Holding Innovation to an Antitrust Standard

Posted by D. Daniel Sokol

Richard Gilbert of Berkeley, who helped to shape Antitrust-IP policy in the 1990s, has a new article in the most recent issue of Competition Policy International titled Holding Innovation to an Antitrust Standard.

ABSTRACT: Several antitrust cases have involved allegations of anticompetitive innovation or product design and some plaintiffs and antitrust scholars have argued that investment in research and development that excludes competition can have predatory effects similar to predatory pricing. This article analyzes several tests for predatory innovation, including the rule of reason based on total and consumer welfare and profit sacrifice tests. All of these tests are likely to produce false positives that chill incentives for beneficial investments in research and development. Most courts that have considered allegations of anticompetitive innovation, including the appellate court in U.S. v. Microsoft, have concluded that innovation is not anticompetitive if it has plausible efficiencies. This is close to a test of whether innovation is a sham. While a sham test may fail to identify innovations that harm competition, that risk is acceptable given the high cost of penalizing beneficial innovation.