Thursday, May 31, 2007

Antitrust, IP Are “Complementary” Forces to Encourage Innovation: Antitrust Chief

This posting was written by Darius Sturmer, editor of CCH Trade Regulation Reporter, and John W. Arden.

Speaking at an antitrust conference in New York City on May 16, Assistant Attorney General Thomas O. Barnett, head of the Department of Justice Antitrust Division, offered a summary of recent developments at the intersection of antitrust and intellectual property law. Barnett described antitrust and IP laws as complementary, in that "both seek to protect and encourage innovation and growth."

Dynamic Efficiency

The antitrust chief stressed that the driving force behind growth is dynamic efficiency, which refers to "gains that come from entirely new ways of producing products or services." He cited a study by Nobel Prize winning economist Robert Solow, finding that, between 1909 and 1949, gains from labor and capital intensity accounted for only one-eighth of the U.S. GNP growth. The remainder of the growth could be ascribed to "technical change."

“Why does this matter to the antitrust-IP interface?” Barnett asked. “Antitrust does not protect competition for its own sake; instead, it protects competition as a force that leads to increased efficiency, growth, and consumer welfare. It follows that if the research shows us that technical change (dynamic efficiency) accounts for a large share of efficiency, growth, and welfare gains, antitrust enforcers should seek to ensure that their actions promote — and not inadvertently reduce — the forces that lead to technical change in the long term. Intellectual property is such a beneficial force.”

Bundling and Tying

Barnett called attention to the April 2007 issuance of a joint FTC and Department of Justice report entitled, "Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition."

Among the highlights of the report, he said, are the agencies' guidance on bundling and tying. According to the report, he said, U.S. antitrust law is “continuing its movement away from formalism in the non-criminal context and toward a case-by-case, effects-based approach that focuses on efficiency.”

There is increasing support for application of the rule of reason—rather than the per se rule—to all tying and bundling claims, according to the antitrust chief.

Supreme Court Decisions

Observing that the U.S. Supreme Court has taken an unusually large number of cases in the past two years concerning one or both of the fields, Barnett emphasized the importance of the Court's pending decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., Dkt. 06-480, on the direction of antitrust enforcement. The case concerns whether minimum resale price maintenance agreements should be judged under a rule of reason standard.

He added that the recent Supreme Court decision in Weyerhaeuser Co. v. Ross-Simmons Hardware Lumber Co. (2007-1 Trade Cases ¶75,601) was significant because it reflected the general current trend in Sec. 2 analysis toward objective criteria focused on actual effects for determining whether a company has committed a violation.

Antitrust Policy in Developing World

Finally, Barnett noted that the intersection of patent and antitrust law is a hot topic in the developing world, with several countries—most notably China—in the process of creating or reversing their antitrust regimes.

“Until recently, antitrust was largely a phenomenon of a few Western democracies,” Barnett observed. “No longer. There are now 100 members of the International Competition Network, including nations as geographically diverse as Argentina, South Africa, India, Japan, and Israel. This development has been a great benefit in our fight against international cartels, but it can present challenges to our efforts to promote convergence of antitrust law regarding mergers and non-merger civil conduct.”

A concept has arisen in some quarters that antitrust law should constrain the exercise of intellectual property rights. Barnett takes a different view.

“There is no fundamental conflict between antitrust and IP principles because both bodies of law protect and encourage competition, innovation, and economic growth, as I explained above,” he concluded. “Where conflicts are perceived, this is typically due to a misunderstanding of antitrust or IP law, and/or a myopic focus on short term, static effects without regard to longer term, dynamic effects.”

Assistant Attorney General Barnett spoke at the American Conference Institute's In-House Counsel Forum on Pharmaceutical Antitrust in New York City. Text of the speech ("Recent Developments in Antitrust and Intellectual Property Law") appears at the Department of Justice Antitrust Division website.

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