Can An Intellectual Property Sale Be An Antitrust Antidote?

Can an intellectual property sale eliminate or sufficiently mitigate antitrust concerns relating to a proposed acquisition? General Electric Co. apparently believes so, at least when it comes to the European market.

GE is facing headwinds in its attempt to acquire Alstom SA’s energy businesses for $ 17 billion. (Brent Kendall and Ted Mann, “GE’s Divestiture Plans Hit Hurdles,” July 2, 2015 Wall Street Journal, B1, B4.) Specifically, European Commission regulators are concerned that, if consummated, the acquisition will reduce competition in the heavy-duty gas turbine market. (Id., B4.) In response, “GE has said it is willing to accept some concessions to make the Alstom deal work, including possibly selling off some intellectual property it receives from Alstom. But [GE CEO Jeff] Immelt has drawn the line at giving up any of the service revenue GE hopes to rake in from Alstom’s existing installed base of turbines[.]” (Id.) The specific IP that GE might sell and the contemplated terms of any such sale were not identified in the cited WSJ article.

So, GE’s position appears to be that selling some of the to-be-acquired Alstom IP will stimulate competition from the companies that subsequently acquire that IP. Certainly, GE’s proposed sale of IP is a proactive and creative strategy to leverage IP. But, is GE’s position legitimate (a) in Europe, where actual concerns have been raised, or (b) hypothetically, in the United States?

We soon should learn whether GE’s proposed sale of IP is an antitrust antidote in Europe. So, let’s turn to the hypothetical. Suppose U.S. antitrust concerns are raised under circumstances similar to those existing in Europe and U.S. antitrust and IP laws are in play.

The reality is that not all IP is created equally. So, as a general proposition, selling IP, such as a patent, trade secret or a package of those assets, may or may not be an antidote to antitrust concerns.

For an IP sale to be an antitrust antidote, the IP needs to be commercially viable (that is often not the case) and there cannot be other barriers to entry that substantially undermine, if not eliminate, that viability. Another way to think about this, at least as to patents, is: because a U.S. patent does not necessarily confer market power, selling a U.S. patent (especially with a license back) will not necessarily lead to additional competition in the market.

Testing GE’s position – at least under U.S. law – also should include assessing other pertinent terms of the proposed acquisition and pertinent circumstances in the market. Here, GE apparently covets Alstom’s existing service contracts. Importantly, certain IP, such as a patent, exists for a finite period of time and a contract typically exists for a finite period of time. If a main driver of the Alstom acquisition is substantial service revenue from existing and relatively lengthy service contracts, then a company that acquires Alstom IP might not be in a position to secure a sufficient number of such contracts, if any, thereby missing out on a significant revenue stream. Missing out on that revenue may be a result of GE (through Alstom) already having in place (a) service contracts, (b) substantial infrastructure, including employees, equipment and, importantly, other IP, such as trade secrets, necessary to fulfill those contracts and not part of any IP sale or (c) some combination of those or other elements. Such circumstances could quell any competition that the IP sale was supposed to generate.

In sum, whether an IP sale is an antitrust antidote is an involved inquiry. The commercial viability of the IP, the remaining terms of the IP, other barriers to entry and any other pertinent marketplace realities, including the overall capability of the IP purchaser, need to be assessed if that inquiry is to be legitimately conducted and resolved.