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Intellectual Property

Competition law, intellectual property rights and dynamic analysis: Towards a new institutional “equilibrium ?”

Frédéric Jenny, Ioannis Lianos, Herbert Hovenkamp, Frances Marshall, and Sivaramjani Thambisetty, Concurrences Journal N° 4-2013, Art. N° 58789, p. 13, November 2013.

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The emphasis put on innovation as the common objective of intellectual property law and competition law, and consequently the shift of focus towards the dynamics of economic change, may well be a leitmotiv in recent policy documents and scholarly comment. By focusing on the strengths and weaknesses of the different enforcement institutions of IP and competition law (courts, patent and trademark offices and competition authorities) in performing the necessary balancing of dynamic and allocative efficiency this special issue takes an original perspective on the interaction between these two areas of law.


Ioannis LIANOS
Director, Center for Law, Economics and Society, UCL

I. Introduction

1. Standards for the intersection between competition law and IP (Intellectual property) rights in Europe and the US have initially taken a formalist perspective [1]. They did not rely on a case-by-case analysis of the economic effects of the interaction between competition law and IP rights on incentives to innovate or on the dissemination of the invention but on a formalistic analysis of the scope of the IP right, its value, its essential function or the intent of the patent holder. Most recently, competition authorities in Europe and in the United States have opted for a balancing approach that examines the effects of a practice on (static) allocative efficiency and dynamic efficiency on a case-by-case basis. These tests, although more economically oriented than the formal standards focusing on the scope of the IP rights, are difficult to apply in practice and may lead to favour competition law over IP rights in most circumstances, essentially because of an alleged institutional advantage of competition law to deal with welfare effects on a case-by-case basis, in comparison to the current state of intellectual property law [2]. Furthermore, the more competition law complements its traditional focus on static allocative efficiency with a concern for dynamic efficiency and innovation, thus integrating dynamic analysis, the stronger becomes its institutional advantage in comparison to IP law with regard to the consideration of the welfare effects of the conduct of the IP right holder. This short paper will first examine the turn of competition law towards dynamic analysis, before exploring its implications with regard to the competition law/intellectual property interaction.

II. Competition law and the turn to dynamic analysis

2. The competition/static allocative efficiency bias of the economic balancing test traditionally performed in competition law has led many authors to suggest a re-orientation of competition law towards "dynamic competition". [3] The concept of “dynamic competition” regroups a number of theories that might be distinguished from the “static competition model.” [4] Jerry Ellig and Daniel Lin outlined the principal strands of dynamic competition law scholarship: (i) Schumpeterian competition does not focus on price and output but on new products, new technologies, new sources of supply, new forms of organization. Possession of market power is found consistent with vigorous competition; (ii) Evolutionary competition acknowledges that firms develop different routines for doing things and that the bundle of routines that best enables undertakings to grow and prosper is selected by the competitive process, which should be left to operate freely (without intervention); (iii) from an Austrian perspective, information about production methods and consumers’ desires is incomplete. Hence, competition is a process by which firms discover new resources and better ways to satisfy consumers; (iv) a path dependence approach would focus on increasing returns and network effects, acknowledging the fact that consumers may be locked in to inferior technologically options and that competition often takes the form of “winner takes it all”; Finally, (v) a resource based perspective will emphasize capabilities in transforming resources to valuable outputs and thus increase profitability [5]. A common characteristic of these different theories of “dynamic competition” is that they all focus on innovation as a key component of the competitive process.

3. Several authors have explored the implications of such dynamic analysis in competition law. Richard Gilbert and Steven Sunshine have argued for the explicit integration of dynamic efficiency concerns in merger control, through the concept of “innovation markets.” [6] David Evans and Richard Schmalensee have noted that “firms engage in dynamic competition for the market, through sequential winner-take-all races to produce drastic innovations, rather than through static price/output competition in the market.” [7] They argued for a competition law analysis in “dynamic industries” that would require explicit consideration of “dynamic competition,” thus making a distinction between competition law applying to the “new economy” or “high technology” and the “old economy”. Christopher Pleatsikas and David Teece have criticized the static analytical frameworks applied in defining markets and measuring market power, noting that the basis for competition in many high technology industries is fundamentally different from that in more mature and stable industries, as there is a much greater emphasis on performance-based, rather than price-based, competition, hence the need for a more “dynamic analysis”. [8] Greg Sidak and David Teece have argued for a “neo-Schumpeterian framework for antitrust analysis that favors dynamic competition over static competition [that] would put less weight on market share and concentration in the assessment of market power.” [9]

4. The concept of “dynamic competition” has been given different definitions. Some have emphasized the time dimension of the concept arguing that “[d]ynamic competition models entail the prediction of future competitive outcomes.” [10] Others, have observed that “dynamic is a shorthand for a variety of rigorously competitive activities such as significant product differentiation and rapid response to change, whether from innovation or simply new market opportunities ensuing from changes in ‘taste’ or other forces of disequilibrium,” [11]. As it was often repeated, dynamic analysis “views competition through a broader lens and focuses less on outcomes and more on process.” [12] This view might require a complete revamp of the way competition law addresses innovation.

5. Michael Katz and Howard Shelanski observed the multiplier effect that innovation may have on efficiency gains. They suggested the consideration of dynamic efficiencies, even if these are not certain, thus breaking with the conventional hostility of competition law to efficiency gains that are not certain, by advancing an expected value approach that would account both the magnitudes and probabilities of potential, merger-related efficiencies [13]. Competition authorities and courts should use a decision-theoretic approach under conditions of uncertainty, which would select the course of action that yields the highest expected payoff, “where the expected value of taking an action is equal to the payoffs associated with the different possible outcomes that can follow from that action weighted by the probabilities that those outcomes will occur if the action is taken.” [14] Such an approach would require the decision-makers to base their judgment on a larger set of evidence about how competition is evolving in the specific industry. Jonathan Baker has also suggested an industry-specific approach in competition law enforcement by arguing that competition law authorities should target enforcement to appropriate industries: “winner-take-all markets” or markets where future product competition remains unaffected by current product market competition, as a result of pending technological change, growing demand or regulatory intervention [15].

6. Other authors have challenged the view that competition law analysis is static and does not accommodate dynamic competition concerns. Cal Shapiro criticized the view that innovation and dynamic competition concerns should lead competition law to be extremely cautious of imposing limits on the conduct of dominant firms or prohibiting mergers in dynamic industries, noting that today’s market leaders may be able to maintain or extend their dominance while slowing the pace of innovation and arguing that competition doctrine does not actually focus on static analysis [16]. More recently, Gans argued that static analyses are not misleading and can be a good proxy for dynamic effects, with the exception of cases where the predominant mode of commercialization by innovative entrants is via cooperation rather than competition with incumbent firms, in which case both static and dynamic analyses should be combined [17].

7. Joshua Wright has expressed doubts as to the state of current theoretical apparatus and empirical evidence in competition law to conduct the complex trade-offs required by dynamic competition law analysis [18]. Drawing on previous work by Harold Demsetz [19], Wright highlights the complexity of the task of weighing effects on the several dimensions of competition that might be affected by a specific conduct. In some cases one dimension of competition (e.g. price) is negatively correlated to another (e.g. new products, innovation or quality) and this negative correlation means that a policy selecting the optimal mix of competitive forms requires knowledge of the “technical rates of substitution between these forms in order to covert different forms into common units of consumer welfare.” [20] However, as Wright notes, competition law analysis “does not provide an analytically coherent method to equalize measures of intensity, efficiency or consumer welfare.” [21] Wright argues against presumptions of anticompetitive effect in this context and an overall guiding principle of deference to the competitive process, in the absence of clear and convincing evidence of substantial consumer harm [22].

8. It follows that although there is some disagreement over the adequate methodologies to be followed for the incorporation of innovation and “dynamic competition” in competition law analysis, most competition scholars would agree that competition law should not only focus on static welfare effects and that it should also take a more dynamic approach. Some would favour an adjustment to the existing tools, by paying more attention to possible dynamic anticompetitive effects and taking more into account dynamic efficiency gains, eventually biasing the economic balancing process in favour of dynamic efficiency considerations. Others would encourage a tailored-made approach to “dynamic competition” by developing new concepts and tools [23], such as innovation markets and an innovation-centred competition law [24].

9. It is important here to note that whichever approach with regard to the integration of “dynamic competition” is followed, this will have little implications on the relation between competition law and IP rights. In other words, this is a different question than the interaction between “static competition” and “dynamic competition” in competition law analysis. First, there should not be any assumption that intellectual property rights promote innovation, as this depends on the nature of innovative activity in the industry (including the degree of cumulative innovation) or the strength of IP protection, among other factors [25]. If this is true, the fact that competition law focuses on “static competition” only or also on “dynamic competition” is irrelevant, with regard to the interaction between these two areas of law. Indeed, a static competition law analysis might be the least imperfect option, compared to the choice of an IP law that would be indifferent to welfare effects, static or dynamic. Protecting “static competition” seems better than not protecting any form of competition. Second, even if one assumes that intellectual property rights promote “dynamic efficiency” or “dynamic competition,” [26] a rather heroic assumption with regard to the available evidence so far, it is also unclear how that should affect the interaction between competition law and intellectual property rights. If competition law focuses on both dynamic and static efficiency, it would be a far superior instrument than an intellectual property law, which would only focus on “dynamic efficiency,” unless one considers that “dynamic efficiency” weighs more than “static efficiency” and that the methods for incorporating dynamic efficiency in intellectual property law are superior to those available in competition law [27]. However, there is no reason to assume that intellectual property law has developed a superior “technology” than competition law for taking into account dynamic efficiency [28] Consequently, it is only if competition law pursues exclusively “static efficiency” that it would constitute an inferior alternative to intellectual property law, should it be assumed that intellectual property promotes “dynamic efficiency.” Hence, by bringing “dynamic competition” and innovation to the centre of competition law, competition law scholars may finish by transforming competition law to a more effective regulatory instrument than intellectual property in promoting dynamic efficiency.

10. In other words, competition law may dispose of a comparative institutional advantage to intellectual property law, with regard to the promotion of innovation. Yet, one should not reach a conclusion too quickly. Certainly, dynamic analysis has made inroads into merger analysis [29] and is increasingly considered as essential also for the competition law assessment of collusive practices and unilateral conduct. Practically, however, there are only a few instances competition law has managed to take systematically into account dynamic efficiency. There are many reasons for this. First, from an institutional perspective, courts are considered as less able to conduct the sophisticated analysis required in this context [30]. The adjudicative process limits the type of evidence heard by the courts: this should relate directly to the dispute and is brought by the parties to the dispute. This may not include the effect of the specific practice on consumers in unrelated relevant markets, future generations of consumers or the general public. Competition authorities, the dominant enforcement actor in Europe, are better placed than courts to conduct this type of complex polycentric economic analysis, as they dispose of in house economic expertise and the power to investigate different sectors of the economy (through sector inquiries). Second, competition authorities do not dispose of the means, tools and methods to conduct systematic dynamic competition analysis on a case-by-case basis. Authorities operate in an adjudicatory context with strict deadlines and a limited timeline for making decisions. Dynamic analysis is occasionally added after the competition authority has completed a static analysis, but it is not incorporated directly in the economic analysis of the competitive situation at the outset [31]. The use of the tools of dynamic efficiency analysis is not widespread among competition authorities and the data required for doing a more sophisticated analysis are unavailable in most cases.

11. The different presumptions applying in competition law and IP law operate as a second best, less costly, but of course a more prone to errors, option compared to an extended and complex dynamic and case-by-case economic analysis that the current institutional setting may not be able to offer, at least systematically. Consequently, both competition lawyers and intellectual property lawyers should take stock of their own imperfections in their mutual interaction with each other. This leads me to examine ways to improve the interaction between competition law and IP law.

III. The way forward: Improving the interaction between competition law and IP law

12. There are various ways to improve the interaction between competition law and IP law. First, one may conceive some cross-fertilization between the two fields from a substantive law perspective. Competition law may internalize IP values, such as the promotion of incentives to innovate, in competition law enforcement. The call for competition law to move towards a more dynamic analysis focusing on innovation, instead of static allocative efficiency, encapsulates the view that both disciplines should find some common ground, although for competition authorities the starting point remains the assumption that competition promotes growth and innovation [32]. IP law may also internalise competition law values by focusing on access and dissemination [33]. A recent report by the US FTC has also suggested the possibility for the Patent Office (PTO) to “consider possible harm to competition along with other possible benefits and costs, before extending the scope of patentable subject matter.” [34] The Report also noted the necessity of expanding the consideration of economic learning and competition policy concerns in patent law decision-making. These recommendations insist on the importance of trans-disciplinary links between IP and competition law and confirm the thesis that intellectual property and competition law have become or are in the process of becoming a “unified field.” [35]

13. The integration of social science/economics learning in IP decision-making and adjudication, and consequently the consideration of welfare effects, remains however relatively marginal, in comparison to competition law. In the US, the PTO does not dispose of a rule-making function over questions of patentability, its authority being merely confined to the adjudication of disputes of patent validity. Certainly, the 2011 America Invents Act has conferred to the US PTO also the ability to conduct post grant review proceedings, available for a limited period of nine months after a patent was granted or re-issued, a process overseen by the Patent Trial and Appeal Board, but did not confer upon it any rulemaking authority. Courts, in particular the Federal Circuit, have generally been regarded as the dominant institution in the shaping of patent policy in the US [36]. Yet, both the US PTO and the Federal Circuit lack economic expertise and are unable, under the current circumstances, to perform a sophisticated economic analysis of the effect of their activity on innovation, productivity and welfare. Responding to this concern over the lack of economic expertise, the US PTO established in March 2010 the Office of the Chief Economist (OCE), whose function is to initiate and oversee economic analysis in the field of intellectual property protection and enforcement and to feed into the advisory role of the USPTO to the President (via the Secretary of Commerce) and the administration with advice on the economics of intellectual property rights [37]. The research programme set for the first chief economist related to the relationship between economic growth, performance and employment, IP issues in a standard setting context, the economics of trademarks, the economics of the USPTO process and the role of IP in the markets of technology and knowledge. A report on Intellectual property and the US Economy, focusing on specific “IP intensive” industries was published in March 2012 [38]. It is not however clear if the position of the chief economist at the US PTO will evolve to a more permanent position with a more expansive role and scope of intervention in the adjudicative process. This paucity of economic analysis contrasts with the very active role economists have been playing in the academic debates over the economic justifications of IP rights.

14. In Europe, the integration of economic expertise seems more advanced, at least at the institutional level. The European Patent Office (EPO) established the position of a chief economist already in 2004. The chief economist is the executive secretary of the EPO’s Economic and Scientific Advisory Board (ESAB), an institution created in 2011 and composed of 11 patent experts (a mix of economists, social scientists and practitioners), appointed for a period of three years [39]. The Board advises the EPO on the scope and set-up of relevant economic and social studies, provides guidance on related research projects and evaluates their impact. One of the first studies published by ESAB, for example, was on patent thickets, an issue of great concern also for competition law, as we have previously explained. ESAB is also expected to provide “early warning signals” on sensitive developments and issues and to operate as a platform for discussing the role of patents (applications) in the early stage of the innovation process and during application procedures at the EPO, the governance of the patent system and economic and social issues relating to the impact of patents after grant, including “competition matters.” The two first chief economists of the EPO have also published one of the few books in Europe on the economic analysis of the European patent system, integrating a competition perspective [40].

15. The Hargreaves report in the UK identified the lack of economic analysis as one of the major sources of the failure of public policy in this area and the lack of evidence-based policy-making, a point also frequently made in the past by other reviews of the IP system in the UK [41]. Following proposals in 2006 by the Gowers Review, the UK government put in place in 2008 the Strategic Advisory Board for Intellectual Property (SABIP) with the aim to oversee a number of research projects on IP policy topics. However, the SABIP was not part of the IPO and did not contribute to the mainstream IP policy process in any area, resulting to its disbandment in 2010 [42]. The Gowers report also led to the appointment of the first chief economist of the IPO in 2008 and the development of an IP economists unit [Economics, Research and Evidence (ERE)], to which some policy staff who have previously worked for the SABIP were integrated, thus shifting attention upon the economic aspects of IP.

16. The Hargreaves report also included a number of recommendations with the aim to “broaden the IPO’s vision” and to base IPO’s decision-making in evidence and the obligation to “take due account of the impact of the IP system on innovation and growth” [43]. Hargreaves recommended legislative changes that would add new functions to the IPO including (i) “a duty to keep under review the impact of IP and IPRs, and market positions founded on IPRs, on innovation and growth, including adverse impacts on competition and the competitive spur to growth, and to report annually;” (ii) “powers to prepare one off reports on specific areas or cases where there appears to be detriment to competition and consumer welfare;” (iii) “powers to require information to support the exercise of these reporting functions;” (iv) “powers to make recommendations to the competition authorities, and to fund investigations that competition authorities may make as a result, thereby recycling income from fees paid by rights holders in the interests of maintaining healthy and efficient markets, as well as servicing the needs of rights holders and applicants.” [44]

17. Following the Hargreaves Report, the IPO was also asked to issue an annual report on the extent to which its activities have promoted innovation and growth, and, second, to improve its evidence base for policy making, in view of its rule-making functions and in particular to prepare impact assessments quantifying, if possible, the costs of policy changes and integrating in the published impact assessments a summary statement of the impact of the proposed policies on innovation and growth [45]. It remains to be seen how these additional requirements will affect the activity of the IPO and the integration of economic learning.

18. A similar trend for more economic analysis in the IP offices can be observed in other jurisdictions. There are also economists in INPI Brazil, IP Australia, the Canadian office, OHIM, an observatory including economists at INPI France, the Swiss IP office and even in CIPO China. Furthermore, offices in Japan and Germany have close links to academic institutions which are almost as effective in terms of influence. WIPO has also recently strengthened its capability on both economics and statistics.

19. In comparison, the integration of social science research and economic expertise is particularly developed in the area of competition law. In the US, a significant part of the staff of the Antitrust Division of the Department of Justice and the FTC dispose of economic expertise and economists are particularly present in both the adjudicative and the rule-making functions of the authorities. At the FTC, the Bureau of Economics provides economic analysis and support to antitrust and consumer protection investigations and rulemakings. In the EU, a Chief Competition Economist’ (CCE) office, was established in 2003, comprising a team of specialized economists, headed by a Chief economist who is appointed by the European Commission. The CCE’s office fulfills a “support function,” being involved in competition investigations and providing economic guidance and “methodological assistance,” but also exercises a “checks-and balances” function, giving the Commissioner an “independent opinion” before any proposal for a final decision to the College of Commissioners [46]. The Chief economist also coordinates the work of the Economic Advisory Group on Competition Policy (EAGCP), which regroups a number of academic economists who have recognized reputation in the field of industrial organization, proposed by the chief economist and nominated by the Commissioner. The EAGCP prepares opinions on the projected reviews of EU competition law policies and regulations. The Commission’s appointment of a Chief Economist reflects its responsiveness to changes in intellectual climate and economic theory. Many national competition authorities have followed the same path by appointing chief economists and by either establishing specific bureaus of economics or by integrating economists in the different case teams dealing with investigations.

20. A common emphasis on the economic effects of each policy on welfare and innovation may reduce the tensions between these two areas of law. Yet, there are limits as to what economic analysis may offer for the development of a congruent approach to innovation across both fields. The IP system relies on a single set of rules that apply to all industries with relatively minor deviations, which is the result of the choice to limit administrative costs and ensure economies by making rules more general [47]. Defining the optimal scope of the property rights on a case by case basis, taking into account its probable effect on innovation and welfare, might largely exceed the capacities of government authorities in charge of the development of IP law and might be extremely costly, in view of the number of patent applications (to give that as an example) and the limited amount of information at their disposal at the time of the grant of the patent. Empirical studies on the effect of different IP rights on the level of innovation per industry are scarce and not always conclusive. The best that can be done under the current institutional circumstances is to make efforts to integrate economic analysis in the design of optimal IP law regimes and rules, rather than in enforcing the standards of patentability, as it was suggested by the FTC. At the same time, the focus of the economic analysis might be different in the context of an IP office than in that of a competition authority. Although competition authorities increasingly recognize the importance of dynamic analysis and the objective of innovation, they cannot completely abandon static analysis of the effects of a practice on consumers, the latter being considered particularly important if the aim of competition law is to protect consumers from wealth transfers, in the absence of compensating qualitative efficiencies [48]. Competition law and IP agencies dispose of different types of expertise and functions, which are nevertheless complementary, as they enable achievement of dynamic efficiency at the lowest cost for allocative efficiency. There are thus reasons to avoid any significant duplication of tasks between the competition law and the IP authorities. There has nevertheless been some discussion over the integration of the different functions to the same agency or the development of an overarching innovation policy bureau that would coordinate innovation policy across different government bureaus and regulatory agencies (e.g. an Office of Innovation Policy) [49]. There are also examples of the integration of the IP and competition law enforcement in one authority (e.g. INDECOPI in Peru, yet this does not concern the award of IP rights).

21. Second, one may favour an approach focusing on the development of “trans-disciplinary links” between competition authorities and IP law offices [50], but also between executive agencies and the judiciary involved in enforcing competition law and IP law. In the US, it is clear that both the DOJ and the FTC have been particularly active in the area of IP rights. Yet, in recent years there has been some increased cooperation between the Antitrust Division of the DOJ, the FTC and the USPTO. First, a joint workshop on promoting innovation was organized in 2010 by these institutions. Second, the DOJ Antitrust Division and the USPTO have coordinated their action with regard to standard essential patents by adopting in January 2013 a joint policy statement on remedies for standard-essential patents subject to voluntary F/RAND commitments [51]. The joint policy statement addresses whether injunctive relief or exclusion orders in International Trade Commission investigations are properly issued when the patent holder asserts standards-essential patents that are encumbered by a F/RAND licensing commitment and notes that monetary damages, rather than injunctive or exclusionary relief, should be the appropriate remedy for infringement [52]. There have also been proposals for restructuring the relations between the various innovation policy institutions and organizing frequent consultations ex ante between the USPTO and the DOJ/FTC [53].

22. An illustration of this cooperation is that the European Patent Office submitted comments at the European Commission’s Pharmaceutical Sector Inquiry [54], in which the European Commission commented extensively on the EPO’s process and suggested changes. An interesting institutional experiment came out of the Hargreaves report in the UK stressing the importance of competition as a necessary condition for innovation, enterprise and growth. Given the important role of competition, the Hargreaves report suggested the conferral of new functions to the IPO in this area, a proposal the government rejected as it would have jeopardized the independence of the competition authority. However, the competition authority in the UK (the Office of Fair Trading, OFT) agreed in 2012 to sign a non-binding Memorandum of Understanding (MoU) with the IPO putting in place a framework for a strengthened cooperation [55]. Notable features of this MoU are the provisions on the sharing of information on specific complaints, policy proposals or developments of policy and regulation having an impact on IP and competition, common advocacy efforts, regular meetings (at least quarterly to discuss matters of common interest) and procedures for the IPO to refer to the OFT cases raising competition concerns. The appointment of liaison officers or staff in charge of the interaction between competition law and intellectual property in the different authorities may also enhance cooperation and mutual understanding [56].

23. It is important to expand and deepen this cooperation by the constitution of networks of competition authorities and intellectual property offices at a regional or global scale. More importantly, the judiciary should not be left out, in view of the dominant role it has in the interpretation of the standards for benefitting from IP protection and the development of adequate remedies in case of IP infringement. For the time being, there are only few mechanisms to establish cooperation between the DG competition at the European Commission and national courts of the different Member States of the EU (presumably including those in charge of IP law disputes) [57]. Training programmes for judges may also enhance their economic expertise, as well as their knowledge of competition law and IP law principles. The incorporation of social science input (in particular economics) in IP law is a crucial but also challenging endeavor that could eventually lead to less tensions between IP and competition law, although it will not suppress them, in view of the different institutions in charge of enforcement and the tools they employ (mostly property rights for intellectual property law, mostly liability rules for competition law). Evidence-based and influenced policy making in both IP law and competition law may also set the basis for a more intense collaboration between the competition authorities and the IP offices.

IV. Conclusion

24. The interaction of IP rights with the more economically inspired competition law has led to an effort of re-conceptualization of IP rights from an economic perspective, for a long term absent from the day to day activity of the IP offices and courts in interpreting and delimiting IP boundaries in various economic sectors. Patent law has of course been the area of predilection of this more economic approach with an increasing number of economic and empirical studies examining the effect of the IP rights granted to innovation and welfare [58]. This ongoing transformation of IP law is visible in the way the classic opposition in law and economic literature of property rules and liability rules took hold in order to explain the frequent limitations incurred by IP holders on their rights to exclude others from using their invention and enjoining the fruits of their investment by receiving an important compensation in the form of royalties [59]. The property rights analogy challenged, it appeared that the relation between property rules and liability rules for the protection of information forms a continuum: “when an innovator is forced to license its innovative technology, the protection afforded to him degrades from a property rule to a liability rule.” [60] These different efforts of conceptualization of different forms of IP rights denote the challenge of constructing a theoretical framework where the process of innovation does not only include the standalone invention step but also those of cumulative innovation, dissemination and commercialization to the benefit of consumers and society at large.

25. As a result, of a greater recourse to economics in public policy, the IP offices/authorities’ bureaucracy see also its role change, as it is gradually transformed from a structure performing merely tasks of execution, involving a formalistic check of the conditions of patentability by looking to a close evidential environment (defined by the prior art) to a more pro-active technocracy, assuming more often tasks of forecast, knowledge gathering/sharing with regard to the effects of the IP system on economic efficiency, welfare and innovation. The establishment of economic units within the IP authorities and economic and scientific advisory boards illustrates the gradual transformation of IP bureaucracy towards a more regulatory and technocratic mindset. Should they integrate more systematically dynamic economic analysis in their day to day work (through sector studies and empirical work, but also at the ex post grant review process), IP authorities (e.g. patent offices) may develop superior expertise than competition authorities or courts, not only on the innovative nature of the patented technologies but also on the characteristics and conditions of the industry as a whole. This evolution towards a more regulatory IP law framework would, no doubt, alter the balance between the patent and IP offices and the courts.
A regulatory approach to IP will also enable crucial reforms in the way patent offices operate: first, as this has been illustrated by the recent reforms introduced at the USPTO, such as the post grant review of patents, the IP authorities see their adjudicatory powers extended, which at the same time provides an additional forum ex post to challenge the exclusionary effect of patents, by contesting their validity. This may eventually resolve the competition law problems that might arise from the awarded patent within an IP setting [61]. It does also complete the focus of competition law on the abuse of IP rights and the suggested use of advocacy powers by competition authorities with the aim to improve the quality of patenting systems [62]. Second, as the discussions over vesting the USPTO with substantive rule-making authority at the passage of the America Invents Act show, patent offices may potentially become the hub of an innovation centred regulatory nexus, comprising competition authorities, sector specific regulators (e.g. telecom regulator), the food and drug regulatory agencies, among others, with the aim to develop a coherent innovation policy that employs all the legal instruments at the disposal of the State in order to promote innovation to the benefit of consumers and society at large.


Lecturer, Law Department, London School of Economics and Political Science, London

1. The congruence and dissonance between competition policy and patent law is very instructive as it exposes a number of assumptions about the real and perceived function and capabilities of patent law. Innovation policy is a complex mix of technology, investment and market specific impetus [63] and generally there is an accepted distinction between technological innovation and non-technological innovation [64]. A specific point of congruence between competition policy and patent law is the need for and extent of sector-specific legal and economic analysis that gives content to rules of law directed towards technological innovation. In patent law sector specificity is deeply ambiguous and for the most part hidden within the internal workings of the patent system. Some commentators have written about specific ways in which competition policy does feed into patent law [65]. Before addressing specifics, however, it is essential to consider the institutional first principles of patent law comprehensively as they define and constrain the opportunities for reform and are true in some degree of many, if not most, jurisdictions.

I. Incentive to invent or incentive to innovate

2. Invention can seed innovation, but it usually also requires commercial and technological need and the opportunity to transform one into the other [66]. As such, the discovery of an invention and its transformation into innovation are, economically and sociologically, “entirely different things.” [67] In the patent system the blurring of the distinction is particularly pernicious when the need to promote innovation is used as a justification to grant patents for inventions or to dilute patentability criteria so as to increase the possibility of patents on certain categories of inventions that may not hitherto have enjoyed such a possibility. (Although the contrary is also possible, it is unlikely given the difficulty in scaling back property rights, once the possibility exists.) [68]

3. In the first decision by the UK SC, Lord Neuberger in Human Genome Sciences Inc v. Eli Lilly [69] offered that the purpose of the patent system was “to provide a temporary monopoly as an incentive to innovation, while at the same time facilitating the early dissemination of any such innovation through an early application for a patent, and its subsequent protection.” This case has resulted in a slackening of the industrial application criterion of patentability in the context of genomic inventions as a result of which inventions that were unlikely to be held patentable prior to the decision can now expect to get a shot at a patent. The European Commission used the same term “incentive to innovate” when it considered innovation as an objective for both intellectual property and competition law [70].

4. There are a number of strategic drivers of innovation, not all of which depend on exclusive property rights for knowledge or technology management. Levine and Boldrin make a strong case for open competition in the absence of exclusive rights [71]. In some cases, obtaining exclusive rights that are then freely licensed propels innovation [72], and in some other cases private investment has gone into denying exclusivity for all in the hope of even greater innovation—termed “property pre-empting investments” by Merges [73]. It has often been pointed out that it is possible to build competitive advantages in multiple ways that do not rely on patents alone, in some industries more than others. Although we may only have information that is incomplete in many ways, to assume that one needs exclusive property rights in the form of patents in all sectors and in all circumstances is incredibly limiting, and potentially misguided [74].

5. Property rights to inventions are not a proxy for effective “innovation policy.” In the case of emerging technologies like synthetic biology, a loose understanding of the conditions necessary for strategic or responsible innovation can lead to calls for “letting the patent system do its thing and grant patents” as the best way to promote innovation with possible anti-competitive consequences that can take years to reverse [75]. For instance the position eventually arrived at in AMP v. Myriad is a legal position that is as old as the start of genomic research, argued and well reasoned by scientists and legal academics [76]. It has taken the US Supreme Court 20 years to tap into relevant thinking in the field—20 years of never knowing the true cost of the chilling effect of broad monopoly patents granted to genomic DNA.

6. There are other ways in which patents misjudge the nature of innovation. Patents are designed as a winner-takes-all prize given at the end of a competitive race to invent. Rules of priority, recently harmonised between the US and EU systems, and notions of absolute novelty reinforce the aim of rewarding the first to file for a patent application on a discrete invention—claim construction doctrines in both US and European patent law, with some differences, aim to grant the inventor an “effective” (and fair) monopoly over his invention. The patent race institutionalises a specific myth of the single inventor [77] as well as of the “complete invention”—the device, product or process that is capable of being commercialised independent of other devices, products or processes. We know, however, that inventions for the most part are a collaborative phenomena [78], simultaneous or near-simultaneous invention is frequent [79], and technologies that are patented can be one part of a multitude of technology fragments that may need to go into making one viable product or service.

7. Patent statutes are designed to enquire into the conditions and circumstances of “invention”—how many had tried before to find a solution to the particular problem that the invention solves, whether this invention creates a surprising effect, whether there were prejudices in the field preventing or suppressing the invention—questions of this ilk that embellish the right of the winner of the patent race to an exclusive monopoly over his invention. The non-obviousness enquiry, and through it, the inclinations and prejudices of the person skilled in the art is a major preoccupation for decision-makers that forces them to pick and unpick the specific conditions of origination of the invention [80]. Having been preoccupied by the competition and circumstances that precede the point of invention, the patent system has no perspective on the direction of the subsequent process of innovation, any more than it has control over the post-grant behaviour of the winners it has feted.

II. Constricted rationality in the patent system

8. The patent system suffers from foundational pluralism—both utilitarian and deontological, some of which were refined through periods of hostility when the social purpose of these rights faced intense scrutiny. The patent abolitionist movements in Europe (1850-1872) saw values like free international trade and justice for inventors pitted against privilege and monopoly in the form of patents. J.S. Mill supported the patent system as a useful device to wipe out arbitrariness in the pursuit of justice or reward for the inventor; while other supporters, including Lord Stanley, objected to patents as a mechanism that made it “impossible to prevent great injury being inflicted on others.” [81] Even the language used in the 1623 Statute of Monopolies demonstrates plurality of values that need to be balanced [82].

9. Modern-day justifications for the grant of patents are considerably weakened by the puzzle around two potentially incommensurable ideas—the artificial scarcity of information and the generation of information. The patent system creates artificial scarcity in information through the grant of exclusive rights in order to incentivise the further generation of information. Generation of intellectual products, however, does not happen in a vacuum and is a function of accessibility to previously generated information. The dynamic link between information scarcity and generation is a major source of legal disagreements in patent law; and legal doctrine often reflects the effort to find a balance between these two utilities.

10. According to Merges, foundational pluralism, coupled with “maddeningly inconclusive data” about whether society is better off with intellectual property rights than without such rights, gives rise to several optimising behaviours. Ideas about social utility—the purpose behind patent rights—gives way to doctrinal details and discussion of the rights themselves. Coping mechanisms such as “heavily weighing the inconclusive positive data, showing IP law is necessary and efficient, discounting inconclusive data on the other side,” and sometimes, “ignoring the data altogether, or pretending that more solid data were just around the corner” are rife [83].

11. Although normative approaches can be very illuminating minus policy-based touchstones, these free-standing views amount to nothing more than “stage-setters” [84] that give way to institutionalised decision-making processes within open-ended legal doctrines. Such doctrines include the person skilled in the art, obvious to try, construction of claims within a patent application, or resolving whether a disclosed “use” is compatible with existing legal standards of industrial application. Lemley describes a similar scenario of the “fractioning of patent law” where decision-making is broken down into smaller and smaller issues. In the search for a justifiable rationality, patent law engages with the purposes of patent law rarely or not at all.

12. The inability to resolve foundational pluralism coupled with technical uncertainty about inventions and close attention to specific doctrines, and the constant need to make decisions under conditions of uncertainty can severely constrict rationality in the patent system, a process I map out in another paper [85]. Illustrative instances in the context of the interpretation of exclusions in the European Patent Convention (EPC) are numerous. The EPC excludes animal varieties from patentability, but the narrow interpretation of the term by the EPO means that genetically modified animals may be patented. Applicants have only to ensure that the term “animal variety” is not used in the application [86] Similarly, computer programs explicitly excluded in the EPC may be patented as long as the patent description incorporates “technical” components as banal as servers or other general-purpose equipment [87]. Thirdly, most “diagnostic methods” are now patentable provided at least one step in the process of diagnosis is practised away from the human or animal body, which can be readily incorporated into the description of the diagnostic method invention [88].

13. As decision-making heuristics these examples direct the European Patent Office (EPO) away from granting the right kind of patents to merely granting patents. The shift is one that typifies a move away from the plurality of values underlying the patent system towards a kind of rationality that relies on certainty, rather than legitimacy of goals. On a broader level these heuristics signal ever shrinking spaces in which to consider plurality of purpose through a robust weighing-up of costs and benefits. In one illustration involving derivative pharmaceutical inventions the US Court of Appeals for the Federal Circuit (CAFC) examined the patentability of a metabolite of a known substance—the court was concerned that in patenting the original molecule, the metabolite lacked novelty. While the court held that the inherency doctrine is applicable to “accidental, unwitting and unappreciated” anticipation of metabolites of known substances, the court was also at pains to point out claim-drafting techniques that might avoid inherent anticipation (including claiming the metabolite in isolated form and as a pharmaceutical composition) [89].

14. Collectively, the pressure of making decisions under new and complex technological circumstances and the use of these kinds of heuristics are likely to result in isomorphism [90], where adaptive outcomes (such as learning behaviour, coordinated expectations, satisficing and the development of mental maps) [91] become the goal, rather than improving efficiency, performance or striving towards external goals such as a better innovation policy. One obvious example of a driver of isomorphism in international intellectual property law is seen in the TRIPS Agreement, where countries are obliged to implement “normal” tests for patentability criteria such as novelty, inventive step and industrial application. [92] Mimesis itself becomes a benchmark of legitimacy. Provisions such as section 3(d) of the Indian Patent Act defy the norm and are therefore considered illegitimate [93], although this provision can be justified on the basis of other, explicitly stated, objectives of the TRIPS Agreement and its purposive interpretation in light of that country’s own legal history [94].

15. While it may not be possible, or even wise, to examine the pros and cons of patenting specific kinds of subject matter in every case and at every level of litigation, the above examples emphasise that many decision-making heuristics in the patent law, developed largely as a coping mechanism to counter uncertainty or incomplete information, are determinative of the quality of patent law. Constricting rationality shrinks spaces for broad goal-based analysis.

III. Decision-making inefficiencies in patent law

16. Decision-making in the patent system is diffused over several institutions—patent offices, specialist and generalist courts. In a multi-institutional patent system [95] decisions are made through and influenced by a complicated feedback loop between courts, patent offices and users. Each of these institutions has specific proclivities that together impact on the coherent development of legal doctrine. Even if we assume that institutions in the patent system were designed for optimal decision-making, over time they respond to their environment or strike bargains in ways that can restrict current goals or limit future possibilities.

17. The following are three examples of ways in which decision-making can be constrained in the European patent system as a result of institutional complexity. First, there are conflicts between the administrative disposition and quasi-judicial function of patent offices. A good illustration is seen in the self-perception of the EPO’s role based on article 4(3) of the EPC. In Diagnostic methods article 4(3) was interpreted as an administrative mandate to grant patents, rather than to grant patents in light of the statutory framework or even the purpose of patent law [96]. In this case, article 4(3) formed the basis for a very narrow reading of the exclusion of “diagnostic methods,” making it easier to patent appropriately claimed diagnostic methods.

18. Secondly, the constraints of lower specialist courts and greater decision-making resources available to higher generalist courts can lead to different assessments. For instance, the EPO cannot take matters such as competition law, the needs of the single market or European human rights jurisprudence into account, yet its decisions may have great impact on such matters. The European Court of Justice (ECJ) in contrast can take a more purposive approach in interpreting patentability standards (but only those arising from the Biotechnology Directive). In the case of Monsanto v. Cefetra [97] the ECJ relied on a purposive interpretation of article 9 of the Directive [98] to allow the importation of soya meal into the Netherlands, even though this soya meal was “contaminated” with a gene patented in Europe but not in Argentina where the soya meal originated. The ECJ saw the gene as present but inert, rather than being expressed, which is the function for which it was patented in the first place. This view of the scope of a gene patent is radically different from the scope of a chemical product patent that would demand strict liability for infringement. Many patent determinations in this field are routinely made on the basis of analogising DNA to chemical products – a restrictive heuristic that seemingly does not bind an appellate generalist court like the ECJ.

19. There is, however, great opposition within the European patent system to the ECJ. Despite the dramatic opportunity for reform presented by a Unitary Patent Court, a great deal of institutional time has been spent keeping the ECJ out of the administration of the unified patent package. The “mistrust” of the ECJ survives in spite of gains made by the court over the last 60 years in advancing the single market and has been termed in an editorial of the International Review of Intellectual Property and Competition Law (IIC) as “schizophrenic and foolish.” [99].

20. In the US, highlighting the specialist nature of the CAFC and the generalist nature of Supreme Court R Dreyfuss writes: “On several issues, the court [CAFC] has swung back and forth between extremes. In other arenas, no single approach has developed. Nor has Supreme Court review helped. The Court deals with patent law in the same way that it deals with other fields: it articulates norms and policies, but it rarely lays down specific rules. Instead, it leaves implementation to the lower courts. But with only one appellate court to refashion the law, and with that court the one whose decision was (often unfavorably) reviewed, the outcomes can leave much to be desired. As Rebecca Eisenberg so aptly put it, the relationship between the Supreme Court and federal patent law ‘sometimes seems like that of a non-custodial parent who spends an occasional weekend with the kids.’ In short, it appears that federal law depends rather crucially on percolation in intermediate courts, even in a field like patent law with clear statutory underpinnings [100].

21. Multiple locations for decision-making may not itself be a problem, if we did not also have a system where the incentives to litigate are highly skewed in favour of those who own patents [101]. In most areas of litigation that follow precedents it is often assumed that judges will favour efficient rules, inefficient rules will be litigated more often and that litigants advocating efficient rules have greater incentives than those advocating inefficient rules to incur legal expenses that increase the likelihood of a favourable decision [102]. In patent systems, however, a patentee’s incentive to defend his patent grossly exceeds an alleged infringer’s incentive to challenge it. Where there are multiple infringers, patent invalidity judgments result in patents being turned into public goods, removing the ability of a patent attacker to exclude others from appropriating the benefits of a successful attack. Even where multiple likely infringers compete in a product market pre-litigation, royalties are often passed through at least in part to consumers downstream. Therefore there is no economic reason to expect direct infringers to challenge a patent, even if they act collectively. Moreover, losing a challenge can be a very different outcome from the alternative of uncomplainingly paying non-discriminatory royalties, as challengers often find themselves subject to injunctions or less favourable licensing terms [103].

22. Patentees can also charge differential royalties to penalise firms that do not settle early; all the above weaken the infringer’s incentive to challenge in the first place [104]. Further, patent litigation is inaccessible to many users (and would-be abusers) [105] of the system because of the eye-watering costs of litigation. These dynamics coupled with a dense cluster of decision-making authorities in a patent system make patent litigation a poor way to weed out sub-optimal or inefficient legal doctrine [106] let alone allow doctrine to be tested against indeterminate benchmarks like “innovation policy.”

IV. Making the most of routine exceptionalism in patent law

23. One of the most vaunted features of the patent system is the uniform approach it takes to inventions in all fields of technology—both in terms of the duration of the right and in the strength or scope of the right. Considering that widely disparate industries experience patents very differently, a monolithic patent incentive has come in for its fair share of critical attention [107]. It is monolithic in the sense that all inventions are subject to the same procedures (examination, opposition, re-examination), the same substantive patentability criteria (novelty, inventive step, disclosure requirements, etc.) and last for the same duration. A uniform patent system probably owes much to the design of the patent right as property [108]. Just as we cannot build up severable components or a modular approach to property, we cannot delink aspects of the patent right to suit different circumstances. Doing so would unacceptably tamper with the incentive effect of the patent right. That, at least, is the theory.

24. In reality patent law leverages technical information specific to different sectors in numerous ways. One only has to look at the patent examination manuals such as that of the UKIPO [109], which specifically address “biotechnological inventions” or “medical inventions” to see that “uniform” patent standards are in reality open-textured and allow a great deal of flexibility—flexibility that is used by patent offices to tailor the patent examination process, and by courts when considering validity. For instance, in Europe computer-implemented-inventions can be sufficiently disclosed by generic diagrams that represent the functionality of the program; whereas applications for genetic inventions require sequence information that could run to a large number of pages. The differences in these requirements arise from different capabilities (often contested) of the “person skilled in the art” in each field. Similarly non-obviousness standards in different technology sectors draw on aptitudes as well as negative prejudices of the person of average skill in the field. A technologist in a field that moves rapidly would naturally take more risks than a person in a more established field less open to revisionist technology [110].

25. “Facially neutral” [111] patent law, however, is largely ambivalent to any explicitly exceptional approach that distinguishes between different kinds of technology. Despite confusion and apprehension [112] about the implications of an explicit, technology specific application of standards in reality and within the nitty-gritty of operations, patent law is anything but technology-neutral. While current debate on innovation policy seems to be moving towards consensus that disparate industries use and experience patents differently, there is considerable disagreement about what, if anything, ought to be done about the overtly one-size-fits-all patent system.

26. Roin, for instance, offers a “time to market” foundation for a system of tailoring patent length to balance the benefits of innovation against the social cost of patents in different sectors [113]; Lemley and Burk resist the temptation to tamper with the duration of the patent but look instead to the multiple ways in which the patent system does take technological specificity into account [114]. Rai considers “economic non-patentability” standards to help with categories like business methods [115].

27. Several commentators have called for the introduction of a “competition law ethos” into intellectual property law in general and patents in particular [116]. Given that innovation policy is domain-specific or tailored to market structure and industries, there seems to be a natural congruence between technology specificity in patent law and competition law’s purposive embrace of sector-specific economic analysis. A goal-based patent law that adopted relevant elements of innovation strategies could find the space to assess economic arguments for or against patentability as part of a broadly utilitarian approach. Such an approach of weighing costs and benefits is not unknown in patent law [117], although it is largely marked by partially justified or difficult to resolve empirical claims [118].

28. Radical attempts to inject economic analysis into the patent system in the absence of an equally radical overhaul of the institutional dynamics that constrict rationality would be likely to lead to even greater incoherence. The most productive approach would be to revisit all the ways in which the patent system is truly technology-specific, to acknowledge and make it more visible so that we can regulate such specificity with careful inputs of sector-specific economic analysis. As a natural point of congruence between competition policy and patent law such exercises can be undertaken without venturing into an overall theory of what patents are for, or trying to resolve pluralism or the incommensurability of values [119].

29. To demonstrate how specific commercial information is currently used to illuminate technical uncertainty in patent law, consider the level of “ordinary skill in the art” at the sub-doctrine level. Conventionally the person skilled in the art can take commercial factors into account when it impinges on his state of “common general knowledge.” [120] In the so-called “technical prejudice” sub-test of non-obviousness in the UK, prejudices against undertaking a particular research path may be reinforced by commercial possibilities [121]. Although usually evidence of commercial success cannot bolster claims of technical merit, it may be used if the commercial success is directly relevant to the technical worth of an invention. Another sub-test—the long-standing “obvious to try” test—was revised in the UK after it was criticised as being removed from the commercial realities of pharmaceutical screening research [122]. Only those research possibilities that had no prospect of succeeding were considered inventive; this was revised to include prospects that only had a fair expectation of success [123].

30. Another example is provided by patent offices’ resistance to alternate epistemologies of knowledge which are likely to harm innovation in sectors that rely on unprecedented technologies where prior art may be found in unconventional locations and formats. A more explicit turn towards technology specificity would allow patent offices to include alternate modes of recording and storing technologies. In the case of synthetic biology, for instance, patent offices appear to be underprepared to deal with newer innovation strategies [124]. The BioBrick foundation uses the “Request For Comments” (RFCs) mode for help in standard setting—these RFCs represent a wealth of data and reflect current thinking in the field [125]. The UK Intellectual Property Office and the EPO do not currently use RFCs as prior art [126]. Given the mix of proprietary and non-proprietary strategies in this emerging sector, an unschooled patent office will leave the door wide open for opportunistic patent applicants, potentially causing innovation roadblocks further on.

31. So, is the patent system able to contribute to the building of a better innovation system? Currently institutional arrangements in the patent system self-evidently cannot incorporate the kind of economic analysis that is commonly used by competition lawyers and authorities. Introducing material that is foreign into the patent eco-system without also considering far-reaching changes to the institutional set-up is a recipe for unintended consequences. Patent institutions can, however, engage more actively with the economic impact of the rights they are granting through established open-ended legal standards such as non-obviousness, prior art and disclosure requirements. Currently technical uncertainty is softened to only a minor degree by commercial analysis. These locations deep within the internal workings of patent law provide the best opportunity to introduce more robust sector-specific innovation analysis within present institutional dynamics. If we are to build a patent system that is more responsive to innovation policy, the best way to do it, I suggest, would be not top-down (by imposing competition law values through legislation) or even bottom-up (by introducing new sector-specific rules and arrangements), but inside out.


Professor, Ben V. & Dorothy Willie Chair, Law and History, University of Iowa, Iowa City

1. In the United States responsibility for innovation policy and competition policy are assigned to different agencies with different authority. Federal patent and copyright enforcement date back to the Constitutional period in the late eighteenth century. Federal antitrust policy did not come until a century later, although it was preceded by state common law and corporate law governing restraints on trade [127].

2. The principal institutional enforcers of patent policy in the United States are the United States Patent and Trademark Office (USPTO), the International Trade Commission (ITC), and the federal district courts as overseen by the United States Court of Appeals for the Federal Circuit, and ultimately the Supreme Court. While competition policy is not an explicit part of patent policy, competition issues arise frequently, even when they are not seen as such. For example, the issue of patent scope is highly relevant to competition because overly broad patents can knock competitive alternatives out of the market. For example, a patent that claims technologies that the inventor did not possess can eliminate competition while doing nothing to further innovation. The same is true of patent law’s requirement of nonobvious subject matter, or “inventive step,” which can stifle competition in ordinary products if interpreted too generously toward patent applicants.

3. Nevertheless, there is little decisional law that expressly addresses patent scope as a competition issue. In order to do this enforcers would need to assess patent scope within the context of the market in which it occurs. For example, an overly broad patent on a reverse-winding wristwatch does little competitive harm if reverse-winding watches are not much sought after, the wristwatch market is competitive, and includes digital watches that do not need to be wound at all. By contrast, the overly broad grant in 1903 to the Wright Brothers for a crude airplane steered and stabilized by cables that twisted the aircraft’s wings effectively foreclosed (under the doctrine of equivalents) Curtiss’ greatly superior technology with rigid wings and ailerons, such as modern aircraft have [128].

4. Occasionally the courts have injected competition concerns into patent law. For example, the Supreme Court held in Traffix Devices that a firm could not obtain trade dress protection on the same structural design that had been protected by a design patent, by that time expired. Design patent registration protects designs for limited times but then opens the market after expiration. Trademark protection, by contrast, lasts indefinitely, so the firm was attempting to leverage a limited term exclusionary power into one with an indefinite term [129].

5. Another use of competition policy to limit patent overreaching is the judge made patent “misuse” doctrine, which is entirely a creature of patent law. In the United States the doctrine originated during the Progressive Era, reaching its modern articulation in the 1930s and 1940s [130]. It initially applied to arrangements where the patentee tied the purchase or lease of its patented good to the purchase of unpatented supplies or other complementary goods. Unfortunately, misuse doctrine went off the rails, condemning many practices that were neither harmful to patent policy nor injurious to competition. As a result the doctrine is in disrepute today and the courts are reluctant to apply it [131]. In the process the courts lost an important tool for limiting patent overreaching on competition grounds. A much more sensible approach would be a revised doctrine of misuse limited to situations involving true competitive harm, and that had narrower and more focused remedies—mainly, a defense to a patent infringement claim or an injunction against enforcement [132].

6. On the competition law side, since the early 1900s American courts have had to confront practices that implicate both competitive concerns and patent law [133]. Over the next century patent/antitrust policy veered between extremes, from periods characterized by heavy deference to patent practices, even where they seemed obviously anticompetitive, to periods in which the courts viewed patents as little more than a competitive nuisance and used every opportunity to apply the antitrust laws against them [134].

7. A few relatively durable principles emerged from this history.

8. First, one must distinguish pre-issuance from post-issuance patent practices. The patent application and prosecution process up to the time of patent issuance is heavily regulated and the important decisions are made mainly by government officials. Under American principles of implied antitrust immunity this allows little room for antitrust intervention. It is not antitrust’s purpose to repair perceived deficiencies in other federal regulatory regimes [135]. The possible exception is improper conduct by the private applicant that deceives the USPTO into issuing a patent when one should not have issued. Even in these cases, however, the patent system has a panoply of remedies available that do not require antitrust intervention, including invalidation of the patent or attorney fee awards for the costs of defending against improper conduct.

9. United States law does recognize the so-called Walker Process doctrine, which attaches antitrust liability when an attempt to enforce an improperly obtained patent threatens monopoly. Under United States law these remedies attach only to post-issuance enforcement actions, however, mainly the filing of a patent infringement suits or making unfounded threats [136].

10. Once the patent issues, the USPTO itself has little power to discipline anticompetitive conduct outside of its authority to reexamine. The one thing the patent system does contain, however, is a judicially created defense of “inequitable conduct” which can be asserted as a defense to a patent infringement suit. Once sufficiently material and serious inequitable conduct is found the patent is usually declared to be unenforceable. The standards for finding inequitable conduct are very strict, however, and require knowing intent to deceive the USPTO by a false claim or omission [137].

11. Second, after a period of aggressive and often harmful expansion, antitrust in the United States has gone through a cleansing process that has made it a much more effective tool for protecting consumer welfare [138]. This is in sharp contrast to patent law, which remains strongly producer oriented. While both systems are imperfect, antitrust also has the comparative advantage in other ways. Our economic models of innovation remain much less robust than our models of competition. For example, we simply do not know what the optimal duration or scope of a patent should be, and there is increasing evidence that these numbers differ greatly from one industry to another, while the patent laws generally do not. Antitrust law has become relentlessly empirical in determining the actual market effects of various practices, not only in the economics literature but also in litigation. Further, different markets often obtain different treatment, depending on such factors as the number of firms, the height of entry barriers, or cost structures. In this regard, patent law is very far behind. Further, there is a widespread view in the United States that, whatever the optimal amount of innovation, the patent laws do an extraordinarily poor job of producing it. They tend to overprotect and thus to overexclude.

12. Too often patent law takes a property rights approach rather than an innovation economics approach to policy questions. One example is the requirement that a patent be granted only for a “nonobvious” improvement, which is intended to ensure that patents are granted only on things that others are unlikely to discover on their own. Defining the requirement rigorously is crucial, because unlike copyright and trade secret law, patent law has no right of independent invention: someone can infringe a patent even though she has no idea that the patent or the technology it represents even exists. An empirical test for nonobviousness might ask how many people appear to be discovering the patented invention independently. To be sure, information about either patents or the technologies they represent might be disseminated by ways that are difficult to test for. But that is not an excuse for failing to explore the issue. Only a small percentage of litigated cases include claims that the defendant actually knew about the plaintiff’s patent, and only 2% of decisions include a judicial conclusion to that effect [139]. The incentive to claim knowing infringement is high, because the courts can award significantly higher damages for it. Nevertheless, if we are going to be in the business of condemning innocent discoverers for patent infringement then we must make sure that patents are granted only for things that are sufficiently nonobvious that there won’t be a large number of innocent discovers. Otherwise we create monopoly rights in pedestrian changes.

13. Antitrust also has institutional advantages over patent law when analyzing the economic consequences of certain practices. This is particularly true when we are talking about a post-issuance practice, meaning that patent system oversight is minimal and the patent has become little more than a business asset. And it is especially true when the practice in question is not authorized by the Patent Act, meaning that Congress has not spoken on the question. For example, the Patent Act authorizes licenses and assignments generally, but not anticompetitive licenses or assignments. It authorizes licenses to others to use the invention upon payment of a stipulated royalty, but it does not authorize the patentee to pay others to stay out of its market. The Patent Act authorizes territorial divisions in production licenses [140], but not those accomplished by payment for shutting down. It does not authorize price fixing of patented products. It refuses to condemn tying arrangements unless the patentee has market power in the tying product [141], but it says nothing about exclusive dealing or resale price maintenance. On exclusionary conduct, the Patent Act certainly permits the patentee to exclude by maintaining reasonably brought infringement actions, but it says nothing about predatory pricing, discount practices, or other practices that might violate either Section 2 of the Sherman Act or EU Article 102. For most of these situations the tools of antitrust are better suited to analyze the effects of the practice. If Congress becomes concerned that the courts have overreached by condemning a practice that is competitively harmless or that might facilitate innovation, it can always do so. Indeed, it did precisely that in 1988, when it overruled several Supreme Court decisions by passing a provision that made patent tying arrangements unlawful only when the patentee had market power.

14. The Supreme Court acknowledged antitrust’s institutional advantages in its 2013 Actavis decision [142]. The dispute was one of many involving “pay for delay” pharmaceutical patent settlements under the Hatch-Waxman Act. The Act was intended to facilitate the transition from “pioneer” to bioequivalent generic pharmaceutical drugs when the pioneer’s patent either expired or was declared invalid. The Act gives the first generic firm to file a formal notification of entry a 180-day period of exclusivity once its own production begins [143]. During this period the only contemplated producers of the drug are the original pioneer developer and the first entering generic firm. Once the 180 day period ends, other generics are free to enter as well. The 180 day period was designed to do two things: first, for many drugs a generic would be more likely to enter the market if promised exclusivity. Permitting open entry by everyone might yield no entry at all, for each firm would get only a small share of a competitive market. Second, the exclusivity period was intended to encourage generic firms to challenge weak patents. Original pharmaceutical patents on drug molecules are typically robust. However, the pharmaceutical industry has a widespread practice of “evergreening,” or extending patent protection by obtaining follow-on patents for new uses, now dosages, new delivery methods, and the like. Overall, these follow-on patents, which do not cover the drug’s primary ingredient, are much weaker than pioneer patents and their failure rate in litigation is much higher [144].

15. The drafters of Hatch-Waxman did not foresee the temptation this created for the pioneer and the first generic to preserve the patent’s monopoly and divide the profits. Under a pay-for-delay settlement the pioneer patentee pays the generic firm a large sum, often in the hundreds of million dollars, for its promise to say out of the market. The Hatch-Waxman Act’s exclusivity provision effectively protects this little cartel from competitive entry. Further, because the agreements at issue are patent settlements, the federal courts are reluctant to second guess them, certainly if it requires an inquiry into patent validity. For that reason numerous lower court decisions had upheld the settlements.

16. Parties often pay settlements in order to avoid costly litigation. But anticipated litigation costs in infringements cases of this type typically run less than $10 million. Settlements in gross excess of that amount suggest that something else must be going on. One possibility which the Supreme Court acknowledged is that the generic has agreed to provide certain services to the pioneer, and that the excess payment is no more than the price of such services. However, these services—typically marketing and distribution—are sold on a robust market, and it difficult to see how they could amount to such large sums. Valuation of such services is likely to be a factor in future litigation.

17. More likely, the large payment reflects the parties’ assessment that the patent is extremely weak. The pioneer would not be willing to pay so much if its patent were strong. Second, the large payment works in the Hatch-Waxman context because there are no other potential infringers. Ordinarily a plaintiff with a dubious patent would not be willing to pay a large sum to make a particular infringer go away. The payment would send a clear signal of patent weakness and others would come into the market, either because they realize that the patent is weak or else because they might also be able to collect a payment. The Hatch-Waxman Act prevents this by keeping others out of the market of its own force. Indeed, once the settlement has been executed it really does not matter how weak the patent is. No one may challenge it in any event.

18. Those advocating a patent law approach to the pay-for-delay problem are concerned that an antitrust rule will discourage pharmaceutical innovation, although competition concerns may be relevant at the margin. By contrast, those advocating an antitrust approach are concerned about the practice’s shorter run impact on product prices and output, but impact on innovation is certainly relevant too. Not coincidentally, those advocating a “patent” approach to the pay-for-delay problem, including the Supreme Court dissent written by Chief Justice Roberts, are reluctant to intervene, while those advocating an “antitrust” approach, including the Supreme Court majority, are more willing to find a problem susceptible to fixing.

19. The boundaries of patent and antitrust law are defined by policy rather than nature. So it is meaningless to debate about whether this is “really” a patent problem or an antitrust problem. It is a policy problem that needs to be addressed in a way that makes the proper tradeoffs between the incentive to innovate further and the consumer interest in competitive markets and low prices. The real question is what is the best system for addressing it?

20. Today our antitrust tools for assessing the competitive effects of pay-for-delay settlements are far more robust than our patent tools are. Indeed, we can go a step further: in some situations, including this one, antitrust tools are even superior for assessing the impact of such settlements on innovation. While our theoretical and empirical devices for evaluating such issues as the impact of generic entry on drug prices, the welfare costs of monopoly pricing, or the most plausible explanations for specific firm decisions are hardly perfect, they are reasonably good. Further, they far exceed our ability to assess such questions as the optimal length of a patent or scope of coverage needed to induce optimal invention rates. We are even further from having robust doctrine for determining patent validity, as witnessed by the high reversal rate of district court decisions in this area. In general, the more pro-patent the federal district court—and thus the more frequently it is chosen by plaintiffs—the higher the reversal rates, including more than half of the time in the patent-friendly Eastern District of Texas [145].

21. As the Supreme Court observed in Actavis, a very high pay-for-delay settlement is good evidence of two different things, power and harmful effects. On the power issue the validity of the patent is irrelevant. The question is not whether the power was lawfully acquired, but whether it exists at all. A firm in a competitive market has no incentive to make a high payment to a rival to stay out of the market. First, price/cost margins are very close, leaving no surplus for such a large payment. Second, in a competitive market the removal of a single firm will not have a noticeable impact on the price. In this case the large payment is a share of the present value of anticipated monopoly profits for the period of exclusion that the payment purchases. How high a percentage is difficult to say. If the patent were acknowledged to be completely worthless one might expect the parties to split the revenues of the future stream of monopoly profits. It would not necessarily be an even split, and in any event the size of the payment would decline as the patent appeared to be stronger. The alternative is entry and more competitive production with the generic, which leads to a significant reduction in pioneer profits. After 180 days the market will be open to others as well.

22. Use of a surrogate such as this to establish market power is not unusual. Economists do it often, particularly in merger cases, even if their subsequent testimony requires them to define a market. Further the method need be no less accurate than traditional methods involving market definition and computation of a market share. This is particularly true in a product differentiated market, where market definition assessments are always either over- or under-inclusive. If the market is limited to the pioneer plus the generic—that is, the molecule in question plus its bioequivalent—then the market will not exhibit much differentiation but the aggregate market share will be 100% If the market is larger, including alternative molecules or procedures that address the same condition, then the market share will be smaller but the market will be differentiated. In such a case, direct measurement is likely to be superior [146]. Defining relevant markets is probably not the best way to measure power in such circumstances.

23. The large payment is also an indicator of anticompetitive effects and consumer harm, as Actavis concluded. First, a very large payment is strong evidence that the parties themselves think the patent is very weak or invalid. Otherwise the pioneer would not make a payment out of proportion to litigation expenses plus a reasonable estimate of the value of services that the generic might provide. That, incidentally, is a market based assessment of the patent’s strength, and as such it is very likely more reliable than a court’s determination. It the parties have calculated a, say, 70% likelihood that the patent will be invalid, given what they know about similar situations, that statistical assessment is more valid than the ultimate decision of the court, which could be wrong about half the time. Given the high likelihood of invalidity, the high payment then indicates that this generic is delaying or foregoing entry in order to maintain the high prices currently being charged.

24. Under United States law such a settlement could be challenged by either the government of else private plaintiffs. Overcharge damage actions would be available to direct purchasers under federal law and indirect purchasers under the antitrust laws of some states. Any party with a sufficient injury or threat of injury could also get an injunction. Patent invalidity need not be proven, but the plaintiff will have to show a payment that is unreasonably high in relation to litigation costs and the fair market value of any services that the generic has contracted to provide. Liability would ordinarily be shared by the pioneer and the generic firm, both of whom are voluntary participants in an unlawful restraint of trade [147].


For a lengthy period in United States history patents were treated as monopolies, a view that showed up in various ways, including a presumption of market power, at least for tying arrangements [148]. Today that view is largely abandoned in favor of one that regards patents as a form of property, nothing more. They are business assets that often confer no market power, although occasionally they do. Further, an issued patent is an “unregulated” business asset. The patent system has little to say about how a patent is used, and in this case the Patent Act itself is silent. Then, as the Supreme Court realized in Actavis, the antitrust system is the better placed institution.


Frederic JENNY
Professor of economics, Essec Business School, Paris

1. In most jurisdictions, the patent system allows the development of business strategies by patent holders or patent applicants which may have the effect, or in some cases the object, of lessening competition on the products or services markets on which they operate.

2. The common feature of anticompetitive strategies which can be implemented by patent holders or patent applicants is to increase the uncertainty and/or the cost faced by their competitors or to create such an uncertainty.

3. The major sources of uncertainty for competitors come from a) the fact that the patenting process takes time so that there are long periods (several years) after a patent application has been filed during which neither the patent applicant nor its competitors know whether the patent will be granted, b) from the fact that, if granted, the patent will offer protection to the patent holder retroactively from the day of the patent application, c) from the fact that before the end of the delay for publication of the patent application patent holders can repeatedly file divisional patent applications (i.e. claim new inventions carved out of a pending application), d) the fact that in some fields patents act in clusters (i.e. the use of numerous independent patents is necessary to produce a good or a service), and d) from the fact that possibly because they are overworked or possibly because patent examiners are rewarded for patents granted, some patent offices have granted weak patents, i.e. patents which do not meet the criteria of “utility” “novelty” or “non-obviousness” and would be invalidated if challenged, but the court proceedings to establish the invalidity of such patents is long and costly.

4. In this context patent applicants or patent holders can engage in exclusionary or exploitative practices.

5. First, to reach their goal they can use the patenting process to keep their patent applications secret from their competitors, possibly for a very long period of time (up to twenty years) if they repeatedly use divisional applications (or in some countries continuations), and, threaten to sue their competitors for patent infringement by claiming that their patent applications cover some of the technologies used by their competitors. They can require excessive license royalty from competitors who have already committed resources to enter the activity in which they compete with the patent holder.

6. Second, patent holders (or patent applicants) can intentionally hide their relevant pending or granted patents from a standard setting organization until the standard is set and implemented. Once the standard has been agreed to, the patent holder or applicant can then reveal its IP and sue, or threaten to sue, its competitors for infringement unless they pay excessively high license fees. The result can have a chilling effect on further standard-setting, a resulting decline in interoperability of products, higher prices for consumers, and delays or even a complete halt in further implementation of the ambushed standard. Competition agencies can counteract ambushes by allowing and advocating certain ex ante measures such as rules on disclosures and negotiation of licensing terms, and by litigating where necessary.

7. Third, firms can apply for a patent for the purpose of blocking a competitor (or to extract high license fees). Alternatively, they can multiply the number of patents they have on a technology in order to make it very uncertain and very expensive for potential competitors to enter the market. A comment of an executive from Texas Instruments quoted in the Background paper prepared for a roundtable on Competition, Patents and Innovation in 2006 illustrates the problem: “Texas Instruments has something like 8000 patents in the United States that are active patents, and for us to know what’s in that portfolio, we think, is just a mind-boggling, budget-busting exercise to try to figure that out with any degree of accuracy at all.” As the OECD noted, if it is very expensive for Texas Instrument to know what is in its portfolio, it is also expensive for its potential competitors.

8. The granting of weak patents makes the previously mentioned problem worse. As the OECD Competition Committee stated in 2006: “(…) when patents are awarded too easily, or are allowed to protect very broad claims (…) the body of issued patents eventually covers so much substantive territory that companies are forced to recognise a substantial likelihood that their innovations will lead to accusations of infringement by other companies. To reduce their risk, businesses amass larger and larger patent (…) mainly for use as bargaining chips in the event of an infringement problem. But of course the act of building up those portfolios adds to that problem. With so many patents already granted and more being issued all the time, it becomes harder and harder to know who is likely to sue, to feel confident about one’s chances of successfully fending off an infringement suit, and to negotiate and pay for the licenses deemed to be necessary. The result, in theory at least, is to raise the overall cost of doing R&D and therefore to discourage innovation. That situation is known as a patent thicket or an anti-commons. It is thought to be particularly discouraging to start-up firms because they usually lack the sizeable patent portfolios that can serve as bargaining leverage that will help a firm to navigate through patent thickets.”

9. The possibility of development of anticompetitive strategies by patent holders or patent applicants has considerably increased over the last decade for interrelated reasons. The development of international trade combined with the adoption of the TRIPS agreements and the generalization of intellectual property protection combined with fast technological developments in several industries (IT, biotechnologies etc.) have led to a considerable increase in the number of patent applications and an increase in the stock of pending applications, in spite of the efforts of patent offices to expedite them. As Ciaran McGinley of the European Patent Office stated in a presentation to the OECD Round Table on Competition in June 2009: “Most patent systems currently have more patents pending than patents granted and still in force. Such a situation leads to pending patents having significant economic value. This in turn, drives some applicants to favour not only volumes over quality, but delay over timeliness and opaqueness over transparency.”

10. One crucial question this raises is what can competition authorities and patent offices do to better manage the competition problems arising from the weaknesses of the Intellectual property system.

11. This question has been extensively debated in various fora and in particular in the OECD Competition Committee. There are several possibilities and we will comment on some of them.

12. The first possibility is that competition authorities apply competition law provisions against firms which use the patent system strategically in order to eliminate or lessen competition on a market.

13. However, this possibility is potentially limited by the fact that all the practices engaged in by business firms which have the effect or the object of eliminating or limiting the expansion of competitors on a market are not necessarily violations of the competition law. In Europe the anticompetitive conduct of a firm holding a dominant position must be an abuse; in the United States one of the requirements for the finding of an infringement under section 2 of the Sherman Act is the willful acquisition or maintenance of monopoly power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident [149] and exclusionary conducts must not only tend to impair the opportunities of rivals, but also must not further competition on the merits or must do so in an unnecessarily restrictive way.

14. In the European context the Astra Zeneca case, which is the first case in which an abuse of regulatory process was held to be an abuse of a dominant position under EU competition law, can be read as allowing the possibility that the filing of a patent by a firm holding a dominant position could in itself be an abuse of dominance. Joseph Drexl, commenting on the general court decision, for example argued that [150] : “AstraZeneca established the rule according to which the filing of an intellectual property right has an immediate effect on competition in the relevant market and therefore constitutes potential abuse in the sense of Article 102 TFEU. Also, the judgment explains that the existence of a legal entitlement to the patent under the rules of patent law, in itself, does not exclude competition-law liability. In addition, it has to be pointed out that the lack of discretion of the patent offices in granting the patent is an argument for rather than against competition law liability. Yet competition-law liability has to be established positively, by showing competitive harm through either a reduction of price competition or an obstruction of the competitors’ incentives to innovate.”

15. The two practices of Astra Zeneca sanctioned were, first, having provided “highly misleading” representations to national patent offices preventing them from correctly identifying the date of first marketing authorization which resulted in the granting of supplementary protection certificates (SPCs) to which AstraZeneca was not entitled and delays and disruption for generic firms’ preparations for market entry for generic products; second, selective deregistration by AstraZeneca of marketing authorizations for Losec capsules in Denmark, Norway and Sweden where generic companies had applied for marketing authorizations for generic versions of the capsules, which prevented the generic companies from using a simplified procedure that was faster and less burdensome to obtain their authorization.

16. With respect to the second practice, the European Court of Justice [151] found that a dominant company, subject to the special responsibility, cannot “use regulatory procedures in such a way as to prevent or make more difficult the entry of competitors on the market in the absence of grounds relating to the defence of the legitimate interests of an undertaking engaged in competition on the merits or in the absence of objective justification”(§ 134).

17. Some commentators have suggested that this case leaves us uncertain about whether the sheer use of the patent system could be found to violate article 102 of the Treaty [152]. Indeed, in the Astra Zeneca case, over and beyond the strategic use of the patent system, the firm had in the first case lied or, in the second case, engaged in a selective policy of deregistration which could not have any justification other than its ability to deter entry of competitors. It thus may be that the ECJ requires a plus factor to consider that the use of the patent system amounts to an abuse of dominance.

18. Some European national competition authorities have proved innovative. For example, the Italian competition authority imposed a fine on Pfizer for delaying generic competition by unduly extending patent protection through the use of SPCs, but this decision was subsequently overturned by the regional administrative tribunal for failure by the competition authority to prove sufficient intent.

19. With respect to the US, as Hovenkamp stated [153] : “At risk of some oversimplification, activities regulated by a federal agency are immune from antitrust scrutiny to the extent that (a) the agency has jurisdiction over the activity; (b) the challenged practice was actually made known to the agency for its review; and (c) the agency is doing its job adequately, rather than simply rubber stamping what a private actor requests.” Thus patenting is, in principle immune to antitrust scrutiny.

20. However as Economides and Hebert note [154]: “Generally, courts have been reluctant to examine in detail a patent holder’s innovations and design changes. However, applying antitrust law, courts have found that monopolists may be liable for unlawfully extending their monopolies into adjacent markets in the areas of computer peripherals and software applications; aftermarkets for replacement parts, service and maintenance of durable goods; design changes to medical devices; and changes in drug formulas. Although the boundary between patents and antitrust is not clearly delineated, the courts are nonetheless reluctant to give antitrust immunity to patent holders when they leverage market power in adjacent markets.”

21. For example, in GAF Corp. v. Eastman Kodak Co., from 1955 to 1972, an independent photofinishing network of small labs arose that developed film using Kodak C-22 chemistry and photofinishers that printed Kodacolor film. The plaintiff argued that as soon as he and other competitors gained a foothold in the market for C-22 color film developing and photofinishing, Kodak introduced new formulas that used new chemical reactions to develop the film. It was argued that this move by Kodak forced independent photofinishers to convert from the old C-22 processing to the new Kodak C-41 processing which excluded the plaintiff and other independent film suppliers from the market. Kodak argued that it possessed a nearly unfettered right to introduce new products, but the court disagreed, citing precedents (Berkey Photo and Northeastern), contrary to Kodak’s contentions, that “new product introductions by a monopolist are not ipso facto immune from antitrust scrutiny” and that a “new product introduction coupled with some associated conduct may constitute a [Sherman Act] § 2 violation.” The court thus found that Kodak could be held liable. It stated: “[I]n scrutinizing design conduct, [Sherman Act] § 2 would merely require the monopolist’s design to be ‘reasonable,’ rather than to be the design alternative least restrictive of competition. Thus, the ‘reasonableness’ of the design of a monopolist’s new products (vis-à-vis competitors’ products which were technically linked to or dependent upon the monopolist’s product) may be scrutinized under Sherman Act § 2 in cases in which ‘market forces cannot operate’—that is, in cases in which a single firm controls the entire market or in which a monopolist engages in coercive conduct to affect consumer choice.” Thus, if a monopolist in market A owes his monopoly to a patent, it follows that “market forces cannot operate” and a monopolist could be found to engage in coercive conduct affecting consumer choice by redesigning products to exclude competitors from market B.

22. In the C.R. Bard, Inc. v. M3 Systems, Inc case [155] , the court came very close to recognizing that the modifications of a patent could be an anticompetitive practice constituting a violation of section 2 of the Sherman Act.

23. In this case the manufacturer of a patented biopsy gun which mechanically injects a needle in a patient’s body, and which had patents both on the gun and the needles, sued a competitor for infringement of its IPRs. The competitor argued that the patent owner had modified its biopsy guns and its needles in order to prevent the competitor’s needles from being used with the biopsy guns without an adapter. The Federal Circuit upheld the District Court decision that the holder of the patent on the biopsy guns had illegally maintained its monopoly on the market for replacement needles through changes in the design of the biopsy gun in order to prevent the compatibility of the competitor’s needles. The Federal circuit stated : “Although Bard contended at trial that it modified its Biopsy gun to make it easier to load and unload, there was substantial evidence that Bard’s real reasons for modifying the gun were to raise the cost of entry to potential makers of replacement needles, to make doctors apprehensive about using non-Bard needles, and to preclude the use of ‘copycat’ needles. One internal Bard document showed that the gun modifications had no effect on gun or needle performance; another internal document showed that the use of non-Bard needles in the gun ‘could not possibly result in injury to either the patient or the physician n.’ In view of that evidence, the jury could reasonably conclude that Bard’s modifications to its guns constituted ‘restrictive or exclusionary conduct’ in a market over which it had monopoly power.”

24. If in the Bard case, the court felt competent to second guess a patent holder’s design decisions and expressed skepticism at the patent holder’s design changes, especially when the purpose of the change appeared to exclude competition in the market for replacement needles. Other courts have been more reluctant to engage in this direction.

25. If we now turn to hold up by holders of a patent in the context of a standard setting process, in the Rambus case [156], the Court was “not convinced” that the Federal Trade Commission had carried its burden of proving that Rambus’s conduct had an anticompetitive effect because there was insufficient evidence that had Rambus fully disclosed its intentions, the SSO would not have still chosen Rambus’s technology and secured RAND licensing.

26. The Qualcomm case [157] which concerned a firm participating in standard-setting proceedings which reneged on its promises to license its IP rights raised the issue of how a breach of a promise about royalty rates counts as “exclusionary” anticompetitive practice.

27. A third type of potentially anticompetitive abuse of the patenting system was recently examined by the US Supreme Court: pay for delays. In this type of practice, a patent holder faced with a challenge by a generic manufacturer pays the generic drug company a substantial sum of money to delay the entry of the generic drug into the market for a specified number of years, while typically permitting entry before the normal expiration of the patent. In the FTC v. Actavis, Inc. (June 17, 2013) the United States Supreme Court held that “reverse payment” settlement agreements are not immune from antitrust scrutiny. It also held that such agreements are not per se illegal but must be subject to antitrust evaluation under a full “rule of reason” analysis (requiring a balancing of the various competitive factors to determine whether competition has been unduly harmed).

28. Finally, in Canada, in November 2012 the Competition Bureau initiated an investigation against Alcon pharmaceutical company arguing that it had manipulated the marketplace for its eye drugs by effectively “switching” demand from its genericized /non-patented product for the treatment of “allergic conjunctivitis” (“Patanol”) to a patented product (“Pataday”, protected for another 4 years until 2016). Alcon is accused of having intentionally disrupted the supply of Patanol in Canada in an attempt to habituate physicians who are accustomed to writing prescriptions for Patanol to writing prescriptions for Pataday. The Competition commissioner asserted that this behaviour was “more than the mere exercise of an intellectual property right” in line with the jurisprudence of the courts which have consistently held that “something more” than merely an exercise of patent rights is required to establish an antitrust violation.

29. Overall, the possibility that competition authorities may apply competition law provisions against firms which strategically use the patent system in order to eliminate or lessen competition on a market is fairly limited because courts tend to require the existence of a “plus factor” besides the pure use of the patent system (such as a lie or a dissimulation or the provision of false information to the patent office etc.) to find a liability under competition laws.

30. Furthermore, there are at least two reasons to oppose the use of competition law enforcement against innovators and patent holders or patent applicants who try to use the patent system to restrict market competition. First, there is a risk of inconsistencies or contradictory decisions among competition authorities and patent authorities over the ability to enjoy the protection of patents and this risk may discourage innovators. Second, it is quite difficult for competition authorities to draw the line between the legitimate use of rights by the patent holders or applicants and a competition law violation and there is also a risk that competition authorities may overextend the definition of abuse in their attempt to fight anticompetitive behaviors by patent seekers or holders.

31. The recourse to competition law enforcement to right the wrongs of the competition law process has been criticized by patent offices. Ciaran McGinley of the European Patent Office made this point in the previously mentioned debate at OECD when he stated: “(…) does it really help to claim ‘abuse’ when companies exploit opportunities given by the current legal framework? It is one thing to publically accuse people of ’abusing’ a system they set up and regulate themselves. But it is an entirely different matter to use the ‘abuse’ word when all they are doing is making full use of the existing legal framework for the benefit for their shareholders. A case in point is so-called divisionals at the EPO. There is a perfectly legitimate and bone fide reason to allow divisionals in a patent system. But it has become clear that this provision was being used for reasons for which it was not intended. The challenge therefore was not to accuse companies of ‘abuse,’ but rather to strike a balance between legitimate interests and unintended effects. In the end, EPO’s member states have sought to strike such a balance.”

32. Ciaran McGinley then suggested that patent offices are best placed to reform the patent process and gave as an example the fact that within its “raising the bar exercise” the Administrative council of the EPO, composed by its contracting states, has agreed on a reform proposal of the EPO to introduce time limits for the filing of divisional applications.

33. The view that competition law enforcement is not an appropriate tool to question the patent strategy of firms or to tackle some of the otherwise legal abuses of the patent system is largely shared by competition authorities.

34. For example, the US contribution to the 2009 roundtable stated: “For a number of reasons, antitrust law is not an appropriate tool for correcting errors in the patent system; it should not be used simply to second-guess or limit the decisions of patent authorities. In particular, competition authorities should be careful that their actions do not undermine the predictability of patenting and patent enforcement.”

35. Similarly the contribution from Turkey to that roundtable stated: “With regard to the right to challenge the validity of a patent, it could be argued that this is not the job of competition authorities. Such a role might lead the authority to be lost in complex and technical files, and importantly it prevents competition authority from fulfilling its main duties.”

36. This does not mean, however, that competition authorities cannot play an active role in the improvement of the patent system. Rather than intervening ex post on a case by case basis, they can use their advocacy powers to study ex ante various aspects of the patent process and to promote change in the patent system.

37. Using their advocacy powers, they can publish guidelines, provide market data to patent offices, hold interdisciplinary dialogues with patent agencies to encourage greater mutual understanding of each other’s field, they can commission expert reports that study a country’s patent system to determine whether and how it is causing any harm to innovation, they can hold seminars or hearings in which academics, public and private sector practitioners, and industry participants come together to discuss problems and possible improvements to IP policies.

38. Competition authorities in various jurisdictions have been quite active on this front in the past.

39. For example, the U.S. Federal Trade Commission has probably been the leading agency in the world with respect to the study of the interface between competition and intellectual property. In October 2003 it published a hugely influential report “To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy”, following the hearings it held with the DoJ in 2002. Since then it has continued to advocate for an improvement of the US patent system. The latest initiative in this direction was the announcement in mid-September 2013 of the launch of an investigation into Patent Assertion Entities (PAEs or more commonly “patent trolls”) which take advantage of the patent system to extort money from legitimate businesses by suing them for infringement. The aim of the FTC is to develop a better understanding of how they impact innovation and competition.

40. Another example of advocacy is provided by the Canadian Bureau of Competition which, several time in the past (and most recently in 2007) has promoted research initiatives to examine topics at the interface between competition and IP law, including collective management of copyright, extension of IP rights, compulsory licensing and tying/bundling in the IP context, with the hope that the research would serve to provide guidance on future Canadian IP policy development.

41. A third example of the use of advocacy by competition authorities to promote changes in the patenting system is provided by the joint work of the Danish Competition Authority and the Danish Patent and Trademark Office on a project aimed at analyzing the functioning of the patent system and providing a series of ideas and recommendations for the solution of problems identified in a comprehensive report [158] and a further project aimed at improving the conditions for trading IPR. As reported by the OECD, in 2006 a working group set up with the two agencies came up with a series of recommendations on how to make the patent system more consistent with the overall aim of ensuring long run growth. Among other things, the working group suggested that a remuneration-based patent system should be developed to supplement the system based on exclusive rights. Also, it suggested that the criteria to evaluate whether the inventive step has been met, particularly for software patents, is made clearer. In addition, it was suggested that the compulsory license system be made more flexible and operational in order to, among other things, offset abuse of dominant position and other effects detrimental to the common good.

Altogether, although competition law enforcement is occasionally used against firms taking advantage of patent systems in order to restrict competition, the scope of the strategies which could conceivably be considered violations of competition laws is limited by the reticence of courts to sanction the mere use of patent rights. As a result, only a subset of possible anti-competitive abuses of the patenting system can be controlled by competition authorities. Therefore closer ex ante cooperation between competition authorities, using their advocacy powers, and patent offices is necessary to improve the quality of patenting systems. As the weaknesses of patenting systems become more obvious and more pronounced, the opportunities for and the necessity of a dialogue between patent offices and competition authorities increase. Yet there is only a small number of countries where such ex ante consultations and cooperation between the two sets of agencies takes place. A generalization of this cooperation should be encouraged.


Frances MARSHALL [159]*
Assistant chief and special counsel for intellectual property, Antitrust Division, U.S. Department of Justice, Washington

1. Modern economics teaches us that invention and innovation are critical to promote economic growth and job creation. Competition and intellectual property law and policy both seek to promote innovation to improve the lives of consumers. Although they share the same goal, these regimes rely on different tools to achieve it. Intellectual property laws create exclusive rights that provide incentives for innovation. Antitrust laws ensure that new proprietary technologies, products, and services are bought, sold, traded, and licensed in a competitive environment. Together, antitrust enforcement and the protection of intellectual property rights create an environment that promotes the innovation necessary for economic success.

2. For a number of years, the Antitrust Division of the U.S. Department of Justice (the Department or DOJ) and the U.S. Patent and Trademark Office (the PTO) have worked together to integrate these laws and policies, often in tandem with the Department’s sister U.S. antitrust enforcement agency, the Federal Trade Commission (the FTC) [160].

3. The cooperation between the Department and the PTO recently yielded an unprecedented joint policy statement—the DOJ-PTO Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments (the Statement) [161]. Released in January 2013, the Statement addresses the U.S. International Trade Commission’s (the ITC’s) [162] use of exclusionary relief in cases where a claim is based on infringement of a patent essential to a standard and the patent is encumbered by a voluntary commitment to license it for uses implementing the standard on reasonable and nondiscriminatory (RAND), or fair, reasonable, and nondiscriminatory (FRAND), terms. The Statement concludes that the ITC generally should not issue an order excluding products infringing a F/RAND-encumbered patent essential to a standard because such exclusion “may harm competition and consumers by degrading one of the tools [standards-setting organizations] employ to mitigate the threat of (…) opportunistic actions by the holders of” such patents [163]. Years of cooperation at the staff level helped to lay the intellectual foundation for the political leadership at both agencies to issue this Statement.

4. This Article first looks at the Department’s work in the realm of standards setting activities and its cooperation with the PTO on this front prior to the Statement. The Article then turns to the Statement itself, considering its substance and reviewing its impact on ITC proceedings.

I. Creating a policy foundation for the statement: Hearings, report, and workshop

5. The Department has long worked to ensure that the antitrust laws and the intellectual property laws complement each other to promote innovation and advance the interests of consumers. To this end, the Department has engaged with other governmental executive-branch components, including the PTO and the FTC. These efforts—in particular, those described in this section—laid the groundwork for the PTO and the Department’s collaboration on the Statement.

1. 2002 DOJ-FTC hearings on competition and intellectual property law and policy in the knowledge-based economy and 2007 Antitrust-IP Report

6. The Department has explored the competitive effects of patents incorporated into standards for many years. In 2002, the Department and the FTC held a series of public hearings entitled “Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy,” designed, in part, to develop a better understanding of the questions that arise when antitrust law is applied to activities involving intellectual property rights [164]. Representatives of the PTO participated as both as moderators and panelists, bringing their expert opinions on the appropriate use of patents and helping the Department and the FTC delineate when patent holders violate the antitrust laws. Several of the panel discussions at these hearings focused specifically on standards-setting issues.

7. In 2007, the Department and the FTC issued a joint report, “Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition,” (the 2007 Antitrust-IP Report) based on these hearings and devoted an entire chapter to standards-setting activities [165]. The 2007 Antitrust-IP Report lauds the procompetitive benefits of standards as one of the engines driving the modern economy. Standards “can increase innovation, efficiency, and consumer choice; foster public health and safety, and serve as a ‘fundamental building block for international trade.’” [166] The 2007 Antitrust-IP Report also identified the potential for patent hold up when patents are incorporated into a standard: “Before [a standard is collaboratively set], or ex ante, multiple technologies may compete to be incorporated into the standard under consideration. Afterwards, or ex post, the chosen technology may lack effective substitutes precisely because the SSO chose it as the standard. Thus, ex post,the owner of a patented technology necessary to implement the standard may have the power to extract higher royalties or other licensing terms that reflect the absence of competitive alternatives. Consumers of the products using the standard would be harmed if those higher royalties were passed on in the form of higher prices.” [167]

8. Switching to an alternative technology after the standard is set likely would be costly. It may require abandoning the standard or revising the prior version. Such a change could delay introduction of new products if manufacturers wanting to implement the standard postpone or avoid investments in developing and implementing a standard or have to redesign components and move consumers to the new standard [168].

9. The 2007 Antitrust-IP Report recognizes that standards-setting organizations have adopted patent policies designed to forestall this type of hold up and protect the years of hard work invested in developing standards collaboratively. Some policies require participants to disclose patents that may be necessary to implement a standard and ask participants to commit to license patents essential to a standard on F/RAND terms or inform other participants that they are unwilling to do so [169].

2. DOJ-PTO-FTC 2010 workshop – The intersection of competition policy and patent policy: Implications for promoting innovation

10. Three years after the publication of the 2007 Antitrust-IP Report, the Department, the PTO, and the FTC held a joint public workshop to address ways in which patent policy and competition policy can best promote incentives to innovate. It was the first time these three agencies jointly sponsored such an event. David Kappos, then-Under Secretary of Commerce for Intellectual Property and Director of the PTO, Christine Varney, then-Assistant Attorney General for Antitrust of the Department of Justice [170], Aneesh Chopra, then-U.S. Chief Technology Officer of the Executive Office of the President, and Edith Ramirez, then-Commissioner (currently Chairwoman) of the FTC set the agenda for the workshop by articulating the importance of competition and innovation to the economy, and they commended the collaborative work of the agencies. Panels of experts from business, academia, and government examined issues of significant importance to patent and competition law and policy.

11. One panel discussed the differences in how often injunctive relief is granted in patent-infringement cases brought in U.S. district courts versus those brought before the ITC [171]. The U.S. Patent Act provides that, in cases of patent infringement, a court “may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable.” [172] In a 2006 decision, eBay Inc. v. MercExchange L.L.C. [173], the U.S. Supreme Court directed U.S. federal courts to apply traditional equitable principles when considering requests for permanent injunctions in patent-infringement cases [174]. Before the eBay decision, requests for injunctive relief were granted 95 percent of the time. Subsequently, district courts have denied patent owners injunctive relief more frequently—one study found that owners were granted injunctive relief in only 75 percent of post-eBay cases [175].

12. Section 337 of the Tariff Act of 1930 permits certain patent holders also to seek exclusionary relief from the ITC [176]. The ITC may issue an order, enforced by U.S. Customs and Border Protection, excluding imported goods that infringe a valid U.S. patent from the United States. Unlike federal district courts, which can remedy infringement through monetary damages as well as injunctive relief, exclusionary relief is the only remedy available upon a finding of patent infringement by the ITC. The U.S. Supreme Court’s eBay decision does not apply to Section 337 determinations made by the ITC, so it may be easier for patent holders to obtain exclusionary relief at the ITC than from federal district courts [177]. At the workshop, the panelists discussed these differences and explored ways to limit the potential for patent owners to harm competition through inappropriate use of the ITC process.

13. Another panel looked at the procompetitive impact of collaboratively set standards, particularly those that permit products to interoperate, and discussed concerns about the strategic use of patents once they are incorporated into standards. The panel focused in particular on how a patent holder may seek more lucrative licensing terms for its patented technology after that technology has been incorporated in a standard than would have been possible if that technology had competed with alternatives before the standard was set. Panelists discussed how standards-setting organizations could best retain the benefits of ex ante competition between technologies, while maximizing the incentives of patent holders to participate in standards-setting activities [178].

3. Department enforcement activities prompt concerns about exclusionary relief for infringement of F/RAND-encumbered standards-essential patents

14. In the few years since the workshop, several large portfolios of patents related to the telecommunications industry were sold. These transactions occurred during a seismic shift in that industry from feature phones to smart phones integrating the functionalities of mobile phones with mobile computing, making these patent portfolios highly valuable to competitors in this, and related, markets. While investigating the competitive impact of several of these acquisitions under Section 7 of the Clayton Act, the Department became concerned about the potential harm to standards-setting activities that may arise from licensing negotiations for F/RAND-encumbered standards-essential patents in which the patent holder credibly threatens to seek exclusionary relief to demand and receive more onerous licensing terms than implementers of the standard had expected. In effect, this threat may enable the patent holder to evade the F/RAND-licensing restraint on its ability to exercise the market power of its patents incorporated in the standard [179].

15. Following these investigations, the Department embarked on several competition-advocacy efforts designed to improve the competitive landscape regarding the licensing of F/RAND-encumbered patents. For example, the Department encouraged standards-setting organizations to clarify their policies governing the licensing of intellectual property rights incorporated into a standard in a number of ways, including placing “some limitations on the right of the patent holder who has made a F/RAND licensing commitment who seeks to exclude a willing and able licensee from the market through an injunction.” [180]

II. The Statement: DOJ and the PTO jointly articulate their concerns about the scope of exclusionary relief at the ITC based on infringement of standards-essential, voluntarily F/RAND-encumbered patents

16. As explained earlier, exclusionary relief as a remedy for infringement of U.S. patents is available in two fora in the United States. Applying the eBay decision in a particular context, federal courts recently have been even more reluctant to grant injunctive relief for infringement of F/RAND-encumbered standards-essential patents. They have determined that by participating in standards-setting activities and by voluntarily making a F/RAND licensing commitment pursuant to a standards-setting organization’s policies, a patent holder implicitly acknowledges that money damages, rather than injunctive relief, is, in most cases, the appropriate remedy for patent infringement by products implementing that standard [181]. However, because the eBay decision does not apply to the ITC’s proceedings, it became clear that, in disputes involving standards-compliant products that allegedly infringe a F/RAND-encumbered patent essential to that standard, the threat of an ITC exclusion order had become more significant than the threat of injunctive relief from a federal district court.

17. The Department and the PTO decided to issue a joint policy statement to address the concern that exclusion by the ITC based on F/RAND-encumbered standards-essential patents would harm procompetitive standards-setting activities by distorting licensing negotiations in favor of the licensor, raising the costs of licensing essential patents that may be passed on to consumers, and discouraging the adoption of standards. The agencies believe that the ITC should take these factors into consideration when determining, after a finding of infringement, whether issuing an order excluding the infringing products from the U.S. market was in the public interest. In deciding whether to issue an order, the ITC must consider whether exclusion is in the public interest by assessing its effect on, inter alia, both “competitive conditions in the United States” and U.S. consumers [182].

18. The Statement concludes that, in most cases involving F/RAND-encumbered patents essential to a standard, the potential for dynamic harm (harm over the long-term) to standards-setting activities, and thus to “competitive conditions in the United States” and “United States consumers,” should lead the ITC to conclude that such an exclusion orders is not in the public interest.

19. The Statement explains the benefits of the patent system, voluntary consensus standards, and competition. It recognizes that the right granted by U.S. patent laws to the patent owner to exclude others from making, using, or selling its patented invention is fundamental to obtaining the benefits of our patent system. The Statement notes that exclusion under Section 337 typically is the appropriate remedy when an imported good infringes a valid and enforceable U.S. patent. Such relief supports standards-setting activities and compensation for patent owners that reflects the value of the technology.

20. The Statement, though, advises the ITC to consider several factors in cases involving F/RAND-encumbered patents essential to a standard when evaluating the public interest. One factor is whether the patent holder has acknowledged voluntarily, through a commitment to license its patents on F/RAND terms, that money damages—rather than injunctive or exclusionary relief—is the appropriate remedy for infringement. Another is whether the patent holder is seeking to engage in patent hold up, using the threat of exclusion to pressure an implementer of the standard to pay a higher royalty, thereby exercising enhanced market power that the F/RAND commitment was designed to mitigate. Both of these factors indicate that exclusion would not be in the public interest because, over the long term, the availability of such exclusion through the ITC’s orders likely would degrade the effectiveness of procompetitive standards-setting activities.

21. The Statement cautions that the ITC must also consider whether the potential licensee is acting inside or outside the scope of the licensor’s F/RAND commitment. Exclusionary relief may be appropriate if the potential licensee (1) is unable to comply with the F/RAND license terms due, for example, to a lack of funds; (2) is not subject to the jurisdiction of a court that is able to award money damages for infringement; (3) refuses to comply with F/RAND terms set by a neutral third party such as a court or an arbitrator (or mediator); or (4) expressly or constructively refuses to negotiate a F/RAND license with the licensor [183].

22. Importantly, if the essence of the dispute between the parties is a disagreement about what is the appropriate F/RAND royalty rate, the patent holder should seek to resolve that dispute in a forum that has ability to resolve it by determining a F/RAND rate and mandating that rate be paid. The ITC does not have that ability. In such cases, the ITC should determine that it is not in the public interest for licensing negotiations effectively to take place in the shadow of its exclusionary power.

23. In so advising the ITC, the Statement does not sanction compulsory licensing of F/RAND-encumbered patents essential to a standard by any governmental authority, in the United States or elsewhere. Moreover, it applies only to voluntary standards development and commitments to license on F/RAND terms that were voluntarily made by patent owners—the antithesis of mandatory nationalized standards.

III. The impact of the Statement

24. The Statement has informed a recent ITC proceeding. By way of background, after determining that there has been a Section 337 violation and that exclusionary relief is in the public interest, the ITC publishes notice of that determination in the Federal Register and transmits its determination, along with any exclusion and cease and desist orders, to the President [184]. The President then has 60 days to review the ITC’s action and has the authority to “disapprove [the ITC’s action] for policy reasons.” [185] In 2005, the President delegated the presidential review power to the U.S. Trade Representative [186]. The U.S. Trade Representative, exercising the President’s power, may disapprove ITC determinations for policy reasons, but may not review the merits of the ITC’s determination that there has been a Section 337 violation [187].

25. On August 3, 2013, Ambassador Michael Froman, the U.S. Trade Representative, exercised this disapproval power for the first time in 26 years. He disapproved an exclusion order that the ITC had issued in Wireless Communications Devices (ITC Inv. No. 337-TA-794), an order that barred certain Apple 3G iPhones and iPads from the U.S. market based on infringement of patents essential to the UMTS telecommunications standard issued by the European Telecommunications Standards Institute, patents which Samsung had agreed to license on FRAND terms for uses implementing this standard [188]. Using the Statement to guide his decision, Ambassador Froman states that he strongly shares the policy concerns articulated in the Statement and that the factors identified in the Statement should guide the ITC’s consideration of requests for exclusionary relief based on infringement of a F/RAND-encumbered standards-essential patent. Ambassador Froman asked the ITC “(1) to examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards-essential nature of the patent at issue if contested by the patent holder and the presence or absence of patent hold-up or reverse hold-up.” He asked the ITC to make “explicit findings on these issues to the maximum extent possible.” He said he would look for these elements in any future decisions he reviews involving F/RAND-encumbered standards-essential patents [189].

26. Ambassador Froman emphasized that his decision to disapprove the ITC’s action did not mean that Samsung was not entitled to a remedy for Apple’s infringement of its patents. Rather, Samsung could continue to pursue its rights by seeking damages in the U.S. federal court [190].

IV. Conclusion

27. The Statement’s origins reach back in time and rest on years of collaborative work between the Department and the PTO (as well as the FTC), which allowed the two executive-branch agencies to address a critical issue affecting conditions for competition and innovation in a timely, thoughtful, and careful manner that promotes economically beneficial standards-setting activities by protecting the legitimate interests of both licensors and licensees, as well as the important statutory role of the ITC. The Department continues to strive to collaborate closely with the PTO to ensure that competition and intellectual property law and policy work together to benefit U.S. consumers.


[1See, M. Carrier, Resolving the Patent-Antitrust Paradox Through Tripartite Innovation, (2003) 56 Vanderbilt Law Review 1047.

[2See, for instance, the analysis by Sivaramjani Thambisetty, this issue.

[3See, M.A. Carrier, Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law (Oxford University Press 2011).

[4See, for this opposition, Tepperman and Sanderson, Innovation and Dynamic Efficiencies in Merger Review, (Canada, Competition Bureau 2007), available at:, p. 5, “Competition based on the successive introduction of new or better products over time is called dynamic competition. Dynamic competition based on investment in R&D may be thought of as a form of ‘competition for the market’ in contrast to price competition which is ‘competition in the market.’ This characterization is overly simplistic, however. There are certainly many situations in which both forms of competition operate—firms may compete for customers’ business by reducing price and improving quality for existing goods, and by pursuing innovation in an effort to introduce new goods to market. Nonetheless, this way of dichotomizing competitive rivalry serves to emphasize an important contrast. Static views of competition take the existing set of products and market participants as given, describing the outcome of competitive behaviour among those market participants using strategic instruments such as pricing or advertising that can be applied and varied in the ‘short term’. Dynamic competition involves the creation of new products and potentially also new markets, along with the replacement or obsolescence of older products. It also implicitly or explicitly involves entry and exit by firms—there is no guarantee that today’s successful firms will be able to offer the product attributes demanded by tomorrow’s consumers”.

[5J. Ellig and D. Lin, A Taxonomy of Dynamic Competition Theories, in J. Ellig (ed), Dynamic Competition and Public Policy – Technology, Innovation and Antitrust Issues (Cambridge University Press 2011) 16-44.

[6R.J. Gilbert and S.C. Sunshine, Incorporating Dynamic Efficiency Concerns in Merger Analysis: The Use of Innovation Markets, (1995) 63 Antitrust Law Journal 569.

[7D.S. Evans and R. Schmalensee, Some Economic Aspects of Antitrust Analysis in Dynamically Competitive Industries, in A.B. Jaffe, J. Lerner and S. Stern (eds), Innovation Policy and the Economy, Vol. 2, (MIT Press 2002). On the distinction between competition for the market and competition in the market, see P.A Geroski, Competition in Markets and Competition for Markets, (2003) 3 Journal of Industry, Competition and Trade 151.

[8C. Pleatsikas and D. Teece, The analysis of market definition and market power in the context of rapid innovation, (2001) 19 International Journal of Industrial Organization 665.

[9G.J. Sidak and D.J. Teece, Dynamic Competition in Antitrust Law, (2009) 5(4) Journal of Competition Law & Economics 581.

[10D.H. Ginsburg and J.D. Wright, Dynamic Analysis and the Limits of Antitrust Institutions, (2012) 78(1) Antitrust Law Journal 1.

[11D.J. Teece, Favoring Dynamic over Static Competition: Implications for Antitrust Analysis and Policy, in G.A. Manne and J. D. Wright, Competition Policy and Patent law under Uncertainty, (Cambridge University Press 2011) 203, 211.

[12Ibid 217.

[13H.A. Shelanski and M.L. Katz, Mergers and Innovation, (2007) 74 Antitrust Law Journal 1.


[15J. Baker, Beyond Schumpeter vs. Arrow: How Antitrust Fosters Innovation, (2007) 74(3) Antitrust Law Journal 575.

[16C. Shapiro, Antitrust, Innovation, and Intellectual Property – Testimony Before the Antitrust Modernization Commission (8 November 2005).

[17J.S. Gans, When Is Static Analysis a Sufficient Proxy for Dynamic Considerations? Reconsidering Antitrust and Innovation, (2011) 11(1) Innovation Policy and the Economy 55.

[18J.D. Wright, Antitrust, Multidimensional Competition and Innovation – Do we Have an Antitrust-Relevant Theory of Competition Now? in G.A. Manne and J.D. Wright (eds), Competition Policy and Patent law under Uncertainty, (Cambridge University Press 2011) 228-251.

[19H. Demsetz, 100 Years of Antitrust: Should we Celebrate? Brent T. Upson Memorial Lecture, George Mason University School of Law, Law and Economics Center (1991).

[20J. Wright, Antitrust, Multidimensional Competition and Innovation (n 258) 241.

[21Ibid 233

[22Ibid 251.

[23Gilbert and Sunshine, op. cit.; M. Glader, Innovation Markets and Competition Analysis: EU Competition Law and US Antitrust Law (Edward Elgar 2006).

[24M.A. Carrier, Resolving the Patent-Antitrust Paradox Through Tripartite Innovation, (2003) 56 Vanderbilt Law Review 1047.

[25See, for instance, the conclusions reached by by Sivaramjani Thambisetty in this issue.

[26Assuming that innovation is the first order preference of consumers and that dynamic competition is the process that enables consumers to maximise their utility, the concepts of “dynamic efficiency” and “dynamic competition” are close to each other and can be used interchangeably.

[27Furthermore, the trade-off between static anticompetitive effects (allocative inefficiency) and dynamic efficiencies may even be more complicated in a multi-jurisdictional setting. One may envisage a situation in which a licensing practice affects consumers in jurisdiction A but enables a licensor established in jurisdiction B to profit from dynamic efficiency gains. In principle, this should not pose a problem, as the consumers of jurisdiction A would eventually benefit from the outcome of the innovation in the long run. Yet, it is possible that the product will first be introduced in the market of jurisdiction B, thus benefiting the consumers of this jurisdiction, without the consumers of jurisdiction A being able to enjoy within a reasonable time frame, for different reasons, the benefits of the sacrifice of allocative efficiency for the purposes of innovation. This issue may become a concern, from a political economy perspective, if most of the innovation activity is only concentrated in some jurisdictions. On the distributive justice effects of consumer welfare in competition law, see, I. Lianos, Some reflections on the objectives of EU competition law, in Handbook in Eu Competition Law: Substantive Aspects, Edward Elgar, October 2013, pp. 1-85.

[28Despite the integration of competition concerns in some IP doctrines, this is not done systematically. See, Herbert Hovenkamp’s contribution in this issue.

[29See, for instance, US DOJ & FTC Horizontal Merger Guidelines (2010), available at:, Section 6.

[30G.A. Manne and J.D. Wright, Innovation and the Limits of Antitrust, (2010) 6 Journal of Competition Law & Economics 153.

[31J.A. Schumpeter, History of Economic Analysis (Routledge 1986, first published in 1954), p. 1126, noted the importance of sequence analysis and observed as to the history of economic thought that “however important those occasional excursions into sequence analysis may have been, they left the main body of economic theory on the ‘static’ bank of the river; the thing to do is not to supplement static theory by the booty brought back from these excursions but to replace it by a system of general economic dynamics into which statics would enter as a special case.”

[32See, OFT 1390, Competition and Growth (November 2011) (noting the “wide range” of empirical studies examining the links between competition, innovation and productivity, which set, on the whole, a positive relationship between the three and at the micro level, examples of the positive impact of specific competition interventions on price, choice and innovation, which are “abundant”).

[33For a more detailed analysis see, Herbert Hovenkamp’s contribution in this issue.

[34US FTC, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy (October 2003) available at:, Recommendations 6 and 10.

[35W.K. Tom and J.A. Newberg, Antitrust and Intellectual Property: From Separate Spheres to Unified Field, (1997) 66 Antitrust Law Journal 167.

[36A. Rai, Patent Validity Across the Executive Branch: Ex Ante Foundations for Policy Development, (2012) 61 Duke Law Journal 101 (noting also the increasingly important involvement of the Supreme Court in the area); R.C. Dreyfuss, What the Federal Circuit Can Learn From the Supreme Court—and Vice Versa, (2010) 59 American University Law Review 787.

[38See: (the report uses standard statistical methods to identify which US industries are the most patent-, trademark-, and copyright-intensive, and defines this subset of industries as “IP-intensive”).

[40D. Guellec and B. van Pottelsberghe de la Potterie, The Economics of the European Patent System: IP policy for innovation and competition (Oxford University Press 2007).

[41I. Hargreaves, Digital Opportunity – A Review of Intellectual Property and Growth (May 2011), available at:, at p. 17, 91, “[e]ven where IP law is clear it is too infrequently grounded in evidence or directed to take account of economic priorities. This represents a failure of public policy” and p. 92, noting that the Banks Review in the 1970s “deplored the lack of evidence to support policy judgments” and that “[t]hirty years later, the Gowers Review in 2006 made the same point”, concluding that “our institutional framework appears to have failed to equip itself to conduct evidence-based policy effectively.”

[42Ibid 92.

[43Ibid 95.


[45IPO, The Role of the Intellectual Property Office (July 2012), available at:; IPO, Response to the Informal Consultation on the Role of the Intellectual Property Office (March 2013), available at:

[46L.H. Röller and P.A. Buigues, The Office of the Chief Competition Economist at the European Commission (May 2005), available at:

[47C. Bohannan and H. Hovenkamp, Creation Without Restraint: Promoting Liberty and Rivalry in Innovation, (Oxford University Press 2012) 341.

[48I. Lianos, Some reflections on the objectives of EU competition law, in Handbook in Eu Competition Law: Substantive Aspects, Edward Elgar, October 2013, pp. 1-85. For a similar view, taking the perspective that the objective to protect consumers is a distributive justice aim (fairness) that may enter in conflict with intellectual property in some circumstances, see D.A. Farber and B. McDonnell, Why (and How) Fairness Matters at the IP/Antitrust Interface, (2003) 87 Minnesota Law Review 1817.

[49S.M. Benjamin and A.K. Rai, Fixing Innovation Policy: A Structural Perspective, (2008) 77(1) The George Washington Law Review 1.

[50See W.E. Kovacic, Competition Policy and Intellectual Property: Redefining the Role of Competition Agencies, in F. Lévêque and H. Shelanski (eds), Antitrust, Patents, and Copyright: EU and US Perspectives (n 129) 1, 9 (advocating “the development of new cooperative networks in which competition agencies work with collateral government institutions, such as rights-granting authorities, to study the interaction of these regulatory regimes”).

[51For an extensive analysis see, Frances Marshall’s contribution in this issue.

[52US DOJ & USPTO, Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary F/RAND Commitments (8 January 2013), available at:, last accessed 28 April 2013.

[53A.K. Rai, Patent Validity Across the Executive Branch: Ex Ante Foundations for Policy Development, (2012) 61 Duke Law Journal 101, p. 154.

[54See, European Commission Pharmaceutical Sector Inquiry Preliminary Report – Comments from the EPO (28 November 2008), available at:

[55Memorandum of Understanding between the Intellectual Property Office and the Office of Fair Trading (July 2012) available at:, last accessed 28 April 2013.

[56See, for example, the establishment of an IP and Competition Policy unit at the Innovation Directorate of the Intellectual Property Office in the UK, or the creation of IP and innovation-focused units in competition authorities.

[57For example, Article 15 of Regulation 1/2003 on the enforcement of EU competition rules provides that the European Commission (the Directorate General on Competition) can transmit information to the national courts, give its opinion on questions regarding the application of the EU competition rules, submit observations to national courts as amicus curiae, the national courts being obliged to submit to the Commission a copy of their judgments touching upon issues of competition.

[58See, for instance, M. Boldrin and D.K. Levine, The Case Against Patents (September 2012), Federal Reserve Bank of St Louis Working Paper 2012-035A available at:, accessed 28 April 2013; J. Bessen and M.J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk (Princeton University Press 2009); Guellec and van Pottelsberghe de la Potterie, (n 549); Jaffe and Lerner (n 138); S. Scrothcmer, Innovation and Incentives (MIT Press 2004).

[59G. Calabresi and A.D. Melamed, Property Rules, Liability Rules and Inalielability: One View of the Cathedral, (1972) 85(6) Harvard Law Review 1089; M.A. Lemley and P.Weiser, Should Property or Liability Rules Govern Information? (2007) 85 Texas Law Review 783.

[60V. Denicolò and L.A. Franzoni, Rewarding Innovation Efficiently – The case for Exclusive Rights, in Manne and Wright (eds), Competition Policy and Patent Law Under Uncertainty: Regulating Innovation (Cambridge University Press 2011), 287, 289.

[61Although this looks for the time being a theoretical possibility only.

[62See, Frederic Jenny’s contribution in this issue.

[63See B.J.G. van der Kooij, Innovation Defined: A Survey, available at:, accessed 12 September 2013.

[64T. Schmidt and C. Rammer, Non Technological and Technological Innovation: Strange Bedfellows? Centre for European Economic Research Discussion Paper no. 07-052.

[65See for instance T.F. Cotter, The Procompetitive Interest in Intellectual Property Law, (2006) 48 Wm. & Mary Law Review 483, and S. Kieff, Removing Property from Intellectual Property and (Intended?) Pernicious Impacts on Innovation and Competition, Law and Olin Research paper Series no. 411.

[66See P. Spiridon and P. Clipa, Innovation: Variation on the Same Topic (6 October 2010), available at:, accessed 12 September 2013.

[67J.A. Schumpeter, Business Cycles – A Theoretical, Historical and Statistical Analysis of the Capitalist Process, (McGraw-Hill Book Company 1939) 85.

[68Aided in part by eager patent offices and captured by special interests (See Hovenkamp, The Opening of American Law: Neoclassical Legal Thought, 1870-1970, forthcoming: Oxford Univ. Press, 2014, Ch 10 “The Twisted Path to Innovation.”)

[69[2011] UKSC 51.

[70Commission Decision Microsoft/W2000 (Comp/C-3/37.792) [712].

[71M. Boldrin and D.K. Levine, The Case Against Intellectual Property (Cambridge University Press 2008).

[72Such as in the case of “foundational” technologies like non-exclusively licensed PCR technology. J.P. Walsh and W.M. Cohen, Research Tool Patenting and Licensing Biomedical Innovation (2003), available at:, accessed 12 September 2013.

[73R. Merges, A New Dynamism in the Public Domain, (2004) University of Chicago Law Review 183–203.

[74Rai likens this to the impact of anti-discrimination law where “facially neutral” standards have a disparate impact. A. Rai, Building a Better Patent System: Combining Facially Neutral Patent Standards With Regulation of End Product Therapeutics, (2008) 45 Houston Law Review 1037-1057.

[75AMP v. Myriad Genetics 569 US 12-398 (2013).

[76Such as in the works of Rebecca Eisenberg, Phillipe Ducor, and Robert Cook-Deegan and many others.

[77M. Lemley, Myth of the Sole Inventor, Stanford Public Law Working Paper No. 1856610; L. Shaver, Illuminating Innovation: From Patent Racing to Patent War, (2012) 69:4 Wash. & Lee Law Review.

[78See S. Johnson, Where Good Ideas Come From: The Seven Patterns of Innovation (Penguin Books 2010)

[79Lemley (n 15).

[80See for instance B. Sherman, Patent Law in a Time of Change: Non-Obviousness and Biotechnology, (1990) 10 Oxford Journal of Legal Studies 278; J.H. Barton, Non-Obviousness, (2003) 43 IDEA 475.

[81F. Machlup and E. Penrose, The Patent Controversy in the Nineteenth Century, 1950 (10) Journal of Economic History, 1.

[82Providing letters patents to the: “true and first inventor and inventors of such manufactures which others, at the time of making such letters or grant, shall not use, so as also they be not contrary to the law, nor mischievous to the state, by raising prices of commodities at home or hurt of trade or generally inconvenient.”

[83R. Merges, Justifying Intellectual Property (Harvard University Press 2011) 3.

[84Ibid 3.

[85S. Thambisetty, Learning Needs in the Patent System: Lessons from Institutionalism for Emerging Technologies like Synthetic Biology, LSE Law, Society and Economy Working Papers 19/2013, available at, accessed 12 September 2013

[86Case T-315/03 Harvard/Transgenic animal [2005] EPOR 31 (EPO (Technical Board of Appeal).

[87Case T-258/03 Hitachi/automatic auction method [2004] OJ EPO.

[88G 1/04 Diagnostic Methods G 0001/04 OJ EPO 334.

[89Schering v. Geneva 348 F 3d 992 (Fed Cir 2003).

[90P.J. DiMaggio and W. Powell, The Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields, (1983) 48 American Sociological Review 147.

[91S. Thambisetty, Timing, Change and Continuity in the Patent System, in S. Haunss and others (eds), The Politics of Intellectual Property: Contestation Over the Ownership, Use and Control of Knowledge and Information (Edward Elgar 2009).

[92Art 27. See R.C. Dreyfuss, TRIPS and Essential Medicines: Must One Size Fit All? Making the WTO Responsive to the Global Health Crisis, in Pogge, M. Rimmer and Rubenstein (eds), Incentives for Global Public Health: Patent Law and Access to Essential Medicines (Cambridge University Press 2010).

[93See 2013 USTR Special 301 report blacklisting India, available at:, accessed 12 September 2013.

[94K. Shadlen, Learning from India? A New Approach to Secondary Pharmaceutical Patents, available at:, accessed 12 September 2013.

[95A.K. Rai, Engaging Facts and Policy: A Multi-Institutional Approach to Patent System Reform, (2003) 103 Columbia Law Review 1035.

[96Diagnostic Methods (2006), G 0001/04 OJ EPO 334.

[97C-428/08 Monsanto v. Cefetra [2010] All ER (D) 65 (Jul) (ECJ).

[98Directive 98/44/EC on the legal protection of biotechnological inventions OJL 213, 30/07/1998 p. 0013-0021.

[99T. Jaeger, Shielding the Unitary Patent from the ECJ: A Rash and Futile Exercise, IIC (2013) 44 389-391 390.

[100R.C. Dreyfuss, Percolation, Uniformity, and Coherent Adjudication: The Federal Circuit Experience, (2013) SMU Law Review (forthcoming).

[101J. Farrell and R.P. Merges, Incentives to Challenge and Defend Patents: Why Litigation Won’t Reliably Fix Patent Office Errors and Why Administrative Review Might Help, (2004) 19 Berkeley Technology Law Journal 943

[102O. Hathaway, Path Dependence in the Law: The Course and Pattern of Change in a Common Law Legal System, (2001) 86(2) Iowa Law Review 601.

[103Farrell and Merges (n 40).


[105C. Helmers and L. McDonagh, Trolls at the High Court? LSE Legal Studies Working Paper no: 13/2012 discussing why this is true of the UK system.

[106S. Thambisetty, Patent Litigation in the UK: Solutions in Search of a Problem? (2010) 32(5) European Intellectual Property Review 238.

[107See C. Long, The Uniform Patent System, 55 Fed Law 44 2008.

[108H. Hovenkamp (n 6).

[110See S. Thambisetty (n 23) 22-25.

[111A. Rai (n 12).

[112Ibid (n 1).

[113B. Roin, The Case for Tailoring Patent Awards Based on the Time-To-Market of Inventions, June 2013. Available at:, accessed 12 September 2013.

[114Lemley and Burk, Policy Levers in Patent Law, Virginia Law Review (2003) 89 No 7 1575-1696.

[115A. Rai (n 12).

[116Among others, I. Lianos and R.C. Dreyfuss, New Challenges in the Intersection of Intellectual Property rights with Competition Law – A View from Europe and the United States, CLES Working Paper Series 4/2013; H. Hovenkamp, Institutional Advantage in Competition and Innovation Policy, 12 September 2013, available at:, accessed 12 September 2013.

[117Such as the utilitarian calculus formulated by the EPO in the Oncomouse decision where the likelihood of animal suffering has to be balanced by substantive medical benefits in order for a patent to be granted despite the morality clause in Art 53(a). T0315-03 (July 2004).

[118See Merges’ discussion of utilitarian assessments within mid-level principles. Merges (n 21).

[119J. Pila, Pluralism, Principles and Proportionality in Intellectual Property, OJLS (2014) (forthcoming), available at:, accessed 12 September 2013.

[120Different from state of the art. Wheatley v. Drillsafe [2001] RPC 7. In the case of technology sectors populated by large corporations with well-organised R&D units, the degree of information circulating can skew notions of common knowledge; Beloit v. Valmet (No.2) [1997] RPC 489 per Aldous LJ.

[121Pozzoli SpA v. BDMO SA and Moulage Industriel de Perseigne SA (2006) EWHC 1398 (Pat).

[122H. Laddie, Patents – What’s Invention Got to Do with it? in Vaver and Bentley (eds), Intellectual Property in the New Millennium: Essays in Honour of William R Cornish (Cambridge University Press 2004), 91-95.

[123Conor Medsystems v. Angiotech 2008 UKHL 49.

[124A.K. Rai, Let’s Tame Software Patent Claims: Lessons from Bioinformatics, available at:, accessed 12 September 2013.

[125S. Thambisetty (n 23) 33.

[126Discussion, Workshop on Synthetic Biology, Innovation and Intellectual Property: Toward a UK Strategy, 24-25 June 2013, London.

[127See H. Hovenkamp, Enterprise and American Law, 1836-1937 at Chs. 20-21 (Cambridge, Ma.: Harv. Univ. Press, 2001).

[128Wright Co. v. Herring-Curtiss Co., 204 F. 597 (W.D.N.Y. 1913). See H. Hovenkamp, Innovation and Competition Policy: Cases and Materials (open source, 2d d. 2013, Ch. 1, available at:

[129Traffix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23 (2001).

[130See Motion Picture Patents Co. v. Universal Film Mfg. Co., 243 U.S. 502 (1917); Morton Salt Co. v. G.S. Suppiger Co., 314 U.S. 488 (1942).

[131E.g., Princo Corp. v. ITC, 616 F.3d 1318 (Fed. Cir. 2010).

[132See C. Bohannan, IP Misuse as Foreclosure, 96 Iowa L. Rev. 475 (2011); C. Bohannan and H. Hovenkamp, Creation Without Restraint: Promoting Liberty and Rivalry in Innovation, 258-289 (New York: Oxford Univ. Press, 2012).

[133E.g., E. Bement & Sons v. National Harrow Co., 186 U.S. 70 (1902) (upholding patent cross-licensing agreement that fixed product prices); Henry v. A.B. Dick Co., 224 U.S. 1 (1912) (Sherman Act did not reach patent tying arrangement).

[134See H. Hovenkamp, “The Twisted Path to Innovation Policy,” Ch. 10 in H. Hovenkamp, The Opening of American Law: Neoclassical Legal Thought, 1870-1970 (New York: Oxford Univ. Press, 2014).

[135See 1B P.E. Areeda and H. Hovenkamp, Antitrust Law ¶¶240-244 (4th ed. 2013).

[136Walker Process Equip. Inc. v. Food Mach. & Chem. 382 .U.S. 172, 174 (1965). Cf. Case T-321/05, AstraZeneca v. Euro. Comm’n, July 1, 2010, available at:, holding that representations to agencies requesting exclusion of generics could be actionable, although the patent had already issued.

[137Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290 (Fed. Cir. 2011).

[138See Bohannan & Hovenkamp, Creation Without Restraint, Ch. 3.

[139C.A. Cotropia and M.A. Lemley, Copying in Patent Law, 87 N.C.L. Rev. 1421 1450-56 (2009).

[14035 U.S.C.§ 261.

[14135 U.S.C. § 271d.

[142F.T.C. v. Actavis, Inc., 133 S.Ct. 2223 (2013).

[143Actavis, 133 S.Ct. at 2228. For more detail and analysis, see 12 Hovenkamp, Antitrust Law ¶2046 (New York: Aspen, 3d ed. 2012); C. Scott Hemphill, Paying for Delay: Pharmaceutical Patent Settlement as a Regulatory Design Problem, 81 N.Y.U. L.Rev. 1553, 1579 (2006).

[144See C. Scott Hemphill and Bhaven Sampat, Drug Patents at the Supreme Court, 339 Science 1386 (March 22, 2013); FTC, Generic Drug Entry Prior to Patent Expiration: An FTC Study 16 (2002),

[145T. Lii, Shopping for Reversals: How Accuracy Differs Across Patent Litigation Forums, 12 Chi.-Kent J. Intell. Prop. 31 (2013).

[146See 2B P. E. Areeda and H. Hovenkamp, Antitrust Law ¶¶512, 521 (4th ed. 2014).

[147See 2A Antitrust Law ¶330d.

[148E.g., International Salt Co. v. United States 332 U.S. 392 (1947), overruled by Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006).

[149United States v. Grinnell Corp., 384 U.S. 563, 570­71 (1966).

[150J. Drexl, AstraZeneca and the EU sector inquiry: When do patents filings violate competition law ? Max Planck Institute for Intellectual Property and Competition Law Research Paper No. 12-02.

[151AstraZeneca v. European Commission, Case C-457/10 P, 6 December 2012.

[152L. Kjølbye, Article 82 EC as Remedy to Patent System Imperfections: Fighting Fire with Fire? (2009) World Competition 163.

[153Herbert Hovenkamp, The Obama Administration and Section 2 of the Sherman Act, 90 Boston Univ.L.Rev. 1611, 1660 (2010).

[154N. Economides and W. Hebert, Patents and Antitrust: Application to Adjacent Markets, J. on Telecomm. & High Tech. Law, Vol. 6, p. 355.

[155157 F.3d 1340 (Fed. Cir. 1998).

[156Rambus Inc. v. FTC, 522 F.3d 456 (D.C. Cir. 2008), cert. denied, 129 S. Ct. 1318 (2009).

[157Qualcomm Inc. v. Broadcom Corp., 548 F.3d 1004 (Fed. Cir. 2008), cert. dismissed,ol 129 S. Ct. 2182 (2009).

[158The Danish Board of Technology (2005): Recommendations for the patent system of the future, Report and recommendations by a working group under the Danish Board of Technology,

[159The views expressed herein do not necessarily reflect those of the U.S. Department of Justice.

[160The Antitrust Division of the Department of Justiceis the component of the executive branch agency charged with protecting U.S. consumers by promoting and protecting competition. The U.S. Patent and Trademark Office, an agency of the Department of Commerce, is the executive branch agency charged with responsibility for examining patent applications, issuing patents, and—through the Secretary of Commerce—advising the President on domestic and certain international issues of intellectual property policy. The Federal Trade Commission is an independent agency whose mission is to prevent business practices that are anticompetitive or deceptive or unfair to consumers.

[161The FTC had previously advised the ITC regarding its similar competition concerns. Third Party U.S. Fed. Trade Comm’n’s Statement on the Public Interest, In re Certain Wireless Communication Devices, Portable Music & Data Processing Devices, Computers and Components Thereof (June 6, 2012), Inv. No. 337-TA-745, available at:, and in In re Certain Gaming and Entertainment Consoles, Related Software, and Components Thereof, Inv. No. 337-TA-752, (June 6, 2012), available at The FTC has also settled two complaints alleging that seeking injunctive relief against willing licensees of F/RAND-encumbered standards-essential patents violates Section 5 of the FTC Act. Robert Bosch GmbH, Docket No. C-4377 (Fed. Trade Comm’n Apr. 23, 2013),; Motorola Mobility L.L.C., Docket No. C-4410 (Fed Trade Comm’n, July 23, 2013),

[162The U.S. International Trade Commission is an “independent, quasi judicial Federal agency with broad investigative responsibilities on matters of trade.” About the International Trade Commission, Int’l Trade Comm’n (Sept. 3, 2013),

[163U.S. Dep’t of Justice & U.S. Patent & Trademark Office, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments 6 (2013), available at: [hereinafter “DOJ-PTO Joint Statement”]. In the United States, SDO members of standards-setting organizations may commit to license all of their patents that are essential to the SDO standard on RAND terms. In other jurisdictions, SDO members may commit to license all of their patents that are essential to the organization’s standard on RAND terms. In other jurisdictions, members of standards-setting organizations may commit to license such patents on FRAND terms. This article uses the term F/RAND to refer generally to both types of licensing commitments.

[164Information and materials related to these hearings can be found on the Agencies’ websites. Competition and Intellectual Property Law in the Knowledge-Based Economy, U.S. Dep’t of Justice, Antitrust Div.,; Competition and Intellectual Property Law in the Knowledge-Based Economy, Fed. Trade Comm’n,

[165U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, 33-56 (2007), available at: [hereinafter “2007 Antitrust-IP Report”].

[166Id. at 33 (citing A.A. Marasco, Standards-Setting Practices: Competition, Innovation and Consumer Welfare at 3-4 (Apr. 18, 2002 Hr’g R.) ,

[167Id. at 35-36.

[168Id. at 38.

[169Id. at 36.

[170C.A. Varney, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Promoting Innovation Through Patent and Antitrust Law and Policy, Remarks as Prepared for the Joint Workshop of the U.S. Patent and Trademark Office, the Federal Trade Comm’n, and the Dep’t of Justice on the Intersection of Patent Policy and Competition Policy: Implications for Promoting Innovation 4, 8 (May 26, 2010),

[171Transcript at 103-80, U.S. Patent and Trademark Office, U.S. Dep’t of Justice, & Fed. Trade Comm’n The Intersection of Competition Policy and Patent Policy: Implications for Promoting Innovation (May 26, 2010), [hereinafter “May 26 Transcript”].

[17235 U.S.C. § 283 (2006).

[173547 U.S. 388, 391 (2006).

[174To receive injunctive relief, a patent holder must demonstrate: (1) that it has suffered an irreparable injury; (2) that remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) that, considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) that the public interest would not be disserved by a permanent injunction. Id. at 393.

[175C.V. Chien and M.A. Lemley, Patent Holdup, the ITC, and the Public Interest 98 Cornell L. Rev. 101, 109 (2012), available at

[17619 U.S.C. § 1337 (2006).

[177Spansion v. U.S. Int’l Trade Comm’n, 629 F.3d 1331, 1359-60 (Fed. Cir. 2010).

[178May 26 Transcript, supra n.13, at 188-271. A third panel analyzed how challenges posed by the backlog of patent applications at the PTO affect the competitive strategies of patent applicants and innovators.

[179Press Release, U.S. Dep’t of Justice, Antitrust Div., Statement of the Department of Justice’s Antitrust Division on Its Decision to Close Its Investigations of Google Inc.’s Acquisition of Motorola Mobility Holdings Inc. and the Acquisitions of Certain Patents by Apple Inc., Microsoft Corp. and Research in Motion Ltd. (Feb. 13, 2013),

[180R.B. Hesse, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Six “Small” Proposals for SSOs before Lunch: Remarks as Prepared for the ITU-T Patent Roundtable (Oct. 10, 2012),

[181See, e.g., Microsoft v. Motorola, 696 F.3d 872, 885 (9th Cir. 2012) (affirming a preliminary injunction prohibiting a patentee from enforcing an injunction granted in Germany for infringement of a RAND-encumbered patent after finding that “injunctive relief against infringement is arguably a remedy inconsistent with the [RAND] licensing commitment”); Realtek Semiconductor Corp. v. LSI Corp., No. C-12-03451, 2013 WL 2181717, at *8 (N.D. Cal. May 20, 2013) (enjoining enforcement of an ITC exclusion order for a FRAND-encumberedstandards-essential patent); Apple, Inc. v. Motorola, Inc., 869 F. Supp. 2d 901, 915 (N.D. Ill. 2012) (“A FRAND royalty would provide all the relief to which Motorola would be entitled if it proved infringement of the ’898 patent, and thus it is not entitled to an injunction.”) on appeal, Nos. 12-1548/1549 (Fed. Cir. 2013); Hynix Semiconductor Inc. v. Rambus Inc., 609 F. Supp. 2d 951, 980-86 (N.D. Cal. 2009) (finding the balance of harms disfavored granting the patentee an injunction because it was willing to broadly license standardized technology). But see Commonwealth Scientific and Indus. Research Org. (CSIRO) v. Buffalo Tech. Inc., 492 F.Supp.2d 600 (E.D. Tex. 2007) (finding a research institution that owns a RAND-encumbered standards-essential patent that invented but did not practice its patent was entitled to a permanent injunction under eBay).

[182Specifically, the ITC has a statutory duty to consider the “effect of such exclusion upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers” when deciding whether to issue an exclusion order. 19 U.S.C. § 1337(d)(1) (2006). These factors are referred to as the public interest factors.

[183Of course, the patent holder must be acting within the scope of the F/RAND commitment to seek exclusion. That is to say that the patent holder’s initial offer to license its standards-essential patents must be on F/RAND terms. The F/RAND terms agreed to by both parties in any final license need not necessarily be the same as the licensor’s initial F/RAND offer.

[18419 U.S.C. § 1337(j) (2006).

[18519 U.S.C. § 1337(j)(2) (2006).

[186Presidential Memorandum, Assignment of Certain Functions under Section 337 of the Tariff Act of 1930, 70 Fed. Reg. 43,251 (July 21, 2005).

[187See Duracell v. U.S. Int’l Trade Comm’n., 778 F.2d 1578, 1581-82 (Fed. Cir. 1985). Such policy reasons may include, but need not be limited to, the “impact on United States foreign relations, economic and political,” and “the impact which the relief ordered by the Commission may have upon the public health and welfare, competitive conditions in the United States economy, the production of like or directly competitive articles in the United States, and United States consumers.” S. Rep. No. 93-1298, 93d Cong. 2d Sess. 199 (1974).

[188Certain Electronic Devices, Including Wireless Communications Devices, Portable Music and Data Processing Devices, and Tablet Computers, Inv. No. 337-TA-794 (Aug. 2013), disapproved by Letter from Michael B.G. Froman, Amb., U.S. Trade Rep., to Irving A. Williamson, Chairman, U.S. Int’l Trade Comm’n (Aug. 3, 2013),

[189Id. at 2.

[190Id. at 3.

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