The Procompetitive Interest in Intellectual Property Law
Cotter, Thomas F., William and Mary Law Review
When government recognizes intellectual property (IP) rights, it is often viewed as sanctioning the existence of private "monopolies," in contrast to the general antimonopoly thrust of the antitrust laws. And yet, on occasion IP law itself condemns conduct on the part of IP owners--or excuses otherwise infringing activity on the part of IP defendants--expressly for the purpose of promoting competition. It does so even though antitrust law--if one were to apply it at all under analogous circumstances--would not find anticompetitive harm without conducting a more thorough analysis of whether the antitrust defendant possesses power over a well-defined market. Salient examples include the misuse doctrines in patent and copyright law; some applications of merger and fair use in copyright; and trademark law's functionality doctrine. In this Article, Professor Cotter develops a theoretical explanation for that divergence between antitrust and IP. Specifically, he argues that in some limited contexts the expected social costs, including error costs, of ruling for IP defendants may be low in comparison with the expected anticompetitive harm from ruling for IP plaintiffs. As a result, IP courts sometimes may enhance welfare if they are less concerned than antitrust courts about the expected costs of "false positives," that is, cases wrongly decided against the party defending the allegedly anticompetitive conduct. Put another way, it sometimes may be appropriate for courts to excuse IP defendants from liability, in order to avert relatively speculative threats of anti-competitive harm. Professor Cotter further contends that such cases probably are more common in the copyright than in the patent law context, and that even in copyright contexts courts should be cautious about casually inferring anticompetitive harm; but that his analysis provides a rationale for a relatively expansive definition of trademark functionality.
TABLE OF CONTENTS INTRODUCTION I. THE ANTITRUST CONTEXT II. IP's PROCOMPETITIVE DOCTRINES A. Misuse B. Merger and Fair Use C. Functionality III. ANALYZING THE COSTS AND BENEFITS OF ALLEGED ANTICOMPETITIVE CONDUCT A. A Thought Experiment B. [H.sub.1] and [H.sub.2] in Antitrust Law C. [H.sub.1] and [H.sub.2] in IP Law IV. IMPLICATIONS FOR IP's PROCOMPETITIVE DOCTRINES A. Procompetitive Tools in Patent and Copyright 1. Two Problems with Misuse 2. Restrictions on Reverse Engineering 3. Restrictions on Price Discrimination 4. What Is To Be Done? B. Functionality CONCLUSION
Conventional wisdom holds that antitrust and intellectual property (IP) law seek to maximize social welfare in opposite ways, with antitrust law condemning monopolies to attain this goal and IP law granting temporary monopolies to achieve the same end. (1) This "wisdom" is an oversimplification insofar as (1) contemporary antitrust enforcers, recognizing that IP rights typically do not give rise to economically meaningful monopolies, (2) approach IP-related conduct and transactions with much less inherent suspicion than often was the case in years past; (3) and (2) antitrust law by itself does not condemn the mere possession of monopoly power, but rather certain exercises of or efforts to obtain it. (4) Nevertheless, there is a kernel of truth to the conventional characterization, to the extent that IP rights sometimes enable the exercise of a degree of market power, (5) and sometimes even permit IP owners to engage in conduct that would be unlawful absent the IP right. (6) Though subject to exaggeration, the recognition and enforcement of IP rights might be seen as an exception to the antimonopoly policy embodied in the antitrust laws.
There is another side of the coin, however, that is less frequently commented on. (7) On occasion, IP law condemns conduct on the part of IP owners--or excuses otherwise infringing activity on the part of IP defendants--for the express purpose of promoting competition. …