This column will discuss activity at the intersection of competition policy/competition law with intellectual-property (IP) law.

The one objective of competition policy is to help ensure operation of the relevant market that is fair to as many market participants as possible and that enables market entry for a particular business without its being unfairly prevented or made onerous. Businesses wishing to unfairly eliminate competition can exhibit any number of practices, including (but not limited to) abusive exclusionary conduct by a dominant company; refusal to provide certain goods or to grant licenses on market conditions; charging excessive prices; vertical arrangements between suppliers and distributors; and other agreements among firms leading to the distortion of competition in the marketplace.

One division of IP law is patent law. There is a close link between patent rights and competition, which can often be characterized by two factors. First, patent laws aim to prevent the copying or imitation of patented inventions and thus complement competition policies in that they tend to promote fair market behavior. Second, competition laws may limit patent rights in that patent holders may be deterred from abusing their rights.

Experience shows that heightened or relaxed protection of either patent or competition law may lead to trade distortions that can negatively affect national and international sales of forged products. Therefore, a balance must be found between competition policy and patent rights, and this balance seeks to achieve the goal of preventing abuses of patent rights without removing the rewards of appropriately used patent rights. The search for this balance between patents and competition policy objectives is reflected both within the patent system as well as in the relationship between patent law and competition law.

Safeguards and boundaries have been built into the patent system to promote valid patents that can be interpreted without undue effort. These include the premise that most patent systems protect only inventions, not discoveries; the limitation of patent rights as to their contents and their duration; the availability of exceptions to the rights conferred; and the conditions of patentability that prevent the grant of patents for obvious copies and creations that are not new.

On the flip side, competition law has an objective to prevent undesired market behavior and, particularly, abuses of a market position. In relation to patent rights, such behavior would cover activities going beyond the objectives and boundaries set by the patent system. Such situations may occur, for example, where an exclusive license excludes other competitors from market entry either through restrictive selling practices or where patent rights are used to create horizontal agreements for fixing price levels.

Patentees sue to prevent competitors from infringing their patented devices and methods. One undesired side effect of such court battles is the reduction and elimination of innovation, particularly high-tech innovation. With effective application of IP law and robust enforcement of competition law, however, innovation can survive these patent-infringement battles. Both patent law and competition law are designed to protect incentives for entrepreneurs to bring new and better products, technologies and services to market more efficiently and provide them to consumers at lower prices. 

Two pronouncements from a recent Federal Trade Commission and U.S. Department of Justice collaboration are noteworthy. First, trivial and overbroad patents undermine competition, with no offsetting benefits to consumers. One questionable patent may lead a competitor to forgo R&D in an area the patent supposedly covers, deterring follow-on innovation and new market entry. These effects conflict with the goals of both intellectual property and antitrust law. Second, two processes – patent notice on the front end and remedies on the back end – can have a huge impact on incentives to innovate, competition and consumer welfare.  

On the front end, patent holders are required to notify the public about their patented technology in order to receive the patent laws’ benefits. Clear notice of what a patent protects promotes innovation by encouraging firms to collaborate around the patented technology to produce products that do not infringe the patent. This tends to increase competition.

At the back end, there is a need for patent remedies to fairly compensate patent holders for infringement of their patented inventions. It is obvious how damages that under-compensate patent holders for infringement can deter innovation. However, over-compensation can be equally harmful, leading to higher prices and encouraging speculation in patent rights, which also deters innovation. Against this backdrop, competition policies and laws can be an important instrument to regulate potential abuses of patent rights and to complement patent inherent boundaries.