Patent licensing monopolies are anti-competitive

An area of particular concern should be the use of patents and patent licensing strategies to diminish competition or put up roadblocks to new entrants. Policymakers should certainly not support these abuses of the patent system, and indeed should take steps to prevent them.

In the mobile communications space, patent licensing already plays an outsized role. There are reportedly between 250,000 181and 314,000 182patents on the smartphone alone, and litigation over cell phone technologies has lasted decades by now. Patents will thus inevitably have an impact on technologies like 5G or the Internet of Things, so the question is what that impact will be.

Patents are supposed to encourage innovation, but research finds that patents alone will not do so; competition is another requirement. A 2015 study considered the impact of competition policy and patent strength on innovation among European firms, measured in terms of research and development spending. 183 Initially, the study compared firms in countries with strong patent laws against those in countries with weaker patent laws, and found that patent protection has "no effect on R&D intensity," a conclusion consistent with multiple other studies. 184 However, the study found that when a major [*400] competition reform went into effect, strong-patent countries enjoyed a boost in innovation greater than that experienced in weak-patent countries. 185 In other words, strong patent protection is complementary to strong competition; the former does not promote innovation without the latter. The practical import of this research is that patent protection is beneficial up to a point, but to the extent that patents--or, more commonly, legal strategies involving patents--overreach to suppress competition, that overreach should be cause for concern.

Yet today, strategic patent behavior contrary to competition is prevalent. The Federal Trade Commission's ongoing lawsuit against mobile phone chip manufacturer Qualcomm, for example, challenges Qualcomm's practice of refusing to sell chips to any phone manufacturer who does not first pay a hefty sum for patent licenses--even if the manufacturer does not actually have need for all those licenses. 186 To the extent that Qualcomm's "no license, no chips" practice is in fact anticompetitive--that is what the courts overseeing the case will decide--monopolization of that market could substantially harm cybersecurity for the reasons noted above. 187The company's about-50% market share in the advanced mobile chip market 188means that there is a virtual monoculture of Qualcomm chips already, and there are ongoing concerns about security vulnerabilities in those chips. 189 It is thus puzzling that some have opposed the FTC litigation on the grounds that it is making the United States "less competitive in the global 5G arms race." 190 As one scholar explains, this rhetoric "smacks of 'national champion' thinking" and ultimately fails to ensure that "national security warnings are being balanced against competitive imperatives." 191

With respect to emerging information technologies, policymakers should be concerned that a leading firm could undertake similar patent licensing strategies to control the market. Indeed, the district court in the Qualcomm litigation found that Nokia and Ericsson already "have imitated Qualcomm's practice" because it is "more lucrative." 192

[*401] If patents end up being used systematically to suppress competition in undue ways, then policymakers will need to pay greater attention to the consequences of those uses of patents for national security, and likely take legislative steps to reduce anticompetitive uses of patents. History provides a guide for doing so. The legislative response to American inferiority in pre--World War I aviation was the creation of a federal patent pool backed by federal permission to condemn patents on aircraft, 193and the response to Bayer's hardball licensing of Cipro was for the government to use hardball negotiations backed by § 1498. 194