The end of the age of innocence.Antitrust: Everybody Out of the Pool Evolving views of the intersection of IP and antitrust are bringing complexity and uncertainty to some industries. By Peter Haapaniemi As IP becomes more of a strategic business asset, it's also coming under tougher scrutiny--on both sides of the Atlantic. Officials are looking carefully at IP's antitrust implications. 0pen-source code, which fueled so much innovation, may be undermining the patent potential of the software it helped write. Patent harmonization har·mo·nize v. har·mo·nized, har·mo·niz·ing, har·mo·niz·es v.tr. 1. To bring or come into agreement or harmony. See Synonyms at agree. 2. Music To provide harmony for (a melody). , once touted as the next step toward globalization globalization Process by which the experience of everyday life, marked by the diffusion of commodities and ideas, is becoming standardized around the world. Factors that have contributed to globalization include increasingly sophisticated communications and transportation , may be slipping further away. And business methods patents are still not within the European playbook. Are these positive developments or setbacks? Following is an assessment--and a guide. Three years ago, the US Federal Trade Commission and the US Justice Department's Antitrust Division conducted an unusual set of joint hearings that featured testimony from an array of lawyers, academics and business executives. The goal, said then-Assistant Attorney General Charles James Charles James may refer to:
But those discussions were more than an exercise in abstract thinking. The interaction of IP and antitrust is both complicated and evolving--and for IP owners, the risks of running afoul of a·foul of prep. 1. In or into collision, entanglement, or conflict with. 2. Up against; in trouble with: ran afoul of the law. antitrust authorities may be growing. "I think antitrust is becoming a bit more concerned about anticompetitive an·ti·com·pet·i·tive adj. That discourages competition among businesses: anticompetitive foreign trade restrictions. practices involving IP rights," says Herbert Hovenkamp Herbert Hovenkamp holds the Ben and Dorothy Willie Chair at the University of Iowa College of Law. Hovenkamp is a recognized expert and prolific author in the area of Antitrust law. , professor of law at the University of Iowa College of Law The University of Iowa College of Law, is one of the professional graduate schools at the University of Iowa. Founded in 1865, it is the oldest law school in continuous operation west of the Mississippi River. The law school is currently rated 24th in the U.S. . "We're seeing an increasing number of decisions applying antitrust principles so as to strike down or condemn some IP practices." "There has been a lot of antitrust enforcement activity directed at IP, both in the US and Europe," agrees William Kolasky, co-chair of the Antitrust and Competition Department at Wilmer Cutler Picketing Hale and Dorr. In the US, for example, companies such as Bristol-Myers Squibb Bristol-Myers Squibb (NYSE: BMY), colloquially referred to as BMS, is a pharmaceutical corporation, formed by a 1989 merger between pharmaceutical companies Bristol-Myers Company, founded in 1887 by William McLaren Bristol and John Ripley Myers in Clinton, NY (both were , Unocal and Schering-Hough--not to mention Microsoft--have come under fire from the FTC FTC See Federal Trade Commission (FTC). in IP-related antitrust cases Although many in the computer field might equate "antitrust" with the long-running Microsoft trial (1998-2004), the U.S. government sued IBM three times in its history for antitrust violations. . In Europe, the intersection of IP and antitrust is symbolized by the on-again-off-again effort to adapt the EC Software Directive, which aims to clarify ambiguities around the patenting of software. The directive has run into keen opposition from groups that say it would open the door to the extensive patenting of software in Europe and ultimately give large companies power to stifle competition from small developers. In short, the issue of how IP and antitrust law antitrust law Any law restricting business practices that are considered unfair or monopolistic. Among U.S. laws, the best known is the Sherman Antitrust Act of 1890, which declared illegal “every contract, combination…or conspiracy in restraint of trade or should relate is heating up. As IP comes under increased scrutiny from various antitrust authorities, IP owners need to understand how those authorities view IP, how the laws around IP and antitrust are evolving and, especially, what kinds of IP practices are likely to get them into trouble. The Basic Antitrust Pitfalls The increasing interplay of antitrust and IP stems from several factors. To some extent, it can be seen as a sort of correction, says Iowa's Hovenkamp. "This is a pendulum that has swung back and forth for as long as we have had antitrust," he explains. "We have gone through a period of some 20 or so years of very considerable expansion of both patent and copyright. The term of protection has been lengthened in both cases. It's easier to enforce patents. License agreements have become more aggressive and restrictive. So the antitrust courts are starting to sense that there are numerous anticompetitive opportunities in licensing and various IP practices. As a result, they are being a little bit more aggressive." At the same time, new ideas "New Ideas" is the debut single by Scottish New Wave/Indie Rock act The Dykeenies. It was first released as a Double A-side with "Will It Happen Tonight?" on July 17, 2006. The band also recorded a video for the track. and innovations have become vitally important competitive assets in many industries. "IP is much more important in the economy than it used to be and much more important to the creation of market power," says Douglas Melamed A. Douglas Melamed is a nationally known American legal scholar and currently in private practice. He is famous among the law and economics literature for his views on the natural evolution of property rights and co-authored with Guido Calabresi a classic law review article on the , co-chair of the Antitrust and Competition Department at Wilmer Cutler Pickering Hale and Dorr Wilmer Cutler Pickering Hale and Dorr LLP, which also goes by the shorter market name WilmerHale, is a leading American law firm with major offices in Washington, Boston and New York and smaller offices in Palo Alto, Baltimore, London, Brussels, Beijing, Berlin, Los . As a result, it is naturally attracting the attention of authorities charged with making sure that companies don't use market power to limit competition. "Antitrust has begun to take IP very seriously," says Melamed. There are several key areas where companies need to be cautious, observers say. These include: Patent pooling. In some industries, it's common for groups of companies to bundle their respective patents into a given product--such as a CD player or a computer hard drive--to simplify the integration and licensing of the complete collection of technologies. "They put their patents into the pool and basically agree to license them to any manufacturers on nondiscriminatory terms, making it easier for manufacturers to produce the product," says Kolasky. Such arrangements have traditionally been regarded as competition-enhancing. In the late 1990s, says Kolasky, the US Department of Justice reviewed the practice "and issued a business review letter basically saying that patent pools were not anti-competitive, and that the department had no intention of bringing enforcement actions against them." More recently, however, there have been a number of suits claiming that patent pooling can indeed violate antitrust laws antitrust laws n. acts adopted by Congress to outlaw or restrict business practices considered to be monopolistic or which restrain interstate commerce. The Sherman Antitrust Act of 1890 declared illegal "every contract, combination.... . "There is a growing amount of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. over these pools, based on the theory that it's per se unlawful to include in a package any patents that are not essential," says Kolasky. He notes the International Trade Commission recently ruled against Phillips Electronics in a CD-related patent-pooling case, which is now being appealed. In addition, a similar patent-pool-related class-action suit Noun 1. class-action suit - a lawsuit brought by a representative member of a large group of people on behalf of all members of the group class action has been filed against Phillips and Sony in US District Court. "'This all illustrates the kinds of dangerous shoals that companies can encounter in this area," Kolasky says. Standards setting. When companies in a given industry work together to set standards for various technologies, the idea is to enhance interoperability and innovation by allowing everyone to work from a consistent foundation. But antitrust agencies are concerned that an organization may work to make its technology part of the standard, without disclosing to other participants that it actually has a patent on that technology. "The FTC has brought significant enforcement actions in what they call "standards ambush," says Kolasky. For example, the agency has pursued companies such as Union Oil, Intel and Rambus for their standards-setting efforts in clean-burning gasoline, data transfer technology and computer memory, respectively. In theory, companies can avoid such problems by disclosing that they have patents or patent applications for technologies being considered by a standards group. But doing so is not always as simple as it sounds. A patent, says Melamed, is "a probabilistic (probability) probabilistic - Relating to, or governed by, probability. The behaviour of a probabilistic system cannot be predicted exactly but the probability of certain behaviours is known. Such systems may be simulated using pseudorandom numbers. property right." That is, a patent's validity, and value are determined in the marketplace and in the courts--and the company that owns a patent may be fairly uncertain of what rights it actually has. With patent applications, of course, that uncertainty is even greater. In addition, "the theory fails to consider that these unrealized patent interests are trade secrets--and there are real costs, to the applicant and to competition, from disclosing them prematurely," says Melamed. Settlement of patent disputes. When patent cases are settled out of court, regulators are now likely to take a closer look to make sure that an agreement isn't actually limiting competition. For example, says Kolasky, "there have been a number of enforcement actions arising from circumstances in which a branded pharmaceutical company settles a patent infringement patent infringement n. the manufacture and/or use of an invention or improvement for which someone else owns a patent issued by the government, without obtaining permission of the owner of the patent by contract, license or waiver. action with a generic manufacturer, with the generic manufacturer basically agreeing to stay off the market in exchange for payments from the branded company." In one notable case, notes Hovenkamp, the FTC ruled that Schering-Plough's settlement with a generic drug generic drug, a drug sold or prescribed under the nonproprietary name of its active ingredients or under a generally descriptive name rather than under a brand or trade name. company was anticompetitive. That case is now on appeal and is seen as something of a bellwether Bellwether A leading indicator of trends. Notes: A bellwether stock is a stock that is used to gauge the performance of the market in general. General Motors was an example of a bellwether stock, hence the saying "What's good for GM is good for America. about the future of such cases in general. In the meantime Adv. 1. in the meantime - during the intervening time; "meanwhile I will not think about the problem"; "meantime he was attentive to his other interests"; "in the meantime the police were notified" meantime, meanwhile , some courts and the FTC are regarding these settlements as being anticompetitive by definition--that is, they begin with the assumption that the company holding a patent has market power. At the same time, however, other US courts apply the "full rule of reason," meaning that they take into consideration the competitive effects of a specific agreement, rather than assume that settlements are anticompetitive. "There really is no consistency at all in the court decisions," says Hovenkamp. "We don't quite know what the final answer is going to be on allegedly anticompetitive settlements." Living with Uncertainty Overall, companies face a changing landscape that is rife with legal gray areas. In that uncertain environment, says Iowa's Hovenkamp, it may often be best to err on the side of caution. Unless the law is very clear that a certain use of IP is allowed, "I think the best opening premise ought to be that the practice will be challenged under the antitrust laws," he says. Fortunately, however, some developments are making this landscape a little easier to navigate. "On the positive side, the courts and enforcement authorities in both the US and the EU are increasingly recognizing that licensing generally is pro-competitive, and the EU is moving away from a formalistic for·mal·ism n. 1. Rigorous or excessive adherence to recognized forms, as in religion or art. 2. An instance of rigorous or excessive adherence to recognized forms. 3. approach to more of a rule of reason approach like the one used in the US," says Kolasky. In addition, a new EU Technology Transfer Block Exemption Regulation which went into effect in May 2004---simplifies and clarifies the antitrust considerations around licensing, and brings licensing regimes on both sides of the Atlantic closer together. As Mario Monti Mario Monti (born March 19, 1943) is an Italian economist and politician. Biography Mario Monti was born in Varese, Lombardy. He is married with two children. He holds a degree in economics and management from Bocconi University, Milan. , then-commissioner in charge of EU competition policy, pointed out last year, the agreement should lead to "a happy marriage in Europe of innovation and competition policy and to further convergence between us and the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ." Nevertheless, the intersection of IP and antitrust promises to remain a complicated place for some time to come. "This is an area where the law is going to be evolving," says Melamed. "So there's no simple rule to keep it in mind to avoid trouble. You can't just do things in a rote way--it's an environment where you have to think hard and think creatively." EU harmonization: Not Ready for Prime Time not ready for prime time - Usable, but only just so; not very robust; for internal use only. Said of a program or device. Often connotes that the thing will be made more solid Real Soon Now. In a continuation of discussions dating back to the 1970s, the EU launched an effort in 2000 to establish a Community Patent that would let inventors get a single, legally valid patent for the entire EU. Without this, inventors have to deal with each country separately, which drives up costs and introduces legal uncertainty. "It is about three or four times as expensive to get a patent for the major European countries as it is to get a Japanese or US patent," says Christian Breuer, a partner at Wilmer Cutler Pickering Hale and Dorr. "The Community Patent was designed to reduce such costs, unify the patent system, and create more consistency and transparency." While EU officials agreed on the general principles of the Community Patent, the effort ran aground a·ground adv. & adj. 1. Onto or on a shore, reef, or the bottom of a body of water: a ship that ran aground; a ship aground offshore. 2. on the details. The original plan allowed filings in German, French or English, but nations that spoke other languages balked balk v. balked, balk·ing, balks v.intr. 1. To stop short and refuse to go on: The horse balked at the jump. 2. . "There was a strong feeling that you cannot have legally enforceable pieces of paper in a language that is not an official language of the country in question," says Miles Gaythwaite, a consultant in Wilmer Cutler Pickering Hale and Dorr's London office. The plan was modified to include more languages, to the point where "16 or 17 different translations of the claims of each patent would be needed," says Gaythwaite. The new approach wasn't much of an improvement, and in March 2004, the proposal was shelved, probably indefinitely. Meanwhile, an old idea--the "torpedo torpedo, in naval warfare torpedo, in naval warfare, a self-propelled submarine projectile loaded with explosives, used for the destruction of enemy ships. Although there were attempts at subsurface warfare in the 16th and 17th cent. "appears to be making a comeback. Across Europe, the various legal jurisdictions handle patent cases with differing levels of speed. However, EU rules dictate that once a case has been started in one jurisdiction, later cases in others have to be put on hold until the initial case is resolved. Potential patent-infringement defendants have quickly learned to take advantage of this by preemptively asking courts in a "slower" jurisdiction to affirm their right to use the technology in question--thus forestalling any potential action by the patent holder in other courts. "That can often freeze the case for seven or eight years," says Breuer. While courts in some countries began to regard that practice as unfair and started moving ahead with cases without waiting for the slower jurisdictions, the European Court of Justice European Court of Justice, judicial branch of the European Union (EU). Located in Luxembourg, it was founded in 1958 as the joint court for the three treaty organizations that were consolidated into the European Community (the predecessor of the EU) in 1967. recently reaffirmed the original rule. At this point, says Breuer, companies with infringed patents may have to move quickly to file their cases first--or face frustrating delays.--P.H. Business Methods Patents: On Again, Off Again In IP harmonization efforts, discussions quickly turn to the patenting of software and, more broadly, business methods. And that can be difficult territory, as proponents of an EU software directive recently discovered. Unlike the US, the EU does not allow the patenting of software alone--that is, when it is not part of a technical invention. But in practice, the approaches used across EU jurisdictions have varied. The software directive, which was intended to clarify that situation, ended up taking a "somewhat Kafkaesque" path, says Robert Barry, a partner at Wilmer Cutler Pickering Hale and Dorr. An initial draft of the directive--produced by an EU committee--was designed to provide a unified set of rules for software patents in the EU. In spring 2004, that version seemed close to being adopted. But the effort quickly became a high-profile political issue, with open-source software groups and others mounting an emotional effort to kill the proposal. "The European parliament European Parliament, a branch of the governing body of the European Union (EU). It convenes on a monthly basis in Strasbourg, France; most meetings of the separate parliamentary committees are held in Brussels, Belgium, and its Secretariat is located in Luxembourg. neutered neu·ter adj. 1. Grammar a. Neither masculine nor feminine in gender. b. Neither active nor passive; intransitive. Used of verbs. 2. a. the directive," says Barry. "Then it went back to the Commission, which overturned many of the amendments and effectively reinstated the original proposals," says Barry. The EP Legal Affairs Committee has voted to request that the Commission shelve shelve v. shelved, shelv·ing, shelves v.tr. 1. To place or arrange on a shelf. 2. it and restart the process. Approved by the Conference of Presidents, this looks sure to place the Directive back in its box.--P.H. Open-Source Code: The Midas Touch Midas touch n. The ability to make, manage, and keep huge amounts of money: "Today's market has convinced dozens of kids barely out of college that they've got the Midas touch" Business Week. ? While the easy accessibility of open-source software has made for hassle-free product development, a recent verdict in Munich suggests that what open-source code touches may not, in fact, be gold. By James Morrow James Morrow (born 1947) is an award-winning fiction author. A self-described "scientific humanist", his work not only satirises organized religion but also elements of humanism and atheism. Open-source code is considered by many to be the holy grail of the software world. With it, backers say, developers can develop better software for consumers while steering clear of the dangers posed by clunky and expensive licensing agreements and the threat of monopolistic behavior by major intellectual property holders: after all, if two heads are better than one, then an unlimited number of heads working around the world to improve a product is even better, as witnessed by the legions of independent programmers who work tirelessly (and often for free) to improve such products as the Linux operating system operating system (OS) Software that controls the operation of a computer, directs the input and output of data, keeps track of files, and controls the processing of computer programs. and Mozilla's Firefox web browser The program that serves as your front end to the Web on the Internet. In order to view a site, you type its address (URL) into the browser's Location field; for example, www.computerlanguage.com, and the home page of that site is downloaded to you. . "Like any other piece of software, open-source software is distributed under a licensing agreement," explains Wilmer Cutler Pickering Hale and Dorr Partner Jorge Contreras. "But with open-source code, the agreement is very often the Free Software Foundation's General Public License (GPL See GNU General Public License. 1. GPL - General Purpose Language. 2. GPL - ["A Sample Management Application Program in a Graphical Data-driven Programming language", A.L. Davis et al, Digest of Papers, Compcon Spring 81, Feb 1981, pp. 162-167]. ). According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the GPL, software distributed under it has to be made available in source-code form to anyone who wants it; they are allowed to play with it and modify it as much as they like. This makes it very different than licenses for proprietary software." While this scheme encourages developers to do their best to modify, improve and tinker with code to make it do any number of things, it also has the potential to create some legal headaches--as highlighted by a recent German court decision. In that verdict, handed down last July in the Munich District Court (making it applicable only within Germany, as well as subject to appeal), a company was forced to hand over source code covered by the GPL against its wishes. This was a major milestone as it was both the first time this had happened and the first time anywhere in the world that GPL had been given the force of law by a court. "The danger the case represents for software developers is that the GPL has a very viral character," explains Contreras, who adds that the case involved a larger piece of proprietary software that was distributed with a piece of GPL-licensed code in it. "If, as a developer, you have a piece of open-source code nestled somewhere in your proprietary code, then under the GPL, you may have to distribute the entire proprietary program as open-source, in addition to the original piece of open-source code." Debate in Europe Even more important than the Munich case was a battle fought recently in the European Court of Justice, which, in the eyes of many Europeans, threatened the future of open-source software across the EU's ever-increasing number of member states. Under a legislative regime pushed by Microsoft's Bill Gates (person) Bill Gates - William Henry Gates III, Chief Executive Officer of Microsoft, which he co-founded in 1975 with Paul Allen. In 1994 Gates is a billionaire, worth $9.35b and Microsoft is worth about $27b. and fiercely lobbied against by an army of open-source advocates, including Linus Torvalds Linus Benedict Torvalds (born December 28 1969 in Helsinki, Finland) is a Finnish software engineer best known for initiating the development of the Linux kernel. , who called it "deceptive, dangerous and democratically illegitimate'--patents would have been able to be applied to just about any piece of software. This legislation would have brought to Europe the type of software patents that have been broadly criticized by the open-source community in the US. For the moment, though, the concerns of European open-source advocates have been allayed; early in February, the Parliament's Legislative Affairs Committee sent the whole matter back to the drawing board. All this means that there is going to be more open-source software out there in the future. "It's pretty good, it's Fairly robust and, with all the people working on it and fixing bugs, it becomes very tempting to use," says Contreras. Many state governments in the US and governments in other countries are requiring the use of open-source code in software developed for them, he points out. "Initially, this was the sort of thing that was just confined to university research labs," Contreras notes. "But now it has become part of the mainstream software market worldwide." Strings Attached While using open-source software is often tempting from a financial point of view and has a host of other advantages, Wilmer Cutler Picketing Hale and Dorr Partner Michael Bevilacqua points out that companies that use it--whether in code they plan on turning around and selling or simply for in-house systems--need to be aware of some potentially tricky issues. "Too many companies are using open-source software thinking that it has no strings attached," says Bevilacqua. "But in fact, there are often lots of strings attached. If a company uses something that is covered by the GPL, then all modifications and code it is bundled with needs to be made subject to the GPL as well. This is a real issue when one company acquires another: they have to know where all the software of the new company came from. Companies need to be careful to segregate seg·re·gate v. seg·re·gat·ed, seg·re·gat·ing, seg·re·gates v.tr. 1. To separate or isolate from others or from a main body or group. See Synonyms at isolate. 2. their open-source software from their proprietary software." Furthermore, while there are many first-rate open-source programs available on the market today, Bevilacqua cautions that sometimes GPL-licensed programs suffer from the lack of support that a big, proprietary licensee can provide. "There are plenty of companies like Red Hat who have done an extensive job vetting their software for problems," Bevilacqua notes. "But there are also open-source developers who have not taken that level of care, and one has to be concerned that there will not always be the same incentive to fix bugs and keep the open-source software up to date as there is with the proprietary software. The danger is that there may not be a company with the financial interest to stand behind the product." The challenge for companies then, whether they are developing software or simply using it, is to decide how far down the open-source road they are willing to go. Companies that are considering using open-source code in their business operations Business operations are those activities involved in the running of a business for the purpose of producing value for the stakeholders. Compare business processes. The outcome of business operations is the harvesting of value from assets i.e., not to develop larger, commercially viable software suites need to weigh the risks of the support, development and upgrade possibilities provided by the open-source developer (a consideration that applies just as much when choosing proprietary software). But for those creating and selling software, the danger is that a bit of GPL code could put the proprietary rights to an entire software package in jeopardy; a $5 billion lawsuit playing out between IBM (International Business Machines Corporation, Armonk, NY, www.ibm.com) The world's largest computer company. IBM's product lines include the S/390 mainframes (zSeries), AS/400 midrange business systems (iSeries), RS/6000 workstations and servers (pSeries), Intel-based servers (xSeries) and SCO Group The SCO Group, Inc. (TSG, informally SCO; NASDAQ: SCOX) is a software company formerly called Caldera Systems and Caldera International. After acquiring the Santa Cruz Operation's Server Software and Services divisions, as well as UnixWare and involving allegations that SCO's code was improperly distributed under an open-source agreement highlights just the sort of thorny and expensive issues involved. Bevilacqua cautions that open-source code covered by the GPL or similar licenses should never be used as part of a commercially critical property. "Make sure that if you're using open-source code as part of a larger software package, you don't care
"Don't Care" is a 1994 (see 1994 in music) single by American death metal band Obituary. if you need to release the source code for the entire package," he says. |
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