Resolving the Patent-Antitrust Paradox Through Tripartite Innovation

Abstract

The issues presented by the intersection of the patent system and the antitrust laws have never been as pressing as they are today. The number of issued patents is skyrocketing. Companies are more frequently entering into arrangements with competitors not only to recover their investment from creating patented products but also to avoid the patent landmines that line the path of innovation. They form patent pools for laser eye surgery, MPEG-2 video compression technology, and DVD formatting; enter into alliances, mergers, and settlements in the biopharmaceutical industry; refuse to license their patented products in various industries; and cross-license their patents in the semiconductor industry.

But the need for collaborative and exclusionary conduct under the patent system is matched by the heightened suspicion of the antitrust laws. Antitrust looks at these patent-based activities and sees lessened competition, increased price, and reduced output. And it pays scant attention to the benefits of the activity in promoting innovation or the justification for the activity based on the patent system.

This Article resolves the patent-antitrust paradox in three steps. First, it offers innovation as the common denominator of the patent and antitrust laws. Second, it proposes a new explanation that firms can offer in defense of the challenged activity: that it is reasonably necessary to attain tripartite innovation. Tripartite innovation denotes the three temporal stages of innovation: the creation of the product, the recovery of the investment incurred in creating the product, and the circumvention of patent bottlenecks that block the path of innovation. Third, it carves out a greater role for the justification in all aspects of antitrust activity, including mergers, joint ventures, patent pools, licensing, and refusals to license. The approach offered by this Article thus prescribes a more prominent and lasting role in antitrust analysis for the patent system and for the multiple components of innovation.

Keywords: Innovation, patent, antitrust, industry, monopoly

JEL Classification: K21, L40, L41, L42, O30, O31, O34