Unique Works/Unique Challenges at the Intellectual Property/Competition Law Interface

Abstract:     
Competition law has significantly relaxed its position on intellectual property, giving rightholders greater flexibility to make licensing decisions. The new attitude can be partly attributed to increased appreciation of the rationality of actors and partly to the realization that usually, patented inventions have substitutes, that copyrighted material can be re-produced through independent creation, and that these alternatives constrain rightholders' abilities to set high prices or limit output.

This paper argues that these analytical approaches are now too readily applied. There are advances protected by intellectual property laws that are unique or that can, through market or government forces, become unique. Examples include human genome sequences and popular computer operating systems. Obviously, assumptions of substitutability do not hold for these works. More subtly, the forces that create uniqueness can undermine assumptions about rational exploitation. The further upstream a discovery lies, or the more complex the protected system is, the more difficult it becomes to conceive of all its possible applications, especially those remote from the rightholder's field of expertise. Those who have that expertise may be barred by the right from gaining enough hands-on experience with the invention to understand how they could use it, or they may lack the motivation to invest in determining whether a particular research strategy is, in fact, workable. Thus, there is significant danger that rights in these works could impede innovation and impair consumer welfare.

These observations have several implications. Most significantly, they suggest that greater scrutiny should be given to refusals to deal and licensing should be required in some circumstances. Although compulsory licensing can diminish incentives to innovate, that concern is overblown in this context. To the extent that potential licensees work in areas where the rightholder lacks information, the right holder would not have reaped the rewards of innovating anyway. In effect, a licensing requirement uses the superior knowledge of the potential licensee to correct mistakes caused by the imperfect rationality of the right holder. Enforcement, in short, solves the information asymmetry problem that would otherwise frustrate efficient innovation.

Keywords: antitrust, competition law, intellectual property, licensing, refusals to deal

JEL Classifications: D23, K11, K21, L14, L41, O31, O34

Accepted Paper Series