Antitrust and Intellectual Property: A Brief Introduction

Intellectual Property and Competition Policy and Antitrust

Article Snapshot

Author(s)

Keith Hylton

Source

in Cambridge Handbook of Antitrust, Intellectual Property and High Tech, Roger D. Blair & D. Daniel Sokol eds., Cambridge University Press, 2017, pp. 81-91

Summary

This chapter explores the conflict between antitrust law and intellectual property (IP) rights. Antitrust law aims at limiting monopoly power, while IP rights tend to establish limited monopolies in ideas, but IP rights rarely confer the ability to raise prices without losing customers.

Policy Relevance

When IP rights and antitrust law appear to conflict, courts have trouble deciding which right should dominate.

Main Points

  • Superficially, antitrust and IP law conflict, because IP rights grant inventors limited monopolies, but antitrust law protects consumers from monopoly; however, in the long run, both IP rights and antitrust law are intended in increase the choices available to consumers.
     
  • When a monopolist controls the market, it harms welfare by raising prices and cutting output.
     
    • Antitrust law reduces the social loss to consumers from lower output.
       
    • Antitrust law reduces inequality; benefits are widely distributed to consumers rather than concentrated in the hands of the monopolist.
       
  • Patents allow the patent owner to limit output and cut prices; however, the patent is justified, on the theory that the good would not exist at all if the patent had not been granted.
     
  • Some argue that the law should limit the patent owner’s reward to the minimum amount necessary to encourage the patent owner to bring the good into existence; however, this view is static and backward-looking.
     
    • Calculating the minimum amount would be difficult.
       
    • Any errors would discourage innovation in the future.
       
  • Market power is the power of a firm to raise prices without having to worry about competition; most patents do not give the patent holder the power to raise prices without losing consumers.
     
  • The Supreme Court rejects the idea that a patent automatically gives a patent holder market power; however, inconsistent with this rule, the Court also has ruled that a patent agreement cannot require payment of royalties after the patent expires.
     
  • Cases on “product hopping” involve firms that make a minor change to the formula for a patented product such as a drug, and patent the new formula just as the old patent is about to expire; one court has held that antitrust law prevents a drug company from switching from an old to a new formulation if the new formulation offers few additional benefits.
     
  • In effect, cases that bar “product hopping” give a firm that infringes a patent an way to invalidate the patent; some argue that infringers should be limited to arguing that the patent is invalid because the new formula is not novel and therefore not entitled to patent protection.
     
  • In recent cases, courts have rules that it violates antitrust law for a patent holder to settle an infringement case by paying the infringer to stay out of the market; such a settlement is allowed only if its procompetitive benefits outweigh its anticompetitive effects.
     

 

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