IP Misuse as Foreclosure
53 Pages Posted: 21 Sep 2009 Last revised: 28 Dec 2013
Date Written: October 27, 2010
It is both curious and deeply troubling that, in an age of intellectual property expansionism, the doctrine most explicitly concerned with limiting IP overreaching has no defensible basis in IP policy. “Misuse” relates to the IP holder’s use of licenses and other arrangements to obtain rights “beyond the scope” of a statutory IP grant, but the doctrine has not established adequate principles for identifying the practices that should be condemned.
The misuse doctrine evolved in patent law and concerned the tying of patented and unpatented goods. Courts held that such tying violated federal patent policy by expanding the statutory monopoly to include a second product not covered by the patent claims. Since then, misuse has expanded to cover many other practices and also into copyright law, reaching to package licensing of related patented or copyrighted goods, restraints on a licensee’s ability to produce competing technologies, and requiring royalty payments beyond the expiration of the patent or copyright term. Much of the case law has embraced an antitrust standard for misuse, which is fairly coherent but is not faithful to core IP values of promoting innovation and protecting access to the public domain. These defects in misuse doctrine are particularly problematic given the nature and severity of the penalty. A finding of misuse renders the IP right unenforceable until the misuse is “purged.” One must therefore question whether the benefits of remedying misuse outweigh the social costs of foregone IP enforcement.
This article argues that misuse doctrine has been shooting at the wrong targets. Many cases applying an antitrust standard for misuse emphasize market power in the primary (typically, patented) product as the key component. These decisions incorporate exaggerated concerns about “leverage” and avoid the issue that should be their focus, which is foreclosure of competing technologies or the public domain. Other decisions emphasize attempts to expand IP rights beyond their statutory scope; however, every license goes beyond literal IP scope, and the decisions provide no calculus for distinguishing permissible from impermissible expansion. This paper argues that if misuse is really to be used as an instrument of IP policy and is to be confined to those practices that are serious enough to warrant its severe remedy, misuse should be focused on foreclosure. That is, misuse should be found where the IP holder engages in a practice that unreasonably forecloses competition, future innovation or access to the public domain.
Keywords: patent, copyright, intellectual property, misuse, antitrust, tying, package licensing, innovation, competition, foreclosure, leverage
JEL Classification: K21, K12, O34, K42
Suggested Citation: Suggested Citation