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.
The following examples illustrate different competitive relationships among a licensor and its licensees.
Example 4
Situation: AgCo, a manufacturer of farm equipment, develops a new, patented emission control technology for its tractor engines and licenses it to FarmCo, another farm equipment manufacturer. AgCo’s emission control technology is far superior to the technology currently owned and used by FarmCo, so much so that FarmCo’s technology does not significantly constrain the prices that AgCo could charge for its technology. AgCo’s emission control patent has a broad scope. FarmCo does not contest the validity or enforceability of AgCo’s patent, and acknowledges that any improved emissions control technology it could develop in the foreseeable future would infringe AgCo’s patent.
Discussion: Because FarmCo’s emission control technology does not significantly constrain AgCo’s competitive conduct with respect to its emission control technology, AgCo’s and FarmCo’s emission control technologies are not close substitutes for each other. FarmCo is a consumer of AgCo’s technology and is not an actual competitor of AgCo in the relevant market for superior emission control technology of the kind licensed by AgCo. Furthermore, FarmCo is not a potential competitor of AgCo in that relevant market because FarmCo cannot develop an improved emission control technology without infringing AgCo’s patent. This means that the relationship between AgCo and FarmCo with regard to the supply and use of superior emissions control technology is vertical. Assuming that AgCo and FarmCo are actual or potential competitors in sales of farm equipment products, their relationship is horizontal in the relevant markets for farm equipment.
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