While this is a paper – which you can find here – is mainly on IP law, I circulate it because it highlights two matters relevant for competition practitioners: (i) how the regulation of topics other than competition can significantly affect competition – and competition law; (ii) how debates about the scope of individual competition law doctrines (e.g. abuse of IP rights, etc.) are often disguised debates about how to reform these regulatory frameworks. In other words, and as I noticed in previous posts, competition law operates in wider social and legal contexts that must be acknowledged.

The argument of this paper is that when designers can obtain exclusive intellectual property (IP) rights in the functional aspects of their creations, they can wield these rights to increase both the costs their competitors incur and the prices that consumers must pay for their  goods. IP rights’ holders do this by using their rights in ways that do not promote the goals for which US IP protection was granted: ‘IP rights and the costs they entail are warranted when they serve as needed incentives to encourage designers to invest in creating new socially valuable designs. But the law must be wary of allowing rights to be misused. Accordingly, IP law has employed a series of doctrinal and costly screens to channel designs into the appropriate regime—copyright law, design patent law, or utility patent law. Unfortunately, those screens are no longer working. [IP rights’ holders can now obtain] powerful IP protection over [the use to which their inventions can be put to] without demonstrating that they have made socially valuable contributions (…). This is bad for competition and bad for consumers.

The paper is structured as follows:

Part I explains why the choice of applicable IP regime matters.

It begins by succinctly describing the logic of IP regimes: ‘IP laws exist to encourage the production of socially valuable creations and innovations by granting people certain exclusive rights to the works and inventions they produce. When authors and inventors obtain these rights, they can charge higher prices for the goods that embody their works and inventions than they otherwise could. These higher prices provide an economic incentive to engage in the costly and risky efforts that creating and innovating entail. But IP rights also impose costs of their own. By granting some people rights to make certain products, IP laws make purchasing those products more expensive for consumers, many of whom will be entirely priced out the market. In addition, IP rights also can impose substantial costs on other creators who want to develop their own works and inventions or improve existing ones. (…)  For these reasons, IP laws—including those that protect design—attempt to balance the incentives provided to the current round of creators and the costs imposed on consumers and the next round of creators.’ An important question that IP law must address is whether – and to what extent – it can be used to protect utilitarian or functional aspects in claimed works and inventions. While this may at times be necessary: ‘granting inventors exclusive control over the utilitarian features of product design can also give them substantial market power and enable them to price access to those products far above their marginal cost.

Part II describes the theory underpinning the use of screens in IP law, and how the law attempts to use these screens to channel innovations into the appropriate IP regime.

Doctrinal screens are meant to distinguish IP rights on the basis of their social value, and to prevent the creation of IP rights that are predicted to  have negative net social value. Screens include a number of legal doctrines, some of which are reviewed in this section: (i) the utility patent regime; (ii) requirements of novelty and non-obviousness for the grant of some IP rights; (iii) limitations in the scope of protection of an IP right.

This section also describes in detail the regimes of utility patents, design patents and copyright; and how legal screens specific to each regime try to channel inventions to the most appropriate type of IP protection. Legal doctrines are only one type of tool for screening out inventions that do not deserve protection. In addition, the government uses other costly screens — such as fees and other expenses that someone seeking an IP right must pay — as a means of weeding out rights that would do more social harm than good. The function of a costly screen is to eliminate or curtail the number of low private value IP rights granted by the authorities. These two approaches can be complementary and are frequently applied in tandem “the higher the doctrinal threshold that a party must pass in order to claim a right, the more that party will have to spend – in fees or legal costs, for example.

When operating properly, these screens could provide appropriate incentives to innovators while minimizing social costs. Part III describes how existing screens are not working in the US, creating a system that may be the worst of all possible worlds.

The authors focus in particular on how the supposedly highly costly screen that should apply in US copyright law regarding the copyrighted object’s functionality has vanished (mainly as a result of the US Supreme Court’s Athletica v. Varsity Brands decision), and on how design patent law’s supposedly high creativity threshold and costly examination do not, in fact, exist. The authors are particularly concerned that the current regime allows: ‘designers to obtain protection for the functional elements of designs via copyright without having to overcome design patent law’s high creativity threshold, short duration, and costly screen. This [copyright] protection would then last for a century, rather than design patent’s 15 years.’ In short, it is too easy and too cheap to protect the functional aspects of designs under current IP law – according to the authors, this is an example of how IP law gives people too many ways to obtain too many rights too cheaply.

In Part IV, the authors offer several possible solutions to this problem. An option is to bring IP law doctrines into line with IP law’s ultimate goals, and limit the amount of protection granted to functionality and other innovations of doubtful social value. This could be done by shoring up the screens that seek to prevent the undue granting of IP protection, preventing the same products from being simultaneously protected by different sets of IP rights, improving the examination procedures for the granting of IP rights, increasing the cost of seeking or maintaining design patent protection, and narrowing the scope and power of the relevant IP rights.

Comment:

As noted above, this paper is mainly about IP rights; Yet, it highlights important elements of the interaction between IP and competition law.

In particular, I think this paper is relevant for us because:

(a) competition law plays some role – which is unsettled – at the fringes of core IP law protections;

(b) IP law is thought to be related to innovation, and if functioning properly the restrictions it imposes on full-blown competition – by granting IP rights – are generally thought to be more important for long-run increases in consumer welfare than the enforcement of competition rules;

(c) this rationale for the prevalence of IP over competition rules is undermined if IP law does not function properly;

d) it is obvious that the best solution for the malfunctioning of IP law would be to reform IP law. Inasmuch as these reforms do not take place, there will be attempts to use competition law to limit the pernicious effects on competition of malfunctioning IP rules. In particular, there will be incentives – and maybe valid reasons – to extend the reach of competition law to control matters which are ever-closer to the core of IP rights;

(e) while tweaks in this direction by competition law may remedy the ills of malfunctioning IP rights, they have two downsides. they do not address the core issues, which ultimately require a reform of IP law; and they risk distorting the enforcement of competition law in the long-run.

In itself, none of these insights are original. But it is important that the competition community acknowledge and understand IP law on its own terms, and are able to identify IP laws limitation in order to better understand and think about competition law enforcement in this field. As such, we should be alert to IP discussions regarding the limitations of IP law.

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