FTC approves merger -- so long as parties offer free patent licences to competitors

Susan L. Ross from Fulbright’s New York Intellectual Property & Technology Group and Daniel L. Wellington from Fulbright’s Washington, D.C. Antitrust and Competition Group report that, on July 10, 2008, the Federal Trade Commission published for public comment its proposed approval of a merger between Flow International Corporation (“Flow”) and OMAX Corporation (“OMAX”), being the largest and second-largest manufacturers of waterjet cutting systems in the United States. In order to alleviate the FTC’s concerns that the merger would substantially lessen competition, the FTC has proposed an unusual remedy: that the merged entity be required to license two key patents on a royalty-free basis to any competitor that requests a licence. The public comment period lasts until Friday 8 August 2008.

Ross and Wellington note that, while it is common for the FTC to require merging parties to license intellectual property in order to remedy perceived anticompetitive effects of the merger, it is uncommon to require licensing all comers at no charge. For example, in 2005, the FTC permitted the merger between Union Oil of California and Chevron by conditioning FTC approval on Union Oil's agreement not to enforce its patents.

Ross and Wellington observe that the proposed Order for the Flow/OMAX merger differs from earlier precedents because the licence is available (a) at no cost and (b) to any interested party that meets the definition of “Competitor.” Furthermore, unlike previous FTC matters, this proposed Order permits the licensor to retain some control over the patents, and permits the licensor to terminate the licence due to the licensee’s breach, subject to an ongoing notice and reporting obligation to the FTC.

Without embarking on an analysis of the underlying, complex issues, it is notable that the FTC is willing to take on the challenge of at least exploring possible commercial outcomes other than simply saying “no”.

Click here to view Fulbright’s briefing online and download a printable version.

This item was prepared by IP Finance team member Julian Gyngell, but posted by me.