President Obama Nominates Antitrust Expert Howard Shelanski as New Regulatory Czar

Formally called the administrator of the Office of Information and Regulatory Affairs (OIRA), the regulatory czar is a powerful White House position charged with reviewing regulations proposed by government departments. President Obama’s nomination of Howard Shelanski was met with support by scholars, lawyers, and agency colleagues who have worked with the antitrust expert. The position requires Senate confirmation.

Professor Shelanski, who is both an economist and a lawyer, is currently on leave from Georgetown University serving as the Director of the Bureau of Economics at the Federal Trade Commission (FTC). This department reviews competition and consumer protection issues at the FTC. His previous government positions include Deputy Director of the FTC from 2009-2011. He was the Chief Economist of the Federal Communications Commission from 1999-2000, and from 1998-1999 he served as a Senior Economist for the President Clinton’s Council of Economic Advisers at the White House.

A few months ago, Professor Shelanski sat down with The Antitrust Source to discuss patent reform, the role of standard-setting organizations, and innovation and antitrust policy. Below are a few excerpts from Interview with Howard Shelanski, Director, FTC Bureau of Economics.

Innovation

It’s well understood that innovation, introduction of new products, and productivity increases are enormously important to economic performance. And there are a lot of results, borne out through many studies, which show that innovation will ultimately move the economy to a much higher and faster growth path and bring better benefits to consumers than will short-term reductions in price and increases in output.

Standard-setting Organizations (SSOs)

Standard-setting organizations can obviously do a lot of good, but they also involve cooperation among actual or potential competitors.

So we like the efficiency of standard-setting organizations because they may bring us a better standard sooner, but what we give up through the SSO is the possibility of competing standards, and such competition can reduce the ability of any particular set of standard-essential IP holders to exclude rivals or follow-on innovators from the marketplace. So we trade off efficiency at the front end against the risk of exclusion and monopoly power on the back end, after the standard is adopted.

Patent Reform

Right now, I think most people acknowledge that the patent system is broken in a number of ways. It can be hard to find out who even owns a patent, who holds the patent, where has it been transferred, who is the owner of record. I can find out who owns virtually any piece of land in the United States, no matter how big or small. I cannot find out who owns a patent with certainty in many cases.

So there are lots of problems with the patent system, and those problems impose costs and risks on moving forward as an inventor, an innovator. So I think that having a patent system that is clearer, more reliable, and easier to navigate would be an extremely useful thing.

First to File

There are other aspects of the America Invents Act that I think are difficult and that are obviously very controversial. The first-to-file change is one that has pros and cons, but certainly when we think about people or enterprises that are accumulators of vast numbers of patents, one has to ask where the balance tips with first to file. Companies that have big patenting operations that have their feelers out there in the marketplace for any kind of new technology that is emerging can run in and file now, get the patent, even if they were not the first inventor. And the incentive for small innovators may be to go to the existing large holders of IP with these large patenting operations and to try to cut a deal up front.

Part of the concern here is that market power through accumulation of IP and the amassing of IP will actually be exacerbated by first to file. This is not to say first-to-file is ultimately wrong, but it raises some hard questions. From an antitrust perspective, one question is whether first-to-file will increase the holdings of already large patent holders rather than allowing new entities to develop IP and compete with and offset some of the market power of some of the large IP portfolios. So this is just one set of concerns that might emerge. But some of the other things in the America Invents Act I think are very helpful and mark a useful step forward in patent reform.

Antitrust and Innovation

Innovation is a big issue for antitrust policy and enforcement. Anyone who thinks that competition policy or antitrust policy is the central issue in promoting innovation is missing the boat. But it’s very hard to deny that how markets perform, how competitive markets are, how incumbent firms act, will have an impact on innovation.

Although there is increasing evidence that tends to support the benefits of competition for innovation, at least up to a point, I think that we’re still working towards a clearer understanding of the relationship between antitrust and innovation. But I think things are promising and improving for the role that antitrust can play in an innovative industry. Does that mean that we always get it right? Not at all. There are risks of making big mistakes because of unforeseen changes to markets. It is very difficult often to understand what the universe of potential innovators is. It can be difficult to understand what the effect of market structure in a particular industry will be on innovation incentives.

In the full interview, Interview with Howard Shelanski, Director, FTC Bureau of Economics, Professor Shelanski also discusses behavioral economics, International Trade Commission (ITC) injunctions, and cooperation across agencies.