Competition for Innovation
28 Pages Posted: 22 Feb 2012 Last revised: 29 Dec 2013
Date Written: October 1, 2012
Both antitrust and IP law are limited and imperfect instruments for regulating innovation. The problems include high information costs and lack of sufficient knowledge, special interest capture, and the jury trial system, to name a few. More fundamentally, antitrust law and intellectual property law have looked at markets in very different ways. Further, over the last three decades antitrust law has undergone a reformation process that has made it extremely self conscious about its goals. While the need for such reform is at least as apparent in patent and copyright law, very little true reform has actually occurred. Antitrust has something useful to contribute to innovation policy in three areas. The first concerns the relationship between innovation and market structure. Second is the lesson that IP law can learn from the severe revision in remedies doctrine that antitrust has developed in order to align private antitrust enforcement with antitrust law’s underlying goals. The third concerns the way that antitrust should deal with deficient intellectual property rules that grant far too many rights and defines them in excessively ambiguous or overly broad ways.
Both competition and innovation are highly sensitive to market structure. A vast literature discusses the relationship between market structure and market competitiveness. A equally vast literature is concerned with the relationship between market structure and the rate of innovation. This literature suggests, for example, that patenting works much better in some markets than in others. The optimal length of a patent or copyright varies from one market to another, even though the actual length generally does not. By most measures the rate of innovation also varies with the number of firms in a market. There is probably more empirical literature on the relationship between innovation and market structure than in any field in industrial organization economics. One would never know it from looking at patent or copyright cases or even the IP statutes themselves. While structural issues play a major role in antitrust policy, intellectual property policy very largely proceeds on the assumption that market structure is irrelevant. Justice Breyer's decision for a unanimous Court in Prometheus may have opened the way for more consideration of market specific issues. In addressing a question of patentable subject matter he concluded that the practical effects of general patent rules could require a court to balance "considerations [that] may differ from one field to another."
For private plaintiffs, the analogy between antitrust and intellectual property enforcement is strong. While most antitrust lawsuits are brought by private plaintiffs, that is true of an even higher percentage of IP infringement suits. Private antitrust plaintiffs do not sue in order to promote competition but rather to protect their own interests, which may or may not coincide with competitive outcomes. By the same token, in intellectual property law the plaintiffs are rights holders protecting their own property interests.
Managing competition for innovation is a complex task, made more complex and difficult by deficient intellectual property policies. Although courts are not perfect institutions either, there is a lesson to be learned here. We would probably have a better and more defensible intellectual property system if we left somewhat more to the courts and less to the statutes.
Keywords: monopoly, intellectual property, innovation, patents, copyrights, market structure, capture
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