Antitrust Law and Intellectual Property: Key Remedies

Introduction: Defining Antitrust and Intellectual Property

Before examining how antitrust law applies to intellectual property cases, it is important to define both terms clearly. According to a definition from a leading law school, "trusts and monopolies are concentrations of economic power in the hands of a few." Antitrust legislation is therefore "designed to protect competition and protect free trade" (Putnam). Mark Putnam, a business ethics expert, elaborates: "Basically, antitrust laws prohibit price-fixing, allocating territories, boycotts, or any other kind of conspiratorial or monopolistic behavior between companies that unfairly restrain free trade."

Intellectual property, however, is entirely different from a trust. The United States Patent and Trademark Office (USPTO), which deals almost exclusively with intellectual property, defines it as "imagination made real… the ownership of [a] dream, an idea, an improvement, an emotion that we can touch, see, hear, and feel… an asset just like your home, your car, or your bank account." By this, the USPTO means that intellectual property is an idea that can become commerce because the originator makes it tangible and saleable. It is the confluence of these two concepts that is more difficult to understand.

Any idea that a person has is that individual's alone, so it makes sense that the individual should have a monopoly on that thought. However, when it comes to certain ideas, novelty can come into question. Anne Bingaman, an Assistant Attorney General in the antitrust division during the Clinton Administration, explains this well in a speech delivered at the Federal Circuit Judicial Conference in 1994. She states that "the various intellectual property regimes reward innovation by giving rights to creators to exclude others from using their inventions or the expression of their ideas without compensation" (Bingaman). This principle is implicit in the law, but there is a problem with some patents for intellectual property in that they do not pass certain tests of originality. "The awarding of patent-like protection in the absence of an adequate showing of novelty and non-obviousness, for example, can harm competition without serving the interest of rewarding innovation" (Bingaman). Intellectual property must be unquestionably original to deserve a patent, and one of the functions of the patent office is to ensure this uniqueness. Bingaman concludes: "Strong intellectual property rights and vigorous antitrust enforcement are two sides of the same coin in promoting the common objective of innovation." Thus, the two frameworks are not opposed, as may seem the case upon first examination, but are tools that can be used together to ensure that innovation continues unfettered.

A recent example of this dynamic is the case against Google brought by the European Union. It was revealed that "while Microsoft and partner Yahoo! Inc. have about a quarter of the U.S. web-search market, Google has almost 95% of the traffic in Europe" (White). Court documents were subsequently filed by Expedia, adding to the suit brought earlier by Yahoo! and Microsoft. Expedia's specific complaint was that "Google introduced a flight-search service last year that excludes any link to online travel agencies, which hampers customers' comparison shopping" (White). Google had, in this instance, withheld the ability of consumers to use other sites that are, intellectually, comparable to its own. Because of the lack of originality in Google's website relative to the sites it was blocking, competitors brought this lawsuit before EU courts.

History of Antitrust and Intellectual Property Legislation

Antitrust legislation was first passed in 1890 with the Sherman Act (FTC). The basic premise behind the new law was that companies which engaged in forming trusts were stifling competition and damaging the free exercise of the market. Another facet of the law is that companies cannot collude to fix prices or jointly monopolize a market. During the early part of the twentieth century, trusts in the U.S. oil, steel, and railway industries were broken up, and a sugar trust was also disbanded. Following the Sherman Act, "the Clayton Act was passed in 1914" (FTC). The original antitrust legislation did not contain language governing mergers and acquisitions. The Clayton Act repaired this oversight by requiring that all such actions between companies be approved by the Federal Trade Commission (FTC) prior to being ratified.

In the late nineteenth century, workers and consumers began to protest the treatment they received at the hands of what was considered the privileged few. Trusts and monopolies ruled consumption markets, causing wronged consumers to make their case before legislators and the courts. The social movement was much like that of unionization: because of the greed of a few, the many were being treated unfairly. As a result, the government became involved and protected the rights of its citizens, which is its primary function.

Competition is a way of life in America, and it was envisioned as such by the founding fathers. Although a specific mention of competition cannot be found in the Constitution or any other founding documents, the idea of free competition abounds in those texts. Christopher Demuth writes that "competition is a foundation of our constitutional order and a critical means of achieving our aspirations. In particular, it shapes our common life through elections, the separation of powers, federalism, free speech and religion, and competitive enterprise." Demuth argues that the Constitution implicitly endorses competition because it was intended to be the very fabric of human life in the new republic. "The First Amendment decrees a system of intellectual laissez faire in which ideas compete for influence and acceptance. And the whole structure supports and regulates an economy premised on open competition" (Demuth). The idea of the founders was that competition would abound in everything, and that the people — the marketplace — would determine the winner.

Intellectual property law common to Western societies is thought to have originated in England in 1624 with the Statute of Monopolies (Dent). This statute gave authors their first guarantee that their own work could not be plagiarized or used without their permission. This was followed in 1710 by the Statute of Anne, which provided actual copyright protections. The early laws protected a class of endeavors that have become known as intellectual property. These included patents (which can be broken down into utility patents, design patents, and plant patents), trademarks, trade secrets, and copyrights (USPTO).

Sherman and Clayton Acts

The first two pieces of antitrust legislation in the United States were the Sherman Act of 1890 and the Clayton Act of 1914. The Sherman Act was used "to combat anticompetitive practices, reduce market domination by individual corporations, and preserve unfettered competition as the rule of trade" (Legal Information Institute). The Sherman Act has three sections which "delineate and prohibit specific means of anticompetitive conduct; deal with end results that are anticompetitive in nature; and extend the provisions… to U.S. territories and the District of Columbia" (Legal Information Institute). Because the Sherman Act was limited in its scope and many different cases were not covered by it, Congress passed the Clayton Antitrust Act in 1914. This act added provisions against "price discrimination between different purchasers, if such discrimination tends to create a monopoly; exclusive dealing agreements; tying arrangements; and mergers and acquisitions that substantially reduce market competition" (Legal Information Institute). The provisions of these laws have been interpreted and expanded by the courts as new issues have arisen, but they are regarded as the foundation of modern antitrust law.

The United States federal government has jurisdiction to enforce the statutes when violations occur within the District of Columbia or involve a foreign entity. The federal government will also adjudicate a case when it concerns all citizens within U.S. borders. That is why cases involving companies like AT&T, which are broad in scope, are heard in federal court (Cannon). However, the federal courts have no jurisdiction when an antitrust matter involves purely intrastate commerce. Accordingly, every state has its own antitrust legislation — most of it patterned after the Sherman and Clayton Acts — to handle cases that arise within the state.

The offenses most commonly considered in antitrust cases are price fixing, bid rigging, patent pooling, and mergers (Anthony). Price fixing is exactly what it sounds like: firms collude to set a commodity price, and the collaborative arrangement itself is the violation. Any time competition is negated or diminished by the actions of one or more firms, the courts are likely to intervene. Bid rigging is akin to price fixing in that a firm soliciting bids has effectively pre-selected one of the bidders to win. Patent pooling can actually benefit the market, according to Sheila Anthony, Commissioner of the FTC, but becomes a problem "when a pooling arrangement harms competition among entities that are actual or potential competitors." The central question in all such violations is whether the behavior is pro-competitive or anticompetitive. Pro-competitive actions are intended to spur competition, while anticompetitive actions suppress it. In general, the Department of Justice "weighs the likely procompetitive benefits against potential anticompetitive effects" (Bingaman). However, firms can invoke the potential pro-competitive actions of one firm against it and file an antitrust claim regardless.

In the case of intellectual property, the government appears to exercise less strict oversight than it does in traditional antitrust matters. Nevertheless, intellectual property can be regulated by the government if it is deemed to hinder competition. Additionally, intellectual property must be proven original; specious claims have been made before the patent and trademark offices, and these are now being investigated for their validity.