Printing barcodes isn't quite the same as printing money, but it sometimes can come darn close. Just ask Trident Inc., which designs print heads and inks that manufacturers use to print barcodes on boxes. The Brookfield, Conn., company has raked in hundreds of millions of dollars in sales over the past decade.

This business looked so lucrative that a small, California-based company, Independent Ink Inc., decided to get in on the action in the early 1990s by developing inks to work with Trident's patented print heads. The 66-year-old company then offered to sell these inks at prices well below Trident's.

Despite the cost savings, few customers were interested in Independent's products. That's because companies using Trident's patented print heads have to abide by the company's standard agreement. That agreement requires Trident customers to “purchase their ink for Trident-based systems exclusively from Trident.”

Frustrated by its inability to penetrate the market, Independent Ink sought relief in court in 1998. Company officials alleged that Trident's actions–tying the sale of its patented print heads to the sale of unpatented ink–violated federal antitrust law.

A federal district court in California threw out the case in 2002 because Independent Ink failed to offer any evidence that Trident had market power over the tying product–the print heads. The court noted that at least two other companies make similar products.

On appeal, however, the Federal Circuit reinstated Independent's antitrust claim under Sec. 1 of the Sherman Act in January. Under binding Supreme Court precedent, the appellate court reluctantly found that there's a presumption that any patented product has market power, and Trident failed to rebut this presumption in this case.

Trident appealed. In several months, the U.S. Supreme Court will hear oral arguments in this case–and decide whether to overrule its prior decisions on the role of patents in antitrust law.

The Court's decision, whatever it may be, is expected to have a major impact on corporate America.

“All manufacturing companies are going to care about this ruling. Anyone involved in producing and selling goods of any type–such as the pharmaceutical industry, computer industry, auto parts industry will be affected,” says Gary Hoffman, an IP law expert at Dickstein Shapiro Morin & Oshinsky in Washington, D.C. “This cuts across all industries.”

Market Dominance

The Supreme Court has ruled that tying the sale of one product or service to the sale of another product or service violates the Sherman Act “if the seller has 'appreciable economic power' in the market for the tying product and if the arrangement affects a substantial volume of commerce in the tied market.” The seller has appreciable economic power if it “has the power, within the market for the tying product, to raise prices or to require purchasers to accept burdensome terms that could not be exacted in a completely competitive market.”

Proving that such market power exists is difficult.

First, a plaintiff has to prove to the court's satisfaction the bounds of the relevant economic market. That's not easy. For instance, in this barcode case, should the market include all printing machines, just printers capable of printing barcodes on boxes, or just printers that use Trident's patented print heads?

Once it has defined the market, the plaintiff then has to conduct market studies and economic analyses to prove the tying company has considerable economic power in the market. These requirements make it difficult and expensive for small companies to fight the tying practices of large companies.

However, there is one situation in which a plaintiff doesn't have to prove the existence of market power: when the tying product or service is protected under patent or copyright law.

In this situation, the Supreme Court has held that market power is presumed when the seller has a patent on the tying product. This presumption holds even if there are alternatives on the market to the patented or copyrighted product. That's because the copyrighted or patented product is, almost by definition, unique.

“The mere presence of competing substitutes for the tying product … is insufficient to destroy the legal, and indeed the economic, distinctiveness of the copyrighted product,” the Court wrote in 1962 in United States v. Loew's Inc.

This legal doctrine makes it much easier to sue companies that tie other goods to their patented or copyrighted products.

“In most cases, the best defense [to an unlawful tying claim] is that there is no market power in the tying product,” says Glen Belvis, an IP litigator in the Chicago office of Brinks Hofer Gilson & Lione. “By presuming market power, you're halfway to an antitrust violation.”

Patent Power

This special antitrust rule for copyrighted and patented products has suffered attacks for decades. Many prominent antitrust experts have excoriated the rule, and prominent IP organizations–such as the Intellectual Property Owners Association and the American Intellectual Property Law Association–have called for courts to abolish the rule.

They argue that the rule is based on a faulty assumption about the economic value of IP rights.

“The existence of a patent doesn't mean there is market power,” says Warren Grimes, who teaches antitrust law at the Southwestern University School of Law in Los Angeles. Some patents cover groundbreaking inventions and clearly provide market power, while others cover inventions that have relatively little economic value. For instance, Grimes says, a new, patented cigarette lighter “probably wouldn't have market power because there are so many other lighters on the market.”

Scott Burow, an IP law expert in the Chicago office of Banner & Witcoff agrees. “Most patents these days are just improvements on existing products,” he says, and these improvements aren't big enough to give the patent owner a decisive edge in the marketplace.

All of this is irrelevant, according to Edward O'Connor, a California IP litigator who heads the law firm O'Connor Christensen & McLaughlin and who represents Independent Ink. He argues that the fundamental basis for the current rule is to prevent patent and copyright holders from unlawfully extending their government-granted IP monopolies. If a patent holder could tie its patented product to a non-patented product, this would effectively enlarge the scope of the patent beyond its claims and create a government-sanctioned monopoly in non-patented products.

Making A Bundle

If the Supreme Court overturns the special antitrust rule for IP tying, many observers expect businesses–especially electronics companies–to take advantage of the opportunity to bundle unpatented goods with their IP. Some experts claim increased bundling would benefit both business and consumers. Consider McDonald's value meals. It costs a consumer less to buy one of these meals than to buy the food items separately, but the bundling also boosts McDonald's profits by increasing total sales.

An increase in bundling, however, could hurt companies that don't have enough product lines to offer customers enticing bundles. Companies that make aftermarket products also might find themselves effectively walled out of large parts of their markets, in a situation similar to Independent Ink. Furthermore, consumers might have less choice in deciding what replacement or refill parts to get for their products. Someone who purchases an HP printer, for instance, may be required to buy only high-priced ink refills from HP.

Finally, small companies that compete with larger, more dominant firms could find themselves in trouble. If the Supreme Court does away with the presumption of market power, it will be far more costly and difficult for a small firm to obtain a remedy under antitrust law against a larger rival that engages in dubious tying activities.

“[Removing the presumption] would make the economic burden of proving antitrust violations expensive beyond belief,” O'Connor says. “Small companies couldn't do it.”

Trident and its parent company–Illinois Tool Works Inc., a Fortune 200 company–declined to comment on the suit. Most observers, however, expect the Supreme Court to reverse and eliminate the presumption for IP tying.

Nevertheless, Independent Ink's counsel remains optimistic. “The Supreme Court took this case to reaffirm the doctrine that patent tying is illegal,” O'Connor says.

Oral arguments in the case are expected in late November or early December.