On the Ramifications of Leegin Creative Leather Products, Inc. PSKS, Inc.: Art Tie-Ins Next Essay

This Essay considers whether the Roberts Court would now overrule the last bastion of the Harvard School-the rule against product tying-if given the opportunity. The economic arguments against per se treatment of tie-ins apply a fortiori to those against resale price maintenance. In addition, applying the line of thought followed by the majority in Leegin leads inexorably to the conclusion that the per se rule proscribing tying arrangements should be similarly overruled. Part II explains the business practice of resale price maintenance and the law\u27s formerly mistaken understanding of its consequences. The Leegin case will then be introduced and compendiously detailed. Assuming familiarity with that decision, Part III asks whether stare decisis has been dealt a mortal blow, thereby rendering abortion rights less secure in the long run. Having answered that question in the negative, the Essay proceeds to its most important question: if not relevant to stare decisis, what are the repercussions of the judgment? The axiomatic point is that those seeking to invalidate minimum resale prices will now face an uphill battle. The Essay discusses which arguments would be likely to prevail post-Leegin. The more interesting insight, however, relates to an unrelated area of antitrust law, product tying. The qualified per se prohibition of tie-ins rests on a flawed economic interpretation highly reminiscent of the specious reasoning that supported the rule in Dr. Miles. I suggest that tie-ins would perhaps be subjected to rule of reason analysis were the Court to subsequently revisit the question

Antitrust Limits on Targeted Patent Aggregation

Patent-assertion entities (PAEs) are non-technology-practicing companies that aggregate and license patents under threat of suit. Their activities have drawn fire, including presidential condemnation, and spurred proposed legislation to protect operating firms against them. PAEs leverage flaws in the patent system to extort firms that independently invent and sell technological goods to consumers. Since PAEs tax innovators and appear to restrict rather than facilitate wealth transfer to original patentees, their worst rent-seeking practices almost certainly reduce net incentives to innovate and harm consumers. This result is more likely if the principal desirable incentive that PAEs create is to file patents rather than to commercialize technology. The idiosyncratic nature of today’s patent system facilitates PAE activity. Patents’ numerosity, vague scope, widespread invalidity, and sometimes-functional claiming prevent even the most assiduous technology companies from securing guaranteed clearing positions before building products. These conditions ensure that a universe of potentially infringed patents of dubious validity exists in many industries ex post, especially in information technology. Fortunately, atomized ownership of intellectual property limits enforcement ex post because the unlikelihood of success in asserting few patents, the risk of countersuit, and high litigation costs make suing a negative value proposition. The result is a public-goods benefit in constrained enforcement that ameliorates hold-up potential. Even ex post, owners of disaggregated patents typically lack market power unless their intellectual property rights are both likely valid and infringed. PAE accumulation changes all of that. By amassing hundreds or even thousands of patents, never building or selling goods, using shell companies to conceal the contents of their portfolios, and asserting patents in waves ex post, PAEs can realize immense hold-up power that atomized owners lack. This conclusion holds true even if the great majority of their patents are invalid or not infringed. Thus, many operating victims are vulnerable to threats of incessant litigation and are forced to pay tens or even hundreds of millions of dollars for licenses that are unnecessary to engineer successful products. Commentators increasingly—though not universally—accept that PAEs harm the economy. The solution, however, is less clear. Many propose reforming the patent system, such as by requiring losing patentees to pay the other side’s costs and forcing PAEs to disclose their portfolios. Some legislative reforms appear likely, and in 2014 the Supreme Court considered whether to invalidate certain computer-implemented inventions. Nevertheless, modest changes are unlikely to provide a significant remedy for PAE hold-up. Lacking other means, some policy makers now look to antitrust law for solutions. Not everyone believes that competition rules proscribe PAE conduct or otherwise suitably constrain patent hold-up. Indeed, antitrust rules are not a cure-all. This Article argues, however, that antitrust law can viably limit certain abuses of the patent system by PAEs. Section 2 of the Sherman Act proscribes monopolization and Section 7 of the Clayton Act prohibits asset acquisitions that may substantially lessen competition or tend to create a monopoly. These provisions have sufficient teeth theoretically to catch the most egregious forms of hold-up founded on ex post patent aggregation and assertion. This Article explains how PAE activity can reduce social welfare and how PAEs’ targeted patent aggregation and assertion may violate competition rules

Antitrust as Regulation

Antitrust, properly understood, plays a modest role in constraining commercial behavior. With respect to unilateral conduct, it does not prohibit monopoly or the fortuitous or quality-based acquisition of the same. It generally permits dominant companies to enjoy the fruits of their positions and does not speak to the propriety of excessive pricing. It does not impose service obligations on monopolists, nor does it generally limit their right to price discriminate amongst their consumers. It merely prohibits monopolists\u27 artificial creation of impediments to competition--so-called exclusionary practices. With respect to concerted behavior, the law allows a vast swathe of private agreements, even between rivals and if restrictive of competition, so long as the arrangement sufficiently promotes the well-being of consumers. These tenets of competition policy reflect a sound maxim: antitrust is not regulation. Unfortunately, the judiciary has lost sight of this rudimentary principle. The erosion began subtly, as lower courts rewrote antitrust law\u27s principal mode of analysis, the rule of reason. According to the Supreme Court\u27s seminal pronouncement of the rule, if economic analysis reveals that a practice enhances an appropriate measure of consumer welfare, the practice is lawful. That analytic inquiry does not insist that companies calibrate their behavior to maximize efficiency. The U.S. Courts of Appeals, however, have rewritten the rule of reason to require more. Today, an antitrust defendant cannot necessarily prevail by showing that its challenged restraint is welfare enhancing. Instead, if a court finds that a defendant could have achieved comparable efficiency gains in a manner less prejudicial to competition, a violation of the Sherman Act will follow. Although recent calls for antitrust to require the best have intuitive appeal, policymakers should reject them in most cases. Where welfare analysis requires one to appeal to a hypothetical counterfactual-as is typically the case, courts invariably operate in an error-prone manner. Here, antitrust should play a role founded on incremental improvement over the status quo. Any other function would blur the lines between antitrust and regulation, thus subjecting the courts and agencies to tasks for which they are ill-suited. Recent enforcement actions and judicial proceedings reveal the dangers of requiring welfare maximization, as antitrust now threatens to undo desirable gains in a self-defeating pursuit for more

Indeterminism and the Property-Patent Equation

How should one construct optimal property rules in high-technology markets? The task is far from straightforward, given the prodigious rates of innovation in the field. In such a rapidly evolving environment, policymakers must approach many issues de novo. From an Internet service provider\u27s desire to control activity on its servers to a pharmaceutical company\u27s efforts to frustrate the emergence of generic drugs, lawmakers face an eclectic and ever-evolving array of scenarios. In the new economy, such fundamental concepts as ownership, exclusivity, and alienability prove controversial and unsettled. Ideally, policymakers could look to related areas of law for guidance. The most obvious candidate would be the law governing real property, but, at first blush, these traditional principles seem far removed from the reality of high-tech markets

Antitrust Limits on Targeted Patent Aggregation

Patent-assertion entities (PAEs) are non-technology-practicing companies that aggregate and license patents under threat of suit. Their activities have drawn fire, including presidential condemnation, and spurred proposed legislation to protect operating firms against them. PAEs leverage flaws in the patent system to extort firms that independently invent and sell technological goods to consumers. Since PAEs tax innovators and appear to restrict rather than facilitate wealth transfer to original patentees, their worst rent-seeking practices almost certainly reduce net incentives to innovate and harm consumers. This result is more likely if the principal desirable incentive that PAEs create is to file patents rather than to commercialize technology. The idiosyncratic nature of today’s patent system facilitates PAE activity. Patents’ numerosity, vague scope, widespread invalidity, and sometimes-functional claiming prevent even the most assiduous technology companies from securing guaranteed clearing positions before building products. These conditions ensure that a universe of potentially infringed patents of dubious validity exists in many industries ex post, especially in information technology. Fortunately, atomized ownership of intellectual property limits enforcement ex post because the unlikelihood of success in asserting few patents, the risk of countersuit, and high litigation costs make suing a negative value proposition. The result is a public-goods benefit in constrained enforcement that ameliorates hold-up potential. Even ex post, owners of disaggregated patents typically lack market power unless their intellectual property rights are both likely valid and infringed. PAE accumulation changes all of that. By amassing hundreds or even thousands of patents, never building or selling goods, using shell companies to conceal the contents of their portfolios, and asserting patents in waves ex post, PAEs can realize immense hold-up power that atomized owners lack. This conclusion holds true even if the great majority of their patents are invalid or not infringed. Thus, many operating victims are vulnerable to threats of incessant litigation and are forced to pay tens or even hundreds of millions of dollars for licenses that are unnecessary to engineer successful products. Commentators increasingly—though not universally—accept that PAEs harm the economy. The solution, however, is less clear. Many propose reforming the patent system, such as by requiring losing patentees to pay the other side’s costs and forcing PAEs to disclose their portfolios. Some legislative reforms appear likely, and in 2014 the Supreme Court considered whether to invalidate certain computer-implemented inventions. Nevertheless, modest changes are unlikely to provide a significant remedy for PAE hold-up. Lacking other means, some policy makers now look to antitrust law for solutions. Not everyone believes that competition rules proscribe PAE conduct or otherwise suitably constrain patent hold-up. Indeed, antitrust rules are not a cure-all. This Article argues, however, that antitrust law can viably limit certain abuses of the patent system by PAEs. Section 2 of the Sherman Act proscribes monopolization and Section 7 of the Clayton Act prohibits asset acquisitions that may substantially lessen competition or tend to create a monopoly. These provisions have sufficient teeth theoretically to catch the most egregious forms of hold-up founded on ex post patent aggregation and assertion. This Article explains how PAE activity can reduce social welfare and how PAEs’ targeted patent aggregation and assertion may violate competition rules

Improving Patent Notice and Remedies: A Critique of the FTC\u27s 2011 Report

2011 was an eventful year for those interested in patent law. In March, the Federal Trade Commission ( FTC ) released a report that urges the Patent and Trademark Office ( PTO ) and courts to remedy perceived inadequacies underlying the U.S. patent system. The FTC observes that people of skill in the art routinely encounter difficulty in determining the meaning, and hence exclusive scope, of a patent\u27s claims. Not only does this failure of notice stymie the efficient dispersion of technology throughout the economy, the FTC argues, but the judicial process can aggravate the problem by granting inappropriate remedies in patent-infringement cases. Then, in September, Congress passed comprehensive patent-reform legislation for the first time in almost sixty years. The Leahy-Smith America Invents Act (the AIA ) changed the patent landscape in a number of significant ways, introducing a first-to-file system, post-grant opposition proceedings, certain prior-user rights, and other material changes.[...] As between the two developments, the AIA is likely to overshadow the FTC Report. Yet, due in part to the fact that the AIA does little to address the problem of inadequate patent notice, the Report is itself of considerable importance. This Essay explores the backdrop, substantive provisions, and likely impact of the Report, concluding that the FTC\u27s recommendations, though generally well founded, are unlikely in themselves to resolve the most worrying features of the patent crisis. This Essay argues that the FTC proposals are excessively restrained with respect to controversial tenets of proposed reform, though they are appropriately ambitious in other quarters.[...] The Report represents an important development in U.S. innovation policy. This Essay explores the material features of the patent crisis and explains the crucial roles that patent notice and remedies play in fueling the crisis. It examines the Report\u27s probable efficacy, laudable provisions, and material shortcomings. The Essay concludes that, although the Report\u27s recommendations are generally well founded, the Report is unlikely to have a major impact on the patent system\u27s most significant problems. It thus appears likely that more significant reforms will be necessary. This Essay proceeds as follows. Part I briefly recounts the controversial features of the patent system that lead some commentators to believe that the patent system is in crisis. Part II explores the interrelated functions of notice and remedies by comparing the laws of tangible and intellectual property. Drawing on that discussion, Part III addresses the Report\u27s most notable recommendations and singles out a subset of them for particular praise. Part IV details the Report\u27s limitations, opining that its decision not to make formal recommendations with respect to the most contested, but arguably most important, aspects of the patent system means that the Report is unlikely to have more than a modest impact on the crisis. Part IV also discusses technical deficiencies that underlie the FTC\u27s analysis. A brief conclusion follows

Antitrust Error

Fueled by economics, antitrust has evolved into a highly sophisticated body of law. Its malleable doctrine enables courts to tailor optimal standards to a wide variety of economic phenomena. Indeed, economic theory has been so revolutionary that modern U.S. competition law bears little resemblance to that which prevailed fifty years ago. Yet, for all the contributions of economics, its explanatory powers are subject to important limitations. Profound questions remain at the borders of contemporary antitrust enforcement, but answers remain elusive. It is because of the epistemological limitations of economic analysis that antitrust remains unusually vulnerable to error. The fear of mistakenly ascribing anticompetitive labels to innocuous conduct is now pervasive. The Supreme Court has repeatedly framed its rulings in a manner that shows sensitivity to the unavoidability of error. In doing so, it has adopted the principle of decision theory that Type I errors are generally to be preferred over Type II. It has crafted a pro-defendant body of jurisprudence accordingly. In 2008, the Justice Department picked up the gauntlet and published the first definitive attempt at extrapolating optimal error rules. Yet, in 2009, the new administration promptly withdrew the report, opining that it could “separate the wheat from the chaff” and thus marginalizing the issue of error. Notwithstanding this confident proclamation, error remains as visible as ever. Intel’s behavior in offering rebates has been subject to wildly fluctuating analysis by the U.S. and E.U. enforcement agencies. In a marked departure from precedent, the DOJ is again viewing vertical mergers with concern. And the agency has reversed course on the legality of exclusionary payments in the pharmaceutical industry. Antitrust divergence, both within and outside the United States, remains painfully apparent, demonstrable proof that vulnerability to error remains systemic. For this reason, error analysis may be the single most important unresolved issue facing modern competition policy. This Article seeks to challenge the contemporary mode of error analysis in antitrust law. We explain the causes and consequences of antitrust error and articulate a variety of suggested cures. In doing so, we debunk the current presumption that false positives are necessarily to be preferred over false negatives. We highlight a variety of cases in which the contemporary bias in favor of underenforcement should be revisited

Antitrust Error

Fueled by economics, antitrust has evolved into a highly sophisticated body of law. Its malleable doctrine enables courts to tailor optimal standards to a wide variety of economic phenomena. Indeed, economic theory has been so revolutionary that modern U.S. competition law bears little resemblance to that which prevailed fifty years ago. Yet, for all the contributions of economics, its explanatory powers are subject to important limitations. Profound questions remain at the borders of contemporary antitrust enforcement, but answers remain elusive. It is because of the epistemological limitations of economic analysis that antitrust remains unusually vulnerable to error. The fear of mistakenly ascribing anticompetitive labels to innocuous conduct is now pervasive. The Supreme Court has repeatedly framed its rulings in a manner that shows sensitivity to the unavoidability of error. In doing so, it has adopted the principle of decision theory that Type I errors are generally to be preferred over Type II. It has crafted a pro-defendant body of jurisprudence accordingly. In 2008, the Justice Department picked up the gauntlet and published the first definitive attempt at extrapolating optimal error rules. Yet, in 2009, the new administration promptly withdrew the report, opining that it could “separate the wheat from the chaff” and thus marginalizing the issue of error. Notwithstanding this confident proclamation, error remains as visible as ever. Intel’s behavior in offering rebates has been subject to wildly fluctuating analysis by the U.S. and E.U. enforcement agencies. In a marked departure from precedent, the DOJ is again viewing vertical mergers with concern. And the agency has reversed course on the legality of exclusionary payments in the pharmaceutical industry. Antitrust divergence, both within and outside the United States, remains painfully apparent, demonstrable proof that vulnerability to error remains systemic. For this reason, error analysis may be the single most important unresolved issue facing modern competition policy. This Article seeks to challenge the contemporary mode of error analysis in antitrust law. We explain the causes and consequences of antitrust error and articulate a variety of suggested cures. In doing so, we debunk the current presumption that false positives are necessarily to be preferred over false negatives. We highlight a variety of cases in which the contemporary bias in favor of underenforcement should be revisited

The Riddle Underlying Refusal-to-Deal Theory

May a dominant firm refuse to share its intellectual property (IP) with its rivals? This question lies at the heart of a highly divisive, international debate concerning the proper application of the antitrust laws. In this short Essay, we consider a profound, yet previously unaddressed, incongruity underlying the controversy. Specifically, why is it that monopolists refuse to share their IP, even at monopoly prices? To resolve this issue, some have recommended compulsory licensing, which would require monopolists to license their IP in certain circumstances. This proposal, however, entails an inescapable contradiction, one rooted in the issue of monopolists’ seemingly inexplicable refusal to share their IP