Intellectual, Property Licensing and Antitrust Policy: A Comparative Perspective

By Abbott, Alden F. | Law and Policy in International Business, Summer 2003 | Go to article overview

Intellectual, Property Licensing and Antitrust Policy: A Comparative Perspective


Abbott, Alden F., Law and Policy in International Business


The antitrust treatment of intellectual property rights ("IPR") licensing has taken on increased significance, given the growing importance of such rights to business activity, and the potential role of IPR in spurring innovation and economic growth. (1) Antitrust law does not govern the terms under which intellectual property (IP) rights are granted or recognized by national authorities, although such terms may have a substantial impact on competitive conditions. (2) Rather, antitrust law evaluates the competitive impact of the manner in which patent rights are employed or transferred. This Article will focus solely on the latter set of issues.

Getting IPR licensing antitrust analysis ("IPRLAA") right, however, is no simple task because there is no international consensus as of yet on the appropriate overarching principles that should apply. The first section of this Article will very briefly compare IPRLAA in three major jurisdictions: the United States, Canada, and the European Union. These three jurisdictions were chosen because of their major economic significance, their well-established antitrust jurisprudence, and their contrasting approaches, which perhaps reflect their contrasting common law and civil law traditions. These different approaches have had, and will continue to have, a major influence on other jurisdictions' antitrust policies. The next section will then turn to a suggested economic framework for better assessing certain types of IPR licensing restrictions based on insights gleaned from transaction cost economics. The Article will conclude with reflections on the harmonization of IPRLAA.

I. IPRLAA: A BRIEF COMPARATIVE OVERVIEW

A. The United States

American policy toward IPRLAA has changed dramatically over the past thirty years. During the 1970s, federal antitrust enforcers viewed most IPR licensing restrictions with extreme skepticism, indicating a willingness to condemn various categories of restrictions outright. (3) During the 1980s and 1990s, however, enforcement officials recognized that many licensing restrictions could promote efficiency in production and distribution and facilitate risk-sharing. (4) As a result, they abandoned this inhospitality approach in favor of a case-specific evaluation of licensing provisions. (5)

The current enforcement approach is embodied in the 1995 Department of Justice and Federal Trade Commission Antitrust Guidelines for the Licensing of Intellectual Property ("IPG"). (6) Three basic principles underlie the IPG. First, IP is viewed in the same way as any other form of property. (7) Thus, the same antitrust principles govern IP and other forms of property, with IPRLAA incorporating the distinguishing characteristics of IP. Second, contrary to traditional thinking, it is not assumed that a patent creates market power. (8) Third, IPR licensing is usually efficient and pro-competitive because it typically integrates complementary IP, speeds innovations to market, and encourages further innovation. (9)

The vast majority of licensing restrictions (all except naked price fixing and market division agreements that have no plausible efficiency rationales) are evaluated under the antitrust rule of reason. Under the rule of reason, enforcers ask first whether an IP licensing restraint is likely to have an adverse effect on competition, and if so, whether the restraint necessary to achieve pro-competitive benefits or efficiencies outweighs the adverse effects. For example, a licensing restraint may harm competition among actual or potential horizontal competitors in the same relevant market by facilitating market division or price fixing. (10) In addition, license restrictions with respect to one market may harm competition in another market by anti-competitively foreclosing access to, or significantly raising the price of an important input, or by facilitating coordination to increase price or reduce output. (11) Despite the potential adverse effects of a licensing restriction, there are also several pro-competitive benefits. …

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