Abstract:
The United States antitrust approach to intellectual property has evolved over time. The same antitrust analysis now applies to conduct involving IP as to conduct involving other forms of property, taking into account the specific characteristics of the particular property right.
However, there have been significant calls recently for findings that infringements suits and licensing conduct by patent assertion entities (PAEs) labeled “patent trolls” and holders of standard essential patents (SEPs) generally are monopolization or attempts to monopolize that violate Sherman Act §2, 15 U.S.C. §2. This paper argues that the basic principles of keeping in mind history and context, and general antitrust principles, apply equally to SEPs and PAEs as to other economic phenomena.
- Introduction
The interaction of intellectual property rights laws and antitrust laws has been the subject of much debate over the years. The United States antitrust approach to IP has evolved over time. Earlier, there was an assumption that the IP laws were intended to create and did create monopolies, so that effectively IP was exempt from the antitrust laws. Later, there was a view that that there is an inherent conflict between IP laws that grant “monopolies” and antitrust laws that prohibit monopoly. Because an IP right was assumed to confer upon the holder some monopoly, and is an exception to the prohibition against monopolies, there was a focus on ensuring that the exercise of IP rights was strictly within the scope of the rights, and ancillary restraints in IP transactions were generally viewed as outside the scope of IP and therefore an abuse of monopoly power and violation of the antitrust laws. As a result, practices relating to IP licenses such as tying, grantbacks, exclusive dealing and package licensing were commonly considered antitrust violations.[1]
The IP laws and the antitrust laws are now commonly viewed as complementary. Both value innovation, competition and consumer welfare. The view is that the IP laws do not necessarily confer monopolies, but confer only the right to exclude others from the areas covered by the IP. Under U.S. law there is the fundamental right unilaterally to exclude others from the scope of the IP.[2] In actuality, most patents are either never put into practice, or, if practiced, do not convey any market power at all.
Under current U.S. law, the same antitrust analysis applies to conduct involving IP as to conduct involving other forms of property, taking into account the specific characteristics of a particular property right. IP rights are considered to be a form of personal property rights.[3] There is no presumption that IP creates market power. The Patent Act makes that clear in the context of patent law,[4] which requires a demonstration of actual market power before patent misuse may be found.[5]
The Supreme Court’s decision in Illinois Tool Works Inc. v. Independent Ink, Inc.,[6] a tie-in case, extended that principle to the antitrust context. The Supreme Court reviewed its earlier cases involving tie-ins, and noted that it had moved away from assumptions of market power to requiring proof of actual market power in tie-in cases generally. It also noted that the presumption of market power in a patent arose in the patent misuse context and later was adopted in antitrust cases. However, since those decisions, Congress amended the Patent Act to eliminate that presumption in patent misuse. In light of the change in the patent law, and the evolution of the thinking in the antitrust law in non-patent contexts, the Supreme Court concluded that there needs to be evidence of actual market power rather than a presumption of market power in a patent in a tying case involving that patent. It rejected a rebuttable presumption of market power. Moreover, as in other areas of the economy, the mere fact of monopoly power, even if from the holding of IP, is not an antitrust violation.
However, in recent years, there have been significant calls for findings of antitrust liability against holders of standard essential patents (SEPs) and patent assertion entities (PAEs) labeled “patent trolls”, arguing that infringements suits and licensing conduct by PAEs and SEPs holders generally are monopolization or attempts to monopolize that violate Sherman Act §2, 15 U.S.C. §2.
This paper considers the question of the appropriate approach under the antitrust laws to SEPs and PAEs, and argues that basic principles apply equally to SEPs and PAEs as to other economic phenomena. Basic principles in this context are generally the principle of keeping in mind history and context, and general antitrust principles. This paper first considers each of these aspects before addressing the appropriate specific antitrust approach to SEPs and PAEs.
- History and Context
In the 128 years since the 1890 enactment of the Sherman Act,[7] the basic U.S. antitrust statute, the U.S. has accumulated vast experience with competition law and policy enforcement. The U.S. enforcers dealt with challenges ranging from breaking up immense cartels that dominated the U.S. economy, such as the legendary Standard Oil trust[8] at the turn of the 20th Century, to reverse payments in patent settlements[9] and the activities of PAEs[10] today. The understanding and application of the law have evolved significantly over 128 years in light of this experience, including in the IP context.
The context of the state of a country’s economy affects its law, including competition law. Many of the early, key U.S. Supreme Court decisions interpreting the Sherman Act and laying the foundations of U.S. antitrust law involved huge cartels that affected substantial portions of the U.S. economy, such as the Standard Oil trust,[11] the railroad trust,[12] and the meat packing cartel[13]. These are cases that may be unlikely to occur today in the U.S., substantially precisely because of this early law enforcement and because of changes in the U.S. economy in the last 120-plus years.[14]
This interplay between changes in the economy and the evolution of the antitrust law may be playing out in jurisdictions around the world, perhaps especially at the IP-antitrust interface. Certainly the balancing in the U.S. between fostering innovation and ensuring public access to innovation, and the approach of U.S. antitrust law to IP, has evolved over time. Some of the evolution occurred perhaps as a result of the shift of the U.S. from being primarily an IP-taker in the 18th and 19th Centuries, to significantly an IP-giver today. Some of this evolution can be seen in other jurisdictions, currently perhaps even in China.[15]
A reflection of the importance of context may be the following anecdote: A renowned U.S. antitrust professor was invited to speak at the celebration of the fifth anniversary of the enactment of a country’s first competition law. Two of the questions that the professor was asked were: (1) how do you protect your witnesses in competition law cases; and (2) how do you prevent your judges from being bribed. These two questions were beyond the learned professor’s experience, and he had been an antitrust practitioner early in his career. The questions are likely beyond the experience of U.S. antitrust practitioners today generally. On the other hand, it is unclear that the questions would have been beyond the experience of antitrust practitioners in the U.S. 120 years ago.
These may be situations of where one stands, depends on where one sits. The positions one takes depend on one’s particular circumstances. The challenge is to distinguish when the positions may be based on shaky principles, and when the positions may appear to have immediate benefits but will have serious long-term costs.
- Antitrust Principles
In the context of IP, the most common scenarios raising competition law concerns involve the unilateral actions of individual IP holders. These are scenarios of monopolization and attempted monopolization.
After over 70 years of experience under the Sherman Act, in 1966, the U.S. Supreme Court established in its decision in U.S. v. Grinnell Corp.[16] the U.S. test for monopolization, which includes two elements, first, that there is monopoly power in a relevant market, and second, that the power was acquired or maintained willfully as distinct from growing or developing as a result of a superior product, business acumen or historic accident. Therefore, in order for there to be monopolization, or abuse of dominant market position, in the U.S., there needs to be a dominant market position. Conclusions regarding the existence of market dominance should be reached only after a case-by-case factual analysis.
And over 30 years after Grinnell, more than 100 years after the enactment of the Sherman Act, in 1998, the Supreme Court in its decision in NYNEX Corp. v. Discon[17] clarified as to the second element for monopolization in violation of the Sherman Act, that simply having an anticompetitive motive, even if there was fraud that enabled a monopolist to raise prices, is insufficient to constitute a violation of the Sherman Act if there was no harm to the competitive process as a result.
Where there may be insufficient market power for monopolization, attempted monopolization may be found, but only if there are the three elements of the specific intent to destroy competition or achieve monopoly, some exclusionary or anticompetitive conduct pursuant to that intent, and a dangerous probability of success.[18] Therefore, unless there is a dangerous probability that a monopoly will be achieved as a result of the anti-competitive conduct, there is no attempted monopolization in violation of U.S. antitrust law.
These antitrust principles are based on the premise that the goals of competition law are to promote competition, consumer welfare and efficiency. In this framework, competition law is generally...
