Independent Ink, Inc. v. Illinois Tool Works, Inc.

• Decision Date: 25 January 2005
• Docket Number: No. 04-1196.,04-1196.
• Citation: 396 F.3d 1342
• Parties: INDEPENDENT INK, INC., Plaintiff-Appellant, v. ILLINOIS TOOL WORKS, INC. and Trident, Inc., Defendants-Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

396 F.3d 1342

INDEPENDENT INK, INC., Plaintiff-Appellant, v. ILLINOIS TOOL WORKS, INC. and Trident, Inc., Defendants-Appellees.

No. 04-1196.

United States Court of Appeals, Federal Circuit.

January 25, 2005.

COPYRIGHT MATERIAL OMITTED

Edward F. O'Connor, Levin & O'Connor, of Laguna Beach, California, argued for plaintiff-appellant.

Jordan A. Sigale, Sonnenschein Nath & Rosenthal LLP, of Chicago, Illinois, argued for defendants-appellees. With him on the brief was Laura A. Wytsma, of Los Angeles, California.

Before CLEVENGER, DYK, and PROST, Circuit Judges.

DYK, Circuit Judge.

Independent Ink, Inc. ("Independent") appeals from the judgment of the United States District Court for the Central District of California in this patent tying antitrust action. The district court granted summary judgment on plaintiff Independent's Sherman Act section 1 claim because Independent had failed to produce any evidence of market power over the tying product. Indep. Ink, Inc. v. Trident, Inc., 210 F.Supp.2d 1155 (C.D.Cal.2002). We hold that a rebuttable presumption of market power arises from the possession of a patent over a tying product. Because no rebuttal evidence was submitted by the patent holder, we reverse the grant of summary judgment on the Sherman Act section 1 claim and remand for further proceedings. As to Independent's Sherman Act section 2 claim, we affirm the district court's grant of summary judgment.

BACKGROUND

Defendant Trident, Inc. ("Trident") is a wholly-owned subsidiary of defendant Illinois Tool Works, Inc. ("ITW"). Trident is a manufacturer of printheads and holds a patent over its printhead technology. See U.S. Patent No. 5,343,226 ("the '226 patent"). Printer manufacturers (the "OEMs") use Trident's printhead technology to manufacture printers. The end users of the printers are usually product manufacturers, who use the printers to place bar codes on cartons.

As disclosed by the '226 patent, ink jet devices for printing bar codes consume a large quantity of ink. The small cartridges typical in other ink jet devices are impractical for such applications. But the use of a large supply of ink poses problems for transferring the ink from the container to the printhead. Specifically, one must be able to apply pressure in one direction, forcing ink towards the printhead, without sucking the ink back when that pressure is released. As reflected in the prior art and discussed by the '226 patent, there have been essentially three methods by which this could be done. First, there have been valves that allow release of the pressure without affecting the flow of ink. However, such valves must be sensitive to back pressure while being strong enough to seal the ink, and are difficult to reliably design. Second, there have been devices that pressurize the air space above the ink reservoir. But any increase in pressure in the ink container "will continue to force ink out ... even after the pressure is removed.... [P]uncturing a hole in the container in the air space above the ink ... to relieve pressure within the container makes removal of partially filled containers messy." Id. col. 1, II. 51-60. Third, there have been devices using a peristaltic pump. However, such devices are usually complex and expensive. The '226 patent discloses an ink jet device and supply system using a hand actuated peristaltic pump. The use of hand pumping overcomes the usual complexity and expense of such devices.

Trident also manufactures ink for use with its patented printheads. Trident's standard form licensing agreement allowing the OEMs to use its patented product requires "OEMs to purchase their ink for Trident-based systems exclusively from Trident." (Br. of Appellees at 8.) Specifically, the licensing agreement grants the right to "manufacture, use and sell ... ink jet printing devices supplied by Trident" only "when used in combination with ink and ink supply systems supplied by Trident." (J.A. at 275.) There is now no claim that the ink is protected by any of Trident's patents.¹ We thus have an explicit tying agreement conditioning the sale of a patented product (the printhead covered by the '226 patent (and possibly other patents as well)) on the sale of an unpatented one (the ink).

Independent is a competing manufacturer of ink. It manufactures ink usable in Trident's printheads. Independent filed suit in the United States District Court for the Central District of California on August 14, 1998, initially seeking a declaratory judgment of non-infringement and invalidity against Trident's patents. Independent subsequently amended its complaint to allege that Trident was engaged in illegal tying and monopolization in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. § 1 et seq. Both parties moved for summary judgment as to the section 1 claim, and Trident moved for summary judgment as to the section 2 claim. The district court granted summary judgment in favor of Trident on both claims.

The district court held that for patent tying to constitute a violation of the antitrust laws, the plaintiff must affirmatively prove market power. Indep. Ink, 210 F.Supp.2d at 1162. The district court, in a footnote, dismissed several Supreme Court cases holding to the contrary as "vintage." Id. at 1165 n. 10. Addressing the Supreme Court's more recent decision in Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2, 16, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984), it declined to follow the rule announced by the majority in that case that "the sale or lease of a patented item on condition that the buyer make all his purchases of a separate tied product from the patentee is unlawful." Instead, relying on the concurring opinion in Jefferson Parish, the dissent from a denial of certiorari by two members of the Jefferson Parish majority,² and academic criticisms of the presumption of market power, the district court dismissed the majority opinion of Jefferson Parish as dictum that should not be followed. Indep. Ink, 210 F.Supp.2d at 1164-65. The district court found that Independent submitted no affirmative evidence defining the relevant market nor proving Trident's power within it, and therefore could not prevail in either antitrust claim. Id. at 1173-77.

The parties settled all their remaining claims, which were accordingly dismissed with prejudice, and final judgment was entered. This appeal followed. Because the complaint originally contained a claim for declaratory judgment of invalidity and non-infringement of the '226 patent, we have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

DISCUSSION

I

The first issue before us is whether Federal Circuit or Ninth Circuit law governs the legality of patent tying under the Sherman Act, an issue which may arise both in the context of affirmative claims (as here) and in the context of a patent misuse defense. We have previously held that where an affirmative antitrust claim or antitrust misuse defense is based on "procuring or enforcing a patent," the central antitrust question is a matter governed by Federal Circuit law. Nobelpharma AB v. Implant Innovations, Inc., 141 F.3d 1059, 1067-68 (Fed.Cir.1998) (en banc in relevant part). We conclude that the antitrust consequences of patent tying likewise is a question governed by our law.³ However, as stated in Nobelpharma, "we will continue to apply the law of the appropriate regional circuit to issues involving other elements of antitrust law," such as defining the relevant market and determining as a factual matter whether power exists within that market. Id. at 1068.

II

We now address the Sherman Act section 1 claim. This case first requires us to determine whether patent tying is illegal per se (or presumptively illegal) under the Sherman Act,⁴ or whether the plaintiff is obliged to prove as part of its affirmative case that the patent confers market power in the relevant market for the tying product.

This case comes to us with a long history of Supreme Court consideration of the legality of tying arrangements. Earlier Supreme Court cases dealing with tying agreements were extremely hostile to them, whether the case involved intellectual property or other tying products. The first case that found tying to violate section 1 of the Sherman Act was a patent tying case. Int'l Salt Co. v. United States, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20 (1947).⁵ In Standard Oil Co. v. United States, 337 U.S. 293, 305, 69 S.Ct. 1051, 93 L.Ed. 1371 (1949), the Court commented that "[t]ying agreements serve hardly any purpose beyond the suppression of competition." In Northern Pacific Railway Co. v. United States, 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958), the Court held again that:

Tying arrangements ... flout the Sherman Act's policy that competition rule the marts of trade.... By conditioning his sale of one commodity on the purchase of another, a seller coerces the abdication of buyers' independent judgment as to the "tied" product's merits and insulates it from the competitive stresses of the open market.

Id. at 10, 78 S.Ct. 514 (quoting Times-Picayune Publ'g Co. v. United States, 345 U.S. 594, 605, 73 S.Ct. 872, 97 L.Ed. 1277 (1953)). The Court held that Northern Pacific's conditioning the lease of its land to shipping commodities on its railway lines violated the Sherman Act, because Northern Pacific's landholdings gave it "sufficient economic power to impose an appreciable restraint on free competition in the tied product." Id. at 11, 78 S.Ct. 514.

Later Supreme Court cases reflected divergent treatment, depending on whether statutory intellectual property was involved. Those cases not involving patents or copyrights refined the test, holding that tying was only unlawful if the defendant had "market power" in the market for the tying product. As articulated in United States Steel Corp. v. Fortner Enterprises, Inc., 429 U.S. 610, 620, 97 S.Ct. 861, 51 L.Ed.2d 80 (1977) ("Fortner II"), this requirement of "market power"...