IP and Antitrust: Reformation and Harm

Abstract:     
Antitrust and intellectual property law both seek to improve economic welfare by facilitating competition and investment in innovation. At various times both antitrust and IP law have wandered off this course and have become more driven by special interests. Today, antitrust and IP are on very different roads to reform. Antitrust reform began in the late 1970s with a series of Supreme Court decisions that linked the plaintiff’s harm and right to obtain a remedy to the competition-furthering goals of antitrust policy. Today, patent law has begun its own reform journey, but it is in a much earlier stage. The outlook for copyright law is much bleaker.

The main component in these reforms has been the development of a concept of harm that is related to the underlying goal of legal policy. In its 1977 Brunswick decision the Supreme Court largely ignored the language of an expansive antitrust damages provision that gives private plaintiffs treble damages for every injury caused by an antitrust violation. Rather, the Court said, the type of harm must be sufficiently related to the goals of the antitrust laws, which is to make markets more competitive. We propose a concept of “IP injury” that limits IP remedies to situations in which the IP holder has suffered actual harm sufficiently linked to the purpose of IP law, which is to incentivize innovation. An infringement that benefits the infringer and does no cognizable harm to the IP right holder or anyone else is a pure Pareto improvement – something that can be said of few involuntary transactions. The trick for legal policy is to determine when the IP holder has not suffered any cognizable harm. This analysis requires a re-examination of IP externalities, or spillovers, where IP should follow the antitrust lead in permitting the market to correct for them, intervening only where the inability to recover for an external benefit has a material impact on ex ante incentives to innovate. It also requires a re-examination of patent holdup and remedies. We propose rules that reward the relevant actors for either giving or obtaining timely notice. As in the case of antitrust, reformation of IP’s theory of harm must likely come from the judiciary and not from Congress.

Keywords: Antitrust, Monopoly, Patents, Regulation, Copyright, Intellectual Property

JEL Classifications: A12, K2, K10, K21, L4, L41, L43

Working Paper Series