Easterbrook, Antitrust and the Economics of Federalism, 26 J.L. & ECON. 23, 26 (1983).
75. Easterbrook, supra note 38, at 26.
76. For a more general discussion of the state action doctrine, see Easterbrook, supra note 38.
77. Timothy Brennan, Trinko v. Baxter: The Demise of U.S. v. AT&T, 50 ANTITRUST BULL. 635 (2006).
78. Easterbrook, supra note 38, at 29-33.
79. Id. at 33 (noting argument and positing that such an all or nothing choice would result in more costly regulation on net).
80. Furthermore, the fact that Congress has the power to explicitly preempt or limit the application of the federal antitrust laws, whereas the states do not, also makes the marginal benefits of court-imposed antitrust limits for firms subject to alternative state regulations greater than for firms subject to alternative federal regulations. See, e.g., the antitrust exemption for labor contained in the Clayton Act, and the insurance antitrust exemption contained in the McCarran-Ferguson Act.
81. For a discussion of the conditions under which competitive federalism is effective, see Charles M. Tiebout, A Pure Theory of Local Expenditures, 64 J. POL. ECON. 416 (1956).
82. Alan J. Meese, Regulation of Franchisor Opportunism and Production of the Institutional Framework: Federal Monopoly or Competition Between the States? 23 HARV. J.L. & PUB. POL'Y 61 (1999).
83. Id.
84. For a recent discussion of state regulatory statutes, see Jonathan Klick, Bruce H. Kobayashi & Larry E. Ribstein, The Effect of Contract Regulation: The Case of Franchising (George Mason Law & Economics Research Paper No. 07-03, 2006), available at SSRN: http://ssrn.com/abstract=951464.
85. See Warren Grimes, Antitrust Remedies for Franchisor Opportunism, 65 ANTITRUST L.J. 105 (1996).
86. Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 45 (1992).
87. See Roger D. Blair & Jill Boylston Herndon, The Misapplication of Kodak In Franchise Tying Suits, 14 J. BUS. VENTURING 397 (1999).
88. See Joshua D. Wright, Missed Opportunities in Independent Ink, 5 CATO SUP. CT. REV. 333 (2006)
89. Bruce H. Kobayashi, Spilled Ink or Economic Progress? The Supreme Court's Decision in Illinois Tool Works v. Independent Ink, 53 ANTITRUST BULL. 5 (2008)
90. Herbert Hovenkamp, Market Power in Aftermarkets: Antitrust Policy and the Kodak Case, 40 UCLA L. REV. 1447, 1451-52 (1993)
91. Benjamin Klein & John Shepard Wiley, Competitive Price Discrimination as an Antitrust Justification for Intellectual Property Refusals to Deal 70 ANTITRUST L.J. 599 (2003)
92. Benjamin Klein, Market Power in Antitrust: Economic Analysis after Kodak, 3 SUP. CT. ECON. REV. 43 (1993)
93. Carl Shapiro, Aftermarkets and Consumer Welfare: Making Sense of Kodak, 63 ANTITRUST L.J. 483 (1995).
94. See infra Section II.C.
95. Richard L. Smith, II, Franchise Regulation: An Economic Analysis of State Restrictions on Automobile Distribution 25 J.L. & ECON. 125 (1982)
96. E. W. Eckard, Jr., The Effects of State Automobile Dealer Entry Regulation on New Car Prices, 23 ECON. INQ. 223 (1985).
97. Klick et al., supra note 48 (listing statutes regulating franchisor opportunism).
98. Timothy J. Muris, Opportunistic Behavior and the Law of Contracts, 65 MINN. L. REV. 521 (1981).
99. Burger King v. Rudzewicz, 471 U.S. 462 (1985).
100. Klick, et al., supra note 48.
101. Richard A. Epstein, Exit Rights Under Federalism, 55 L. & CONTEMPORARY PROB. 147 (1992).
102. Klick, et al., supra note 48.
103. Id.
104. David A.J. Goldfine & Vorrasi, Kenneth M., The Fall of Kodak Aftermarket Doctrine: Dying a Slow Death in the Lower Courts, 72 ANTITRUST L.J. 209 (2004).
105. Id. at 220-22.
106. Id. at 230-31.
107. Between January 1, 2000, and January 31, 2008, Kodak has been cited 7,305 times and examined or discussed 2,290 of these times between January 1, 2000, and January 31, 2008. All results were obtained using Westlaw's list of citing references to the Supreme Court opinion.
108. The 22 cases include both lower court opinions and the appellate decisions. Therefore, a case may be counted twice, once at the trial level and again on appeal. See Schlotzsky's, Ltd. v. Sterling Purchasing & Nat'l Distrib. Co., 520 F.3d 393 (5th Cir. 2008)
109. Newcal Indus., Inc. v. IKON Office Solutions, Inc., 513 F.3d 1038 (9th Cir. 2008)
110. Harrison Aire, Inc. v. Aerostar Int'l, Inc., 423 F.3d 374 (3d Cir. 2005)
111. Maris Distrib. Co. v. Anheuser-Busch, Inc., 302 F.3d 1207 (11th Cir. 2002)
112. Hack v. President & Fellows of Yale College, 237 F.3d 81 (2d Cir. 2000)
113. Westerfield v. Quizno's Franchise Co., 527 F. Supp. 2d 840 (E.D. Wisc. 2007)
114. Delta Kappa Epsilon Alumni Corp v. Colgate Coll., 492 F. Supp. 2d 106 (N.D.N.Y. 2007)
115. Static Control Component, Inc. v. Leximark Int'l, Inc., 487 F. Supp. 2d 861 (E.D. Ky. 2007)
116. Mumford v. GNC Franchising, LLC, 437 F. Supp. 2d 344 (W.D. Pa. 2006)
117. Subsolutions, Inc. v. Doctor's Assoc., Inc., 426 F. Supp. 2d 348 (D. Conn. 2006)
118. Newcal Indus., Inc. v. IKON Office Solutions, Inc., No. C 04-2776, 2005 WL 1156028 (N.D. Cal. 2005)
119. Strawflower Electronics, Inc. v. Radioshack Corp., No. C-05-0747, 2005 WL 2290314 (N.D. Cal. 2005)
120. Newcal Indus., Inc. v. IKON Office Solutions, Inc., No. C04-2776 FMS, 2004 WL 3017002 (N.D. Cal. 2004)
121. Harrison Aire, Inc. v. Aerostar Int'l, Inc., 316 F. Supp. 2d 186 (E.D. Pa. 2004)
122. McLaughlin Equip. Co. v. Newcourt Credit Group, Inc., No. IP98-0127, 2004 WL 1629603 (S.D. Ind. 2004)
123. George Lussier Enterprises, Inc. v. Subaru of New England, 286 F. Supp. 2d 86 (D.N.H. 2003)
124. Commercial Data Servers, Inc. v. Int'l Bus. Mach., Corp., 262 F. Supp. 2d 50 (S.D.N.Y. 2003)
125. ID Sec. Sys. Can. v. Checkpoint Sys., 249 F. Supp. 2d 622 (E.D. Pa. 2003)
126. Commercial Data Servers, Inc. v. Int'l Bus. Mach., No. 00CIV5008, 2002 WL 1205740 (S.D.N.Y. 2002)
127. Universal Avionics Sys. Corp. v. Rockwell Int'l Corp., 184 F. Supp. 2d 947 (D. Az. 2001)
128. Subsolutions, Inc. v. Doctor's Assoc., Inc., No. 3:98-CV-470, 2001 WL 1860382 (D. Conn. 2001)
129. O'Dell v. General Motors Corp., 122 F. Supp. 2d 721 (E.D. Tex. 2000).
130. See Newcal Indus., Inc. v. IKON Office Solutions, Inc., 513 F.3d 1038 (9th Cir. 2008)
131. Static Control Component, Inc. v. Leximark Int'l, Inc., 487 F. Supp. 2d 861 (E.D. Kent 2007).
132. See supra note 2.
133. Antitrust/IP Report, supra note 8, at 37-38.
134. Broadcom Corp. v. Qualcomm Inc., 501 F. 3d 297, 314 (3d Cir. 2007).
135. Susan A. Creighton et al., Cheap Exclusion, 72 ANTITRUST L.J. 795 (2005).
136. See 3A Philip Areeda & Donald F. Turner, ANTITRUST LAW, ¶ 782a.
137. See generally Joshua D. Wright, Antitrust Analysis of Category Management: Conwood Co. v. United States Tobacco, 19 SUP. CT. ECON. REV. (forthcoming), working paper version available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=945178.
138. Joseph Farrell et al., Standard Setting, Patents, and Hold-Up, 74 ANTITRUST L.J. 603 (2007).
139. Broadcom, 501 F.3d at 314.
140. Id. at 311-12, 314 ("The FTC likened the deception of an SDO to the type of deceptive conduct that the D.C. Circuit found to violate § 2 of the Sherman Act in Microsoft" and such a claim "follows directly from established principles of antitrust law.").
141. Steven C. Salop, Exclusionary Conduct, Effect on Consumers, and the Flawed Profit-Sacrifice Standard, 73 ANTITRUST L.J. 311, 317 (2007)
142. A. Douglas Melamed, Exclusive Dealing Arrangements and Other Exclusionary Conduct - Are There Unifying Principles?, 73 ANTITRUST L.J. 375, 392, note 48 (2006)
143. Mark Popofsky, Defining Exclusionary Conduct: Section 2, The Rule of Reason, and the Unifying Principle Underlying Antitrust Rules, 73 ANTITRUST L.J. 435, 446 (2006)
144. Creighton et al., supra note 71, at 989-90
145. Jonathan M. Jacobson, Exclusive Dealing, "Foreclosure," and Consumer Harm, 70 ANTITRUST L.J. 311, 361 (2002).
146. Wright, supra note 72.
147. Areeda & Turner, supra note 72, ¶782a ("[T]he antitrust court must, therefore, insist on a preliminary showing of significant and more than temporary harmful effects on competition (and not merely upon a competitor or customer) before considering a tort as an exclusionary practice. In the absence of such a preliminary showing, the defendant should win summary judgment.").
148. Wright, supra note 72.
149. In re Negotiated Data Solutions LLC (N-Data), No. 051-0094 (F.T.C. January 23, 2008).
150. Joseph Farrell et al., Standard Setting, Patents, and Hold-Up, 74 ANTITRUST L.J. 603 (2007).
151. One possible "limiting principle" is that ex-post breach, renegotiation, or modification of contractual commitments raises antitrust concerns only in the standard setting context. This does not appear to be much of a limit at all. First, there is a substantial amount of economic activity involving standard setting. Second, to the extent that this limit derives from the view that holdup is likely to result in consumer welfare losses, the proposed limitation conflicts with NYNEX, which rejects the extension of Section 2 to conduct evading a "pricing constraint" and similarly resulting in consumer harm. Third, there is nothing in the N-Data Majority Statement or the expansion nature of the theory of antitrust harm that suggests such a narrow interpretation was intended.
152. We also do not consider the case an insignificant outlier and so consider the decision worth criticizing. Indeed, it remains the only case to extend antitrust liability to patent holdup for mere renegotiation of the FRAND commitment without ex-ante deception in the standard setting process.
153. In re Negotiated Data Solutions LLC (N-Data), No. 051-0094 (F.T.C. January 23, 2008) (Majoras dissent), available at http://www.ftc.gov/os/caselist/0510094/080122majoras.pdf.
154. Chairman Majoras' dissent concludes that the FTC Act Section 5(a) and 5(n) claims should fail because neither theory satisfies the consumer injury requirement.
155. One could attempt to distinguish this landlord-tenant example on the grounds that the breach does not necessarily involve an increase in market prices, but the price to a single buyer, whereas the breach of an SSO commitment is likely to be passed on to a large number of consumers and therefore produce greater harm. This is similar to the proposed limitation on patent holdup theories, discussed above, to the SSO context on the grounds that consumer welfare losses are likely to result from holdup. We find such a distinction unsatisfying for a number of reasons. First, we reiterate that N-Data discusses no such limitation. To the contrary, N-Data assigns liability with little evidence of actual consumer injury, suggesting that the FTC did not consider itself under any such obligation to safeguard against overexpansive application of the theory by ensuring evidence of actual consumer harm. Second, as we have discussed, the Supreme Court has rejected the view that any conduct resulting in consumer welfare harm is an antitrust violation. Rather, the Supreme Court has correctly rejected this view in favor of an under-deterring approach that recognizes that it is difficult to distinguish pro-competitive from anticompetitive and inefficient conduct and that the antitrust enforcement errors have significant potential to harm consumers.
156. Joseph Farrell et al., supra note 81.
157. Id.
158. In re Negotiated Data Solutions LLC (N-Data), No. 051-0094 (F.T.C. January 23, 2008) (Majority Statement), available at http://www.ftc.gov/os/caselist/0510094/080122statement.pdf.
159. NYNEX Corp. v. Discon, Inc., 525 U.S. 128 (1998).
160. Id. at 135-37.
161. Id. at 129.
162. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004)
163. Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069, 1078 (2007)
164. Brooke Group Ltd. v. Brown & Williamson Tobacco Co., 509 U.S. 209, 223 (1993).
165. One could conjure up a more nuanced version of this theory in an attempt to circumvent NYNEX and its progeny. For example, one could argue that the patent holder's single course of conduct from the time the technology was adopted until the time of renegotiation is the actionable exclusionary conduct. See Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962). The only advantage of this "course of conduct" theory would be to recast the ex-post renegotiation as somehow connected to the acquisition of monopoly power. In addition to factual problems inherent in connecting two events separated by time, seven years in N-Data, this would not be sufficient to transform renegotiation or breach into exclusionary conduct because NYNEX still rejects the view that consumer harm is a sufficient condition for such a finding. A simpler solution is to allege that the patent holder intended at the time ex-ante licensing commitments were made to later breach them. But this allegation also invokes intentional misrepresentation and deception and not commitments made in good faith.
166. Trinko, 540 U.S. at 407.
167. See, e.g., Steven C. Salop, Exclusionary Conduct, Effect on Consumers, and the Flawed Profit-Sacrifice Standard, 73 ANTITRUST L.J. 311 (2006).
168. See, e.g., Gregory J. Werden, Identifying Exclusionary Conduct Under Section 2: The "No Economic Sense" Test, 73 ANTITRUST L.J. 413, 428 ("as interpreted by the Supreme Court, Section 2 simply does not permit" application of the consumer welfare approach)
169. Mark S. Popofsky, Defining Exclusionary Conduct: Section 2, Rule of Reason, and the Unifying Principle Underlying Antitrust Rules, 73 ANTITRUST L.J. 435 (consumer welfare approach "cannot be reconciled with certain Section 2 rules").
170. More generally, we view the application of Section 5 in cases like N-Data involving eviations from ex-ante commitments made in good faith as a significant expansion of the Commission's patent holdup enforcement agenda which is without significant limiting principles. Further, if N-Data is a representative application of Section 5, it suggests that there is little concern with requiring evidence of harm to the competitive process and consumers or with the fact that the theory does not fill a technical "loophole" in the antitrust laws but extends enforcement to conduct that the Supreme Court has determined is outside the scope of Section 2. See supra III.B.
171. 35 U.S.C. §101.
172. Id. §101, 112.
173. Id. §102.
174. Id. §103.
175. Id. §122 (confidentiality and publication),
176. Id. §102(b) (on sale bar).
177. The Court has recently held that federal intellectual property laws can preempt the application of other federal laws. See Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003).
178. See, e.g., Ward S. Bowman, Patent and Antitrust Law: A Legal and Economic Appraisal, (1973)
179. HERBERT HOVENKAMP, MARK D JANIS & MARK A. LEMLEY, IP AND ANTITRUST: AN ANALYSIS OF ANTITRUST PRINCIPLES APPLIED TO INTELLECTUAL PROPERTY LAW 1-10 (Aspen 2007) (noting apparent conflict, and also noting that conflict is illusory once simplifying assumptions are dropped).
180. See, e.g., Michelle M. Burtis & Bruce Kobayashi, Intellectual Property and Antitrust Limitations on Contract, in DYNAMIC COMPETITION AND PUBLIC POLICY: TECHNOLOGY, INNOVATION AND ANTITRUST ISSUES 229-63 (J. Ellig ed., Cambridge University Press 2001) (discussing examples)
181. HOVENKAMP ET AL., supra note 105, at 1-13 (noting tension in means)
182. Bowman, supra note 105 (arguing that although both laws have complementary goals in theory, they often do not in practice).
183. Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 414 (2004)
184. (citing United States v. Nat'l Ass'n of Sec. Dealers, Inc., 422 U.S. 694, 734 (1975),
185. and discussing the applicability of this analysis to the telecommunications laws). Section 211 of Title 35 contains an antitrust savings clause. However, the clause applied only to the chapter dealing with patent rights in inventions made with federal assistance. For analysis of the effect of an antitrust savings clause, see Trinko, 540 U.S. at 406-07 (noting clause in 1996 Telecommunications Act stating that "nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws," and noting the savings clause "does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause's mandate that nothing in the Act 'modify, impair, or supersede the applicability' of the antitrust laws").
186. The SSO's disclosure policies were "not a model of clarity." See Rambus Inc. v. Infineon Techs. AG, 318 F.3d 1081, 1102 (Fed. Cir. 2003).
187. Indeed the modification and clarification of SSO IP disclosure and licensing rules may be one of the most important solutions to the patent holdup problem. See Lemley, supra note 11.
188. Berkey Photo v. Eastman Kodak, 603 F.2d 263 (2d Cir. 1979).
189. HOVENKAMP ET AL., supra note 105, at 12-35.
190. Trinko, 540 U.S. at 410-11
191. Herbert J. Hovenkamp, Standards Ownership and Competition Policy, 48 B.C. L. REV. 87 (2007).
192. See A PATENT SYSTEM FOR THE 21ST CENTURY(Stephen A. Merrill, Richard C. Levin & Mark B. Myers eds., The National Academies Press 2004) at 128, available online at http://www.nap.edu/catalog/10976.html.
193. Lemley, supra note 11 at 161-9.
194. A. C. Aukerman Co. v. R. L. Chaides Construction Co., 22 U.S.P.Q. 2d 1321 (1992).
195. Id. at 1335-36.
196. See Hovenkamp, supra note 111.
197. See, e.g., Wang Labs v. Mitsubishi Elecs., 103 F.3d 1571, 1578-79 (1997) (finding that implied license existed under doctrine of legal estoppel).
198. See, e.g., Symbol Techs., Inc. v. Proxim, Inc., No. Civ. 01-801, 2004 WL 1770290 (D. Del. July 28, 2004).
199. Hovenkamp, supra note 111 at 105-6
200. Herbert J. Hovenkamp, Patent Continuations, Patent Deception, and Standard Setting: The Rambus and Broadcom Decisions (University of Iowa Legal Studies Research Paper Number 08-25, 2008), available at http://papers.ssrn.com/ sol3/papers.cfm?abstract_id=1138002.
201. NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 136-37 (1998).
202. Id.
203. (citing 3 PHILLIP AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 51d (1996)).
204. See, e.g., Benjamin Klein, Robert G. Crawford & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & ECON. 297 (1978)
205. Benjamin Klein & Keith Leffler, The Role of Market Forces in Assuring Contractual Performance, 89 J. POL. ECON. 615 (1981).
206. On contract law and opportunism generally, see Timothy Muris, Opportunistic Behavior and the Law of Contracts, 65 MINN. L. REV. 521 (1981)
207. Charles J. Goetz & Robert E. Scott, Principles of Relational Contracts, 67 VA. L. REV. 1089 (1981).
208. For an analysis of the contractual issues associated with SSO IP rules, see Mark A. Lemley, Intellectual Property Rights and Standard Setting Organizations, 90 CAL. L. REV. 1889 (2002).
209. Restatement (Second) of Contracts §§ 89, 175, 176; U.C.C. §2-209 (cmt. 2). Contract law also includes a covenant of good faith, implied in all contracts, which prevents one party from taking actions that deprive the other party of its legitimate expectations under the agreement. Restatement (Second) of Contracts §205; U.C.C. §1-203, 2-103(1)(b). Photovest Corp. v. Fotomat Corp., 606 F.2d 704, 708 (7th Cir. 1979).
210. Muris, supra note 123, at 589-90.
211. U.C.C. §2-209(1).
212. See also Restatement (Second) of Contracts §89D(a) (modifications are valid if "fair and equitable in view of circumstances not anticipated by the parties when the contract was made" and requiring an "objectively demonstrable reason for seeking" it). See generally Muris, supra note 123, on the operation of U.C.C. §2-209 and Restatement (Second) of Contracts §89 in practice to distinguish opportunism from good faith modification motivated by unanticipated changes in market conditions.
213. Muris, supra note 123.
214. Non-SSO members presumably lack standing to bring this claim and are not likely to be considered third party-intended beneficiaries. See Restatement (Second) of Contracts §302; Mark A. Lemley, supra note 123 at 1914-15.
215. The conventional damages measure would include what the party injured by the breach expected to gain from performance under the contract.
216. Lemley, supra note 123, at 1915. Restatement (Second) of Contracts §90.
217. See supra Section IV.B (discussing equitable estoppel)
218. Lemley, supra note 123, at 1923-27 (discussing "implied license").
219. For analyses of optimal antitrust damages, see William M. Landes, Optimal Sanctions for Antitrust Violations, 50 U. CHI. L. REV. 652 (1983) (adopting optimal deterrence model)
220. Herbert J. Hovenkamp, Antitrust's Protected Classes, 88 MICH. L. REV. 1 (1989) (arguing for a broader definition of compensable antitrust claims)
221. William H. Page, Optimal Antitrust Penalties and Competitors' Injury 88 MICH. L. REV. 2151 (1990) (criticizing broader approach).
222. Prof 'l Real Estate Investors, Inc. v. Columbia Pictures Indus., 508 U.S. 49 (1993) (requiring that those challenging the filing of lawsuits as antitrust violations show the suit to be "objectively baseless" in order to qualify for the sham exception to Noerr-Pennington antitrust immunity).
223. Walker Process Equip., Inc. v. Food Mach., 382 U.S. 172 (1965).
224. Rambus Inc. v. FTC, 522 F.3d 456, 464 (D.C. Cir. 2008).
225. Conwood Co. v. U.S. Tobacco Co., 290 F.3d 768 (6th Cir. 2002).
226. Wright, supra note 72.
227. Several private follow-on treble damage actions were also filed against the defendant United States Tobacco.
228. HERBERT HOVENKAMP, THE ANTITRUST ENTERPRISE: PRINCLE AND EXECUTION 180 (Cambridge Press 2005) (describing Conwood as "deeply troublesome and offensive to antitrust policy")
229. Wright, supra note 72.
230. In the context of false or misleading statements about a rival, a substantial preliminary burden must be satisfied. See Am. Prof 'l Testing Serv., Inc. v. Harcourt Brace Jovanovich Legal & Prof 'l Publ'ns, Inc., 108 F.3d 1147, 1152 (9th Cir. 1997) ("while false or misleading advertising directed solely at a single competitor may not be competition on the merits, the [conduct] in question must have a significant and enduring adverse impact on competition itself in the relevant markets to rise to the level of an antitrust violation").
231. The conventional approach to assessing the anticompetitive effects of potentially exclusionary conduct under Section 2 is evident in decisions involving exclusive dealing contracts. See, e.g., Omega Envtl., Inc. v. Gilbarco Co., 127 F.3d 1157, 1163-64 (9th Cir. 1997)
232. R.J. Reynolds Tobacco Co. v. Philip Morris Inc., 199 F. Supp. 2d 362 (M.D.N.C. 2002), aff 'd per curiam, 67 F. App'x 810 (4th Cir. 2003).
233. See generally Joshua D. Wright, Antitrust Law and Competition for Distribution, 23 YALE J. REG. 169 (2006).
234. Rambus, Inc. v. Infineon Tech Corp., 318 F.3d 1081 (Fed. Cir. 2003) (Finding that Rambus did not have a duty to disclose patent applications, and thus did not commit fraud under Virginia Law).
235. See generally, Lemley, supra note 123, at 1935 (discussing common law fraud claims in the standard setting context)
236. Richard H. Stern, Rambus v. Infineon: The Superior Aptness of Common-law Remedies Than Antitrust for Standardisation Skullduggery, 2001 EUR. INTELL. PROP. REV. 495.
237. However, fraud allegations classified as intentional torts may give rise to punitive damages which might well exceed antitrust treble damages.