The Strategic Use of Patents: Implications for Antitrust
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Description
The intersection between intellectual property (IP) and antitrust continues to be the subject of heated debate among academics and policy makers. The exercise of intellectual property rights has traditionally been viewed as a legitimate means to earn monopoly rents with respect to one or more products. Indeed, both US competition agencies have made it clear that the protection of intellectual property is essential to provide firms and individuals with incentives to innovate. Thus, the IP guidelines explicitly recognize that intellectual property law and antitrust law share the common purpose of promoting innovation and enhancing consumer welfare. Nevertheless, IP rights sometimes to come into conflict with antitrust, whose goal is to encourage competition so as to benefit consumers and producers. Yet, despite acknowledgment that these two traditions share a common purpose, there remains considerable tension between the property rights granted under IP laws and the antitrust laws’ goal of promoting consumer welfare. In recent years the courts have become more assertive in laying out territory in which the exercise of intellectual property rights can violate the antitrust laws. In 2003, the Federal Trade Commission (FTC) issued a report on intellectual property and antitrust that flowed in part from an extensive set of joint hearings on the subject by the Department of Justice and the FTC. As firms with substantial patent portfolios have become more aggressive in asserting their IP rights, it has been natural to pose the question of whether, and if so under what conditions, the antitrust laws might be violated through the leveraging of market power from one market to another, through the inappropriate creation or maintenance of barriers to entry, or through the encouragement of collusive behavior. While these questions have been raised by academics and by litigators, there remains little agreement on where the line should be drawn regarding anticompetitive use of patents and other forms of intellectual property. In this chapter, we offer an economic perspective on one aspect of the IP-antitrust nexus—the ability of firms to use their IP portfolios to compete with rivals. We recognize, as have the courts, that the grant of IP rights fives the owner of that right substantial leeway to utilize those rights; these rights include (i) the right to license or not in a broad array of circumstances; (ii) the right to change licensing terms; (iii) the right to settle patent litigation; and 9iv) the right to offer package licenses. Nevertheless, we believe that there are and should be limitations to those IP rights. We are concerned with one particular type of strategic behavior—the ability to use one’s IP portfolio to raise one’s rivals’ costs. We will explain that such a strategy can, under some circumstances, serve an anticompetitive goal—either through predation against one or more competitors, or by encouraging competitor to tacitly collude in raising prices. While a number of points that we will make are quite general, we will focus on a particularly interesting raising rivals’ cost strategy—the use of package licensing of intellectual property to anticompetitively disadvantage rivals. We believe that such a strategy has the potential to succeed in industries where innovation and design are important elements of competition between rivals. We will suggest that whether or not such a strategy should be seen as anticompetitive necessarily involves a balancing of the IP rights (how likely they are to be valid or to have the appropriate scope) and the likely harm to competition (how likely it is that competitive firms will be harmed sufficiently to exit the industry or to no longer restrain competition, and/or how likely it is that a collusive arrangement can be encouraged). This chapter is organized as follows. In Section II, we offer the foundation of our analysis, an economic discussion of ways in which the strategic use of IP can raise rivals’ costs and generate anticompetitive effects. Section III offers a case study that develops these issues with specificity. In Section IV we conclude by offering an overview of the policy issues that arise in this most difficult subject area.
Source Publication
Antitrust, Patents and Copyright: E.U. and U.S. Perspectives
Source Editors/Authors
François Lévêque, Howard Shelanski
Publication Date
2005
Recommended Citation
Rubinfeld, Daniel L. and Maness, Robert, "The Strategic Use of Patents: Implications for Antitrust" (2005). Faculty Chapters. 1840.
https://gretchen.law.nyu.edu/fac-chapt/1840
