Illinois Tool Works Inc. v. Independent Ink, Inc. (04-1329), Texaco, Inc. v. Dagher (04-805), Shell Oil Co. v. Dagher (04-814) and Scheidler v. National Organization for Women, Inc. ("NOW III") (04-1244)

March 1, 2006 Supreme Court Update

Greetings, Court fans!
There were two opinions yesterday, and one more today (all unanimous!), but what everyone's really talking about is yesterday's oral argument in Marshall v. Marshall, concerning the scope of the "probate exception" to federal jurisdiction. But it's not that scintillating topic that's making the news – it's that Vicki Lynn Marshall (a/k/a Anna Nicole Smith) is a former Playboy Playmate/"reality" TV "star"/TrimSpa spokesperson who lost her wealthy 90-year-old husband of 14 months, and who now seeks to recover $88 million awarded to her by a federal bankruptcy court after finding that her stepson fraudulently cut her out of the estate. Something tells us Justice O'Connor is happy to be missing this one.
The Court issued two major antitrust decisions this week, and both were bad news for plaintiffs. Today, in Illinois Tool Works Inc. v. Independent Ink, Inc. (04-1329), the Court held that ownership of a patent no longer creates an automatic presumption of market power. Illinois Tool Works ("ITW") makes ink jet printheads and ink containers, and sells them to manufacturers on the condition that they and their customers buy only ITW's special ink. The printheads and containers are patented, but the ink is not, and a competitor claimed that ITW's condition was a per se illegal "tying" arrangement under the Sherman Act. Usually, a plaintiff must prove that the defendant has market power in the "tying" product that forces buyers to purchase the "tied" product, but Independent Ink claimed that ITW's patent was conclusive proof of market power. The Federal Circuit agreed, relying on the Court's 1947 decision in International Salt Co. v. United States, which borrowed the "patent=market power" presumption from patent law's "patent misuse" defense. That defense allows patent infringement defendants to argue that a patent owner is abusing its patent to restrain competition in its other, unpatented goods. The Court repeated this assumption as recently as 1984, in Jefferson Parish Hospital District No. 2 v. Hyde.
But now it's gone, thanks to an opinion by Justice Stevens. After noting that its "strong disapproval of tying arrangements has substantially diminished," the Court marched through an extensive history of its tying jurisprudence and the patent misuse doctrine (we'll spare you the details). The key for the Court was that in 1988, Congress did away with patent law's market-power presumption by requiring actual proof of market power to support a patent misuse defense. In light of that congressional judgment, the Justice Department's and FTC's abandonment of the presumption, and the fact that the academic literature almost universally condemns the presumption, the Court concluded that tying arrangements involving patented products similarly should require actual proof of market power. The Court also rejected Independent Ink's fallback positions – either a rebuttable presumption of market power or one that applies only to "requirements" ties that cover purchases over time (i.e., ink refills) – finding no support for them even in International Salt. Stevens also put in a nod to Justice O'Connor, whose concurrence in Jefferson Parish questioned the propriety of treating any tying arrangement as a per se antitrust violation, as well as the "patent=market power" presumption, which she observed came from patent law and not from anything in antitrust law. As Stevens put it: "Justice O'Connor was, of course, correct."
The second antitrust decision, in Texaco, Inc. v. Dagher (04-805) and Shell Oil Co. v. Dagher (04-814), was also a sign of the times, as it was the second this Term dealing with the price of gas (see our December 7, 2005 Update). In Dagher, the Court unanimously held that where a joint venture by two oil companies sets a single price for its gas, there has been no per se violation of antitrust laws. Texaco and Shell set up a joint venture, Equilon, to refine and sell gas to their stations in the western United States, but still under the Texaco and Shell brand names. Some station owners sued, claiming that by setting a single price for both brands Equilon had committed a per se violation of the Sherman Act. (It is unclear which owners were volunteering to pay a higher price; presumably they thought competition would drive both prices down.) A divided panel of the Ninth Circuit agreed with the owners, and the Court (surprise) unanimously reversed. Justice Thomas's opinion noted that the Court typically adopts a "rule of reason" for antitrust claims, requiring plaintiffs to show that particular restraints on trade are unreasonable and anticompetitive. Per se liability is reserved for agreements that are "plainly anticompetitive" on their face. Price-fixing between two competitors falls within the per se category, but this case does not because it concerns a joint venture – that is, a single entity – between two companies that did not compete in the relevant market, western gas stations. Moreover, the joint venture had been approved by the FTC and the stations did not challenge the venture itself as anticompetitive, just its prices (a tactical mistake, perhaps, but then they would have had to show that the venture itself was unreasonable). Further, the stations conceded at argument that there would be no per se liability had Equilon simply sold gas under its own brand – but the Court found that a joint venture, like any other firm, should have discretion to set its own prices, including to the decision to sell a product under two different brands at the same price (lesson: think hard before conceding anything at argument!). Finally, the Court rejected the Ninth Circuit's approach, which invoked the "ancillary restraints" doctrine barring joint ventures from restricting nonventure activities, because the price of Equilon's gas was central to the joint venture.
Now, onto the final opinion and (dare we say?) final chapter in Scheidler v. National Organization for Women, Inc. ("NOW III") (04-1244), a case spanning over a decade and three trips to the Court. NOW III concerns the Hobbs Act, which makes it a federal crime to "obstruct[], delay[], or affect[] commerce" by (1) robbery, (2) extortion, or (3) "commit[ting] or threaten[ing] physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this section." The Court held that section (3) barring "threatening or committing violence" only applies to acts in furtherance of robbery or extortion, and does not extend to violence that merely affects interstate commerce. NOW and two abortion clinics sued certain pro-life groups, claiming that their acts or threats of violence aimed at preventing women from obtaining abortions violated both the Hobbs Act and RICO. The case made its first trip to the Court in 1994 (NOW I), when the Court reversed an initial decision by the district court to dismiss the case on the mistaken ground that a RICO claim required an economic motive. On remand, the case resulted in a plaintiffs' verdict on both the Hobbs Act and RICO claims. In 2004 (NOW II), the Court again reversed, concluding that the Hobbs Act requires a taking of "property," and that a woman's right to access an abortion clinic is not the kind of property interest contemplated by the statute. On remand, Seventh Circuit agreed with NOW that the verdict could be upheld on the alternative ground that the evidence established four instances of violence or threats unrelated to extortion, and it remanded the case to the district court to make that determination.
Justice Breyer, writing for a once-again unanimous court, reversed yet again. The question was whether section (3) applies only to acts relating to robbery or extortion, or to any violence that affects commerce. The Court found that the more natural reading of the statute was also the narrower one, and that earlier versions of the statute made clear that it intended to cover only violence in furtherance of robbery or extortion. While the latest version was not so clear, it came as part of a general revision of the Criminal Code that was not intended to create new crimes, but merely to recodify existing laws. NOW's interpretation would hugely expand the scope of federal law to cover many crimes currently left to the states. And really, since when does Congress define the substance of a violation as "affecting commerce" – that is clearly a reference to the limits of Congress' authority. The Court rejected NOW's rules-of-construction argument that a limited section (3) is superfluous (since the statutory definitions of robbery and extortion both incorporate violence and threats of violence), because it can still apply in narrow circumstances – but more importantly, because it is just darn clear that Congress didn't intend such a broad interpretation. As Breyer said, "canons [of construction] are tools designed to help courts better determine what Congress intended, not to lead courts to interpret the law contrary to that intent." (A good quote next time you need to convince a court to do what makes sense in the face of a poorly drafted statute.)
There were no cert grants this week – meaning Padilla was relisted yet again. Until next time, thanks for reading!
Ken & Kim
From the Appellate Practice Group at Wiggin and Dana.For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400