Patents and Antitrust: Application to Adjacent Markets
26 Pages Posted: 10 Sep 2007 Last revised: 28 Dec 2013
Date Written: March 2008
We examine the intersection of patents and antitrust where a patent holder uses the monopoly power it possesses in the market for a patented product to exclude competitors in an adjacent market and attempt to monopolize or monopolize the adjacent market. The present scheme for awarding patents cannot judge when the issuance of a patent will lead to the appropriate balance between innovation and economic efficiency. Where a patent holder's invention uses an interface with adjacent products, the patent holder may be tempted to extend its patent monopoly into adjacent markets that depend upon the interface with the patented invention. Economic theory suggests that it is inappropriate to immunize a patent holder from antitrust liability when it attempts to extend its patent monopoly into adjacent markets because it could decrease consumer surplus. Courts have expressed their reluctance to scrutinize a patent holder's innovations and design changes because of the potential benefits of the innovations and their reluctance to second-guess the marketplace. However, applying traditional antitrust principles, courts have found that monopolists could be liable for unlawfully extending their monopoly positions into adjacent markets in the areas of computer peripherals and software applications; aftermarkets for replacement parts, service and maintenance of durable goods; design changes to medical devices; and changes in drug formulas. While the patent laws provide a spur to innovation by granting limited monopoly rights, the antitrust laws curb the excessive reach of these monopoly rights by acting as a check on excessive expansion of the scope of the patent grant. Courts are the only participants in the legal process that have the competence to ensure that patents do not cause economic stagnation and harm by permitting a patent holder to extend its monopoly into an adjacent market. Consequently, courts should be willing to apply antitrust principles to cases involving the monopolization of interfaces through design changes.
Keywords: patents, antitrust, adjacent markets, complementarity, innovation, efficiency, aftermarkets
JEL Classification: K21, Q31, Q34, L42, L40, L12
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