Unraveling the Patent-Antitrust Paradox

Abstract

The intersection of the patent and antitrust laws presents a formidable paradox. The patent laws increase invention and innovation by offering inventors a right to exclude. The antitrust laws foster competition, sometimes through the condemnation of such exclusion. Courts and commentators have struggled with this conflict for generations. To determine whether a company's patent-based actions constitute monopolization, for example, courts have focused on rebuttable presumptions, the scope of the patent, the intent of the defendant, and the denial of an essential facility.

This Article proposes a new reconciliation of the patent and antitrust laws. It proffers a common denominator by which the laws can be measured and compared: innovation. And it offers a test that courts should apply when evaluating monopolists' patent-based activity under Section 2 of the Sherman Act. The test takes the form of a rebuttable presumption that proceeds in three steps: (1) a presumption that, as long as the monopolist has a justification for the patent-based action other than harming competitors, the conduct is lawful; (2) a rebuttal if competition (and not patents) is responsible for innovation in the industry; and (3) a surrebuttal by which the monopolist can demonstrate that the relevant market in the industry is characterized by innovation.

The centerpiece of the analysis is the rebuttal, which evaluates three ex ante factors (the presence of market-based incentives to innovate, the ease of creating the patented product, and the difficulty of imitating the product) and the ex post factor of the cumulative nature of innovation in the industry. If both the ex ante and ex post factors reveal the primacy of competition in attaining innovation in an industry, then the rebuttal will be met. The Article concludes by applying the test to three hypothetical patentee monopolists: the Bully Monopolist, the Biopharmaceutical Patentee, and the Internet Auctioneer.

Keywords: Innovation, patent, antitrust, industry, monopoly

JEL Classification: L4, K21, O3, O31, O34