Strong IP has a tradeoff effect with antitrust laws.

The cyclical nature of the IP-antitrust interface is understandable, given the fact that the interests that drive the strengthening of one law also push toward weakening the other. But it is not desirable. The goal of both IP and antitrust as regulatory policy should be to balance the need for incentives to innovate against the need for robust competition. We need both innovation and competition to achieve dynamic efficiency. IP laws should ideally encourage innovation up to the optimal level, but no further, because overly strong IP laws unduly interfere with competition and therefore reduce welfare unnecessarily.50 The same is true in reverse: overly aggressive competition law sometimes privileges static efficiency over innovation and therefore reduces long-term welfare. To this balance we must add another: too much emphasis on IP to encourage innovation may have the opposite effect, impeding innovation, while too much emphasis on competition in an effort to spur innovation may also prove counterproductive.

As I noted in the last section, the balance has at least until quite recently been tilted in favor of IP law and against antitrust law. There are some signs that this is changing—not yet in antitrust, where the courts have struck down even antitrust challenges against conduct by patent owners that is unquestionably anticompetitive,51 but in patent law, where the Supreme Court has intervened to reduce the power of patents in some significant respects.52 There are also reasons to think the power of patents may shrink further in the next two years, as the Court decides the KSR case53 on the obviousness standard for patentability and as Congress considers proposals for patent reform.

Whatever the current tilt and likely direction of the pendulum, our goal needs to be a world in which strong IP rights are coupled with strong rather than weak antitrust enforcement, and weak IP rights are coupled with weak rather than strong antitrust enforcement. To accomplish this, we need to recognize the importance of both doctrines. I think that requires two changes to the ways we think about the problem today.

First, much of the current vogue for IP and against antitrust comes from a myopic view of private ordering. Since Adam Smith, the case for the efficiency of a market economy over central control has been clear. But of late, it has become all too common to substitute a rather different conclusion: not that free markets are efficient, but that private decisions are. Once that switch is made, it is easy to argue that we should respect the decisions of patent owners—private, profit-maximizing entities—and devalue the contributions of courts and government antitrust agencies. But the idea that individual private decisions are socially efficient has little if anything to recommend it. Neither Adam Smith nor any other classical economist saw any reason to believe that an individual private actor would act in the public interest. Quite the contrary.54 The only reason that private decisions produce efficient results is that they are disciplined by the marketplace, so that the many greedy, short-sighted, and just plain stupid decisions businesses make every day end up hurting those businesses but not consumers, who can always turn to a smarter or better-informed rival. It is ironic indeed that advocates of private ordering at all costs have perverted Smith’s lesson to argue that we don’t need the discipline of a competitive market. Understood properly, private ordering requires vigorous antitrust enforcement.

Second, we must treat IP and antitrust law as equals. The current approach treats IP rights as having primacy within their established boundaries, and relegates antitrust to the role of policing departures from those boundaries.55 This is evident in a variety of Federal Circuit opinions, not only in the misuse context56 (where it is perhaps understandable) but in assessing fundamental questions such as the legality of conditional refusals to deal involving patents.57 While there is clearly logic to this framework—the grant of a patent must confer some rights on its owner that it would not have had in the absence of that grant, and antitrust should not interfere with those core rights—it is directly responsible for the cycles of over- and under-protection that have characterized the IP-antitrust interface. When patent rights get stronger, we want antitrust to get stronger to prevent abuses of the right; instead, it recedes, as it must in any system where its powers are determined by the bounds of the patent right. Similarly, when the patent owner’s rights are narrowed, the antitrust “sea” floods in to fill the gap, even though the risk of monopolistic abuse has been reduced.

The idea of antitrust as a supporter of innovation argues even more strongly for treating IP and antitrust as equals. On this view, both IP and antitrust are policy tools that can be used to encourage innovation and therefore promote dynamic efficiency.58 Which tool we use depends on the industry in question and the nature of the invention. Requiring one of these tools to defer to the other makes no sense, unless we conclude that one approach is always better than the other. And the evidence doesn’t support that conclusion.