The team is joined by Guest Kats Rosie Burbidge, Stephen Jones, Mathilde Parvis, and Eibhlin Vardy, and by InternKats Verónica Rodríguez Arguijo, Hayleigh Bosher, Tian Lu and Cecilia Sbrolli.

Tuesday, 19 January 2010

Alive but not kicking: is economics IP's favourite bedfellow?

Are intellectual property law and economics locked into an eternal collision course, or are they actually best friends? Readers may wish to (i) reinforce their prejudices or (ii) do an elegant volte-face after reading this guest post in which Kevin Coates (Visiting Fellow, NYU Law, Head of Unit, DG Competition, European Commission) picks up a comment made by the IPKat over the weekend that "There's a great deal of IP-kicking going on at the moment, much of it coming from economists -- whose discipline is inherently uncomfortable with the notion of the monopoly...". Writes Kevin:

"I'm a (competition) lawyer not an economist but the above statement touches directly on the IP/competition law interface so...

Both intellectual property law and economics -- and as a consequence competition law -- talk about monopolies. The supposed inherent conflict between IP law and competition law is because the former creates them and the latter doesn't like them. But it's only a supposed conflict: the two branches of law use the terms to mean two entirely different things.

These words are copyright me (let's assume); I have a monopoly over them in the sense that I can determine what, if anything, is done with them. That, though, is only a monopoly in the intellectual property sense of the term. I have no monopoly power in the economic/competition law sense of the term.

If I tried to extract a monopoly price for the use of these words, I would fail: I have a range of existing competitors in the various books and articles that make this same point or variations of it: the expression is all unique -- plagiarism excepted -- and hence each is copyright-protected, but the idea being expressed is common to all. Demand is mostly for the idea, not the expression of it.

Even absent a range of existing competitors, there are a large number of potential competitors -- lawyers and economists -- who would be willing to enter the market and provide their own copyright expressions of this issue, should they see me trying to extract a monopoly price for my writing.

Some expressions may be more elegant, persuasive and authoritative than others, and may as a consequence be more economically valuable: but for one particular expression to become a monopoly in the economic sense will be very rare. Most importantly, for the particular expression to become a monopoly will depend on the market as a whole, and not just the existence of an intellectual property right.

Not even unique ideas necessarily lead to monopolies in the economic sense.

Of the large number of patents granted each year, how many are have commercial value? In what sense are they monopolies? Again, in the IP sense, they are; the patent owner has an exclusive right to determine the use of that patent. But again, in the economic/competition law sense, few are monopolies. Many will have no commercial value, of those that do, many will face existing or potential alternatives (patented or non-patented) on the market.

It is in the interest of that minority of IP owners that also have genuine economic monopolies to confuse this distinction so as to weaken the application of the competition rules. One such argument led to one of my all-time favourite pieces of judicial writing:

“Microsoft’s primary copyright argument borders upon the frivolous. The company claims an absolute and unfettered right to use its intellectual property as it wishes: ‘‘[I]f intellectual property rights have been lawfully acquired,’’ it says, then ‘‘their subsequent exercise cannot give rise to antitrust liability.’’ Appellant’s Opening Br. at 105. That is no more correct than the proposition that use of one’s personal property, such as a baseball bat, cannot give rise to tort liability. As the Federal Circuit succinctly stated: ‘‘Intellectual property rights do not confer a privilege to violate the antitrust laws.’’ In re Indep. Serv. Orgs. Antitrust Litig., 203 F.3d 1322, 1325 (Fed. Cir. 2000).”[US v Microsoft Corp., 253 F. 3d 34 - Court of Appeals, Dist. of Columbia 2001]

Antitrust laws have to share some of the fault for the confusion of course. There was a range of US cases which assumed that the grant of a patent in and of itself conferred economic monopoly power; but these have long since gone the way of the dodo: “the aims and objectives of patent and antitrust laws may seem, at first glance, wholly at odds. However, the two bodies of law are actually complementary, as both are aimed at encouraging innovation, industry and competition.” [Atari Games Corp. v Nintendo of America, Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990)]

I don't think EU jurisdictions took as hard a line as the early US cases, and certainly now it's clear that the existence of an IP right does not necessarily confer market power (if it did, then the market definition and market power sections of, say, the European Commission's Microsoft and Intel decisions could have been substantially shorter).

There are more complex arguments about potential conflicts between competition law and IP law, and there are some licensing practices that test the boundaries. And the conflicts decline, I think, as competition law becomes more sophisticated about looking at dynamic efficiency (essentially innovation) as well as the traditional productive and allocative efficiency. Overall, “they represent complementary systems, designed in the long run to achieve maximum consumer welfare through the encouragement of both innovation, which is one of the chief engines of competition, and competition understood more broadly.”[Shenefield, John H.; Stelzer, Irwin M., Antitrust Laws : A Primer, Washington, DC, USA: American Enterprise Institute for Public Policy Research, 2001. p 87.]

More generally, competition law received a "kicking" from economists beginning in the 60s and 70s, and to a large extent that's still going on. Competition law is the better for it though, and if IP law gets the same, we'll all be better off".
Well, says the IPKat, there are enough readers of this blog who have plenty to say for themselves. What do they say to Kevin?

Strange bedfellows here
Fatal attraction here


Anonymous said...

"I have a range of existing competitors in the various books and articles that make this same point or variations of it: the expression is all unique -- plagiarism excepted -- and hence each is copyright-protected, but the idea being expressed is common to all. Demand is mostly for the idea, not the expression of it."

I wonder how this would fit with the critique offered by those such as Laddie with regard to the fallacy of a clear ideas/expression dichotomy?

Nicola said...

I think Kevin is spot on. The definition of "monopoly" varies depending on the discipline and discussions must keep this in mind. Clever firms manage to turn their legal IP monopolies into economic monopolies and, as Kevin puts it, "test the boundaries."

IP law is a legal solution to an economic problem. When this legal solution creates further economic problems, it deserves a "kicking." There is no perfect solution, but as long as we keep the static inefficiency / dynamic efficiency balance in check, then the system works.

Of course, I come from Economics - so I would say that!

Gareth Dickson said...

I'm not sure using copyright to highlight the different approaches to the term "monopoly" is all that helpful, since IP lawyers don't consider it a monopoly right either (even where there are limited defenses, as in the UK). A new invention which heralds a new market (where competition and innovation could be most fruitful), on the other hand, *could* be the basis of a "double-monopoly" [a "doublopoly"?] by being protected by a sufficiently broadly drafted patent. The real gripe, though, is IP in the form of multiple patents in the hands of one owner (i.e. a series of small IP monopolies being used to create a more significant economic monopoly).

Anonymous said...

Dr Pedant to the rescue...


Happy to clear that up..

Dr P.

Anonymous said...

Another point of view is that economists don't understand IP transactions. The European Commission official who drafted the latest Technology Transfer Block Exemption Regulation was reportedly an economist and made a complete pig's ear of the early drafts, although in the end, after much lobbying, the Regulation ended up not too dissimilar to the regulation that it replaced.

Dr Pedant, why has no-one mentioned monopsonies (or duopsonies, if they exist)?

The TradeMarkovs' said...

IPRs are not monopolies. We tell the clients: “You’ll have a monopoly”, in order to better explain the exclusive right.

A monopoly gives control over a certain product (naturally, physically or constitutionally). IPRs does not give control over the same product, but over the way one is adding value in such a product. A new method of extracting salt or a new substitute for salt is not a veto on trade with salt.

It exists exhaustion of IPRs after a certain (early) moment in trade with the same product and they are time-limited, territorially-limited, subject to other limitations or exceptions (free use), etc.

Yet IPRs often create a situation where the winner takes all.

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