would not increase the monopolist’s market share.”10 In fact, lists may insulate their market power by obstructing competitors frominnovating technology that would compete against their
The Evolution of the Antitrust–Patent Paradox
Traditionally, there was little expectation that antitrust law could foster scientific progress In fact, the patent system—the primary body of law meant to stimulate innovation—was thought to be the main engine driving invention, with antitrust rules not expected to play a central role in accelerating scientific advancement.
27 VBR Tours, LLC v Nat’l R.R Passenger Corp., No 14-CV-00804, 2015 WL
225328, at *5 (N.D Ill Jan 15, 2015) But see Teladoc, Inc v Tex Med Bd., 112
F Supp 3d 529, 537 (W.D Tex 2015) (dismissing for the lack of an antitrust injury despite the plaintiffs’ pleading harms to innovation); OverEnd Techs, LLC v Invista S.A.R.L., 431 F Supp 2d 925, 930 (E.D Wis 2006).
See infra Section III.C This section analyzes the conflict with antitrust enforcement and explains how antitrust law has unexpectedly become a catalyst for innovation, while also highlighting the persistent tension between antitrust policy and the patent system.
Often called the patent–antitrust paradox, the idea is that patent rights and antitrust objectives seem misaligned: antitrust enforcement fights monopolies and exclusionary conduct, while patents confer exclusionary rights and market power Yet these tools can together spur innovation when balanced The thread traces back to 1623 and the Statute of Monopolies, which curtailed the Crown’s power to grant patent monopolies, a history that still shapes U.S law today, where each patent is viewed as a limited form of antitrust immunity that may authorize exclusionary behavior otherwise prohibited by antitrust rules.
Since the mid‑twentieth century, a vibrant and ongoing debate has questioned whether antitrust can actually foster innovation when used as a complement to the patent system At the core of this literature are seminal contributions by economists who laid the theoretical foundations for understanding how competition policy interacts with intellectual property to influence innovation The discussion continues today, shaping ideas about how best to align antitrust enforcement with patent incentives to promote technological progress.
29 FTC v Actavis, Inc., 133 S Ct 2223, 2238–39 (2013) (Roberts, C.J., dissenting) (discussing patents as an exception to antitrust law); see, e.g., Michael A Carrier,
Unraveling the Patent–Antitrust Paradox, 150 U P A L R EV 761, 762–63 (2002) (explaining the conflicting nature of patent and antitrust laws); Erik Hovenkamp
Thomas F Cotter's "Anticompetitive Patent Injunctions" explains the deliberate trade-off inherent in patents: they foster long-term economic growth by incentivizing innovation, but this comes at the expense of short-term efficiency, as patent rights grant monopoly power and other exclusionary privileges.
Adam Mossoff’s Rethinking the Development of Patents (1550–1800) argues that, despite King James I’s verbal limits on royal monopolies, the de facto abuse of royal prerogative persisted, leading Parliament to enact the Statute of Monopolies in 1623 This line of analysis is complemented by John F Duffy’s Inventing Invention: A Case Study of Legal Innovation, which examines how legal reform shapes the development and governance of patent policy.
(2007) (noting the Statute of Monopolies’ importance in both antitrust and patent law); Edward C Walterscheid, Inherent or Created Rights: Early Views on the Intellectual Property Clause, 19 H AMLINE L R EV 81, 82–83 (1995).
Patents are an explicit exception to antitrust law, and the scope of the patent—the rights it confers—defines the zone within which the patent holder may operate without antitrust liability (Actavis, 133 S Ct at 2238) They are described as an exception to the general rule against monopolies and to the right to access a free and open market (King Drug Co of Florence v Smithkline Beecham Corp., 791 F.3d 388, 394 (3d Cir 2015)) And while a patent gives its holder a bundle of rights, any new exclusionary rights purchased to add to that bundle do not fall within the scope of the patent grant and thus do not fall within the patent's antitrust immunity (FTC v Watson Pharm., Inc., 677 F.3d 1298, 1308–09 (11th Cir 2012)).
Joseph Schumpeter and Kenneth Arrow who debated whether mar- kets animated by competition or monopoly power better incentivize innovation 32
Schumpeter contended that monopolies are better positioned to stimulate innovation because they can marshal resources for long‑term planning and hedge against failed ventures While he did not focus on patent rights, his findings dovetail with the modern view of intellectual property: without a patent‑enabled zone of exclusivity, would‑be innovators face free riding, as rivals could copy and sell the invention without bearing development costs, eroding incentives to innovate It is only when patent rights grant this zone of exclusivity that actors are likely to invest in new ideas.
Decades after Schumpeter, Kenneth Arrow challenged the idea that concentrated market power spurs invention, arguing instead that it tends to hinder innovation He contended that firms have less incentive to innovate when competition is limited, and that they are most likely to produce new ideas when rivals threaten their market power with more innovative, competitive goods Arrow’s conclusions have since persuaded scholars and policymakers that antitrust law can foster innovation by unsettling monopolies and prohibiting anticompetitive practices.
To illustrate antitrust’s potential to promote innovation, consider a merger between the two dominant firms in a market Upon closing, the surviving firm may face reduced incentives to innovate if it can no longer increase its market power through new products or processes With less competitive pressure, dynamic efficiency and the drive to invest in breakthrough technologies can wane, potentially slowing long‑term growth Antitrust oversight aims to preserve contestability and maintain the incentive to innovate, sometimes through remedies that prevent harmful consolidation while still allowing efficiency gains.
33 Carrier, supra note 12, at 403 (summarizing J OSEPH A S CHUMPETER , C APITALISM ,
Schumpeter’s theory that monopolies can spur innovation has become a touchstone in patent debates Eisenberg (1989) notes that exclusive rights and experimental use can, under certain conditions, promote technological progress, suggesting that patent monopolies might foster invention even though Schumpeter did not center his analysis on patents Carrier (2003) addresses the patent–antitrust paradox through tripartite innovation, highlighting how the incentive to copy an invention changes when patent rights are absent Taken together, these perspectives illuminate how exclusive rights, competitive dynamics, and the incentives to innovate shape progress in science and technology.
37 Kenneth J Arrow, Economic Welfare and the Allocation of Resources for Inven- tion, in T HE R ATE AND D IRECTION OF I NVENTIVE A CTIVITY : E CONOMIC AND S OCIAL
F ACTORS 609 (1962); Baker, supra note 9, at 578 (“Arrow, a Nobel Prize-winning economist explained in 1962 that a monopolist might innovate less than com- petitive firms because a monopolist has less to gain.”).
Competition law can promote innovation by preventing mergers that lessen competitive pressure, since blocking a deal can preserve both rivalry and the incentive to develop new products A 2015 example shows how antitrust action can protect this balance: Pfizer sought to acquire Hospira, then owner of the leading arthritis drug, raising concerns that the merger would grant Pfizer monopoly power in the arthritis drug market and potentially curb its ongoing drug development To address these concerns, the European Union Competition Committee conditioned approval on Pfizer selling the rights to its prospective arthritis drug to a competitor, a move aimed at preserving competition and safeguarding continued innovation.
Courts have carved out a limited immunity for patentees under antitrust law, allowing them to act within the scope of their patent rights, but determining when an exclusionary act goes beyond the patent grant and thereby violates antitrust law remains a difficult task Advocates of strong patent rights tend to favor a laissez-faire approach to disputes involving innovation, while proponents of antitrust argue for a narrower definition of patent rights Few cases illustrate more clearly the challenge of drawing the line between patent and antitrust law than Ac-
40 Baker, supra note 9, at 592; see Carrier, supra note 12; supra text accompanying note 12.
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Margrethe Vestager, the European Commissioner for Competition, explained that the EU reviewed Pfizer’s proposed merger with Hospira and approved it only after Pfizer agreed to divest European rights to an arthritis drug it was developing The concern was that Hospira already had a competing drug on the market, and the merger might prompt Pfizer to slow or halt development of its own drug, reducing the innovation patients depend on Protecting innovation is a core aim of EU merger policy, to the point that the Commission is considering tighter rules to safeguard it more effectively.
The Antitrust Agencies, Enforcement, and Innovation
This Part discusses the manner in which both the government and private parties have sought to litigate reduced innovation under each of the antitrust statutes: the Sherman Antitrust Act (Sherman Act),the Federal Trade Commission Act (FTC Act), and the Clayton Anti- trust Act (Clayton Act) Although government efforts have tended to follow a conventional path, there are salient, unaddressed questions concerning whether, or in which situations, private parties may chal- lenge this type of harm.
Merger Review and Enforcement
In 1992, the FTC and DOJ first suggested in a footnote of the agen- cies’ joint merger guidelines that their authority to contest corporate acquisitions could promote innovation 56 This assertion was made pursuant to their authority under section 7 of the Clayton Act, which provides the agencies may challenge business combinations that “sub- stantially lessen competition, or tend to create a monopoly.” 57 Shortly thereafter, the agencies cited decreased innovation when blocking several combinations, such as Medtronic’s merger with Physio-Control 58 Then, in 2010, the agencies updated their merger guidelines to formally incorporate innovation into the review pro- cess 59 This directive announced the agencies would consider chal- lenging acquisitions that “encourag[e] the merged firm to curtail its innovative efforts below the level that would prevail in the absence of
56 U.S D EP ’ T OF J USTICE & F ED T RADE C OMM ’ N , M ERGER G UIDELINES 2 n.6 (1992).
57 Clayton Act § 7, 15 U.S.C § 18 (2012); see, e.g., FTC v Staples, Inc., 190 F Supp. 3d 100 (D.D.C 2016).
58 Complaint at *2, In re Medtronic, Inc., No C-3879, 1998 WL 918352 (F.T.C Dec.
Antitrust authorities have repeatedly challenged mergers on competition grounds, arguing that large consolidations can diminish rivalry, raise prices, and slow innovation In a representative claim, the DOJ argued that Medtronic’s acquisition would substantially eliminate competition in the defibrillator market, likely leading to higher prices and reduced innovation The Department of Justice has pursued similar lawsuits in other industries, as evidenced by complaints in United States v Echostar Communications Corp (No 1:02-CV-02138, D.D.C Oct 31, 2002); United States v Manitowoc Co (No 02-0159, 2002 U.S Dist LEXIS 25705, D.D.C July 31, 2002); and United States v Kimberly-Clark Corp (No 3:95-CV-3055-P, 1996 WL 351145, N.D Tex Apr 4, 1996).
Aspen Technology, Inc., No 9310, 2003 FTC LEXIS 178 (F.T.C Aug 6, 2003).
59 U.S D EP ’ T OF J USTICE & F ED T RADE C OMM ’ N , H ORIZONTAL M ERGER G UIDELINES
23 (2010). the merger.” 60 Since these events, merger review has become the dom- inant area of antitrust enforcement used to challenge conduct that threatens to imperil innovation.
In 2015, shareholders and directors of Tokyo Electron and Applied Materials approved a $9 billion merger to form the new company Eteris; the DOJ, in a novel decision, challenged the acquisition not for harming current competition but because it threatened innovation and future competition, with regulators fearing that eliminating a major competitor in the semiconductor market could dampen long‑term innovation.
Regulators examine whether a merger could weaken innovation competition by encouraging the combined company to scale back its innovative efforts below the level that would occur absent the merger This reduction in innovation can show up as a decreased incentive to continue current product-development initiatives or to start work on new products.
61 Daisuke Wakabayashi et al., Applied Material to Acquire Tokyo Electron, W ALL
S TREET J (Sept 25, 2013), https://www.wsj.com/articles/SB100014240527023037
59604579094770528224330 (observing that the new corporation would be valued at twenty-nine billion dollars).
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Forbes’ June 18, 2015 analysis by Reuben Miller argues that strategic missteps doomed the Applied Materials–Tokyo Electron merger, despite expectations of smooth regulatory clearance The deal’s supporters were guided toward a path of easy approvals, and most merger-arbitrageurs saw little reason to worry, even as the regulatory review stretched beyond its normal shelf life The mindset that the deal was essentially closed persisted—captured in the idea that regulators would sign off without issue and that timing risks were negligible—an outlook that ultimately helped undermine the merger’s execution and outcome.
64 B ERNARD A N IGRO , J R ET AL , F UTURE C OMPETITION P OSES P RESENT R ISK TO
Deals 1 (2015) reports that Applied Materials, Inc abandoned its 18‑month pursuit of Tokyo Electron Limited after antitrust concerns raised by the U.S Department of Justice’s Antitrust Division and foreign regulators regarding potential harm to future industry innovation In Mergers that Diminish Innovation, Andre Barlow uses this case to illustrate how major mergers can invite substantial regulatory scrutiny and threaten long‑term innovation.
The Antitrust Division blocked the Applied Materials–Tokyo Electron merger because the deal would diminish innovation by reducing head-to-head competition in the development of future cutting-edge semiconductor products, not by creating monopolies in current markets This outcome reflects a tough stance toward transactions that threaten longer‑term competitiveness, even when there is no prior pricing evidence to show anticompetitive effects After eighteen months of attempts to address the concerns, AMAT and Tokyo Electron were unable to satisfy the DOJ, marking likely the first instance of a merger being blocked on almost exclusively innovation grounds.
Nonmerger Antitrust Claims
The agencies are expected to pursue litigation addressing reduced innovation in other areas of antitrust law, including claims arising under Sections 1 and 2 of the Sherman Act Section 1 bans contracts or agreements that unreasonably restrain trade, while Section 2 forbids using exclusionary means to monopolize or attempt to monopolize any part of the trade or commerce Although the FTC does not enforce the Sherman Act—this is the role of the Department of Justice—Section 5 of the FTC Act proscribes unfair methods of competition (and related unfair or deceptive practices) in or affecting commerce.
“unfair methods of competition,” which encompasses the same harms that may predict that the merger will result in higher prices regarding actual products.”).
On April 27, 2015, the U.S Department of Justice announced that Applied Materials, Inc., and Tokyo Electron Ltd abandoned their planned merger after the DOJ rejected the proposed remedy to resolve antitrust concerns; the decision was detailed in a DOJ press release and corroborated by a Wall Street Journal report by Brett Kendall and Don Clark.
Industry observers warn that the proposed acquisition could reduce competition between two firms with the technical know-how and capacity to manufacture machinery for companies building state-of-the-art semiconductor chips By narrowing the field of suppliers, the deal could limit choices for chipmakers and slow the pace of innovation in next-generation manufacturing technology In short, the transaction raises concerns about potentially hindering progress in the semiconductor industry.
66 Antitrust Concerns Thwart Tokyo Electron, Applied Materials Merger, N IKKEI
An April 30, 2015 article in Nikkei Asian Review explains that antitrust concerns thwarted the proposed Tokyo Electron–Applied Materials merger, prompting the two companies to abandon the deal after regulatory scrutiny; the piece analyzes the implications of the antitrust review and reviews the decision to terminate the merger due to competition concerns in the semiconductor equipment industry.
The Sherman Act's Section 1 prohibits any contract, combination in the form of a trust or conspiracy that restrains trade or commerce among the states or with foreign nations, making such agreements illegal, and any added limitations that the challenged conduct must be unreasonable come from judicial common law To prevail under Section 1, a plaintiff must show (1) that there was a contract, combination, or conspiracy, and (2) that the agreement unreasonably restrained trade under either a per se rule of illegality or under the rule of reason analysis This framework is reflected in Reg’l Multiple Listing Serv of Minn., Inc v Am Home Realty Network, Inc., 960 F Supp 2d 958, 979 (D Minn 2013).
69 § 2; see, e.g., In re Adderall XR Antitrust Litig., 754 F.3d 128, 133 (2d Cir 2014)
Under antitrust law, an offense requires both monopoly power in the relevant market and the willful acquisition or maintenance of that power, not simply growth or development resulting from a superior product, business acumen, or historic accident (Verizon Communications Inc v Law Offices of Curtis V Trinko, LLP, 540 U.S 398, 407 (2004)) Because such willful exclusion is prohibited by the Sherman Act, the FTC operates with parallel authority to the DOJ to investigate and remedy anticompetitive behaviors.
An early antitrust case linking innovation to a challenge of an exclusionary IP arrangement occurred in 1994, when the DOJ charged that Pilkington PLC’s licensing of its patented float glass technology violated Section 2 of the Sherman Act The lawsuit claimed that Pilkington granted each licensee a geographic monopoly on selling its float glass—even after the patents had expired—thereby discouraging licensees from developing their own float glass systems and potentially violating antitrust law In 1995, the FTC and DOJ issued guidelines outlining when IP-related contracts may violate antitrust law, a stance the agencies reaffirmed in their 2017 guidelines While authorities have been slower to embrace innovation-based claims in nonmerger cases, filings in this area have increased.
70 Herbert Hovenkamp, The Federal Trade Commission and the Sherman Act, 62
The Supreme Court has established that the FTC’s power to condemn unfair methods of competition includes all topics addressed by the Sherman Act and extends beyond them to reach a penumbra of practices not explicitly covered by the Act.
71 See Richard J Pierce, Jr., The Rocky Relationship Between the Federal Trade Commission and Administrative Law, 83 G EO W ASH L R EV 2026, 2033–34
(2015) (discussing the agencies’ parallel jurisdictions).
According to the complaint in United States v Pilkington PLC (No 94-345, 1994 WL 750645, D Ariz Dec 22, 1994), the government's express goal in filing the antitrust suit against Pilkington was to spur innovation that had been repressed by anticompetitive conduct, a claim discussed by Anne K Bingman, Assistant Attorney General for the Department of Justice’s Innovation and Antitrust Division, in her July 29, 1994 address.
73 Complaint at 9, Pilkington PLC, 1994 WL 750645; Keith Bradsher, U.S Sues British in Antitrust Case, N.Y T IMES (May 27, 1994), http://www.nytimes.com/ 1994/05/27/business/us-sues-british-in-antitrust-case.html.
74 U.S D EP ’ T OF J USTICE & F ED T RADE C OMM ’ N , A NTITRUST G UIDELINES FOR THE
When a licensing arrangement could hinder the development of new or improved goods or processes, the Agencies will assess the impact as a distinct competitive effect in the relevant goods or technology markets, or as a separate effect within an innovation market.
75 U.S D EP ’ T OF J USTICE & F ED T RADE C OMM ’ N , A NTITRUST G UIDELINES FOR THE
L ICENSING OF I NTELLECTUAL P ROPERTY (2017) [hereinafter 2017 A NTITRUST
Antitrust complaints across agencies and courts highlight concerns about anticompetitive conduct: the FTC complaint states that Qualcomm’s anticompetitive practices have suppressed innovation, and other federal actions reference United States v National Association of Realtors (No 05C-5140, 242 F.R.D 491, 2007), United States v Microsoft Corp (No 98-1232, 2001 WL 34133964, D.D.C Nov 2, 2001), and In re Transitions Optical, Inc (No C-4289, 2010 WL 1804580, Complaint at 1).
(F.T.C Apr 22, 2010) (“Transitions has improperly maintained its monopoly power by engaging in exclusionary acts and practices, which include entering into exclusive dealing arrangements that foreclose its rivals from key distributional
Private Actors Enforcing Innovation
Case Studies
Two early case studies evaluate whether antitrust enforcement can promote scientific progress by remedying diminished innovation, showing that a dominant firm may use a merger or restraint of trade—alone or in combination—to sustain market power and dampen the market’s rate of innovation A third example adds nuance, indicating that even if exclusionary behavior harms invention and discovery, it remains difficult to determine whether antitrust enforcement is likely to promote innovation or to compound the problem.
Boston Scientific’s Merger and Consent Order
A notable example of antitrust policy fostering innovation is Boston Scientific’s acquisition of its main rival, Cardiovascular Imaging Systems (CVIS), in the catheter market At the time, the field was characterized by rapid technological progress, and competition between the two firms acted as a major catalyst for catheter innovation The rivalry even spilled into patent litigation, with each side accusing the other of infringements From Boston Scientific’s perspective, the acquisition would allow it to capture CVIS’s patent portfolio, reduce the intense competition, and dampen the ongoing R&D arms race that had been driving the industry’s rapid advancement.
The FTC challenged the proposed catheter market merger, arguing that removing one of the two dominant competitors—who together controlled around 90% of the market—would likely undermine the industry’s rate of innovation The agencies based their position on a market-competition theory that high concentration reduces competitive pressure and thus stifles innovation.
103 United States v Bos Sci Corp (Boston Scientific V), 253 F Supp 2d 85 (D. Mass 2003).
104 Id at 89 (“In a game of one down-manship, each competed to create smaller and smaller diameter catheters.”).
Within the framework of the prospective merger, CVIS stood out as the jewel because its intellectual property was highly coveted by Boston Scientific, which was pursuing CVIS’s IP while the two companies were embroiled in a patent infringement dispute over IVUS technology The rivalry between Boston Scientific and CVIS was intense, and that competition was a major catalyst for catheter innovation.
108 Id at 90–91; In re Bos Sci Corp (Boston Scientific I), No 951-0002, 1995 WL
FTC allegations noted that these acquisitions would likely raise IVUS catheter prices and dampen product innovation The elimination of competition after HP left the market would leave the surviving firm with little incentive to develop products that could compete against the acquired catheter technology To approve the merger, the FTC required a consent order: Boston Scientific would license certain patents to HP on a perpetual, royalty-free basis By granting these licenses, the FTC expected ongoing competition between Boston Scientific and HP to maintain low prices and sustain innovation in catheter technology.
Even after the FTC permitted the merger, the agency and HP alleged in separate antitrust actions that Boston Scientific breached the consent order by refusing to license certain catheter patents to HP, effectively pushing HP out of the catheter market HP had sold an automatic pull-back device that incorporated patents listed in the consent order, yet Boston Scientific allegedly threatened HP and its customers with infringement lawsuits if the device continued to be used, causing HP’s sales to plummet HP’s and the FTC’s claims argued that Boston Scientific’s tactics violated the Sherman Act by attempting to monopolize the market, a view the court agreed with, finding that the conduct harmed catheter innovation and the public Dr Schumann, the FTC’s expert, testified that the lack of competition reduced Boston Scientific’s incentive to invest in catheter research and development, with the introduction of new and improved coronary and peripheral catheters sharply declining after the 1995 CVIS acquisition and further diminishing after HP exited the market in 1998.
109 See In re Bos Sci Corp (Boston Scientific II), 119 F.T.C 549, 553 (1995) (“It will likely result in diminished product innovation in IVUS catheters ”).
Under the consent order referenced in Boston Scientific I, 1995 WL 87948, at *3, the Respondent must, in good faith and pursuant to the agreement, grant, at no minimum price and with no ongoing royalties, a perpetual, non-exclusive license to the IVUS Technology Portfolio, and it must also retain the right to grant exclusive sub-licenses to any portion of that portfolio.
The license is intended to create an independent competitor in the development, production, and sale of IVUS catheters and to remedy the lessening of competition caused by the CVIS Acquisition This objective is supported in the cited case, United States v Boston Scientific Corp (Boston Scientific IV), 167 F Supp 2d 424, 427 (D Mass 2001).
In Boston Scientific IV, the court recounts the government's claim that Boston Scientific violated the FTC’s order by failing to license the Webler patent to Hewlett-Packard The same licensing issue is addressed in Hewlett-Packard Co v Boston Scientific Corp (Boston Scientific III), 77 F Supp 2d 189, 194 (D Mass 1999).
Boston Scientific alleged that HP was not authorized to use its pullback patent and threatened to sue HP for patent infringement The company also warned customers that HP’s pullback device infringed a Boston Scientific patent and threatened to sue customers who continued to use the HP automatic pullback device.
HP designed and developed a catheter named Scout and provided its technical specifications to Boston Scientific so the catheter would operate with BSC consoles; however, BSC did not implement the requested interface HP argues in its motion to dismiss that Boston Scientific engaged in predatory conduct that injured the competitive process, drove HP out of the market, and deprived consumers of a meaningful choice of competing, innovative products.
Breaching the consent order in the Boston Scientific–CVIS merger produced the precise anticompetitive and anti-innovative outcomes feared by the FTC Normally, evaluating whether a merger would reduce innovation requires imagining a counterfactual that rarely exists; in this case, the breach allowed those feared effects to unfold After the acquisition, Boston Scientific cut its R&D budget and spent less on innovation from 1999 to 2001 than in 1998 alone A court noted that the merger and related exclusionary conduct halted development of Boston Scientific's $4.1 million “Cadillac” catheter intended to compete with HP’s device Without HP in the market, Boston Scientific had little incentive to invest in such a capital-intensive project, stifling industry innovation Although HP and Boston Scientific eventually negotiated a settlement, the court overseeing the FTC action ordered Boston Scientific to pay a seven-million-dollar penalty for reducing competition and innovation.
Boston Scientific demonstrates how anticompetitive conduct after a merger can curb innovation Following a merger with its primary rival, the company used exclusionary tactics to safeguard its market power, prompting both Boston Scientific and its competitors to curb research and development This reduction in R&D activity led to a less innovative market overall, a pattern that echoes similar issues in subsequent cases.
HP alleges that by not making a meaningful effort to do so, BSC sought to render the catheter commercially unsuccessful in furtherance of BSC’s objective to monopolize the catheter and console markets HP claims this refusal violated BSC’s obligations under the consent order.
115 Id.; see also United States v Bos Sci Corp (Boston Scientific V), 253 F Supp 2d
85, 99 (D Mass 2003) (“[T]he elimination of competition immediately after HP left the marketplace led to a decline in catheter innovation [and] eliminated BSC’s incentive to invest in research and development.”).
117 Id (“BSC cancelled the $4.1 million ‘Cadillac’ project to design a new 3.5 French catheter—which was intended to stave off competition from [HP’s] Scout—after
HP decided to leave the market No new catheters were introduced in 1999, after HP’s exit, and only 1 new catheter was introduced in each of 2000 and 2001.”).
119 Id at 99; United States v Bos Sci Corp (Boston Scientific IV), 167 F Supp 2d
Qualcomm’s Attempt to Dominate the Market for
Qualcomm has faced more than a decade of allegations that its exclusionary tactics harm consumers and markets The dispute began in 2005 when Broadcom filed the initial antitrust suit against Qualcomm, later joined by the FTC and Apple Each suit contends that Qualcomm abused its position as the owner of essential standard-setting technology in the cellphone industry to suppress innovation.
Cellphones comprise components from many different companies, and compatibility among those parts is essential for proper operation Standards-setting organizations (SSOs) coordinate manufacturers and products by establishing industry standards, which often incorporate technologies developed and owned by private parties If a selected technology is patented, its owner could demand supra-competitive prices because competitors must license it To mitigate this problem, SSOs require patent owners to license the relevant patents on fair, reasonable, and non-discriminatory (FRAND) terms as a condition of incorporation.
According to Broadcom’s complaint, Qualcomm induced the Euro- pean Telecommunications Standards Institute (ETSI) to adopt its chipsets by promising to license the relevant patents on FRAND
121 Broadcom Corp v Qualcomm Inc., No 05-3350 (MLC), 2006 WL 2528545 (D.N.J. Aug 31, 2006), aff’d in part, rev’d in part, and remanded, 501 F.3d 297 (3d Cir. 2007).
122 Susan Decker et al., Apple Sues Qualcomm over Patent Royalties in Antitrust Case, B LOOMBERG T ECH (Jan 20, 2017), https://www.bloomberg.com/news/arti- cles/2017-01-20/apple-sues-qualcomm-over-patent-royalties-in-antitrust-case [http://perma.unl.edu/WE9U-73CW].
124 Id (“Various companies manufacture such chipsets, and the phones into which they are incorporated To function properly, however, cell phones and chipsets made by different manufacturers must be capable of interfacing with each other.
To ensure the interoperability of different cell phones, the wireless industry works with several standards development organizations (‘SDOs’) to develop wireless communication standards.” (citations omitted)).
125 See Mark A Lemley, Intellectual Property Rights and Standard-Setting Organi- zations, 90 C AL L R EV 1889, 1891–92 (2002) (discussing standard-setting orga- nizations and their effects on promoting innovation).
An SDO may require a patent-holder to license the patent on fair, reasonable, and non-discriminatory (FRAND) terms before it agrees to incorporate the patent into the standard, a rule designed to prevent the patent-holder from gaining an unfair advantage when the patent is included in the standard In this case, Qualcomm allegedly had no intention of honoring that obligation; instead, it demanded exorbitant prices reflecting the market power ETSI had granted it, absconding from its promise to charge “fair” royalty rates.
Broadcom alleged that Qualcomm licensed SSO technology on a discriminatory basis, with Qualcomm purportedly offering cheaper rates to customers who licensed its non-SSO products and disadvantaging those who patronized its competitors The complaint asserted that this tactic eroded competition and stifled innovation, since rivals had little incentive to develop technology that consumers were unlikely to purchase, thereby abrogating its FRAND commitments.
Qualcomm, which commands about 90% of the CDMA-path chipset market, allegedly used its pricing power in that market to coerce cellular manufacturers into purchasing only Qualcomm-manufactured UMTS-path chipsets These actions are alleged to be part of Qualcomm's strategy to secure a monopoly in the UMTS chipset market, driven by the belief that competition in UMTS would pose a long-term threat to its existing CDMA monopolies.
As a result, Qualcomm may have violated §§ 1 and 2 of the Sherman Act by using its market power to unreasonably exclude competition and preserve its dominant position 133
After the U.S District Court for the District of New Jersey dismissed the complaint for failure to state a claim, the U.S Court of Appeals for the Third Circuit reversed, ruling in Broadcom’s favor and overruling the district court.
The Broadcom v Qualcomm case centers on claims that Qualcomm duped ETSI and other standards bodies into embedding its proprietary technology in the UMTS standard by promising to follow their policies, then violated those promises by licensing the technology on non-FRAND terms.
131 FTC Complaint, supra note 16, at 20 (“[R]educed sales and margins resulting from Qualcomm’s tax diminish[ed] competitors’ abilities and incentives to invest and innovate.”).
In Broadcom, the court concluded that the Complaint’s allegations describe actions that harmed competition and undermined innovation in the UMTS chipset market These specific factual assertions of anticompetitive conduct are sufficient to satisfy the first element of an attempted monopolization claim.
Taken together, the cited passages convey that Broadcom contends that intentionally pursuing monopoly power by deceiving a standards‑development organization violates antitrust law, and that Qualcomm engaged in pricing and incentive practices that favored its own UMTS chipsets—charging double royalties to UMTS handset manufacturers who used non‑Qualcomm UMTS chipsets while offering discounts, incentives, and payments to manufacturers that used only Qualcomm UMTS chipsets.
Broadcom Corp v Qualcomm Inc., the District of New Jersey held that Qualcomm’s alleged monopolization rested on exploiting its patent rights, which the court treated as creating a legalized monopoly and thus not infringing antitrust laws; on appeal, the Third Circuit affirmed in part, reversed in part and remanded the case (501 F.3d 297).
In 2007, concerns about monopoly power arising from deception of a Standard-Setting Organization could run afoul of the Sherman Act The court determined that Qualcomm gained an unfair ability to charge prices in excess of what its patents would have ordinarily garnered The lawsuit culminated in an $891 million settlement in Broadcom’s favor.
The saga expanded in January 2017 when the Federal Trade Commission filed an antitrust lawsuit alleging that Qualcomm continued to breach its FRAND commitments, and three days later Apple joined Broadcom’s and the FTC’s actions, arguing that Qualcomm violated the Sherman Act by tying royalty rates to the value of technology developed and owned by others Under this claim, if Apple introduced breakthrough technology that boosted iPhone demand and price, Qualcomm—holding essential standard‑setting technology used in the iPhone—could raise its royalties to reflect Apple’s innovation Apple contended that Qualcomm was abusing its position as a standard setter to tax the innovations of others, yielding supra‑competitive profits for Qualcomm and suppressing innovation in violation of the Sherman Act.
Misstating deployment costs for a technology during standard-setting can create an unfair edge and skew the competitive process toward that technology’s inclusion in the standard While a patent provides a lawful monopoly on the claimed invention, its value is muted when viable alternative technologies exist; that value can rise substantially once the patent is incorporated into a formal standard.
137 Brooke Crothers, Qualcomm, Broadcom Reach $891 Million Settlement, CNET (Apr 27, 2009), https://www.cnet.com/news/qualcomm-broadcom-reach-891-mil- lion-settlement [http://perma.unl.edu/9MAM-E83T].
138 Brett Kendall, Federal Trade Commission Files Antitrust Lawsuit Against Qualcomm, W ALL S TREET J (Jan 17, 2017), https://www.wsj.com/articles/federal- trade-commission-files-antitrust-lawsuit-against-qualcomm-1484689732.
139 Redacted Complaint at 56, Apple Inc v Qualcomm Inc., No 17CV0108 GPC NLS, 2017 WL 3966944 (S.D Cal Jan 20, 2017).
The Dilemma of Creating Antitrust Liability in the
An Empirical Analysis of Antitrust’s Influence on
Using a new dataset and quantitative methods, this part examines whether antitrust law promotes innovation The history of antitrust provides a natural laboratory for empirical study because enforcement has fluctuated over time, creating variations that yield strong statistical results For example, private antitrust cases rose steadily in the early 1980s even as the broader antitrust revolution reduced private litigation, and private actions spiked again during the height of the Great Recession in 2006–2008 Government-initiated antitrust actions, meanwhile, have generally escalated since the 1960s, though there were declines during Ronald Reagan's presidency before reemergence under subsequent administrations.
Because antitrust enforcement has varied in intensity over time, researchers can use robust statistical analysis to assess how the rate of innovation responds to these changes The results show, with a high level of confidence, that innovation rates shift in relation to increases and decreases in antitrust activity, after controlling for other mitigating factors This method accounts for alternative influences and yields evidence-based insights for policymakers and scholars studying the interplay between competition policy and innovation.
171 Id at 4; see id at 1 (“Competition law is not a suitable instrument for micromanaging product design and innovation ”).
Variation is essential in statistical studies: a variable that never fluctuates cannot truly be considered a variable When a variable changes in a steady, consistent way, its trajectory may be driven by other variables that are changing in the same direction, making it harder to attribute effects to that variable In contrast, a variable that exhibits sporadic increases or decreases allows researchers to tie observed effects more reliably to it, producing more dependable results See Sanford M Litvack, The Ebb and Flow of Antitrust Enforcement: The Reagan and Carter Administrations, 1982 BYU Law Review.
173 Paul E Godek, Does the Tail Wag the Dog? Sixty Years of Government and Pri- vate Antitrust in the Federal Courts, A NTITRUST S OURCE , Dec 2009, at 2 tbl.2.
174 Eddie Correia, The Reagan Assault on Antitrust, M ULTINATIONAL M ONITOR (Feb.
Key sources for this discussion include a 1986 Multinational Monitor article on Correia (available at http://www.multinationalmonitor.org/hyper/issues/1986/0215/correia.html and archived at http://perma.unl.edu/W8FP-7EYD) and Robert D Hershey Jr.’s January 10, 1982 New York Times piece, “Reagan’s Antitrust Explosion,” which examines the Reagan administration’s approach to antitrust enforcement.
175 See, e.g., David A Balto, Antitrust Enforcement in the Clinton Administration, 9
C ORNELL J.L & P UB P OL ’ Y 61, 65 (1999) (observing an increase in antitrust en- forcement during the Clinton administration).
Figure 1 shows how private antitrust intensity changes over time, reflected in the annual number of antitrust cases filed in federal courts, while Figure 2 tracks fluctuations in government antitrust intensity using a different metric—agency budgets measured in current dollars.
Figure 1: Private Antitrust Actions Filed by Year
Figure 2: Antitrust Agency Budgets in Real Dollars
FTC Budget (real $) Antitrust Budget (real $)
Antitrust enforcement actions follow distinct trajectories: Section 1 investigations have declined steadily to the present day, while merger enforcement—historically less common than Section 1 and Section 2 inquiries—peaked in the 1990s and is now more prominent than Sherman Act investigations These divergent patterns provide important clues about the effects of each enforcement action on innovation; if all actions varied in the same way, it would be difficult to detect each action’s independent influence See Figure 3.
Figure 3: Government Antitrust Actions Filed by Year
Sec 1 Invest. Clayton 7 Invest. Sec 2 Invest.
Hypotheses
These hypotheses generally suggest that stronger antitrust enforcement amplifies competitive forces and spurs innovation: higher antitrust intensity—seen in more investigations, lawsuits, bigger budgets, and greater personnel—should lead to more innovation, a pattern that appears to hold across modern American history Antitrust policy has likely increased R&D and other creative activity since its incorporation into government policy, and agencies now target enforcement based on perceived harm to innovation, making antitrust’s pursuit of innovation potentially more fruitful The analysis also contends that merger review produces the most innovation because business combinations that concentrate market power can shift R&D incentives across entire industries, while actions against exclusionary conduct tend to affect discrete actors and yield fewer systemic effects Consequently, remedying anticompetitive mergers may generate more innovation than nonmerger violations.
176 See, e.g., Vestager, supra note 42 (including a statement by the European Anti- trust Commission asserting that promoting innovation is a consideration in how antitrust law is initiated).
Merger review aims to determine whether a proposed combination would create a monopoly that could reshape the entire market affected by the merger By contrast, conduct cases focus on whether the firm has market power, but they do not require monopolization to raise concerns about competitive effects.
Research Design
Variables
Patent issuances are the primary dependent variable, reflecting the study’s aim to explain how various factors shape U.S innovation outcomes As is standard in this research area, the dependent variable is lagged by one year to capture the time between drivers and patenting Although patent counts are not a perfect measure of innovation, scholars consider them a robust proxy because many new inventions and processes are patent protected; thus, higher innovation should lead to more patents issued To test robustness, the study also uses R&D spending as a secondary dependent variable, since the patent system is designed to incentivize investment in activities that generate innovation and patentable results Data on total patent issuances are publicly available from the Patent and Trademark Office, while the OECD tracks R&D expenditure.
As for the independent variables, the statistical design analyzes several ways that antitrust intensity might influence the U.S level of innovation The first independent variable measures the effect of pri-
Robert Pitofsky's article "Past, Present, and Future of Antitrust Enforcement at the Federal Trade Commission" examines the arc of antitrust enforcement in the United States, focusing on how the FTC has shaped competition policy through history, current practice, and anticipated directions It traces pivotal milestones, explains shifts in enforcement priorities in response to changing markets and technologies, and assesses the implications for policy, jurisprudence, and the broader regulatory landscape By linking past experience to present strategy, the piece offers a roadmap for understanding how U.S antitrust enforcement may evolve in the future.
In The Determinants of National Innovative Capacity, Furman and colleagues use patent issuances as the study’s dependent variable, while noting that patent counts are an imperfect proxy for true innovation To address this limitation, they show that the patent measure is statistically robust, arguably the best available proxy for innovation, and that it aligns with the industry-standard approach to quantifying innovative activity.
180 Michael J Graetz & Rachael Doud, Technological Innovation, International Com- petition, and the Challenges of International Taxation, 113 C OLUM L R EV 347,
349 (2013) (discussing the essential relationship between R&D and innovation).
181 U.S Patent Statistics Chart: Calendar Years 1963–2015, U.S P ATENT & T RADE-
MARK O FFICE , https://www.uspto.gov/web/offices/ac/ido/oeip/taf/us_stat.htm [http://perma.unl.edu/A33E-GGF7].
182 Gross Domestic Spending on R&D, O RGANISATION FOR E CON C O - OPERATION &
OECD data on gross domestic spending on research and development show how investment in R&D underpins innovation, while privately initiated antitrust actions are the most common form of antitrust litigation This line of inquiry tests whether increases or decreases in the annual number of privately filed antitrust lawsuits influence the rate of innovation, suggesting a potential link between legal activity and inventive output The analysis derives the annual count of private antitrust lawsuits from the Annual Reports of the Judicial Business of the United States Courts, providing a consistent year-by-year measure to assess how litigation relates to innovation outcomes By combining OECD R&D spending insights with private antitrust filing trends, the study aims to illuminate the implications of litigation on technological progress and market competition.
Government antitrust enforcement intensity, reflected in FTC and DOJ actions rather than private lawsuits, is captured by several indicators that track the types of investigations and complaints across key enforcement areas The DOJ publicly reports counts of antitrust investigations in three domains: merger investigations under Section 7 of the Clayton Act, restraint-of-trade investigations under Section 1 of the Sherman Act, and (attempted) monopolization claims under Section 2 of the Sherman Act In addition to investigations, data on the number of Section 7, Section 1, and Section 2 cases filed were obtained through DOJ FOIA requests.
Governmental enforcement is modeled as a dummy variable indicating whether enforcement took place before or after agencies began incorporating innovation into their organizational missions If this variable is statistically significant and positive, it would indicate that a targeted campaign to remedy diminished innovation is effective Otherwise, the findings may show that antitrust boosts innovation as an unintended yet positive externality, though a statistically insignificant relationship between antitrust and innovation remains possible.
This study analyzes the intensity of government antitrust oversight by measuring the size of the administrative state that supports antitrust enforcement, using proxy variables such as the annual budgets of the FTC and DOJ, and the number of lawyers and other personnel employed Although no single metric perfectly captures regulatory presence in a given year, these proxies taken together offer a reasonable depiction of enforcement intensity over time The data were collected from the FTC’s and DOJ’s websites, 185 FOIA requests, and various third‑party sources.
Various issues of the reports were used, drawing on the Judicial Business of the United States as published by U.S Courts For detailed yearly data, visit the Judicial Business page at http://www.uscourts.gov/Statistics/JudicialBusiness.aspx; this page was last visited on January 11, 2018 To access the yearly data, select the specific report links on the site.
To access ten years of workload statistics, visit the Division Operations page of the Department of Justice at https://www.justice.gov/atr/division-operations and use the decade links to view data for each ten-year period This resource was last visited on January 11, 2018.
Data on the FTC’s annual budgets and full-time equivalent (FTE) staffing from 1979 to 2016 are available on the agency’s website See the FTC Appropriation and Full-Time Equivalent (FTE) History page, maintained by the Financial Management Office, for historical figures on appropriation and employment Access it here: https://www.ftc.gov/about-ftc/bureaus-offices/office-executive-director/financial-management-office/ftc-appropriation [http://perma.unl.edu/NU8T-C63J].
To accurately test these relationships, a set of control variables—GDP per capita, education level, time, and economic openness—was included, since these factors influence both innovation and patent issuance The degree of global economic integration is a driver of innovation, with more open economies tending to have stronger ties with other countries and multinational firms, increasing the likelihood that foreign firms will innovate domestically and that foreign workers in the R&D sector will relocate there Economic openness is proxied by a country’s level of international trade, with GDP per capita data drawn from World Bank sources to provide a consistent, widely available measure.
Development indicators highlight GDP per capita, a figure of 191 obtained through a freedom of information request and supplemented by the agency’s Annual Competition Reports, which also include budget data.
Annual Competition Reports are available from the Federal Trade Commission at https://www.ftc.gov/policy/reports/policy-reports/annual-competition-reports, and you can access year-by-year data by selecting the links within each report (last visited Jan 11, 2018) The Antitrust Division’s annual appropriation figures, dating from 1903 to the present, are published by the Department of Justice at https://www.justice.gov/atr/appropriation-figures-antitrust-division.
A key source for DOJ antitrust enforcement data is the empirical study "Department of Justice Antitrust Enforcement, 1955–1997: An Empirical Study" by Kenneth G Dau-Schmidt et al., published in 17 Review of Industrial Organization (2000) on pages 75 and 78–79 The study provides year-by-year data on the number of antitrust cases initiated by the Department of Justice, offering a detailed view of enforcement activity over the period.
Empirical research can misrepresent the relationship between variables if important control variables that affect the dependent variable are omitted When an independent variable remains statistically significant after researchers adjust for covariates—factors that are known or likely to influence the dependent variable—the study supports a causal influence rather than a mere association Therefore, including relevant controls is key to accurate causal inference and to avoiding mistaken attributions of causality to variables that are actually confounded by other factors.
Statistical Model
The statistical methods used by this analysis include poisson anal- yses and ordinary-least-squares (OLS) regressions A poisson treat- ment is appropriate when the dependent variable is count data Count data is a type of variable that is positive and increases by one after each observed action 199 Here, each patent issued is an independent occurrence that increases the dependent variable, patent issuances, by one Although the first method is likely the more appropriate statisti- cal test, OLS has been the prominent statistical method used by stud- ies that have tested the production of innovation and R&D 200
To understand how this Article interprets the data, in each of the following models, a positive coefficient indicates that as an indepen- dent variable increases, so too does the dependent variable A negative coefficient demonstrates an inverse relationship, meaning as the inde- pendent variable rises, the dependent variable decreases (or vice versa) The bolding of certain coefficients reflects that a coefficient is statistically significant The number of asterisks following the bolded coefficient represents the variable’s level of statistical significance If,for instance, a coefficient has three asterisks, this indicates that the variables’ correlation is more than ninety-nine percent likely to be bet- ter than random chance In important part, the poisson analyses andOLS regressions produce substantially the same results, increasing the confidence that can be had in the findings.
Deductions, Conclusions, and Implications
The model results are consistent, strong, and unexpectedly robust Private antitrust lawsuits—the most common form of antitrust action—impede innovation The number of private antitrust lawsuits filed in federal courts shows a strong negative relationship with patent issuances, a finding that holds whether tested with a Poisson model or OLS, and it remains when the dependent variable is switched from patent issuances to R&D spending (see Table 1) Although one could argue the relationship appears inflated because antitrust filings tend to peak in economic-crisis years, the analysis includes economic controls to account for such influences Across all relevant models, the evidence indicates that private-sector-initiated antitrust litigation quells innovation.
To measure traffic flow on a street, count the number of cars that pass in one hour Each vehicle is counted as one unit, and every passing car is a unique event separate from the others This cars-per-hour count is a fundamental metric in traffic engineering, helping assess congestion, determine road capacity, and optimize signal timing by revealing peak periods and comparing different streets.
Regression analysis is used to gauge the determinants of R&D spending over time, as Doh et al illustrate (supra note 188, at 130–131) In a separate line of inquiry, Polavarapu M Rao and colleagues analyze R&D offshoring in multinational enterprises through transaction-cost and internalization theories, underscoring the relevance of these frameworks for explaining why firms relocate R&D activities (Competitive Review, 22, 376–386, 2012).
Table 1: Results of Models 1 and 2
Second, the research provides interesting insights into the government's efforts: different types of antitrust actions have profoundly different effects on the rate of innovation Clayton Act merger reviews promote innovation, while Sherman Act lawsuits (restraint-of-trade and monopolization claims) and FTC Act suits tend to cause innovative markets to retract In Models 4 and 7, merger enforcement shows a strong and positive relationship with innovation, statistically significant at the 1% level, indicating that an increase in merger enforcement is very likely to boost innovation To validate this finding, the researchers swapped the measurement: instead of merger investigations, an unreported model used the annual number of merger cases actually filed by the DOJ; the results were the same—merger enforcement was positive and statistically significant at the 1% level.
201 The coefficient for Clayton 7 intensity was statistically insignificant when re- gressed against R&D spending, which is likely due to the low number of observa- tions (33) in that model.
Please contact the author for the complete results of this model The regression coefficient for Clayton Act actions filed against patent issuances is 1725.558 and statistically significant, indicating a strong association By contrast, Sherman Act investigations remain statistically insignificant.
Table 2: Results of Models 3 and 4
Table 3: Results of Models 5 and 6
These findings indicate that the impact on innovation intensifies once antitrust agencies explicitly include promoting innovation in their joint policy When a government enforcement dummy is included—indicating whether enforcement occurred before or after the agencies sought to increase the invention rate—the Clayton Act appears more effective Model 7 shows that Clayton Act investigations remain positive and statistically significant, and so does government enforcement The relationship strengthens after the FTC and DOJ began challenging mergers that adversely affect innovation, suggesting that merger enforcement fosters innovation—an effect that grows even more when policy actions by the DOJ and FTC are aligned with enforcement.
Table 4: Results of Models 7 and 8
Antitrust enforcement aimed at promoting invention and discovery by addressing restraint-of-trade and monopolization claims has proven less successful; while such lawsuits rarely harm overall innovation, they show no statistically significant relationship with patent issuances or R&D spending In Model 10, §1 restraint-of-trade investigations are not statistically related to patent issuances, and §2 investigations yield the same insignificant results Furthermore, government enforcement becomes negative in Model 8, which tests Sherman Act §1 investigations However, when the analysis uses R&D spending as the dependent variable rather than patent issuances, §2 actions exhibit a negative relationship with innovation Overall, efforts to spur innovation through the Sherman Act appear ineffective at best and potentially deleterious at worst.
203 Please contact the author for the complete results to this model The coefficient for Sherman 2 investigations when regressed against R&D spending is -.0120566 and significant Sherman 1 investigations continue be statistically insignificant.
Table 5: Results of Models 9 and 10
To understand these results, it appears that the contrasting theo- ries proffered by antitrust’s advocates and detractors both have merit.
Antitrust policy can spur innovation by preserving the number of competing firms through merger reviews, which prevent consolidation that would reduce rivalry, while innovation can suffer when enforcement shifts toward scrutinizing firms’ conduct and policing competitive behavior rather than maintaining competitive dynamics In essence, merger oversight reinforces incentives to innovate by keeping markets contestable, whereas aggressive conduct enforcement risks chilling experimentation and strategic risk-taking.
Commentators note that the Sherman Act remains skeptical of a wide range of activities typical of innovative firms; for example, an inventor who excludes competitors from using her invention can draw antitrust scrutiny, just as exclusive licensing or development agreements with rivals can raise concerns In response, the antitrust agencies have, in fact, developed an entire set of guidelines to govern how these practices are evaluated.
204 Although inventors do generally have fairly strong rights to exclude, they may suffer liability under certain conditions, such as the case study supra section
Antitrust law prohibits certain anticompetitive practices intended to suppress competition, but collaborating with competitors can also draw antitrust scrutiny from authorities such as the U.S Department of Justice and the Federal Trade Commission.
Guidelines for the collaboration among competitors (2000) examine when agreements and joint ventures between rival firms violate antitrust law and outline how intellectual property licensing is regulated The discussion explains that antitrust liability can attach even to good-faith inventors, illustrating why enforcing the Sherman Act can dampen innovation Consequently, antitrust may promote innovation by preserving the number of competing firms in a market, but it can also retard innovation when it limits the ways those firms compete with one another.
Analysis indicates that the mere presence of the FTC and DOJ in dynamic markets can chill innovation by increasing the antitrust administrative state; as antitrust activity grows—reflected in higher budgets, more investigations, actions, and personnel—the innovative intensity of private industry contracts Models using joint annual budgets as a proxy for antitrust intensity show a reduction in patent issuances, a result that also holds when the dependent variable is R&D spending When budgets are replaced with the DOJ Antitrust Division’s lawyer headcount, the negative relationship remains statistically significant An analogy: visible police presence on a highway tends to slow drivers; similarly, regulator visibility in innovative markets can push firms toward overly conservative strategies, dampening innovation below a rational level, a phenomenon further explained in behavioral economics in Part VI.
Fourth, the results reveal that market structure plays a decisive role in innovation Restrictions on market behavior tend to hinder innovative activity, and the analysis shows that most antitrust measures dampen innovation Surprisingly, stronger patent rights also appear to curb innovation While this may seem counterintuitive, the finding is consistent with research suggesting that patent strength can overshoot an optimal level, thereby limiting downstream innovation.
Due to space constraints, not all models are reproduced in this article; readers seeking results for models not shown here should contact the author The analysis yields a coefficient of -1.25 for antitrust intensity, as measured by the agencies’ combined budget, which is statistically significant when regressed against R&D spending.
208 The DOJ lawyers variable was statistically significant at 01 and negative at -158.8073 Please contact the author for complete results of this model.
Gregory N Mandel’sProxy Signals argues that there is an optimal level of patent protection that balances the benefits of disclosure with the costs of protection As patent strength grows and antitrust enforcement tightens, firms face higher risks and increased costs, which can make innovation less profitable and less likely to occur This perspective contributes to the market-structure debate by suggesting that the pace of innovation may be more closely tied to freedom than to competition or exclusion alone The central question then becomes how to achieve the right balance among patent protection, antitrust policy, and competitive freedom to sustain ongoing innovation.