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Intellectual Property Antitrust Protection Act of 1995 : hearing before the Committee on the Judiciary, House of Representatives, One Hundred Fourth Congress, second session, on H.R. 2674 ... May 14, 1996 online

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\ vrA INTELLECTUAL PROPERH ANTITRUST
\VJ ^ PROTECTION AQ OF 1995



Y 4. J 89/1:104/75

Intellectual Property Antitrust Pro...

HhJAKiNG

BEFORE THE

COMMITTEE ON THE JUDICIAKY
HOUSE OP REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

SECOND SESSION
ON

H.R 2674

E^TELLECTUAL PROPERTY ANTITRUST PROTECTION ACT OF 1995



MAY 14, 1996



Serial No. 75







Printed for the use of the Committee on the Judiciary



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1996



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053503-4



INTELLECTUAL PROPERTY ANTITOUST
PROTECTION ACT OF 1995



Y 4. J 89/1:104/75



Intellectual Property Antitrust Pro...

HEAKlNG

BEFORE THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

SECOND SESSION
ON

H.R 2674

INTELLECTUAL PROPERTY ANTITRUST PROTECTION ACT OF 1995



MAY 14, 1996



Serial No. 75










Printed for the use of the Committee on the Judiciary



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1996



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-053503-4



COMMITTEE ON THE JUDICIARY



HENRY J. HYDE. Illinois. Chairman



CARLOS J. MOORHEAD, California
F. JAMES SENSENBRENNER, JR.,

Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
STEVEN SCHIFF, New Mexico
ELTON GALLEGLY, California
CHARLES T CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia
STEPHEN E. BUYER, Indiana
MARTIN R. HOKE, Ohio
SONNY BONO, California
FRED HEINEMAN, North Carolina
ED BRYANT, Tennessee
STEVE CHABOT, Ohio
MICHAEL PATRICK FLANAGAN, Illinois
BOB BARR, Georgia



JOHN CONYERS, Jr., Michigan
PATRICIA SCHROEDER, Colorado
BARNEY FRANK, Massachusetts
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JOHN BRYANT, Texas
JACK REED, Rhode Island
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
XAVIER BECERRA, Cahfomia
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California



Alan F. Coffey, Jr., General Counsel /Staff Director
JUUAN Epstein, Minority Staff Director



(II)



CONTENTS



HEARING DATE



Page

May 14, 1996 1

TEXT OF HEARING

H.R. 2674 3

OPENING STATEMENT

Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois,

and chairman, Committee on the Judiciary 1

WITNESSES

Evans, Larry W., Esq., intellectual property and licensing consultant, on

behalf of the Licensing Executives Society 46

Frank, Jacob, Esq., vice president and general counsel, Data General Corp 24

Handschuh, G. Gregory, vice president and general counsel, Amdahl Corp 32

Kirk, John R., Jr., chair-elect. Section of Intellectual Property Law, American

Bar Association 42

Klein, Joel I., Deputy Assistant Attorney General, Antitrust Division, U.S.

Department of Justice 11

Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of
Patents and Trademarks, Patent and Trademark Office, U.S. Department
of Commerce 8

Lipsky, Abbott B., Jr., senior competition counsel, Coca-Cola Co., on behalf
of Intellectual Property Owners 49

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Coiwers, Hon. John, Jr., a Representative in Congress from the State of

Michigan: Prepared statement 6

Evans, Larry W., Esq., intellectual property and licensing consultant, on

behalf of the Licensing Executives Society: Prepared statement 48

Frank, Jacob, Esq., vice president and general counsel. Data General Corp.:

Prepared statement 28

Handschuh, G. Gregory, vice president and general counsel, Amdahl Corp.:

Prepared statement 34

Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois,

and chairman. Committee on the Judiciary: Opening statement 5

Jackson Lee, Hon. Sheila, a Representative in Congress from the State of

Texas: Prepared statement 6

Kirk, John R., Jr., chair-elect, Section of Intellectual Property Law, American

Bar Association: Prepared statement 44

Klein, Joel I., Deputy Assistant Attorney General, Antitrust Division, U.S.

Department of Justice: Prepared statement 13

Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of

Patents and Trademarks, Patent and Trademark Office, U.S. Department

of Commerce: Prepared statement 10

Lipsky, Abbott B., Jr., senior competition counsel, Coca-Cola Co., on behalf

of Intellectual Property Owners: Prepared statement 51

APPENDIX

Material submitted for the hearing 61

(III)



INTELLECTUAL PROPERTY ANTITRUST
PROTECTION ACT OF 1995



TUESDAY, MAY 14, 1996

House of Representatives,
Committee on the Judiciary,

Washington, DC.
The committee met, pursuant to notice, at 9:41 a.m., in room
2141, Rayburn House Office Building, Hon. Henry J. Hyde (chair-
man of the committee) presiding.

Present: Representatives Henry J. Hyde, Carlos J. Moorhead,
George W. Gekas, Howard Coble, Charles T. Canady, Stephen E.
Buyer, Martin R. Hoke, Fred Heineman, Steve Chabot, Bob Barr,
Patricia A. Schroeder, Jack Reed, and Zoe Lofgren.

Also present: Alan F. Coffey, Jr., general counsel/stafF director;
Joseph Gibson, counsel; Perry Apelbaum, minority counsel; and
Kenny Prater, clerk.

OPENING STATEMENT OF CHAIRMAN HYDE

Mr. Hyde. The committee will come to order.

This morning we consider H.R. 2674, the Intellectual Property
Antitrust Protection Act of 1995. I introduced this legislation on
November 20, 1995, and nine members of this committee are co-
sponsors. H.R. 2674 would eliminate a court-created presumption
that market power is always present for antitrust purposes when
a product protected by an intellectual property right is sold, li-
censed, or otherwise transferred. In antitrust law, market power is
the power to control prices or exclude competition.

In my view, the market power presumption for intellectual prop-
erty is wrong because it is based on false assumptions. Because
there are often substitutes for products covered by intellectual
property rights or there is no demand for the protected product, an
intellectual property right does not automatically confer the power
to determine the overall market price of a product or the power to
exclude competitors from the marketplace. As Justice O'Connor put
it, and I quote, "A common misconception has been that a patent
or copyright suffices to demonstrate market power. While a patent
or copvright might help to give market power to a seller, it is also
possible that a seller in that situation will have no market power:
for example, a patent holder has no market power in any relevant
sense if there are close substitutes for the patented product."

I've been interested in this issue for many years. I would note
that our former colleague, Hamilton Fish, was the author of prede-
cessor House bills on this subject. Ham was very persistent in lead-
ing this effort in past years, and the intellectual property commu-

(1)



nity is indebted to him for his work in this, as in many other areas.
The current proposal is narrower and more focused than some of
the earher proposals. All it does is overturn the presumption that
a patent or copyright confers market power.

Because in earlier debates many misconceptions surrounded this
bill, I want to dispel them at the outset. First, this bill does not
create an antitrust exemption. To the contrary, it eliminates an
antitrust plaintiffs ability to rely on a presumption of market
power, which is usually not true, rather than providing actual proof
of market power. Second, this bill does not in anv way affect the
remedies, including treble damages, that are available to an anti-
trust plaintiff when it does prove its case. Third, this bill does not
change the law that tying arrangements are deemed to be per se
illegal when the defendant has market power in the tying product.
Rather, it simply requires the plaintiff to prove that the claimed
market power does, in fact, exist before subjecting the defendant to
the per se standard. Fourth, this bill does not legalize any conduct
that is currently illegal.

Finally, it should be noted in April 1995 the antitrust enforce-
ment agencies, the Department of Justice and the Federal Trade
Commission, issued joint guidelines on the licensing of intellectual
property that endorsed the policv embodied in H.R. 2674. They say
that the DOJ and the FTC, and I quote, "will not presume that a
patent, copyright, or trade secret necessarily confers market power
upon its owner. Although the intellectual property right confers the
power to exclude with respect to the specific product, process, or
work in question, there will often be sufficient actual or potential
close substitutes for such product, process, or work to prevent the
exercise of market power." That's from the "Antitrust Guidelines
for the Licensing of Intellectual Property" at page 4. I believe that
endorsement can only add strength to the arguments for this legis-
lation.

[The bill, H.R. 2674, follows:]



104th congress
1st Session



H. R. 2674



To modifS- the application of the antitrust laws to eiicourajre the lieensinjx
and other use of certain intellectual property.



IN THE HOUSE OF REPRESEXTATRT:S

Nov-EMBER 20, 1995
Mr. H\'DE (for himself, Mr. MOORIIEAD, Mr. Sensexbrex.vEK, ]Mr. Gekas,
Mr. Coble. Mr. Smith of Texas, Mr. Canady of Florida, Mr. Bono,
Mr. Bryant of Tennessee, and Ms. LOFGREN) introduced the following
bill: which was referred to the Committee on the Judician-



A BILL

To modify the application of the antitrust laws to encourage
the licensing: and other use of certain intellectual property.

1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 Tliis Act may be cited as the "Intellectual Property

5 Antitrust Protection Act of 1 9 9 5 " .

6 SEC. 2. PROHIBITION OF MARKET POWER PRESUMPTION.

7 In any action in which the conduct of an owner, licen-

8 sor, licensee, or other holder of an inteUectual property

9 right is alleged to be in \iolation of the antitrust laws in



1 connection ^^'ith the marketing or distribution of a product

2 or senice protected by siicli a rig'ht. sucii riofht shall not

3 be presumed to define a market, to estabHsh market power

4 (including economic power and jjroduct uniqueness oi- chs-

5 tinctiveness), or to establish monopoly power.

6 SEC. 3. DEFINITIONS.

7 For purposes of tliis Act —

8 (1) the term "antitrust laws" —

9 (A) has the meaning given it in subsection

10 (a) of the first section of the Cla\'ton Act (15

11 U.S.C. 12(a)), except that such term includes

12 section 5 of. the Federal Trade Commission Act

13 (15 U.S.C. 45) to the extent such section ap-

14 plies to unfair methods of competition; and

15 (B) includes any State law similar to the

16 laws referred to in subparagraph (A); and

17 (2) the term "intellectual property right"

18 means a right, title, or interest —

19 (A) in subject matter patented under title

20 35, United States Code; or

21 (B) in a work, including a mask work, pro-

22 tected under title 17, United States Code.

O



•HR 2674 IH



Mr. Hyde. I look forward to hearing from the Department of Jus-
tice Representative and the other outstanding witnesses we have
before us, and I want to thank all of you for being here today.

[The opening statement of Mr. Hyde follows:]

Opening Statement of Hon. Henry J. Hyde, a Representative in Congress
From the State of Illinois, and Chairman, Committee on the Judiciary

This morning we consider H.R. 2674, the "Intellectual Property Antitrust Protec-
tion Act of 1995." I introduced this legislation on November 20, 1995, and nine
members of this Committee are cosponsors.

H.R. 2674 would eliminate a court-created presumption that market power is al-
ways present for antitrust purposes when a product protected by an intellectual
property right is sold, licensed, or otherwise transferred. In antitrust law, "market
power^ is the power to control prices or exclude competition.

In my view, the market power presumption for intellectual property is wrong be-
cause it is based on false assumptions. Because there are often substitutes for prod-
ucts covered by intellectual property rights or there is no demand for the protected
product, an intellectual property right does not automatically confer the power to
determine the overall market price of a product or the power to exclude competitors
from the marketplace. As Justice O'Connor put it:

A common misconception has been that a patent or copyright . . . suf-
fices to demonstrate market power. While [a patent or copyright] might
help to give market power to a seller, it is also possible that a seller in [that
situation] will have no market power: for example, a patent holder has no
market power in any relevant sense if there are close substitutes for the
patented product.

Jefferson Parish Hospital Dist. No. 2 v. Hyde, 466 U.S. 2, 37 n.7 (O'Connor, J., con-
curring in the judgment).

I have been interested in this issue for many years. I would note that our former
colleague, Hamilton Fish, was the author of predecessor House bills on this subject.
Ham was very persistent in leading this effort in past years, and the intellectual
property community is indebted to him for his work in this area. The current pro-
posal is narrower and more focused than some of the earlier proposals. All it does
is overturn the presumption that a patent or copyright confers market power.

Because in earlier debates many misconceptions surrounded this bill, I want to
dispel those at the outset. First, this bill does not create an antitrust exemption.
To the contrary, it eliminates an antitrust plaintifTs ability to rely on a presumption
of market power, which is usually not true, rather than providing actual proof of
market power. Second, this bill does not in any way affect the remedies, including
treble damages, that are available to an antitrust plaintiff when it does prove its
case. Third, this bill does not change the law that tying arrangements are deemed
to be per se illegal when the defendant has market power in the tying product.
Rather, it simply requires the plaintiff to prove that the claimed market power does,
in fact, exist before subjecting the defendant to the per se standard. Fourth, this
biU does not legalize any conduct that is currently illegal.

Finally, it should be noted that in April, 1995, the antitrust enforcement agencies,
the Department of Justice and the Federal Trade Commission, issued joint guide-
lines on the licensing of intellectual property that endorse the policy embodied in
H.R. 2674. They say that the DOJ and the FTC:

will not presume that a patent, copyright, or trade secret necessarily con-
fers market power upon its owner. Although the intellectual property ri^t
confers the power to exclude with respect to the specific product, process,
or work in question, there will often be sufficient actual or potential close
substitutes for such product, process, or work to prevent tne exercise of
market power.

Antitrust Guidelines for the Licensing of Intellectual Property at 4. I believe that en-
dorsement can only add strength to the arguments for this legislation. I look for-
ward to hearing from the Department of Justice representative and the other out-
standing witnesses we have before us, and I want to thank all of them for being
here today.

Mr. Hyde. Does the gentlelady from Colorado have an opening
statement?



6

Mrs. ScHROEDER. Mr. Chairman, I would ask unanimous consent
to put the opening statement of the ranking minority member, Mr.
Conyers, in the record and I will defer because I know you've got
a lot to do this morning. Thank you.

Mr. Hyde. Well, I thank you, and without objection the state-
ment of Mr. Conyers will be put in the record.

[The prepared statements of Mr. Conyers and Ms. Jackson Lee
follow:]

Prepared Statement of Hon. John Conyers, Jr., a Representative in
Congress From the State of Michigan

I come into this hearing with an open mind, willing to listen to the arguments
offered by both sides of this debate.

At the same time, I believe the very strong burden of proof lies with those who
advocate making statutory changes to the antitrust laws. The antitrust laws are in
a very real sense the charter ofour economic liberty, and before we take the very
unusual step of amending these laws for all time, we ought to have a very good rea-
son for doing so.

In my view legislative proponents will need to persuade us that applying a pre-
sumption of market power to holders of intellectual property licenses truly impedes
innovation, and the legislative fix they propose will not cause any harm or inconsist-
ency in the antitrust laws.

I also come into these hearings with a very strong bias against unnecessary tying
relationships. We have already seen the benefits the antitrust laws brought to the
computer industry by forcing hardware and software to be sold in separate compo-
nents: more competition, greater innovation, and lower prices. I'm concerned that
if we eliminate the presumption of market power, we may well be making it easier
for intellectual property holders to leverage their patent or copyright into other lines
of business.

Finally, I am concerned that the Committee not be perceived as being solely sym-
pathetic to those who would make it more difficult to initiate antitrust actions,
which this bill appears to do. I would therefore hope we could also spend some time
looking at problems in other areas of antitrust law, such as vertical price fixing as
well as review the continued need for antitrust exemptions for baseball and insur-
ance. If we are serious about amending the antitrust laws, we ought to be even-
handed and comprehensive in our review.

Thank you Mr. Chairman, and I look forward to today's testimony.



Prepared Statement of Hon. Sheila Jackson Lee, a Representative in
Congress From the State of Texas

This is an important hearing today on legislation, H.R. 2674, the Antitrust Intel-
lectual Property Act of 1995, that potentially could have serious implications on
American creativity and on the American economy. This legislation involves two is-
sues that are critically important as we enter into a new century, that is the type
of restrictions on intellectual property owners and the standard of review utilized
by government agencies such as the Department of Justice and the Federal Trade
Commission in analyzing certain corporate behavior.

Currently, the federal courts have ruled in several cases, namely the Data Gen-
eral Corporation case, that there is a presumption of market power by a seller, who
holds an intellectual property right and requires buyers of such product to also pur-
chase other products from the seller.

This legislation states there will be no presumption of market power in antitrust
actions brought against holders of an intellectual property right. The supporters of
this legislation argue that there should not be a presumption of market power be-
cause many substitutes are available for most products and, in some cases, there
may not be a demand for a particular product. Furthermore, supporters of the legis-
lation argue that this presumption results in courts utilizing a "per se" antitrust
analysis that does not give a defendant an opportunity.to prove that there is a jus-
tifiable competitive reason for tying the purchase of other products to the right to
purchase the patented product.

I am aware that the Justice Department and the F'ederal Trade Commission is-
sued guidelines stating that they will not necessarily presume that the holder of an
intellectual property nght has market power in that particular product.



There are also many opponents of this legislation who argue that this presump-
tion of market power is necessary to foster innovation in many industries, particu-
larly high-tech industries such as the computer industry, and the telecommuni-
cations industry. The opponents of the legislation also state this presumption is a
rebuttable presumption and requires the holder of the intellectual property right to
prove that they do not have market power.

This legislation is controversial and I welcome the opportunity to examine both
sides of the issue. We have an excellent panel of witnesses who are experts on anti-
trust law and intellectual property law as well as business executives who can give
us a first-hand view of the impact of current law on the competitive environment
and what is likely to happen if this legislation becomes law.

Perhaps, we can find some common ground between these two view points on this
legislation. I look forward to the testimony on these important issues.

Mr. Hyde. Mr. Moorhead, do you have an opening statement?

Mr. Moorhead. I have a very short statement.

Mr. Hyde. You're more than welcome to make it, and even
lengthen it if you wish.

Mr. Moorhead. Well, thank you, Mr, Chairman. I want to com-
mend my friend and chairman for his leadership in introducing
H.R. 2674, the Intellectual Property Antitrust Protection Act.

I'm an original cosponsor of the bill and I've supported similar
legislation in past Congresses. The hostility reflected in some court
decisions for intellectual property licensing is outdated and coun-
terproductive to our Nation's economy. The U.S. Constitution itself
recognizes that intellectual property rights should exist as rewards
for innovation and creativity. These are not monopolies; rather,
they are legally granted, limited property rights. It is indeed ironic
that this incentive system has been undermined by superficial anti-
trust analysis. A tying arrangement that genuinely forces a buyer
to purchase an unwanted product should remain a violation of the
Federal antitrust laws. But a proposed package sale, where the
buyer is free to go elsewhere and choose from many other sub-
stitute products, is not anticompetitive coercion: it is competitive
and efficient.

It is time we resolved these lingering questions which serve to
discourage American companies from undertaking research and de-
velopment and from marketing their discoveries in the most prac-
tical manner. I look forward to the testimony which we will receive
this morning and I hope that the committee will soon mark up this
legislation.

Mr. Hyde. Thank you, Mr. Moorhead. Does anybody else have
any opening statements to make?

Seeing none, our first panel of witnesses consists of the Commis-
sioner of Patents and Trademarks, Mr. Bruce Lehman, and the
Principal Deputy Assistant Attorney General from the Antitrust
Division, Joel Klein. Commissioner Lehman served on the staff of
this committee from 1974 to 1983. From 1983 to 1993, he was in
private practice in Washington with the law firm of Swidler & Ber-
lin. Since 1993, he has served as Commissioner of Patents and
Trademarks.

Bruce, it's always nice to have one of our alumni back with us
and we certainly welcome you here today.

Deputy Assistant Attorney General Klein clerked for Supreme
Court Justice Lewis Powell before going into private practice from
1976 to 1993. From 1993 to 1995, he served as Deputy Counsel to
the President. In 1995 he took his present position in the Antitrust



8

Division and, Mr. Klein, we certainly look forward to hearing from
you.

Mr. Lehman, we will recognize you. If your statement can be
summarized in 5 minutes, that's fine. We won't cut you off, but if
you could give us a summary in 5 minutes and then know that
your full statement will be incorporated into the record and, simi-
larly, when we get to you, Mr. Klein, if you can summarize. But,
again, do tell us what you want to tell us.

Mr. Lehman.

STATEMENT OF BRUCE A. LEHMAN, ASSISTANT SECRETARY
OF COMMERCE AND COMMISSIONER OF PATENTS AND
TRADEMARKS, PATENT AND TRADEMARK OFFICE, U.S. DE-
PARTMENT OF COMMERCE

Mr. Lehman. Thank you, Mr. Chairman. It's really a pleasure to
be back here again in a surrounding that is so familiar to me and
feels very much like home.

First, I would like to just say that the Antitrust Guidelines that
you spoke about relating to intellectual property, I think represent
a very excellent spirit of cooperation between the Commerce De-
partment and the Justice Department. Those guidelines were de-
veloped in consultation with us at the Patent and Trademark Of-
fice. Assistant Attorney Greneral Anne Bingaman was always very


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Online LibraryUnited States. Congress. House. Committee on the JIntellectual Property Antitrust Protection Act of 1995 : hearing before the Committee on the Judiciary, House of Representatives, One Hundred Fourth Congress, second session, on H.R. 2674 ... May 14, 1996 → online text (page 1 of 11)