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Rigged Results? Antitrust Lessons from Keyword Auctions

 |  October 9, 2016

Posted by Social Science Research Network

Rigged Results? Antitrust Lessons from Keyword Auctions

Samuel N. Weinstein (U.C. Berkeley)

Abstract:      Bid rigging is quintessential criminal antitrust conduct. Yet search-engine optimization experts publicly advise firms to agree with competitors not to bid on each other’s trademarks in search-engine keyword auctions and evidence indicates that companies enter such agreements. Why would these experts feel confident counseling firms to suppress bids in these auctions? The answer might be a belief that bid suppression (or other anticompetitive conduct) is lawful if it involves a putative intellectual property (“IP”) right, in this case a trademark or brand-related term. Under this logic, an agreement not to bid on another firm’s trademarked terms in search-engine keyword auctions is efficient because it amounts to a commitment not to perpetrate an unlawful act ― infringing a trademark. Firms and their advisers might even believe that such agreements are procompetitive because they conserve party and judicial resources and diminish potential consumer confusion. This reasoning assumes that bidding on a competitor’s trademark for use as a keyword constitutes infringement. However, no court has found trademark liability solely based on auctioning, bidding on, or purchasing a trademarked keyword. Parties have litigated this issue repeatedly and the law is in flux. This legal uncertainty puts firms contemplating such bid-suppression agreements and courts evaluating them in a difficult position, one that requires navigating the borders between antitrust law and IP rights. Indeed, these agreements raise the broader question of how to analyze potentially anticompetitive IP settlements when it is unclear if the rights involved are valid and infringed. This is an important issue: IP settlements are common and affect billions of dollars of commerce. Achieving an appropriate balance between the exercise of IP rights, which are crucial to many forms of innovation and help spur economic expansion, and the antitrust laws, which protect competitive markets, is critical. This Article proposes a novel framework for analyzing search-engine keyword bid-suppression agreements and other forms of settlements involving uncertain IP rights. Drawing from settlement theory, this framework takes into account the value of decisional law in promoting competition and challenges the assumption many courts rely upon that settlement is necessarily procompetitive. The Article argues that courts should apply the antitrust laws to keyword bidsuppression agreements and other potentially unlawful IP settlements where the validity or infringement of the underlying IP right is in question and that uncertainty affects a class of cases. It details the factors courts should take into account in undertaking this antitrust analysis. This new framework is more administrable than current approaches to IP settlements and provides increased clarity to marketplace actors. It also better balances the policy preferences inherent in the IP and antitrust laws.