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For more than thirty- five years, the potential implications of the Ninth Circuit's decision in Siegel v. Chicken Delight1 have nagged at counsel for franchisors that seek to require their franchisees to purchase items only from their franchisor or an affiliate. In Siegel, a franchisor's registered trademark was alleged to constitute the tying item in a tie-in prohibited under Section 1 of the Sherman Act. The Ninth Circuit held that the legal uniqueness of the registered trademark, like that of a patent or copyright, resulted in sufficient presumptive economic power in the tying product market to render the arrangement per se illegal.2
Although some trial and appellate courts subsequently addressed the market power issue in trademark tie-in cases differently and required proof that the franchisor had actual power in a properly defined relevant market before the per se rule could be invoked3 the Supreme Court has never addressed the market power issue in a franchise tie-in case; but Siegel and similar cases premised on an equation of trademarks, on the one hand and patents and copyrights, on the other hand with respect to presumptive market power were never expressly overruled. That meant that the Siegel doctrine could still be advanced potentially requiring a defendant franchisor to make a relatively sophisticated legal argument regarding what type of legally protected intellectual property should (and should not) be presumed to confer economic power in tying cases.
However, in 2006, the Supreme Court decided Illinois Tool Works, Inc. v. Independent Ink, Inc.,4 a case in which the alleged tying product was patented precisely the type of case on which the Siegel court relied to hold by analogy, that a trademark should be accorded presumptive market power. In a decision that has received relatively little attention in the franchise bar, the Supreme Court unanimously overruled its prior holdings that patents should be presumed to have market power for purposes of tying analysis, and relegated purported patent tie-in claims to the same market power analysis applicable to other alleged tying products. In doing so, the Court effectively eliminated the cornerstone of the Siegel doctrine. It then went beyond that direct holding to reverse decades of a prior judicial hostility to tying arrangements in general. Although largely unnoticed those were both...