Antitrust Guidelines for the Licensing of Intellectual Property
Issued by the U.S. DOJ and the FTC

April 6, 1995

TABLE OF CONTENTS

1. Intellectual property protection and the antitrust laws

2. General principles
　　2.1 Standard antitrust analysis applies to intellectual property
　　2.2 Intellectual property and market power
　　2.3 Procompetitive benefits of licensing

3. Antitrust concerns and modes of analysis
　　3.1 Nature of the concerns
　　3.2 Markets affected by licensing arrangements
　　　　3.2.1 Goods markets
　　　　3.2.2 Technology markets
　　　　3.2.3 Reseach and development: Innovation markets
　　3.3 Horizontal and vertical relationships
　　3.4 Framework for evaluating licensing restraints

4. General principles concerning the Agencies' evaluation of licensing arrangements
　　4.1 Analysis of anticompetitive effects
　　　　4.1.1 Market structure, coordination, and foreclosure
　　　　4.1.2 Licensing arrangements involving exclusivity
　　4.2 Efficiencies and justifications
　　4.3 Antitrust "safety zone"

5. Application of general principles
　　5.1 Horizontal restraints
　　5.2 Resale price maintenance
　　5.3 Tying arrangements
　　5.4 Exclusive dealing
　　5.5 Cross-licensing and pooling arrangements
　　5.6 Grantbacks
　　5.7 Acquisition of intellectual property rights

6. Enforcement of invalid intellectual property rights

1. Intellectual property protection and the antitrust laws

　　1.0 These Guidelines state the antitrust enforcement policy of the U.S. Department of Justice and the Federal Trade Commission (individually, "the Agency," and collectively, "the Agencies") with respect to the licensing of intellectual property protected by patent, copyright, and trade secret law, and of know-how. By stating their general policy, the Agencies hope to assist those who need to predict whether the Agencies will challenge a practice as anticompetitive. However, these Guidelines cannot remove judgment and discretion in antitrust law enforcement. Moreover, the standards set forth in these Guidelines must be applied in unforeseeable circumstances. Each case will be evaluated in light of its own facts, and these Guidelines will be applied reasonably and flexibly.

　　In the United States, patents confer rights to exclude others from making, using, or selling in the United States the invention claimed by the patent for a period of seventeen years from the date of issue. To gain patent protection, an invention (which may be a product, process, machine, or composition of matter) must be novel, nonobvious, and useful. Copyright protection applies to original works of authorship embodied in a tangible medium of expression. A copyright protects only the expression, not the underlying ideas. Unlike a patent, which protects an invention not only from copying but also from independent creation, a copyright does not preclude others from independently creating similar expression. Trade secret protection applies to information whose economic value depends on its not being generally known. Trade secret protection is conditioned upon efforts to maintain secrecy and has no fixed term. As with copyright protection, trade secret protection does not preclude independent creation by others.

　　The intellectual property laws and the antitrust laws share the common purpose of promoting innovation and enhancing consumer welfare. The intellectual property laws provide incentives for innovation and its dissemination and commercialization by establishing enforceable property rights for the creators of new and useful products, more efficient processes, and original works of expression. In the absence of intellectual property rights, imitators could more rapidly exploit the efforts of innovators and investors without compensation. Rapid imitation would reduce the commercial value of innovation and erode incentives to invest, ultimately to the detriment of consumers. The antitrust laws promote innovation and consumer welfare by prohibiting certain actions that may harm competition with respect to either existing or new ways of serving consumers.

2. General principles

　　2.0 These Guidelines embody three general principles:

　　for the purpose of antitrust analysis, the Agencies regard intellectual property as being essentially comparable to any other form of property; the Agencies do not presume that intellectual property creates market power in the antitrust context; and the Agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally procompetitive.

　　2.1 Standard antitrust analysis applies to intellectual property

　　……Intellectual property law bestows on the owners of intellectual property certain rights to exclude others. These rights help the owners to profit from the use of their property. An intellectual property owner's rights to exclude are similar to the rights enjoyed by owners of other forms of private property. As with other forms of private property, certain types of conduct with respect to intellectual property may have anticompetitive effects against which the antitrust laws can and do protect. Intellectual property is thus neither particularly free from scrutiny under the antitrust laws, nor particularly suspect under them.

　　The Agencies recognize that the licensing of intellectual property is often international. The principles of antitrust analysis described in these Guidelines apply equally to domestic and international licensing arrangements. However, as described in the 1995 Department of Justice and Federal Trade Commission Antitrust Enforcement Guidelines for International Operations, considerations particular to international operations, such as jurisdiction and comity, may affect enforcement decisions when the arrangement is in an international context.

　　2.2 Intellectual property and market power

　　Market power is the ability profitably to maintain prices above, or output below, competitive levels for a significant period of time. The Agencies 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. If a patent or other form of intellectual property does confer market power, that market power does not by itself offend the antitrust laws. As with any other tangible or intangible asset that enables its owner to obtain significant supracompetitive profits, market power (or even a monopoly) that is solely "a consequence of a superior product, business acumen, or historic accident" does not violate the antitrust laws. Nor does such market power impose on the intellectual property owner an obligation to license the use of that property to others. As in other antitrust contexts, however, market power could be illegally acquired or maintained, or, even if lawfully acquired and maintained, would be relevant to the ability of an intellectual property owner to harm competition through unreasonable conduct in connection with such property.

3. Antitrust concerns and modes of analysis

　　3.1 Nature of the concerns

　　While intellectual property licensing arrangements are typically welfare-enhancing and procompetitive, antitrust concerns may nonetheless arise. For example, a licensing arrangement could include restraints that adversely affect competition in goods markets by dividing the markets among firms that would have competed using different technologies. See, e.g., Example 7. An arrangement that effectively merges the research and development activities of two of only a few entities that could plausibly engage in research and development in the relevant field might harm competition for development of new goods and services. See section 3.2.3. An acquisition of intellectual property may lessen competition in a relevant antitrust market. See section 5.7. The Agencies will focus on the actual effects of an arrangement, not on its formal terms…..

　　3.2 Markets affected by licensing arrangements

　　Licensing arrangements raise concerns under the antitrust laws if they are likely to affect adversely the prices, quantities, qualities, or varieties of goods and services either currently or potentially available. The competitive effects of licensing arrangements often can be adequately assessed within the relevant markets for the goods affected by the arrangements. In such instances, the Agencies will delineate and analyze only goods markets. In other cases, however, the analysis may require the delineation of markets for technology or markets for research and development (innovation markets) ….

　　3.3 Horizontal and vertical relationships

　　As with other property transfers, antitrust analysis of intellectual property licensing arrangements examines whether the relationship among the parties to the arrangement is primarily horizontal or vertical in nature, or whether it has substantial aspects of both…

The existence of a horizontal relationship between a licensor and its licensees does not, in itself, indicate that the arrangement is anticompetitive. Identification of such relationships is merely an aid in determining whether there may be anticompetitive effects arising from a licensing arrangement. Such a relationship need not give rise to an anticompetitive effect, nor does a purely vertical relationship assure that there are no anticompetitive effects…..

　　3.4 Framework for evaluating licensing restraints

　　In the vast majority of cases, restraints in intellectual property licensing arrangements are evaluated under the rule of reason. The Agencies' general approach in analyzing a licensing restraint under the rule of reason is to inquire whether the restraint is likely to have anticompetitive effects and, if so, whether the restraint is reasonably necessary to achieve procompetitive benefits that outweigh those anticompetitive effects. See Federal Trade Commission v. Indiana Federation of Dentists, 476 U.S. 447 (1986); NCAA v. Board of Regents of the University of Oklahoma, 468 U.S. 85 (1984); Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1 (1979); 7 Phillip E. Areeda, Antitrust Law § 1502 (1986). See also part 4.

　　In some cases, however, the courts conclude that a restraint's "nature and necessary effect are so plainly anticompetitive" that it should be treated as unlawful per se, without an elaborate inquiry into the restraint's likely competitive effect. Federal Trade Commission v. Superior Court Trial Lawyers Association, 493 U.S. 411, 433 (1990); National Society of Professional Engineers v. United States, 435 U.S. 679, 692 (1978). Among the restraints that have been held per se unlawful are naked price-fixing, output restraints, and market division among horizontal competitors, as well as certain group boycotts and resale price maintenance.

　　To determine whether a particular restraint in a licensing arrangement is given per se or rule of reason treatment, the Agencies will assess whether the restraint in question can be expected to contribute to an efficiency-enhancing integration of economic activity. ….

4. General principles concerning the Agencies' evaluation of licensing arrangements under the rule of reason

　　4.1 Analysis of anticompetitive effects

　　The existence of anticompetitive effects resulting from a restraint in a licensing arrangement will be evaluated on the basis of the analysis described in this section.

　　4.1.1 Market structure, coordination, and foreclosure

　　When a licensing arrangement affects parties in a horizontal relationship, a restraint in that arrangement may increase the risk of coordinated pricing, output restrictions, or the acquisition or maintenance of market power. Harm to competition also may occur if the arrangement poses a significant risk of retarding or restricting the development of new or improved goods or processes. The potential for competitive harm depends in part on the degree of concentration in, the difficulty of entry into, and the responsiveness of supply and demand to changes in price in the relevant markets. Cf. 1992 Horizontal Merger Guidelines §§ 1.5, 3.

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　　4.3 Antitrust "safety zone"

　　Because licensing arrangements often promote innovation and enhance competition, the Agencies believe that an antitrust "safety zone" is useful in order to provide some degree of certainty and thus to encourage such activity. Absent extraordinary circumstances, the Agencies will not challenge a restraint in an intellectual property licensing arrangement if (1) the restraint is not facially anticompetitive and (2) the licensor and its licensees collectively account for no more than twenty percent of each relevant market significantly affected by the restraint. This "safety zone" does not apply to those transfers of intellectual property rights to which a merger analysis is applied. See section 5.7.

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5. Application of general principles

　　5.0 This section illustrates the application of the general principles discussed above to particular licensing restraints and to arrangements that involve the cross-licensing, pooling, or acquisition of intellectual property. The restraints and arrangements identified are typical of those that are likely to receive antitrust scrutiny; however, they are not intended as an exhaustive list of practices that could raise competitive concerns.

　　5.1 Horizontal restraints

…….

　　Following the general principles outlined in section 3.4, horizontal restraints often will be evaluated under the rule of reason. In some circumstances, however, that analysis may be truncated; additionally, some restraints may merit per se treatment, including price fixing, allocation of markets or customers, agreements to reduce output, and certain group boycotts.

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　　5.7 Acquisition of intellectual property rights

　　Certain transfers of intellectual property rights are most appropriately analyzed by applying the principles and standards used to analyze mergers, particularly those in the 1992 Horizontal Merger Guidelines. The Agencies will apply a merger analysis to an outright sale by an intellectual property owner of all of its rights to that intellectual property and to a transaction in which a person obtains through grant, sale, or other transfer an exclusive license for intellectual property (I.e., a license that precludes all other persons, including the licensor, from using the licensed intellectual property). Such transactions may be assessed under section 7 of the Clayton Act, sections 1 and 2 of the Sherman Act, and section 5 of the Federal Trade Commission Act.

II. ……
III. ……
IV. ……
V. Antitrust Enforcement Guidelines for International Operations, Issued by the U.S. DoJ and the FTC in April 1995