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Vanderbilt Law Review

First Page

1047

Abstract

The issues presented by-the intersection of the patent system and the antitrust laws have never been as pressing as they are today. The number of issued patents is skyrocketing. Companies are more frequently entering into arrangements with competitors not only to recover their investment from creating patented products but also to avoid the patent landmines that line the path of innovation. They form patent pools for laser eye surgery, MPEG-2 video compression technology, and DVD formatting; enter into alliances, mergers, and settlements in the biopharmaceutical industry; refuse to license their patented products in various industries; and cross-license their patents in the semiconductor industry.

But the need for collaborative and exclusionary conduct under the patent system is matched by the heightened suspicion of the antitrust laws. Antitrust looks at these patent-based activities and sees competing firms conspiring to limit competition. It sees increased price, reduced output, and lessened competition. And it pays scant attention to the benefits of the activity in promoting innovation or the justification for the activity based on the patent system. Thus, the patent-antitrust paradox. Stated on its simplest level, the patent and antitrust systems promote welfare in different, often conflicting, ways: the patent system is based on exclusion, while antitrust law focuses on competition. Since exclusion-based acts often restrict competition, courts are left to reconcile two systems for promoting welfare without any compass to guide them. One need not look far to stumble upon their wayward path, as revealed by judicial analyses based on the defendant's intent, the scope of the patent, the presence of an essential facility, and the effect of the activity on competitors.

This Article offers a paradigm to resolve the patent-antitrust paradox. Three steps comprise the paradigm. First, the Article proposes innovation as the common denominator of the patent and antitrust laws. Second, it proposes a new explanation that firms can offer in defense of the challenged activity: that it is reasonably necessary to attain tripartite innovation. Tripartite innovation denotes the three temporal stages of innovation: the creation of the product, the recovery of the investment incurred in creating the product, and the circumvention of patent bottlenecks that block the path of innovation.

Third, the Article recommends a greater role for the justification than that currently accorded to other explanations in antitrust analysis. Specifically, a showing of reasonable necessity for tripartite innovation should receive (1) immunity from a charge of monopolization, (2) heightened consideration in the review of mergers, and (3) greater weight in an asymmetric balance against anticompetitive effects in the analysis of agreements.

The Article is constructed as follows. Part I sketches the conflict between the patent system and the antitrust laws and illustrates the range of approaches that courts and the federal antitrust enforcement agencies recently have applied to the intersection. Part II proposes innovation as the common denominator allowing the reconciliation of the patent and antitrust laws. This part relies on the text and legislative history of the relevant statutes, courts' jurisprudence, and economic theory.

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