CAN Antitrust KEEP UP?

Article excerpt

Competition Policy in High-Tech Markets

Not since the 1911 breakup of the Standard Oil trust has a government antitrust case attracted as much public attention as the Justice Department's thus-far successful suit against high-tech giant Microsoft.

Although its ultimate outcome may not be known for several years, the Microsoft case has generated an intense nationwide debate among antitrust practitioners and business leaders about the relevance of antitrust to high technology. The critics' central claim is that the pace of change in high tech is so rapid that antitrust, and the legal machinery within which it must operate, is too slow and potentially counterproductive. Those who defend the applicability of antitrust to high-tech firms and industries, including the federal enforcement agencies, instead see a realistic potential for promoting innovation and consumer welfare through competition policy.

Antitrust's contemporary engagement with high-tech markets, most visibly in the Microsoft case, is based on an emerging intellectual consensus about the way competition works in those markets. That consensus has been shaped importantly by two documents issued during the Clinton administration's first term--government antitrust guidelines on intellectual property licensing and a Federal Trade Commission staff report on competition policy in the high-tech global marketplace. The contemporary perspective on competition in high-tech markets is based on five core principles likely to withstand shifting political winds.

Intellectual Property

The first principle is that for antitrust purposes, intellectual property is just another form of property. A high-tech firm's patents and copyrights are no different from--indeed, are often more critical assets than--its physical property, its plant and equipment. That it may be easier to misappropriate many forms of intellectual property than to steal physical products is no reason to make intellectual property more or less suspect under the antitrust laws than any other form of property.

Consider mergers. If Coke were to acquire Pepsi or if United Airlines were to acquire American, the transaction would surely trigger an antitrust investigation, because the products and services sold by the acquired firm are likely important substitutes to customers of the acquiring firm. The analysis is similar when the key assets of the firms are rights conferred by the intellectual property laws. Federal enforcement agencies are routinely skeptical, for example, when a firm that owns the rights to one drug for treating a disease seeks to acquire a firm with the rights to another drug with a similar use. Standard antitrust doctrines also apply to mergers among rivals in "innovation markets" in which a handful of identifiable firms engage in research and development on similar new products for the same buyers, even though no new products have yet been created.

This principle--intellectual property is just property--also applies to the antitrust review of intellectual property licensing arrangements. In a recent case, the FTC charged that two leading producers of the equipment used for laser vision correction, Summit and VISX, fixed prices under the guise of an agreement to share patents. This aspect of the case was settled in mid-1998, and the two firms recently announced substantial reductions in their per-procedure fees. Similarly, in 1997 the Justice Department worked with the video compression industry to structure a "patent pool" by which nine firms could share the twenty-seven patents needed to meet an international standard without risking harm to competition.

A firm can also sometimes harm competition by cutting off a past customer. This was made clear by a 1951 Supreme Court case involving a newspaper monopolist Faced with competition for advertising revenues from a newly established radio station. The newspaper violated the antitrust laws when it refused, for no legitimate reason, to do business with advertisers that bought commercial time on the radio station. …