Antitrust is comparatively better than patent law at fostering innovation

Further, the presumption of market power is gone, and today patents are regarded in most cases as no more indicative of monopoly power than are land titles or other tangible property interests.

Both antitrust policy and patent policy are properly concerned with economic welfare, although the concerns are articulated more clearly in antitrust than in patent law. At the atmospheric level, antitrust focuses on the short run, including such things as immediate pricing and output, while patent law is concerned with long run issues relating to innovation. But upon inspection this dichotomy quickly breaks down. In fact, antitrust policy has always been concerned with performance over both the short and long runs and often considers effects on innovation.

Previous studies of antitrust law and the patent system have generally assumed that issued patents are valid, discrete, and generally of high quality in the sense that they further innovation. As a result, increasing the returns to patenting increases the incentive to do socially valuable innovation, whose gains must be traded off against the losses from patent exclusion. Ward Bowman addressed this tradeoff problem by presenting the patent as a kind of walled garden, protecting everything inside from antitrust scrutiny—provided that the activity remained inside the patent’s lawful scope. He concluded: [E]valuating whether certain patent licensing practices should be sanctioned will involve the proper scope of the legal monopoly. Is more being monopolized than what the patent grants, or is the practice merely maximizing the reward attributable to the competitive advantage afforded by a patent?28

In the mid-1980s, Louis Kaplow proposed a “ratio test” that assessed antitrust practices by balancing “patentee reward” against “monopoly loss.”29 Kaplow himself recognized that the challenges in applying such a test are both “formidable” and “controversial.”30 Indeed, the relevant measurements required information about the optimal term of a patent.31 Not only is this term impossible to compute in litigation, it also varies considerably from industry to industry.32

If a patent or patent practice does nothing to further innovation, however, then any amount of social loss from increased monopoly is harmful. In that case, there is no additional benefit from innovation down the road. Because only a subset of patents are worthless, this naturally invites the question whether considerations of patent social value are a reasonable element of competition policy.

Two premises drive the approach taken here. First, any resolution of patent/antitrust conflicts must be capable of judicial administration, although legislation can provide the relevant framework. This places the “patent social value” question out of bounds in most cases because it simply cannot be answered. Second, both antitrust and patent law are “regulatory” institutions, which respond to political as well as economic pressures. An approach to harmonization that assumes that patent law always “gets it right” will lead to significant errors, just as much as an approach that makes the same assumption about antitrust. Courts need to play the hands they are dealt, which are complex statutes that at least at the verbal level have surprisingly few inconsistencies. Further, judicial statutory construction is always subject to further congressional revision, as the history of both statutory regimes amply indicates. For example, in 1914, Congress responded with § 3 of the Clayton Act to what it viewed as an irrational lack of judicial concern about patent ties.33 It also responded to Supreme Court merger decisions in 1950 with expansions of the merger law.34 For its part, patent law was amended in 1952 in order to counter what Congress perceived as overly restrictive rules on patent issuance and excessively quick findings of misuse. It further limited misuse claims in 1988.35

In the current state of the law, antitrust is doing a better job of addressing the concerns within its domain than patent law is at addressing its concerns. Indeed, antitrust law is often a more effective promoter of innovation than our current patent system is. To be sure, at various points in their history both antitrust law and patent law have engaged in considerable overreaching. Beginning in the late 1970s, however, antitrust law went through a lengthy and still ongoing process of court-imposed discipline that has brought its rules more closely into alignment with its stated concern, which is increasing consumer welfare by promoting competition. Today, antitrust cases are far more difficult to win, the per se rule is less frequently used, and we have considerably heightened the requirements of allegation and economic proof.36 By contrast, patent law has continued on an expansion course that is only now showing some signs of abating. Patent law still awaits the consumer welfare revolution that to a large extent has already occurred in antitrust doctrine. Writing in the mid-sixties, Ward S. Bowman and Robert H. Bork warned of a “crisis in antitrust,” presaging the significant reform that was to follow.37 Today we are facing a similar crisis in patent law.