Nov 15

Patents and Antitrust Enforcement – Is it time for a re-balance of rights?

Tags: ,

The WSJ’s recent article on patents and antitrust regulation asks the question, “In an industry susceptible to monopolies, are companies abusing patent rights to stifle competition?” But maybe the question should be, “What is the proper balance between innovation and competition and how can we formulate the patent laws to achieve this balance?”

Patent Rights/Antitrust Enforcement

It is not the abuse of patent rights that stifles competition; it is the existence of patent rights that stifles competition, by design.  A patent grants a monopoly. It is the exclusive right to practice the invention for the life of the patent. It is inherently anticompetitive. That is the point. It is an incentive for inventors to create new products. It is a legal monopoly.

Contrary to the implied assumption of the WSJ’s question, the existence of a monopoly in itself may not necessarily be problematic or unlawful. There are “natural” monopolies, such as the first company in a new industry, and legally-created monopolies, such as patent rights.

The only a tension between patent rights and antitrust law is the one created by those who seek to limit the rights granted to patent-holders under the law, including (1)  antitrust regulators who seek to de-facto re-write the patent laws by devaluing the rights conferred on patent-holders and (2) those companies or individuals who seek to compete against the patent-holders.

If the rights provided by the patent laws are respected as written, they are a clear exception to any antitrust challenge.  If our society is going to continue to award patents as a means of encouraging innovation, a company should be able to develop or acquire patent rights (so long as the patents are obtained in good faith) without being required to license these rights to its competitors.

The Norvell Patents and Google’s Purchase of Motorola’s Patents

The question becomes complicated when groups of competitors align themselves together to acquire patent rights. For instance, CPTN Holdings LLC, a holding company owned equally by Microsoft Inc., Oracle Corp., Apple Inc. and EMC Corp., sought to acquire approximately 882 patents and patent applications from Norvell Inc. in connection with Norvell’s merger with Attachmate Corporation. In April, the Justice Department announced that the companies could only move forward with their plan to acquire the patents from Novell if the companies essentially agreed to make the patents available to their rivals via licensing agreements.

When announcing the revised deal, Sharis A. Pozen, Deputy Assistant Attorney General of the Justice Department’s Antitrust Division stated “To promote innovation and competition, it is critical to balance antitrust enforcement with allowing appropriate patent transfers and exercise of patent rights.”

It’s understandable that the antitrust regulators would be concerned about a group of competitors coming together to buy patent rights that they may or may not need for the transparent purpose of keeping those patent rights out of the hands of their competitors. It’s not a pro-competitive move. [This is not to say that I agree with the solution crafted by the Antitrust Division.]

But the Justice Department does not seem to be merely concerned with the fact that it was a group of competitors together acting to purchase patent rights. If this were its sole concern, it would not have opened an investigation in connection with Google’s $12.5 billion deal to purchase Motorola Mobility Holdings Inc. to bolster its own patent arsenal. The WSJ reports that the Justice Department’s inquiry is focused on “what Google intends to do with Motorola’s patents.”

This strikes me as an odd focus for the Antitrust Division. If Google had purchased a real estate holding company for the value of real estate held by it, it is unlikely that the division would be investigating. And, unlike real property, patent rights are not eternal.

Proper Balance?

The balance between innovation and competition is set in the patent law itself, which grants patents for a term of years. If that balance is off-kilter (for instance, if software patents should have shorter lifespans), the re-balancing should be done within the context of patent law. When, instead, the Justice Department uses its muscle to force companies to give up important patent rights that they bargained for in the name of antitrust law it makes the legal system more unpredictable and, thus, less efficient.

Thus, if we value predictability and efficiency in our laws (as I argue we should), there are a number of questions that should be asked and answered in connection with the interplay between patent rights and antitrust laws:

  • How important are patent rights in the software industry? Are they necessary to encourage innovation?
  • If we are concerned about encouraging more competition, should we require mandatory licenses on patents owned by companies with greater than a set percentage (say 60%) of a given industry?
  • Should the patent laws be re-written to allow for shorter patents on certain types of inventions, such as software?
  • Should the law clearly state that enforcing a patent or refusing to license a patent is not anticompetitive conduct?

In other words, the policies and likely outcomes should be considered and any policy change agreed to should be made in the law and applied equally to all patent-holders.

In the current environment, the Justice Department is making de-facto policy changes on a one-off basis.  And, somewhat ironically, the Justice Department is more likely to require patent-holders to license their patents in competitive industries as a direct of competitors’ complaints. For example, the WSJ article mentioned above notes that Barnes & Noble asked the Justice Department to open an antitrust probe in connection with Microsoft’s terms of licensing its patents. In industries with less competition, patent-holders may be more likely to be able to set the terms of their license agreements without concern about whether the Justice Department will require them to re-write their licensing agreements.

If you need assistance with antitrust issues, contact Rosanne at Felicello Law P.C.