Restraints on Innovation

Abstract

Beginning with the work of Joseph Schumpeter in the 1940s and later elaborated by Robert W. Solow's work on the neoclassical growth model, economics has produced a strong consensus that the economic gains from innovation dwarf those to be had from capital accumulation and increased price competition. An important but sometimes overlooked corollary is that restraints on innovation can do far more harm to the economy than restraints on traditional output or pricing. Many practices that violate the antitrust laws are best understood as restraints on innovation rather than restraints on pricing.

While antitrust models for assessing losses that result from reduced output and higher prices are fairly conventional, the losses that accrue from innovation restraints are very difficult to predict. In general, as an innovation project progresses further along and the resulting product or process comes closer to marketability, the effects of an innovation restraint become easier to assess. But many restraints on innovation occur long before we can make a reliable prediction about whether a viable product or process will result, and whether it will be a market success. In these situations one cannot rely on private antitrust enforcement, given the strict antitrust requirements for proof of harm, causation and damages. By contrast, the federal government agencies acting as enforcers have authority to restrain antitrust violations even if relevant private harm and damages cannot be proven. As a result, antitrust challenges to innovation restraints should be of greater government concern.

Keywords: antitrust, intellectual property, innovation, private enforcement, restraints, Sherman Act