Antitrust Risks And Compliance Strategies In Intellectual Property Portfolio Management

This article analyzes how intellectual property portfolio management can simultaneously promote innovation and present potential antitrust exposure. Strategic creation, acquisition, and deployment of IP assets often enhance a firm's competitiveness, yet certain practices may provoke scrutiny from antitrust enforcement agencies or private litigants, potentially leading to significant monetary or structural remedies. The article provides a concise framework for understanding how companies can pursue the commercial value of their IP while mitigating antitrust risk through straightforward, cost-effective safeguards.

I. Introduction

Intellectual property ("IP") portfolio management refers to a company's approach to advancing corporate goals by creating, acquiring, maintaining, and leveraging intellectual property. While effective IP management can foster innovation and provide a competitive edge, it can also raise antitrust risks in certain scenarios. Potential consequences include agency investigations, private lawsuits (with "treble damages"), forced divestitures, compulsory licensing, and behavioral restrictions.

This article explores the potential procompetitive benefits and anticompetitive concerns associated with IP portfolio management (Section II). It walks through the circumstances under which a company with a meaningful IP portfolio management strategy might encounter antitrust scrutiny, starting with how the antitrust enforcement agencies and courts assess market/monopoly power and a relevant market (Section III). Following this, the article discusses specific actions that could trigger concerns (Section IV) and "safety zones" insulating certain IP licensing practices from government enforcement (Section V). By evaluating these strategies, companies can identify and mitigate antitrust risks with straightforward, cost-effective measures. ²

II. Procompetitive Benefits and Anticompetitive Concerns With IP-Related Activity

The antitrust laws recognize that companies build broad IP portfolios for legitimate reasons, which can result in lower prices for consumers, enhanced output, and increased innovation. ³ Specifically, a robust IP portfolio can incentivize innovation by allowing companies to (1) exercise temporary exclusive rights to recoup investments without worrying about third parties free-riding off of their efforts; and (2) obtain assurance that they can legitimately commercialize their products without infringing IP rights held by third parties.

Despite these benefits, IP portfolios can raise competition concerns if the portfolios are used to block competitors from entering a market or innovating, rather than to protect genuine innovations. In particular, suggestions in a company's ordinary-course documents that it is acquiring and managing its IP to build a "competitive moat" or "barriers to entry" can be perceived as an intent to block competition. For the thoughtful IP portfolio manager, it is critical to ensure that the company's IP strategy is aligned with competition law by recognizing when these strategies risk crossing from legitimate protection into unlawful exclusionary or predatory conduct.

III. Does the Company Have Monopoly Power in a Relevant Market?

A. Market and Monopoly Power

The antitrust laws are primarily concerned with preventing market actors from engaging in abusive practices that ultimately harm consumers by raising prices, lowering output, or diminishing innovation. ⁴ Accordingly, assessing whether a company's IP portfolio management practices raise potential antitrust concerns generally begins with determining whether the company possesses sufficient economic power within a properly defined "relevant market."

Where the conduct in question involves an "agreement" or other multi-party coordination (such as a licensing agreement), antitrust concerns may arise if one of the parties has "market power" within a defined "relevant market." ⁵ "Market power" refers to the ability to raise price "above the levels that would be charged in a competitive market." ⁶ Merely owning an IP right by itself does not necessarily equate to having market power. ⁷ Although the assessment is highly fact-intensive, courts generally treat higher market shares as supporting an inference of market power, with Supreme Court precedent indicating that a share on the order of at least 30 to 40% in the relevant market is ordinarily required before market power is found. ⁸

But where a single company acts "unilaterally," the antitrust laws generally require the company to have "monopoly power" (or a "dangerous probability" of acquiring monopoly power) within a relevant market. Monopoly power refers to a significant and durable enough market power "to control prices or exclude competition." ⁹ As with market power, determining whether a firm holds monopoly power is complex, but generally speaking, it typically requires something above (or well above) a 50% share. ¹⁰

B. Relevant Market

The "relevant market" refers to the "area of effective competition, comprising both product (or service) and geographic elements" where a single seller could potentially raise prices significantly without losing customers to other products or services. ¹¹ Defining this "relevant market" is crucial not only for calculating market share but also for understanding the competitive effects of a firm's conduct. Traditionally, markets were defined around "goods"'that is, involving a particular consumer product or service. ¹² For such a "goods" market, authorities may investigate whether a company's IP practices unreasonably raise the costs or lower the output of those goods, or slow the development of more innovative goods, with no offsetting benefit.

When it comes to IP practices, authorities may also consider adopting narrower relevant markets, increasing the possibility that a firm has a dominant share (and therefore monopoly power) in that market:

• Technology Markets: IP that is licensed ("licensed technology") and its close substitutes may potentially be considered its own relevant market. These markets exist when rights to IP are traded separately from their end product or service, as opposed to simply licensed, sold, or transferred as an integral part of the underlying end product or service. In such situations, a licensing arrangement can significantly impact competitive conditions by granting or inhibiting access to the licensed technology or close substitutes ¹³
• Research and Development Markets: Research and development ("R&D") of products and processes intended for future commercialization may constitute a relevant market in its own right, even in the absence of a currently marketed product or service. Prominent examples include molecules antibodies, and other therapeutic candidates undergoing pre-clinical or clinical-stage testing for their effects on specific diseases or physiological conditions. In such cases intellectual property can either stimulate or constrain innovation by influencing the direction and pace of R&D activity ¹⁴ For instance, if there are six biotech companies focused on developing treatments for a certain kind of cancer but only three are investing in cutting-edge gene-editing technology to develop new therapies, the DOJ or FTC might contend that the relevant market is for R&D in gene-editing treatments for that cancer, which has only three active players. R&D markets can play important roles when assessing the antitrust implications of patent license agreements, particularly if a license to the patent will prove critical to any future innovation.

IV. IP Practices Potentially Triggering Antitrust Scrutiny

A. IP Prosecution and Acquisition

Patent prosecution and acquisition activities, which involve the strategic use and accumulation of patents by a rights holder, have increasingly drawn antitrust scrutiny. Practices in this area that have attracted antitrust attention include the following:

1. Patent Thickets

"Patent thicketing" is the practice of building dense networks of overlapping patents around a core product or technology. Antitrust concerns arise when a company develops a large, overlapping portfolio of patents to hinder competitors from entering the market. The risk is especially acute where potential entrants must negotiate licenses for dozens or even hundreds of patents, including patents with minimal commercial value.

For example, Intel in 2019 alleged that Fortress Investment Group acquired a "massive ... portfolio of patents" for the purpose of seeking...