Nine No-Nos of Patent Licensing (1970)

I’m thinking about the USDOJ’s “Nine No-Nos” of Patent Licensing. These were the subject of an important set of remarks in 1970 by then Bruce Wilson (USDOJ) on antitrust considerations for patent and know-how license agreements.  At the time, the DOJ considered these all per-se antitrust violations.  US Antitrust Law has really relaxed since then, and for the most part these are no longer per-se violations.  That said, they still represent cautionary signs of potential antitrust trouble — especially if coupled with actual market power.

The nine no-nos:

  1. Tying: Don’t require the purchase of unpatented materials as a condition of a patent license;
  2. Assign-Back: Don’t require the licensee to assign-back subsequently developed patents;
  3. Resale Restrictions; Don’t restrict the right of a product purchaser to re-sell the product;
  4. Using Non-Patented Products: Don’t restrict the licensee’s ability to deal in products outside the scope of the patent;
  5. Exclusive Licenses: Take care with exclusive licenses — especially if in a horizontal market relationship.
  6. Package Deals: Don’t require mandatory package licenses;
  7. Relationship with Payments: Royalty provisions should be reasonably related to the licensee’s sales;
  8. Licensee’s Use of Product: Don’t restrict a licensee’s use of a product made by a patented process; and
  9. Minimum Resale Price: Don’t include minimum resale price provisions for the licensed products.

Bill Coston (Venable) has a nice review of the nine and explains how they are relevant today (as of 2013) (The Patent-Antitrust Interface: Are There Any No-No’s Today?).  Coston also presents his “Four Frowned Upons”:

But the antitrust laws still do have considerable relevance to current patent law practices. There are at least  “Four Frowned-Upons”:

  1. Generic and branded pharmaceutical patent settlements where the branded pays the generic a “reverse payment” to stay off the market for some period of time.
  2. Dedication of standard essential patents (“SEPs”) to a standard-setting organization and then failing to honor a commitment to offer fair, reasonable and non-discriminatory (“FRAND”) licensing terms and, instead, seeking injunctive relief.
  3. Creation of a patent pool by horizontal competitors that includes some patents which are not essential to a standard, accompanied by an agreement not to license the non-essential and competitive alternative product patents outside of the pool license.
  4. Resale price maintenance agreements in patent licensing.

Upcoming: What are the antitrust Frowned-Upons for Patent Prosecution:?

17 thoughts on “Nine No-Nos of Patent Licensing (1970)

  1. 5

    Dennis, you state: “At the time, the DOJ considered these all per-se antitrust violations.” That is not correct.

    The 9 no-no’s merely were a list of practices that the Antitrust Division would investigate if it found them in a license. The Division’s practice in trying such cases was to put in evidence of substantial anticompetitive effect. See, for example, the Supreme Court’s opinion in US v Glaxo, in which the Court catalogued the record evidence of the anticompetitive market effect of the defendants’ anti-bulk sale and resale clauses. Moreover, as another example, court condemnations of grantbacks (see the GE cases) were based on their anticompetive market effects in the particular cases.

    It may be a matter of interest that Wilson’s no-no speech was based on an internal memorandum listing practices that, it was proposed, should be made the subject of CID investigation of “the usual suspects,” not prosecution of anyone without further investigation of the surrounding facts. To the best of my recollection, no patent-antitrust case was filed during that period without first being based on submission to the AAG of a detailed fact memorandum setting out the adverse market effects of the challenged licensing practice.

  2. 4

    US Antitrust Law has really relaxed since then, and for the most part these are no longer per-se violations.

    You said it, brother. Almost nothing is a per se violation any more. More’s the pity. In any event, I gather that Pres. Warren will have in mind to change that, so maybe the 9-no-nos will need to be dusted off again in a few years.

    1. 4.1

      I’d add an “amen” but I don’t think your comment goes far enough — almost nothing is a violation anymore.

      IMHO antitrust law has been systematically dismantled by several generations of neoreactionary judges expanding the so-called “Rule of Reason” beyond anything contemplated by the text of the statutes (so much for “strict constructionism”), while a special-interest-purchased Congress has done nothing to rein in this judicial activism.

      A DOJ list is virtually irrelevant if the courts refuse to recognize anything as a violation per se, no matter what the administration of President Biden or Kerry does after January, 2021.

    2. 4.2

      Greg, no question the attorney revenue stream for what used to be lucrative treble damages civil antitrust cases has seriously shrunk. A complete reversal in the importance of AT cases and practices relative to patent cases from 50 years ago.
      But a lot of that decline can be attributed to better informed legal counseling and contract drafting, including licenses, which avoids the kind of agreement clauses that used to get clients into antitrust problems.
      In recent years only a few attorneys in or for the pharmaceutical industry have failed in that respect. Even ignoring years of public threats by FTC officials that the FTC was gunning for “pay for delay” patent settlement agreements with generics. [Until a Sup. Ct. decision.]

  3. 3

    BTW, one thing to look out for re some of these, and others, is that the JD and FTC have had the only attorneys I know of with the chutzpah to cite their own mere prior complaints, filed in uncontested cases never tried, as legal authority cited in other cases or guidelines, absent any actual authority from any actual final decisions. As one example, alleged monopolization by merger or acquisition of research [no products and no market] on the same or similar medical questions.

    1. 3.1

      the only attorneys I know of with the chutzpah to cite their own mere prior complaints, filed in uncontested cases never tried, as legal authority

      While perhaps not an exact analogy, anti-patentists Lemley and Merges self-cite all the time.

      Even after their views have been debunked!

      1. 3.1.1

        Academic self-citations are normal. If a professor builds on earlier arguments, it’s both efficient and honest to tell the reader that the starting point for your argument isn’t new and that the reader can see the details elsewhere. Professors often develop an area of expertise, and write multiple articles in that same field. Overlap of subject between articles is not only normal, it would be weird if it never happened.

        I’m not aware of any instance of Lemley or Merges “self-citing” an argument that had been “debunked” in the interim. Do you have anything specific in mind?

        For this and the agency point, I understand the visceral objection to the idea of someone making an argument that “X is true because I said earlier that X is true, thus the passage of time turns my earlier unsupported statement into ‘Authority.'” But as far as I can tell without seeing actual examples, I don’t think that’s going on in either case.

        1. 3.1.1.1

          Most anything by either.

          Merges pretty much is more the “one-trick pony.”

    2. 3.2

      It’s hard to be sure without seeing examples, but this sounds like normal federal agency practice. To the extent an agency has discretion in how it enforces a statute, and it tries to take a consistent position in the way it enforces the statute, then it’s not unreasonable to cite prior examples of agency practice. “Our view is that practice X is an antitrust violation. See (A, B, and C examples of us filing complaints to enforce the antitrust laws against practice X).

      1. 3.2.1

        For an agency to state what is its policy, position, interpretation or desired outcome is not the same as presenting those arguments to a judge in a complaint as “legal authority,” which is what I was talking about.

        1. 3.2.1.1

          [Also note that this is not an issue of “Chevron deference.”]

  4. 2

    Nicely concise!
    Re your question re “antitrust Frowned-Upons for Patent Prosecution” I assume you are drawing a line between Walker Process antitrust for fraudulently obtained and asserted patents, and inequitable conduct? Even though they can overlap in some cases, such as false supportive affidavits or declarations, or self-manufactured supportive technical articles, and the former can have additional proof elements like market power?

    1. 2.1

      Does such a line need to be drawn?

      1. 2.1.1

        Yes, because the proof requirements, consequences and case law differ. Especially the consequences.

        1. 2.1.1.1

          OK – a cogent reply, nicely put.

  5. 1

    I am not convinced that viewing licensing issues through a lens of patent law is the soundest way to clean up and clarify the differences between a sale and a license.

    Of course, given the fundamental change in the nature of a patent (from a Private personal property right to a Public Franchise property right), the whole underlying basis of the patent angle must have ripple effects through the license/sale equation (by way of the neccesary impacts on exhaustion principles).

    But that would mean paying attention to the man behind the curtain (in a Wizard of Oz manner).

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