Intellectual Property Rights and Market Power in the European Union: The Fil Rouge of Consumer Welfare

Abstract:     
Intellectual property rights are commonly defined as exclusive rights in the sense that they vest only some people, usually creators or inventors, with the exclusive right to dispose of their intellectual works. Such a definition, however, is often misunderstood and IPRs are intended as a sort of guarantee towards the recoupment of the expenses incurred in the inventive or creative activity. On the contrary, intellectual property rights come with intrinsic limitations. First of all, their duration is limited. Secondly, the faculties granted to inventors or creators bear limitations and they do not confer an absolute control over their intangible creations. In fact, several tradeoffs exist within intellectual property paradigms, which make the protection conditional on the fact that the intangible knowledge comes immediately to the enrichment of society at large. Because commentators, generally economists, use to refer to intellectual property rights as monopolies, there is a widespread misleading belief that patents and copyrights entitle the author to obtain a monopoly in the economic sense.

This is very far from reality. IP paradigms vest inventors and creators with a set of exclusive rights, but such rights do not grant absolute control over their intangible works, nor monopoly power in the economic sense. Conversely, authors are vested with a degree of market power severely constrained by the presence of substitute products.

In general, only where peculiar economic factors – such as network effects – intertwine with IPRs, does the market power grow and IP become a potential tool for exclusionary strategies.

In such circumstances, often the product covered by IPRs gains an essential position on the market so that IP-owners, by foreclosing its access, can exclude actual and potential competitors.

In these exceptional cases, antitrust intervention is necessary, because competition is restricted, but even the whole innovative process risks being hampered, to the detriment of consumer welfare, which should be the fil rouge for dealing with the liaisons dangereuses between IPRs and market power.

Number of Pages in PDF File: 26

Keywords: Intellectual Property Rights, Antitrust, Market Power, Patent, Copyright, Trademark, Consumer, Welfare, Monopoly, Network Effect, Lock-In, Switching Cost, Enforcement

JEL Classification: K00, K10, K12, K21

Accepted Paper Series