Differences Between Patent and Competition Laws
Global trade policy conversations are increasingly coming to the fore, and this is a good time to discuss happenings at the intersection of competition policy/competition law and intellectual property (IP) law. One objective of competition policy is to help ensure operation of a market to be fair to as many market participants as possible and that market entry for a particular business is not 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, excessive pricing, vertical arrangements between suppliers and distributors, and other agreements among firms leading to distortion of competition in the marketplace.
As discussed in previous columns, 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 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. As one may expect, experience shows heightened or relaxed protection of either patent law or competition law may lead to trade distortions that can negatively affect national and international sales of cast products. Thus, a balance has to 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 and can be located relatively easily. In particular, such safeguards and boundaries 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 which prevent grant of patents for obvious and creations that are not new.
Conversely, competition law has an objective to prevent undesired market behavior and, in particular, 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 some competing foundries 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 on their patented devices and methods. One undesired side effect of such court battles is reduction and elimination of innovation, particularly high-tech innovation. However, with effective application of IP law and robust enforcement of competition law, 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 could lead a competitor to forgo research and development 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’ considerable 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 pair of instruments working together to regulate potential abuses of patent rights and to complement patent inherent boundaries.
Click here to see this story as it appears in the September/October 2018 issue of MCDP.