The Pro-Competition Power of Patents


Joseph Schuman
May 16, 2013
Patent System Competition

Patent law and antitrust law are both in place to promote the public good.

Yet, as University of Baltimore law professor Greg Dolin points out, the two have often been described as “irreconcilable” when it comes to the promotion of competition. Like many perceived zero-sum equations in law and economics, it’s just not true.

In a piece written for George Mason University’s Center for the Protection of Intellectual Property, Prof. Dolin takes the Federal Trade Commission to task for its approach to entities that use their patent rights to earn money through licensing, litigation or both.

The problem, he says, comes from patent-system critics’ view that the role of the law is “promotion of competition for the sake of competition” rather than the proper goal of promoting competition for the sake of “overall consumer welfare.”

“The FTC’s approach today to patent licensing and to the attendant patent infringement lawsuits is reminiscent of the now-abandoned, pre-1980s approach to antitrust law,” Dolin writes. For much of the 20th century, American antitrust law presumed that when one party’s business practices harmed its competitors, improper anti-competitive behavior was taking place. But since then, courts and enforcement agencies have come to believe that the purpose of antitrust laws “is not protection of competitors, but protection of consumer welfare through competition.” In other words, Dolin adds, “the mere fact that a particular business practice may harm or exclude a competitor is not particularly problematic if, on balance, such practice has the effect of increasing consumer welfare (be it through lower prices or new and better goods and services).”

It is in this antitrust context that the patent system’s preservation of an inventor’s right to protect her or his invention should be seen.

“As courts have recognized over the last thirty years, mere exclusion of competitors is not automatically detrimental to consumer welfare,” Dolin says. “Although a patent may provide the patent owner with an opportunity to charge super-competitive prices to consumers, on balance consumers benefit from having access to new, innovative technology that is invented and commercialized as a result of the incentives created by patents.  Patents spur innovation and bring consumer-desired improvements to the market.  From pioneering pharmaceuticals to revolutionary electronic devices, patents have allowed consumers to increase their quality of life at a faster pace than would have been available absent patent-based protections.”

The FTC, he goes on to argue, is ignoring this function of patents and the essential role they play in expanding the economy through innovation, and in fact spurring competition.

Patents “encourage individuals and companies to seek multiple solutions to the same problem, whether in new products or in new commercial arrangements that exploit such products,” Dolin says.  “For example, by foreclosing (for a limited time) one particular avenue to competitors, patents encourage these competitors to ‘design around’ and come up with new products.”

One need only look at the thriving competition in the patent-heavy automobile, consumer electronics and telecommunications industries to see how this is playing out, and where patents are benefitting consumers rather than harming them.