Example 5
Situation: FarmCo develops a new valve technology for its engines and enters into a cross-licensing arrangement with AgCo, whereby AgCo licenses its emission control technology to FarmCo and FarmCo licenses its valve technology to AgCo. AgCo already owns an alternative valve technology that can be used to achieve engine performance similar to that using FarmCo’s valve technology and at a comparable cost to consumers. Before adopting FarmCo’s technology, AgCo was using its own valve technology in its production of engines and was licensing (and continues to license) that technology for use by others. As in Example 4, FarmCo does not own or control an emission control technology that is a close substitute for the technology licensed from AgCo. Furthermore, as in Example 4, FarmCo cannot develop an improved emission control technology that would be a close substitute for AgCo’s technology, without infringing AgCo’s patent.
Discussion: FarmCo is a consumer and not a competitor of AgCo’s superior emission control technology. As in Example 4, their relationship is vertical with regard to this technology. The relationship between AgCo and FarmCo in the relevant market that includes engine valve technology is vertical in part and horizontal in part. It is vertical in part because AgCo and FarmCo stand in a complementary relationship, in which AgCo is a consumer of a technology supplied by FarmCo. However, the relationship between AgCo and FarmCo in the relevant market that includes engine valve technology is also horizontal in part, because FarmCo and AgCo are actual competitors in the licensing of valve technology that can be used to achieve similar engine performance at a comparable cost. Whether the firms license their valve technologies to others is not important for the conclusion that the firms have a horizontal relationship in this relevant market. Even if AgCo’s use of its valve technology were solely captive to its own production, the fact that the two valve technologies are substitutable at comparable cost means that the two firms have a horizontal relationship.
As in Example 4, the relationship between AgCo and FarmCo is also horizontal in the relevant markets for farm equipment.
3.4 Framework for Evaluating Licensing Restraints
In the vast majority of cases, restraints in intellectual property licensing arrangements are evaluated under the rule of reason. The Agencies’ general approach in analyzing a licensing
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