Wednesday, May 9, 2012
Posted by D. Daniel Sokol
Herb Hovenkamp (Iowa) discusses Markets in IP and Antitrust.
ABSTRACT: The purpose of market definition in antitrust law is to identify a grouping of sales such that a single firm who controlled them could maintain prices for a significant time at above the competitive level. The conceptions and procedures that go into “market definition” in antitrust can be quite different from those that go into market definition in IP law. When the issue of market definition appears in IP cases, it is mainly as a query about the range over which rivalry occurs. This rivalry may or may not have much to do with a firm’s ability to charge a high price.
Antitrust is more sensitive to market structure than any discipline, and entirely on the basis of statutes that say little about structure. By contrast, intellectual property law says almost nothing about structure and largely proceeds without these inquiries.
We know a great deal about the relationship between market structure and innovation — about the types of industries in which patents work better and are more valuable, those in which trade secrets are preferred, or where first mover advantages alone provide sufficient incentives. We can also identify markets in which copying is easiest, thus justifying strong protection, and where it is much more difficult. Knowing all of this, IP law might have developed much more “market specific” rules than it has, and if those rules had been properly formulated and applied, we would be in a better place than we are today.
What we in fact have, however, are IP laws that proceed as if market structure doesn’t matter. To be sure, there is less consensus and poorer quality information about the relationship between market structure and innovation than about the relationship between market structure and traditional power over price under constant technology. But that hardly justifies a set of protections that are invariant to market structure in those areas where it counts most. In the Supreme Court’s Prometheus decision, Justice Breyer’s opinion for a unanimous Court may have opened a window for differentiating the application of patent law with the market in question.