Tenth Circuit Rules That Invocation of IP Rights Is Presumptively Valid Defense to Antitrust Refusal to Deal Claims

Tenth Circuit Rules That Invocation of IP Rights Is Presumptively Valid Defense to Antitrust Refusal to Deal Claims Detail of a pair of aviator sunglasses on a flight planner

In SOLIDFX, LLC v. Jeppesen Sanderson, Inc., Case Nos. 15-1079 and 15-1097 (opinion available here), the Tenth Circuit aligned itself with the First and Federal Circuits to hold that the invocation of intellectual property rights is a presumptively valid business justification sufficient to rebut a Sherman Act Section 2 refusal to deal claim, but left open some questions about when and how the presumption can (if ever) be rebutted.

Jeppesen Sanderson (“Jeppesen”) is a subsidiary of Boeing that develops aviation terminal charts used by pilots to navigate and land at airports. The charts are copyrighted.  Jeppesen contracted with SOLIDFX to make the charts available for electronic viewing; SOLIDFX developed a system to allow the charts to be read on an electronic viewer known as the iRex.  Less than a year later, Apple introduced its iPad product.  Jeppesen, relying on its copyrights, refused to provide SOLIDFX with a toolkit to develop an iPad application, and instead created its own iPad app, which it offered to its aviation and pilot customers at no additional cost beyond their terminal chart subscription fees.

On appeal, the Tenth Circuit affirmed the district court’s summary judgment in favor of Jeppesen on SOLIDFX’s refusal to deal claim. Like the district court, the Tenth Circuit assumed that Jeppesen had monopoly power.  Nevertheless, SOLIDFX’s claim failed because Jeppesen “was properly exercising its right to refuse to license its copyrighted work.”  Slip Op. at 23 (quoting district court opinion).

The Tenth Circuit followed and endorsed the First Circuit’s decision in Data General Corp. v. Grumman Systems Support Corp., 36 F.3d 1147, 1187 (1st Cir. 1994), which held that a copyright owner’s desire to exclude others from use of the copyrighted work is a presumptively valid (but rebuttable) business justification sufficient to preclude a refusal to deal claim, as well as the Federal Circuit’s decision in In re Independent Serv. Organizations Antitrust Litig. (Xerox), 203 F.3d 1322, 1328 (Fed. Cir. 2000), which applied Tenth Circuit law and predicted that the Tenth Circuit–if confronted with the precise question–would reach a result similar to that in Data General.

Like the Federal Circuit in Xerox, the Tenth Circuit in SOLIDFX declined to follow the Ninth Circuit’s decision in Image Tech. Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997), which held that the presumption of validity can be rebutted by evidence that the defense and exploitation of the copyright grant was merely a pretextual business justification to mask anticompetitive conduct.  125 F.3d at 1219 (a defendant’s state of mind may show pretext when such evidence “suggests that the proffered business justification played no part in the decision to act.”).  The Tenth Circuit adopted the Federal Circuit’s reasoning that it would be improper to examine the defendant’s subjective motivation in asserting its right to exclude under the copyright laws for pretext in the absence of any evidence that the copyright was itself obtained by unlawful means or used to gain monopoly power beyond the statutory copyright granted by Congress. SOLIDFX, Slip. Op. at 24.  The Tenth Circuit noted that its conclusion was consistent with its earlier decision in Novell, Inc. v. Microsoft Corp., 731 F.3d 1064, 1074 (10th Cir. 2013), where the court held that “[e]ven a monopolist generally has no duty to share (or continue to share) its intellectual or physical property with a rival.”

The question remains when the presumption regarding the invocation of IP rights can be rebutted. Under a separate line of cases, when intellectual property is not at issue, a monopolist has only a limited duty to deal–when there was a preexisting voluntary and presumably profitable course of dealing, and the monopolist’s discontinuation of the preexisting course of dealing suggests a willingness to forsake short-term profits to achieve an anticompetitive end. Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 409 (2004).  The Tenth Circuit in SOLIDFX referenced Trinko but nevertheless concluded that Jeppesen’s refusal to license or share its copyrights was a presumptively valid business justification, noting that “SOLIDFX did not present any rebuttal evidence to prove Jeppesen acted solely with an anticompetitive motivation.” SOLIDFX, Slip Op. at 26.  But, under Data General and Xerox (which the Tenth Circuit endorsed), such subjective intent would not seem to be relevant.  More generally, SOLDIFX may not completely answer when (if ever) Trinko course-of-dealing analysis could trump the invocation-of-IP-rights defense.  Nevertheless, SOLIDFX further confirms even a monopolist’s right to refuse to deal on the basis that it is protecting its IP.