This paper – which can be found here – focuses on how “patent law and antitrust law often use the same concepts and terminology with differing meanings and contexts.” The confusions this gives rise to “threatens any attempt to reconcile the two bodies of law. Most importantly, ignoring asymmetries can lead to both underprotection and overprotection of patent rights, as well as the improper application of antitrust laws”.
The paper begins with a history of the relationship between IP and antitrust. From the beginning, there were tensions between IP and antitrust, given that “patent law encourages monopoly and antitrust law opposes monopolization.” However, this terminology risks confusing things. Competition law “focuses its wrath on companies that try to gain or maintain monopoly power by inappropriately suppressing competition”. Patent law, on the other hand, “grants only a negative right, the right to exclude. That right brings the possibility of obtaining a monopoly in a given market, but a patent is certainly no guarantee of a monopoly, and the vast majority of patents result in no such thing.”
It then moves on to Section I, which depicts the various stages of the interaction of IP and antitrust in the US [Note: there is regrettably little in the paper on these developments in Europe]. During a first stage, pre-1940, patents – and agreements related to patents – were simply beyond the reach of antitrust law. During the 1940’s, the Supreme Court changed tack and “reasoned that antitrust law is free to operate when patent holders reach beyond the boundaries inherent in the patent grant”. The problem with this approach was that “patent theory [did not have] a robust concept of the boundaries inherent in the patent grant (…)and the concept would elude courts and scholars in the century to follow”. The debate then focused on the Patent Misuse doctrine. This doctrine, in which patent law punishes inappropriate behaviour by patent holders, has been the focal point of much of the discussions about the relationship between antitrust and IP laws. The late 1980s saw something of a new trend develop, however, which has tried to harmonize the two bodies of law by folding antitrust doctrines into patent law – i.e. subsuming patent under antitrust law.
According to the author, the odds of such a harmonisation attempt succeeding are undermined by the use of similar concepts and terminology to which antitrust and IP law attribute differing meanings. The most important conceptual divergence between patent and antitrust law concerns the notion of exclusivity, to which section II is devoted.
“The antitrust image of exclusion is based on the notion that a firm with power in a competitive sphere keeps out those who would enter the sphere to compete” (…) “antitrust law describes patents as granting exclusive rights, and analyzes patents as if those rights keep everyone out of the sphere defined by the patent.” However, the antitrust and IP conceptions of “exclusion” are significantly different. A patent grants the right to exclude others, but it does not necessarily give the patent holder exclusivity – not even in the space defined by the patent itself. Unlike what antitrust commentators seem to think, often “patent law’s “right to exclude” still leaves patent holders negotiating with others who have overlapping rights to exclude”. This has serious implications for exclusivity regarding the ability of the patent holder to come with specific products, and even greater implications for the existence of market power by the patent holder over a certain market product.
Section III then looks at the relationship between patents and market power. It follows from the above that: “A patent is no guarantee of power in a properly defined market. There may be substitutes available for the patented product in a given market or there may be sufficient cross-market elasticity. (…) The vast majority of patents create no monetary return for the patent holder. Even patents that become highly valuable may confer no market power, although some parties have tried to argue that value translates into power. (…)Most importantly, a patent itself is no more than the grant of an opportunity. There is no guarantee that anyone will be interested in the invention or that the inventor will be successful in capturing that interest.” Shockingly enough, this was only officially recognised by the US Supreme Court in 2006.
Section IV reviews another potential source of confusion, the concept of “product”. This is relevant for market definition, obviously, but also for tying. “One could conceptualize “the product” as the patent itself, an item which can be sold or upon which licenses can be based. Alternatively, one could conceptualize “the product” as the finished item embodying the invention.” None of these concepts actually captures the complexity of the concept for IP, which raises a number of issues:
- Regarding the concept of each patent as a product, “In many circumstances, it is the interaction among patents that gives a patent its power and capacity, and the full implications of patents can be understood only when patents are considered in combination. (…) The true value of a patent may emerge only as part of a portfolio.” This means that “product” has different implications for antitrust and IP: “Under antitrust law, we would not allow a firm to buy up all firms that sell potential substitutes.” However, defensive patenting – i.e. whereby a patent holder tries to anticipate and patent all potential variations of the originally patented product – is allowed despite being akin to such an anticompetitive practice. The point is “simply that the notion of an individual product, implicit in much antitrust law, cannot capture the full implications of patents. Without understanding patents as inter-related, the law cannot contemplate what short-term competitive harm may be contemplated by patent law and what behavior falls outside of those bounds (…) In short, patent portfolios and patent pools may be effective vehicles for overcoming market imperfections, or they may be effective vehicles for anticompetitive behavior and collusion among competitors. Nevertheless, patents frequently exist in such combinations, and they must be analyzed in the context of those combinations, not as analogous to individual products. To conceptualize a patent as an individual product would be missing much of the operation of patents in a modern marketplace.”
- If one takes instead the product to be the finished item that embodies the patented invention, multiplicity problems appear in different guises. “For the markets in which many patents operate, the boundaries of a product are remarkably malleable. With modern technologies, inventions can be combined or altered to adjust the number of so-called products. For example, one could sell a computer operating system as a package with a web browser and media player, integrating them into one product by intertwining their functions and the underlying programming code.” In other words, patent holders can try to manipulate the IP system to their own advantage. This poses great difficulties: in “the patent field, where the goal is to invent and the practice is to invent around things, courts and agencies must grapple with efforts to invent around the antitrust laws. Separating these efforts from legitimate, competitive inventions will require development of a much more nuanced analysis of product definition than currently exists in antitrust law.”
Section V grapples with the concept of “monopolisation”. Antitrust law has a fairly robust notion of what it means to compete on the merits and what a competitive market looks like. Patent law lacks such a robust concept. However: “We do not have a clear conception of how broadly the footprint of a patent should reach or how much market damage is contemplated in the context of a patent grant, as optimally conceived. Unless we can fill this conceptual void, we cannot talk coherently about the limits of acceptable behavior by patent holders, irrespective of whether the doctrinal rules for the discussion flow from antitrust or patent law. Thus, even if we were to more fully harmonize patent and antitrust law by finding that patent holder behavior is acceptable unless there are anticompetitive effects, our problems would not be solved.”
This paper neatly illustrates how concepts in antitrust and IP that may seem similar are actually quite distinct, the challenges that the interaction between IP and antitrust raise, and, lastly, how terminological confusion may further enhance these challenges. I think this does all of this quite neatly.