Exploitative Abuses of Intellectual Property Rights

Exploitative Abuses of Intellectual Property Rights

Description

It is the standard view in the United States that US antitrust law does not reach acts of exploitation by a monopolist. The focus in monopolization cases is on exclusionary conduct—conduct that excludes competitors on some basis other than efficiency and thereby allows a firm either to gain or to maintain monopoly. Courts do not pay attention to a monopolist’s conduct that is just unfair to its rivals, or even to conduct that is flat-out deceptive. Section 2 of the Sherman Act is concerned with harm to competition, the courts remind us, not harm to competitors. Indeed, and perhaps surprisingly, courts in Section 2 cases are not even concerned with higher prices in themselves—“rent extraction.” As the D.C. Circuit Court of Appeals wrote in Rambus (a case to which we will return), “[e]ven if deception raises the price secured by a seller, . . . it is beyond the antitrust laws’ reach.” When it comes to the use of intellectual property rights, this unwillingness to look at exploitation would appear to be even stronger. Early on the Supreme Court affirmed the right of a monopoly patent holder to exploit its rights to the fullest, constrained only by market demand. In United States v. General Electric, decided in 1926, the Court allowed GE to license its light bulb patents to a competing light bulb manufacturer and to set the price at which the competitor could sell its bulbs. Chief Justice Taft wrote: “[T]he patentee may grant a license . . . under the specifications of his patent for any royalty or upon any condition the performance of which is reasonably within the reward which the patentee by the grant of the patent is entitled to secure . . . One of the valuable elements of the exclusive right of a patentee is to acquire profit by the price at which the article is sold. The higher the price, the greater the profit, unless it is prohibitory.” Outside the United States, however, the law seems to be otherwise. Article 102 of the TFEU prohibits “abuse” of a dominant position, with a specific clause to catch the imposition of “unfair” selling prices or trading practices. Many countries follow the European Union’s approach. China’s condemnation of abuse of dominance includes selling at “unfairly high prices,” or “other abusive practices” as determined by the enforcement authority (Art. 17). South Africa specifically condemns, as an abuse of dominance, the charging of an “excessive price” (Sec. 8). India prohibits a dominant firm from imposing “unfair” prices in the purchase or sale of goods or services (Sec. 4(2)(a)(ii)). Korea prohibits a dominant firm from pricing “unreasonably” or “unreasonably interfering” with the business activities of other enterprises (Art. 3-2). Japan prohibits “private monopolization” à la United States (Art. 3), but also condemns unfair trade practices, which include “dealing at unjust prices” and dealing with another party on terms that “restrict unjustly” the other party’s business (Arts. 19, 2(9)). Without denying this substantial divergence in general between the United States and the rest of the world, it turns out that there may be fewer differences between the United States and other jurisdictions when it comes to judging exploitative behavior by intellectual property rights holders with market power. For despite the oft-stated unwillingness to condemn exploitation under US antitrust laws, and even despite the broad license given to intellectual property rights holders in General Electric, legal doctrine and enforcement policy in the United States is much more willing to rein in exploitative behavior by intellectual property rights holders than might otherwise be supposed. The purpose of this chapter is to describe the areas in which antitrust law (or competition law, as it is generally referred to outside the United States) constrains intellectual property rights holders from unduly exploiting their monopoly power when licensing or using their intellectual property rights. “Exploitation” is here used in the sense of “taking advantage” of downstream purchasers by extracting rents, either through higher prices or though the imposition of nonprice terms. Some forms of exploitation might lead to exclusion, for example where exploitative behavior raises rivals’ costs or increases entry barriers, and thus the line between exploitation and exclusion is not always perfectly clear. Nevertheless, a critical distinction is the focus on harm to the immediate buyer (or licensee) without any necessary concern for ultimate effects on consumer welfare or deadweight welfare loss. From a normative standpoint, this chapter argues that intervention to prevent this type of exploitation is consistent with sound competition policy. Preventing intellectual property rights holders from undue exploitation of their rights is an important aspect of economizing on the reward that we give intellectual property rights holders to incentivize innovation. The argument over how much short-term monopoly loss we are willing to incur so as to get long-term innovation is a familiar one in the intellectual property literature. Although some argue, in effect, that “too much is not enough,” antitrust tradition is on the side of placing some limits on monopoly profits and placing greater reliance on the incentives that competitive markets provide. Many of the cases this chapter discusses are in that tradition. This chapter focuses on three areas in which antitrust enforcers have intervened to prevent exploitation. The first involves patents subject to FRAND (fair, reasonable, and non-discriminatory) licensing obligations (FRAND-committed patents), a major area in which courts and agencies have been willing to prevent excessive pricing. The second area involves disclosure requirements that can be imposed on patent holders to prevent the exploitation of licensees or potential licensees. The third is post-expiration royalties. The chapter concludes with some observations about the emerging policy consensus regarding abusive licensing by patent holders with market power.

Source Publication

The Cambridge Handbook of Antitrust, Intellectual Property, and High Tech

Source Editors/Authors

Roger D. Blair, D. Daniel Sokol

Publication Date

2017

Exploitative Abuses of Intellectual Property Rights

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