The DOJ Must Exalt Intellectual Property Rights

The DOJ Must Exalt Intellectual Property Rights
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At the Department of Justice, a significant development is occurring in the antitrust-intellectual property interface that is critical to long-run economic development and national security of the United States. Assistant Attorney General Makan Delrahim’s recent policy statements and enforcement actions have re-asserted the historical value of intellectual property rights. He has suggested that the value of these rights have been inappropriately curtailed by the misapplication of antitrust principles, which could threaten the future of U.S. innovation efforts. As a result, AAG Delrahim has begun to restore the balance between antitrust and intellectual property rights, and has moved this important issue to the forefront of antitrust discourse.

Strong patents rights are vital to the economic and national security interests of this country. As a result of its pioneering technological advancements, the U.S. economy has developed into a world economic leader. Strong intellectual property rights are fundamental to encourage and maintain America’s innovative success. These rights enable individual inventors and R&D-intensive corporations and institutions to gain their fair share of the benefits from innovation, which keeps the American innovation machine running. In fact, some analysts ignore America’s declining manufacturing prowess because they see a future for America in high technology and innovative markets.

In recent years, some actions and advocacy by the U.S. antitrust agencies threaten to erode the value of innovators’ intellectual property rights. The agencies have focused policy discussions on academic hypotheses that are based up theoretical arguments largely divorced from empirical foundations. Specifically, the dialog has focused on a triplet of unsupported theoretical possibilities: patent thickets, complex webs of widely distributed blocking rights; patent hold up, whereby an implementer’s investment can be expropriated by a patent-holder’s late assertions of blocking rights; and royalty stacking, whereby many patent holders lay claim to value. Together, this trilogy supposedly inflates prices and slows innovation in industries as robust as mobile phones. There is, at best, a paucity of empirical evidence to support the theoretical triplet of IP and antitrust problems. As observed in Jonathan Barnett’s recently published article, which reviews numerous case studies and retrospectives, “all available empirical evidence fails to confirm these … theories.” Moreover, there are no cases litigated to conclusion that have found patent hold-up is a basis for antitrust liability in these matters.

Based on these theoretical harms, the antitrust agencies have engaged in actual efforts to propose antitrust remedies to “fix” problems that either didn’t exist or could be solved without appeal to the antitrust laws. By doing so, core property rights inherent in intellectual property, such as the ability to enjoin patent infringers, could be weakened or eliminated. The result is predictable: licensing deals have stalled or evaporated, infringement has increased, and litigation has escalated, particularly around standard essential patents. The problem is exacerbated by the propensity of some foreign antitrust agencies to characterize some of these efforts as appropriate antitrust policy and even use them to expand intervention into mandatory licensing, rate regulation, and industrial policy.

AAG Delrahim has directly addressed in his recent speeches a return to the historical balance between antitrust and intellectual property by restraining overactive antitrust enforcement and restoring the value of intellectual property rights. AAG Delrahim’s “New Madison” approach is a return to a longstanding DOJ/FTC policy with respect to the IP/antitrust relationship. He is not departing from established and accepted bipartisan principles. Indeed, AAG Delrahim’s approach echoes the positions set forth in the DOJ-FTC 1995 and 2017 IP Guidelines, which call for an economically sound effects-based approach rather than heightened intervention and rate regulation by antitrust authorities. His views regarding the proper role of antitrust in licensing rate regulations are in line with those espoused by a number of his predecessors, such as former AAGs Thomas Barnett and William Baer. AAG Delrahim’s approach also is consistent with longstanding industry practice and policy standards recognized by standard development organizations such as ETSI regarding licensing at the device level.

Furthermore, AAG Delrahim’s speeches suggest the Antitrust Division will no longer be influenced by economic theory alone. We can expect that his enforcement priorities will demand empirical support both that there is an actual, and not just theoretical, concern to address, and that antitrust remedies are the appropriate recourse. He has noted that when competition law is “thoughtfully applied” and when “informed by economic experience,” then antitrust and patent law are complementary and “yield exciting results: a strong, dynamic economy with rich and varied choices for consumers.”

AAG Delrahim’s principled antitrust policy supports the broader economic goals that seek to maintain the U.S. position as a world economic leader. To hold that position, manufacturing must return to American shores and innovation must continue to accelerate. To continue developing inventions and innovation, then, the individuals and organizations doing the critical enabling work must be fairly and adequately compensated for their undertakings.

For example, the 5G economy, based on wireless communications technology, is poised to emerge in 2020, and possibly sooner in China. Continued investment in R&D is needed for the 5G standard to support, with high speed and low latency, the dizzying array of new mobile devices and new applications that will deliver the future in sectors from automobiles to healthcare. For R&D dollars to adequately flow, technology markets must operate effectively. There are contractual mechanisms at hand to let this market flourish as it did before the premature launch of new untested and misapplied antitrust theories.

AAG Delrahim is clearly aware of these issues and has the appropriate global perspective to lead the DOJ in these important policy discussions. He has signaled that, as far as the DOJ is concerned, the era of expanded de facto antitrust regulation of technology market is now in retreat – at least until evidence emergences that there is a fundamental competition problem that needs to be fixed. He seems highly cognizant that policy errors in this area could cause the U.S. to fall behind the technological frontier, particularly in mobile wireless.

James Rill, Senior Counsel at Baker & Botts, served as Assistant Attorney General for Antitrust at the US Department of Justice. David J. Teece is Professor in Global Business and director of the Tusher Center for the Management of Intellectual Capital at the Walter A. Haas School of Business at the University of California, Berkeley.

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