Mandatory Infringement

Abstract

In 2005, the Food and Drug Administration required the use of CFC-free propellants in albuterol inhalers. But 3M held patents on the only U.S.-approved CFC-free inhaler. The FDA's regulations forced multiple generic albuterol manufacturers to choose between infringing 3M's patents and exiting the market. This state of affairs was lucrative for 3M, perhaps good for the environment, bad for competition, and terrible for patients faced with high costs for essential medical devices.

This is an example of a general phenomenon: mandatory infringement. Intellectual property prohibits certain activities, but sometimes the government also mandates these very same activities. Such situations arise surprisingly frequently in fields including environmental protection, pharmaceutical labeling, information technology, and access to justice. The manifest injustice of regulatory law requiring what IP law disallows has sparked vigorous debates over individual cases in all these fields. Yet there has been no unified treatment of how the law should address mandatory infringement. Courts and scholars have taken approaches that are scattershot, idiosyncratic, and even inconsistent with each other.

The key to fixing mandatory infringement is understanding why it is a problem in the first place: competition. Mandatory infringement creates outsized market power due to an inverse relationship between regulation's and IP's effects on competition. It further induces passing the buck between regulators and courts, incentives to rent-seek rather than innovate, and government offloading of IP costs onto regulated entities that produces a principal–agent disconnect. These phenomena explain why regulators and courts applying antitrust or IP laws have difficulties resolving mandatory infringement. Although they try hard to reach fair outcomes and often succeed, the distinctive aspects of mandatory infringement and authorities' failure to recognize them frequently have left unjustified market dominance intact. A new approach is required: a trans-substantive doctrine that excuses mandatory infringement, not tied to specific legal regimes but broadly encompassing matters of competitive markets and public welfare.

Keywords: patents, copyrights, intellectual property, regulation, administrative law, drug patents, product hopping, interoperability, standards development organizations, competition, antitrust, market power

JEL Classification: K21, K23, K32, O32, O34, O38