Perm do both solves – balance is key.

All three branches of government behave as though an innovative nation requires not only strong intellectual property protection but also freedom from antitrust restriction, while a consumer-friendly marketplace requires both the strict enforcement of pro-competition antitrust laws and the limitation of patent rights in the face of those laws. In this Part, we argue that this understanding is too limited and that, in fact, both policies promote the same goals. In the words of former FTC Chair Timothy Muris: "Properly understood, IP law and antitrust law both seek to promote innovation and enhance consumer welfare." 147 The two legal areas are interdependent-each relies on consistency and proper calibration in the other realm in order to fully achieve its own goals. We acknowledge that the two realms sometimes come into conflict and, in these instances, one must yield to the other. But patent law is fairly specifically spelled out in statute, and antitrust law is an expansive regime with "very few cracks";148 therefore, the government can implement a policy vision through enforcement choices. Instead of favoring one area at the expense of the other, courts and agencies should enforce antitrust law with an eye toward the balance between competition and company protection that Congress has enshrined in the patent law.

A. Scholarship at the Intersection

Several scholars have addressed the historic conflict between patent and antitrust law and proposed terms of reconciliation. 14 9 In 1966-during the height of antitrust supremacy-William Professor Baxter argued for judicial or legislative implementation of restrictions that resemble the later-announced "Nine No-Nos." 50

Professor Baxter emphasized that society benefits from many "competing activities of great social utility," not just innovation, and it should subsidize innovation only to the extent the subsidy could not do greater good elsewhere. 15 1 He faulted Congress for failing to consider this balance of societal assets and liabilities when fashioning patent laws. 152 Baxter argued that the patent monopoly is a justifiable tool for subsidizing innovative activity only to the extent that it permits free market valuation of inventions over administrative valuation. 153 He argued that this function is undermined when the terms of a patent license provide great value to the patentee at only a small cost to the licensee but at greater cost to third persons, such as competitors or consumers. 154 Such terms typically use the patent monopoly to restrain the sale of other unpatented goods and services. With this in mind, Professor Baxter argued that courts or Congress should prohibit license terms that calculate royalties based on licensee sales of unpatented end products and terms that restrict the licensee's price or output. 155

Presaging the pro-patent swing of the mid-1970s, Ward Bowman explained how patent monopolies can benefit consumers. In a 1973 book, he observed:

Both antitrust law and patent law have a common central economic goal: to maximize wealth by producing what consumers want at the lowest cost. In serving this common goal, reconciliation between patent and antitrust law involves serious problems of assessing effects, but not conflicting purposes. Antitrust law does not demand competition under all circumstances. Quite properly, it permits monopoly when monopoly makes for greater output than would the alternative of an artificially fragmented inefficient industry. The patent monopoly fits directly into this scheme insofar as its central aim is achieved. 156

Bowman then was among the first to articulate something akin to what we advance here: both policies foster consumer welfare. Bowman further argued that when patentees use their patents to impose vertical restrictions on licensees, they do not improperly enlarge their monopoly power. Vertical restrictions do not create market power, he argued; instead, they efficiently extract the maximum reward from the legitimate patent monopoly.15 7 Further, Bowman argued, patent licenses containing these restrictions often yield allocative efficiency gains and so may actually be desirable. Bowman advocated allowing a patentee to impose any restriction where "the reward to the patentee arising from the conditional use measures the patented product's competitive superiority over substitutes."1 5 8

Louis Kaplow, going against the grain during the Golden Age, argued in 1984 that "the conflict [between antitrust law and patent policy] runs even deeper than has generally been recognized." 1 5 9 He then developed a conceptual solution to this conflict: restrictive practices should be analyzed by looking at the ratio of patentee reward to monopoly loss. If innovative activity grows with incentives to innovate, as patent policy assumes, this ratio signifies the relationship between societal benefit and loss resulting from the restrictive practice 160-i.e., the higher the ratio, the more desirable the practice. Kaplow acknowledged that application of this ratio test could be extremely complex and unwieldy, particularly because courts and legislatures rarely have sufficient information to calculate the numerator or denominator. 161 In addition, Kaplow emphasized, courts must resolve this conflict on a case-by-case basis, whereas optimal policy would consider all cases in the aggregate. 162 However, Kaplow criticized both Baxter and Bowman for "offer[ing] a test regulating the maximum reward without offering any analysis that bears on whether the level selected is anywhere near the appropriate amount or whether that reward is achieved in the least costly manner possible." 163 Only his ratio test, he argued, accounted for all "concerns relevant to a determination of proper patent-antitrust policy." 1 6 4

This conversation has continued apace into the contemporary era. Herbert Hovenkamp has examined the conflict and concluded, like Professor Bowman, that in many situations where conflict is thought to arise-including those involving vertical restraints-the conflict is illusory and the regimes are compatible. 165 Other scholars have looked at how the changing face of innovation affects the relationship between patent and antitrust law. Mark Lemley has argued that innovation policy should be industry-specific, as some industries, such as the pharmaceutical industry, require strong patent protections to provide an adequate incentive to innovate. On the other hand, in other industries, such as Internet technology, competition is the primary driver of innovation, and innovation will increase with strong antitrust policy.166

B. A New Argument for Reconciling Antitrust and Patent Law

We contribute to this conversation by offering a new perspective: without divining a precise formula for balancing the benefits and trade-offs of these two welfare-enhancing regimes-without assessing, for example, whether Kaplow's ratio test is the ideal model for determining the permissible exercise of patent rights-we argue that there exists some optimum balance between the two. We postulate that, at some level, patent protection and antitrust enforcement together optimize innovation incentives and competition to enhance consumer welfare. Congress, which has the power to implement a coherent policy regime, is in the best position to determine this balance through observation, empirical study, and democratic pressure. The job of the courts and the executive, then, should be to realize Congress's vision by applying its rules faithfully. If Congress strikes the right balance, errors in applying either policy will undermine the effectiveness of both. If Congress strikes the wrong balance, erroneous application of the law may inhibit corrective legislation. Because Congress has written broader, more discretionary antitrust laws and more specific patent laws, faithful administration entails calibrating antitrust enforcement in order to allow patent holders to exercise the full scope of their rights.

1. A Theoretical Optimum

Although Baxter, Bowman, and Kaplow argued over precisely how to optimize the balance between patent protection and antitrust enforcement, we start with a more fundamental and less explored issue: whether there exists an optimal balance at all. We conclude that there is such a balance. At the height of the historical pendulum swings, courts and other governmental actors have suggested that one of these regimes is an enemy of good governance and the other an ally. 167 If this were the case, no balance would be necessary: government should minimize enforcement of one and maximize enforcement of the other. Conversely, if both of these regimes were unqualified goods or unqualified harms, the government should, respectively, maximize or minimize both simultaneously. We, however, agree with the FTC statement that "[c]ompetition and patent policy are bound together by the economics of innovation and an intricate web of legal rules that seek to balance the scope and effect of each policy. Errors or systematic biases in the interpretation or application of one policy's rules can harm the other policy's effectiveness." 16 8 In other words, both patent law and antitrust law are positive forces, but they can interfere with each other-in cases like Actavis, for example-and so must be balanced accordingly.