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Patents and Antitrust: Application to Adjacent Markets

26 Pages Posted: 10 Sep 2007 Last revised: 28 Dec 2013

Nicholas Economides

New York University - Leonard N. Stern School of Business - Department of Economics

William N. Hebert

Calvo & Clark LLP

Multiple version iconThere are 2 versions of this paper

Date Written: March 2008

Abstract

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

Suggested Citation

Economides, Nicholas and Hebert, William N., Patents and Antitrust: Application to Adjacent Markets (March 2008). NET Institute Working Paper No. 07-07; NYU Law and Economics Research Paper No. 07-33; NYU Working Paper No. 2451/26054 . Available at SSRN: https://ssrn.com/abstract=1013226 or http://dx.doi.org/10.2139/ssrn.1013226

Nicholas Economides (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

44 West 4th Street
New York, NY 10012
United States
212-998-0864 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/networks/

William N. Hebert

Calvo & Clark LLP ( email )

One Lombard Street
2nd Floor
San Francisco, CA 94111
United States

HOME PAGE: http://www.calvoclark.com/

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