Colluding Against A (Patent) Monopoly

By Gregory Day & W. Michael Schuster (University of Georgia)

The patent system fosters innovation by granting the right to exclude. Since a rightsholder can legally suppress competition and charge monopoly prices, a patent provides antitrust immunity. Even when firms allegedly abuse their exclusive rights through means such as furthering patent thickets, meritless infringement litigation, or breaching FRAND commitments, courts and federal agencies have often concluded that antitrust is ill-equipped to discipline patent practices. Without antitrust remedies, firms have banded together against rightsholders to negotiate for better terms. Their strategies have included boycotting abusive patentees as well as collectively negotiating against them. By using self-help remedies, they seek to pay fair rates for only the patents needed for their technology. This type of cooperation may ideally foster competition and innovation where patent abuses undermine both goals

The problem is, ironically, that combining against a monopolist is likely anticompetitive. Antitrust condemns collusion to drive down prices—here, licensing rates—even when done against a monopolist. This renders a troubling outcome where “Big Pharma,” “Big Tech,” and others can insulate their monopoly power using the very laws meant to condemn monopolies. While debate has emerged about patent abuses, an equally salient issue involves whether antitrust should condemn firms who collude against patent holders and monopolists.

Using empirical analysis and historical evidence, this Article argues that antitrust should allow firms to defend an antitrust claim by citing their rival’s market power. Our models show that powerful rightsholders do in fact harm competition and innovation in ways not meant to protect original technology. We then find that the benefits of collusion among smaller firms were advanced by the Sherman Act’s drafters whose comments are critical to shaping and understanding modern antitrust. Support even comes from the labor arena: Congress excluded workers from antitrust law — as labor unions were once considered a form of collusion — so that workers, with their own market power, could counterbalance their employers’ dominance with their own market power. As such, given the practical and theoretical difficulties of remedying anticompetitive abuses of patent rights under the antitrust laws, we assert that taking antitrust out of patent law would allow competition to flourish in dynamic markets while enhancing the patent system’s incentives to innovate.

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