Patent Holdup, Antitrust and Innovation: Harness or Noose?

Abstract:     
This essay reviews Michael Carrier’s analysis of antitrust and standard setting in his new book: Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law. While Innovation for the 21st Century offers a balanced and informative summary on patent holdup, we find that Carrier’s treatment of antitrust and standard setting avoids too many of the critical policy questions. One critical and emerging issue in this area, and one Professor Carrier largely ignores, is the use of Section 5 of the FTC Act to govern the standard setting process, as in In re N-Data. We explore and highlight some of the critical legal and economic issues associated the use of Section 5 in the patent holdup context, the standard courts should apply to this conduct under Section 2 of the Sherman Act, and the fundamental issue of whether innovation and economic growth would be better served by relying on contract and patent law rather than antitrust. We conclude that it is highly unlikely that optimal regulation of standard setting activity includes the creation of perpetual contractual commitments backed by the threat of antitrust and state consumer protection remedies, without rigorous economic proof of substantial consumer injury that cannot be reasonably avoided. In our view, the current state of affairs described herein presents a critical threat to standard setting activity and innovation.

Keywords: copyright, deceptive conduct, Dell, discovery, Federal Trade Commission, invention, monopolization, monopsony, Rambus, SSO, Unocal

JEL Classifications: 034

Accepted Paper Series