Reintegrating Law and Economics: Perfecting the Art of the Possible

Both lawyers and economists must bear some responsibility for the refusal to license impasse. The latter because the economics on this subject is empirically deficient, and the former because they continue to cling both to the notion that intellectual property is so special that it requires a bright-line protection denied to other potential sources of market power and that inaction is inherently more virtuous in competition terms than action. Rather than trying to find special solutions to special non-problems, it might be more fruitful to apply to them the fact-specific, right-blind approach argued for in chapter two. Under such an approach the court’s or regulator’s only task would be to determine the effect of a proposed regulatory intervention on incentive to innovate in a particular case. Whether or not innovation was protected by an intellectual property right would then be beside the point. Essentialness, exceptionality and rights to refuse would be treated as the irrelevant distractions that they really are.

As we have stressed throughout this book, the relationship between intellectual property and competition policy cannot properly be understood by looking only at one of the two halves of the problem. Thus, while neither sub-discipline can wholly cure the imperfections of the other, neither do they exist in splendid isolation from each other. If over-intensive regulation poses difficulties from a property rights perspective, the fact of over-protection in a given case cannot be entirely ignored by regulators either. Competition rules are not a substitute for intellectual property law reform, but neither can the interface between the two be constructed entirely from the inadequate materials available on the intellectual property side of this artificial and exceedingly rickety fence. Nor can the interface be successfully rebuilt unless the choices facing judges and regulators are clearly set out.

While economic analysis seldom figures directly in the jurisprudence of intellectual property enforcement, this is not due to a dearth of such analysis in the ongoing academic debate over rationales for, and the proper scope of, intellectual property rights. Commentary abounds, articulating and defending a law and economics perspective on both issues. That there are many welfare-reducing and inefficient aspects of intellectual property law as presently constituted is undoubted, but they are for most purposes beyond the reach of competition regulators unless and until they arise in competition proceedings. The expansion of the scope of intellectual property protection over the last half century may be a good or bad thing, but rolling it back or cheering it on is a matter for legislators not regulators. None of this means that courts and regulators in competition cases are required to treat intellectual property dealings as a regulatory no-go zone. Nor is competition policy a way of smoothing over trans-jurisdictional variations in the content of intellectual property rights. Intellectual property can be both the source of market power and the vehicle for its misuse, and regulators are in no way required to stop their inquiries at the boundaries of the right when these issues are properly raised in the case before them. Nor is it possible or desirable to ignore the existing contours of the intellectual property right in question when assessing future losses of innovative efficiency that might flow from a refusal to license if that is necessary to make the analysis work. Competition policy is more than a residual safety-net to be invoked only after intellectual property has done its job.

If competition policy is not an appropriate tool for fixing a broken intellectual property regime, the reverse is also the case. Intellectual property’s internal controls on over-protection cannot act as a surrogate for a coherent (and neutral) competition policy. It is true that competition values are not entirely absent from the intellectual property side of the equation. Fair use rules and public interest defences sometimes provide hooks on which to hang a competition argument with or without a legislative prompt. It is also true that in the United States, the parallel structure of abuse of rights jurisprudence, although not formally part of antitrust law in a jurisdictional sense, shadows much of its content while operating formally as a defence to infringement. Again, where user lobbying groups are strong, they may be able to secure highly specific defences to infringement in the interests of their members. Such cases are rare, as we have seen. This partial internalising of competition values by intellectual property law is too weak and unfocused, however, to provide either a counterweight to, or substitute for, competition policy.

When courts and regulators are asked to assess the allegedly anti-competitive behaviour of intellectual property owners, they may respond in any one of the following ways:

a) Permit right owners to exercise without interference any power granted to them by or under the relevant intellectual property statute, but carefully to scrutinise for anti-competitive intent or outcome any attempts to extend or enhance those powers. This is the scope of grant argument, one which allows the boundaries of the intellectual property right to define the limits of regulatory intervention.