Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, October 3, 2007

Patents and Antitrust: Application to Adjacent Markets

Posted by D. Daniel Sokol

The impact of the intersection of antitrust and IP is an important one.  Between the AMC Report and the FTC'/DOJ latest report on this intersection, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, this is an issue at the forefront of antitrust policy.  Adding to this debate are Nicholas Economides of the Stern School of Business, NYU and William N. Herbert of Calvo & Clark LLP with their paper Patents and Antitrust: Application to Adjacent Markets.

ABSTRACT: We examine the intersection of patents and antitrust where a patent holder uses the monopoly power it possesses in the market for a patented product to exclude competitors in an adjacent market and attempt to monopolize or monopolize the adjacent market. The present scheme for awarding patents cannot judge when the issuance of a patent will lead to the appropriate balance between innovation and efficiency. Where a patent holder's invention uses an interface with adjacent products, the patent holder may be tempted to extend its patent monopoly into adjacent markets that depend upon the interface with the patented invention. Economic theory suggests that it is inappropriate to immunize a patent holder from antitrust liability when it attempts to extend its patent monopoly into adjacent markets, because it could decrease consumer surplus. Courts have expressed their reluctance to scrutinize a patent holder's innovations and design changes, because of the potential benefits of the innovations and their reluctance to second-guess the marketplace.

However, applying traditional antitrust principles, courts have found that monopolists could be liable for unlawfully extending their monopoly positions into adjacent markets in the areas of computer peripherals and software applications; aftermarkets for replacement parts, service and maintenance of durable goods; design changes to medical devices; and changes in drug formulas. While the patent laws provide a spur to innovation by granting limited monopoly rights, the antitrust laws curb the excessive reach of these monopoly rights by acting as a check on excessive expansion of the scope of the patent grant.

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