Innovative Antitrust and the Patent System

Posted by Social Science Research Network

Innovative Antitrust and the Patent System

By Gregory Day (Oklahoma State University)

Abstract:         There are conflicting hypotheses about whether antitrust law promotes innovation. According to the Federal Trade Commission (FTC), the Department of Justice Antitrust Division (DOJ), and many scholars, a firm has little reason to innovate new goods and methods unless its market share is threatened by competition. It follows that, since antitrust law stimulates competition, it should also incentivize innovation. This theory implies complementary roles for antitrust and patent laws in cultivating innovation.

But other commentators and courts view antitrust law as interfering with patent rights to the detriment of invention and discovery. The patent system supports innovation by granting inventors a limited right to charge monopoly prices and exclude competition without incurring antitrust liability. But if firms may become subject to antitrust scrutiny upon exercising monopoly power or excluding competition, then their incentives to innovate could diminish.

Remarkably, the link between antitrust and innovation is not only understudied, but there are few, if any, quantitative analyses that have sought to determine whether antitrust law increases, decreases, or otherwise influences the rate of innovation.

Using an original dataset, quantitative methods, and case studies, this Article explores antitrust’s puzzling relationships with patent law and innovation by probing a number of related questions, including: 1) does antitrust foster incentives to innovate, 2) are certain types of actions—i.e., merger challenges or restraint of trade lawsuits—better equipped to support innovation than others, and, 3) has the rate of invention increased since the DOJ and FTC made innovation an express goal of governmental antitrust policy? Based upon the results, this Article proposes a number of legal and policy reforms intended to improve antitrust and patent law’s capacity to incentivize innovation without the current harms and costs.

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