Intellectual Property Disclosure as “Threat”

Intellectual Property and Competition Policy and Antitrust

Article Snapshot

Author(s)

Scott A. Baker, Pak Yee Lee and Claudio Mezzetti

Source

UNC Legal Studies Research Paper No. 1012152, 2007

Summary

This article analyzes the threat of disclosing protected information as a means of enforcing contracts and agreements.

Policy Relevance

The mutual transfer of protected information between companies, and the threat of disclosing that information, can act as a strong incentive for cooperating businesses to comply with their agreements. This could help keep disputes out of the court system.

Main Points

  • Sometimes, when multiple companies are performing research and development (R&D) in the same field, two or more companies will make progress simultaneously. In order to prevent competition, these companies might decide to mutually share their innovations, often agreeing at the same time to divide the market and not compete with each other.
     
  • Historically, this type of cooperative agreement has been enforced in two stages: first, a company that believes its partner is violating the agreement can threaten the partner’s profits by entering their share of the market, and, secondly, these contracts can be taken to court.
     
  • Because the use of the court system is expensive, lengthy, and complex, additional mechanisms for deterring violations and allowing for pre-litigation enforcement are desirable. One possible mechanism for deterring such violations is the threat of disclosing the other side’s valuable intellectual property (IP), which has been shared as part of the agreement.
     
  • If one party violates, their partner could then release the violator’s IP into the marketplace, allowing any competitors to enter the market without the cost of R&D. In order to analyze the viability of this disclosure threat, a model was created to determine the likely results.
     
  • The model created revealed a series of insights about the viability of using IP disclosure as a threat to enforce agreements.
    • Enforcing agreements is easier when firms have IP that can be easily disclosed to the market.
       
    • Where the IP technology is difficult to disclose, or there are few companies able or willing to enter the new market, disclosure has less enforcement value.
       
    • Where the cooperating firms are in the process of developing similar innovations, this type of disclosure agreement may prompt anticompetitive behavior.
       
  • In some situations, the agreements described above violate antitrust laws by attempting to fix prices. The social benefit, or lack thereof, of using a mutual disclosure threat in this antitrust situation will be scenario specific: where the underlying agreement promotes social good, so does the use of IP disclosure as a threat ensuring enforcement of that agreement.
     

 

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