Antitrust & Competition Policy Blog

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

Monday, October 7, 2013

Compulsory Licensing of Intellectual Property as Merger Remedy: A Decision-Theoretic Approach

Jennifer E. Sturiale, George Mason University School of Law discusses Compulsory Licensing of Intellectual Property as Merger Remedy: A Decision-Theoretic Approach.

ABSTRACT: Consistent with its goals of encouraging innovation and enhancing consumer welfare, antitrust law generally does not compel a firm to give access to the very assets that are the source of a firm's competitive advantage, including a firm's intellectual property, unless a firm has illegitimately gained some edge in the market. And yet, in the context of merger review, compulsory licenses are a fairly common remedy. The Federal Trade Commission and Department of Justice do not impose a compulsory license in every case, but the principles guiding the decision are not entirely clear.

This Article is suspicious of the benefits of a compulsory license and concerned about the costs. Ultimately, the agencies use compulsory licenses as a remedial tool to change the post-merger market dynamics. Although a remedial compulsory license may achieve the goal of restoring competition lost as a result of the merger, it may also undermine the merged firm's incentives to innovate. This may undo the very benefits and efficiencies the merger hoped to achieve.

To take account of the uncertain effects of a compulsory license, this Article suggests the agencies adopt a decision-theoretic approach to the remedy phase of a merger analysis. The Horizontal Merger Guidelines issued in 2010 adopt an approach for reviewing mergers consistent with a decision-theoretic approach. But that process stops short of considering the potential effects of a proposed remedial mechanism. This Article recommends that the agencies extend the decision-theoretic analysis implicit in the revised Merger Guidelines and include consideration of the possible outcomes that can result if a potential remedy is chosen, the likelihood of those outcomes, as well as the magnitude of harm and benefits that will follow if those outcomes should come to pass. A decision-theoretic approach will enable the reviewing agency to take better account of the potential, but uncertain, outcomes of a potential remedy. Moreover, such an approach will discipline the agencies' decision-making processes, ensuring that remedies are imposed only when they are actually likely to benefit consumers.

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