Automotive suppliers pay a significant amount of attention to protecting their intellectual property when reviewing and negotiating terms and conditions, and rightfully so. As part of that review, suppliers should also pay attention to the intersection between intellectual property rights and antitrust laws. The federal government grants a patent holder the right to a monopoly in the patented technology, but there are limits to that monopoly.
A grant of an intellectual property license is a common component of supplier terms and conditions. Suppliers often use proprietary methods or technology to manufacture a part to a customer’s requirements, or may develop new technology during the course of a supply relationship. To protect their intellectual property, suppliers should impose limitations or requirements with respect to the types of licenses granted to the customer. Like any other agreement, these licenses are subject to antitrust review under the Sherman Act – as well as various other federal and state antitrust laws – for their potential anticompetitive effects. For example, a licensing agreement in which a licensor’s receipt of royalties extends beyond the expiration of a patent implicates antitrust law. This particular issue was just argued in front of the U.S. Supreme Court last month in Kimble v. Marvel Enterprises, Inc.
Intellectual property license restrictions in a supply chain environment must comply with the “rule of reason.” That is, these agreements need to satisfy a balancing test, where the pro-competitive benefits of the restriction must outweigh any anti-competitive effects. The key question to ask is what is behind the license agreement – is it to fairly compensate for the use of unique technology, or is it to restrict competitors’ ability to compete in a particular market.
Licensing arrangements in the supply chain are generally considered pro-competitive because they allow efficient manufacture, marketing and distribution of products incorporating licensed intellectual property. However, a license may raise red flags under antitrust laws if it has the potential to reduce competition among companies on the same level of the supply chain.
The increased antitrust scrutiny in the auto parts industry is a legitimate concern among suppliers. The attorneys in the Automotive Industry Group at Warner can help suppliers find the necessary balance between protecting intellectual property and steering clear of antitrust issues.
