Buying Monopoly: Antitrust Limits on Damages for Externally Acquired Patents

35 Pages Posted: 23 Apr 2016 Last revised: 23 Feb 2018

See all articles by Erik Hovenkamp

Erik Hovenkamp

USC Gould School of Law

Herbert Hovenkamp

University of Pennsylvania Law School; University of Pennsylvania - The Wharton School; University College London

Date Written: 2017

Abstract

The “monopoly” authorized by the Patent Act refers to the exclusionary power of individual patents. That is not the same thing as the acquisition of individual patent rights into portfolios that dominate a market, something that the Patent Act never justifies and that the antitrust laws rightfully prohibit.

Most patent assignments are procompetitive and serve to promote the efficient commercialization of patented inventions. However, patent acquisitions may also be used to combine substitute patents from external patentees, giving the acquirer an unearned monopoly position in the relevant technology market. A producer requires only one of the substitutes, but by acquiring the combination it can impede product market rivals by limiting their access to important technological inputs. Similarly, a patent assertion entity may acquire substitute patents to eliminate inter-licensor competition, enabling it to charge supra-competitive license fees, much like a merger or cartel. For example, by acquiring two or more substitute patents that collectively dominate a market a PAE can effectively monopolize the technology for that market. Such anticompetitive practices are regularly condemned in conventional product contexts, but the courts have not yet applied the same antitrust logic to patent markets. And they passively encourage anticompetitive patent acquisitions by awarding large damages when such patents are infringed.

We propose that infringement damages for an externally acquired patent be denied if the acquisition served materially to expand or perpetuate the plaintiff’s dominant position in the relevant technology market. By weakening enforcement, this limits the patent holder’s ability to use such acquisitions to anticompetitive ends. We do not suggest that a dominant patent holder should be prohibited from securing external patent rights in the relevant technology market, but simply that it should obtain them through nonexclusive licensing, not transactions that restrict third party access. This is as valuable to patent policy as it is to antitrust, for it will tend to increase innovation by discouraging systematic monopoly in technology markets.

Keywords: patents, antitrust, acquisitions, monopolization, patent assertion entities, damages, remedies

Suggested Citation

Hovenkamp, Erik and Hovenkamp, Herbert, Buying Monopoly: Antitrust Limits on Damages for Externally Acquired Patents (2017). Texas Intellectual Property Law Journal, Vol. 25, P. 39, 2017; U of Penn, Inst for Law & Econ Research Paper No. 17-30. Available at SSRN: https://ssrn.com/abstract=2767098 or http://dx.doi.org/10.2139/ssrn.2767098

Erik Hovenkamp

USC Gould School of Law ( email )

Los Angeles, CA 90089
United States

Herbert Hovenkamp (Contact Author)

University of Pennsylvania Law School ( email )

3501 Sansom Street
Philadelphia, PA 19104
United States
319-512-9579 (Phone)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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