Summit Technology, Inc. and VISX, Inc., two firms that compete in the market for equipment and technology employed in photorefractive keratectomy ("PRK"), a form of eye surgery that uses lasers to correct vision, have settled Federal Trade Commission charges that they violated antitrust laws by creating a patent pool that raised prices and eliminated competition . According to the Commission, Summit and VISX are the only two firms with U.S. Food and Drug Administration approval to market the laser equipment used for PRK in the United States. Instead of competing with each other, the firms placed their competing patents in the patent pool in order to share the proceeds each and every time a Summit or VISX laser was used. The result of this illegal activity was higher prices and limited choice for consumers, the FTC said at the time the charges were announced. Under the proposed settlement, Summit and VISX would be prohibited from fixing prices in the future or agreeing in any way to restrict each other's sales or licensing of their PRK lasers and patents.
"Summit and VISX's illegal activity has cost consumers millions of dollars," said William J. Baer, Director of the FTC's Bureau of Competition. "Through their illegal patent pool, the companies were able to set higher prices for their lasers and to reduce competition in the market for PRK technology. This settlement undoes this damage by dissolving their partnership and forbidding the companies to recreate this anticompetitive arrangement. The companies should now become vigorous competitors both in selling their lasers and in licensing their intellectual property to rivals."
Photorefractive keratectomy is a procedure for correcting nearsightedness, farsightedness and astigmatism. It requires the use of a special laser to reshape the eye's cornea so that light focuses properly and images appear clearly. According to the Commission, the potential demand for PRK is vast. There are approximately 140 million people in the United States with vision problems. Most correct their vision with contact lenses or eyeglasses. The market for PRK is large and growing, however. In 1996, the first full year of operation for FDA-approved PRK lasers, Summit and VISX performed approximately 70, 000 procedures in the United States, and that number has increased steadily since then. The current price for PRK ranges from $1,500 to $2,250 per procedure.
On March 24, the Commission announced charges against Summit and VISX. According to the complaint outlining the charges, Summit and VISX are competitors in the markets for PRK equipment and PRK technology. The companies each own patents related to PRK, and also are the only firms whose PRK laser systems have received marketing approval from FDA.
On June 3, 1992, the complaint charges, VISX and Summit pooled most of their existing patents related to PRK (as well as certain future ones) in a newly created partnership called Pillar Point Partners ("PPP"). According to the Commission, this pooling arrangement eliminated competition between VISX and Summit.
The result, the agency charged, was to restrain competition in two ways. First, the firms no longer competed on price. The pool established a $250 licensing fee to be paid to the pool each time a laser produced by either firm was used to perform PRK. The proceeds from these license fees were then split between the two firms according to a predetermined formula. The effect of this per-procedure fee was to fix and raise the price that doctors paid for PRK equipment and technology, and to deprive consumers of the benefits of competition, the agency said.
The other effect of the pool was that the firms no longer had any incentive or ability to compete in the licensing of PRK technology -- neither firm could license its own technology without the approval of the other.
The proposed consent orders apply the principles of the FTC and the U.S. Department of Justice's Antitrust Guidelines for the Licensing of Intellectual Property. The Guidelines address the analysis of intellectual property licensing in general, and patent pool arrangements such as that between Summit and VISX in particular. The Guidelines recognize that intellectual property licensing arrangements and patent pools may be procompetitive, but that antitrust concerns arise when an agreement or pool affects competition among companies that would have been competitors in the absence of the agreement. Under the Guidelines, if a pooling arrangement has an anticompetitive effect, the Commission considers whether the pool is "reasonably necessary to achieve procompetitive efficiencies." After concluding that there was reason to believe that the pooling of patents by VISX and Summit was anticompetitive and that PPP was not reasonably necessary to achieve any procompetitive efficiencies, the FTC issued the complaint.
Summit sells excimer lasers for use in PRK in the United States and forty other countries.
Summit is located in Waltham, Massachusetts. Its laser equipment received FDA approval in 1995.
VISX, located in Santa Clara, California, received FDA approval to market its excimer laser for PRK in 1996.
The proposed consent orders would settle all of the allegations of the complaint against Summit and settle part of the allegations against VISX. In addition to charges of price-fixing, the Commission has charged that VISX fraudulently acquired a key patent from the United States Patent & Trademark Office. VISX continues to litigate this charge.
Under the proposed orders Summit and VISX would be prohibited from agreeing in any way to fix the prices they charge for the use of their PRK lasers and patents, including the "per-procedure fee" charged to doctors each time he or she uses one of the firms' PRK lasers, and from agreeing in any way to restrict each other's sale or licensing of their PRK lasers and patents. The companies, by private agreement, have already determined to dissolve PPP. The proposed orders would require Summit and VISX to take no action inconsistent with the dissolution of PPP, except to the extent necessary for PPP to wind up its affairs and to defend or settle litigation in which it is a defendant and to return the PPP patents to the firm that contributed them to PPP. The companies would also be required to license to each other, on a royalty-free and non-exclusive basis, the patents each firm contributed to PPP.
The proposed orders would also provide that customers who incurred an obligation to pay a per-procedure fee during the existence of the patent pool could stop using the lasers without penalty or continuing obligation (with certain exceptions), and requires Summit and VISX to notify those customers of this opportunity.
In addition, Summit and VISX would have to give notice of the orders to anyone who, after the formation of the pool, requested a license to use any of the pooled patents in the manufacture or sale of PRK equipment .
The Commission vote to accept the proposed consent agreements for public comment was 4-0.
An announcement regarding the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580.
NOTE: Consent agreements are for settlement purposes only and do not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent agreements, and an analysis of the proposed consent orders to aid public comment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 9510029)