SCM Corporation v. Xerox Corporation U.S. Court of Appeals, Second Circuit, 1981 In the 1930s, a patent attorney turned inventor, named Chester Carlson, invented a process, subsequently called xerography . . . Xerox, which later came to control Carlson’s patents and all of the xerographic improvement patents, . . . refused to grant licenses for [other companies to provide] plain-paper copying. The result was that from 1960 to 1970, when IBM introduced its first plain-paper copier, Xerox enjoyed an absolute monopoly in the plain-paper copying segment of the industry . . . In March 1960, Xerox made initial deliveries of the 914, its first automatic plain-paper copier. The 914 was a resounding success. Between 1960 and 1970, Xerox’s revenues rose from $47 million to $1.7 billion . . . Xerox refused, however, to extend licenses to SCM that would enable it to manufacture its own plain-paper copier . . . The conflict between the antitrust and patent laws arises in the methods they embrace that were designed to achieve reciprocal [opposite] goals . . . When the patented product, as is often the case, represents merely one of many products that effectively compete in a given product market, few antitrust problems arise. When, however, the patented product is so successful that it evolves into its own economic market, as was the case here, . . . the patent and antitrust laws necessarily clash . . . No court has ever held that the antitrust laws require a patent holder to forfeit the exclusionary power inherent in his patent the instant his patent monopoly affords him monopoly power over a relevant product market . . . Based on the evidence presented we are convinced that none of Xerox’s patent-related conduct contributed to any antitrust violation and that, therefore, SCM is not entitled to recover any monetary damages in connection with that claim.

Analyze how the term market failure applies to the situation described in this court case.