INTELLECTUAL PROPERTY AND ANTITRUST:
A PERSPECTIVE FROM THE FTC
Mary L. Azcuenaga
Federal Trade Commission
American Law Institute-American Bar Association
"Antitrust/Intellectual Property Claims in High Technology Markets"
Stouffer Stanford Court Hotel
San Francisco, California
January 26, 1995
The views expressed are those of the Commissioner and do not necessarily reflect those of the Federal Trade Commission or any other commissioner.
Good morning. I am pleased to join you today and to begin this two day program on Antitrust/Intellectual Property Claims in High Technology Markets. Northern California is a particularly appropriate location, of course, for a discussion of the antitrust issues posed by transactions in intellectual property because this form of property is so important to the economy of the West Coast. In cities and communities dotted over the area stretching both north and south from Silicon Valley, pioneers in software, biotechnology, semiconductors, and aerospace have truly changed the face of America. As a result of the efforts of these and other pioneers in innovation, what a fascinating place the modern world has become!
The array of new products and new technologies that present new possibilities for living one's life can be mind-bending. All around us, we see evidence of progress of a most vibrant nature and on a most massive scale. With minor exceptions, perhaps, to account for mistakes and matters of taste, this progress is a matter for great appreciation, if not celebration, on a personal level. For society, the developments of the modern world are also important. Indeed, for society, maintaining an environment in which technological progress and innovation continue to flourish is a matter of the most serious concern, if not outright necessity, assuming we want to protect or improve the quality of life as we know it.
Which brings me to the role government plays in protecting and fostering innovation. The government promotes and protects the innovative process in at least two fundamental ways. First, the government creates intellectual property rights by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. Second, the government, through enforcement of the antitrust laws, preserves an open, competitive marketplace in which innovators can profit from valuable inventions. Now that I have mentioned government, let me clarify the extent to which I represent the government by stating my customary and non-innovative disclaimer: the views I express today are my own and do not necessarily represent the views of the Federal Trade Commission or any other commissioner.
What I would like to do today is to begin by reviewing some general principles that underlie competition policy as it applies in the intellectual property context, then to identify a few areas of current enforcement concern at the Commission, and, finally, to look forward a bit to consider how robust, to steal a word of art from the economists, our current policies are.
Recognition of the importance of protecting intellectual property is of course founded in the Patent Clause of the Constitution, Art. I, 8, but it permeates the consciousness of Washington today. For example, in the Uruguay Round of the GATT negotiations, protection of American intellectual property in foreign markets was a focal issue. Stories about piracy of intellectual property appear with regularity. Recently, the press has carried reports that United States trade negotiators are struggling to secure improved protection for intellectual property in China, even to the extent of raising the possibility of trade sanctions.(1)
Both competition policy and the policy underlying the protection of intellectual property seek to foster an economic climate conducive to technological change and innovation. By eliminating private restraints of trade that diminish rivalry or bar new entry, antitrust enforcement can create opportunity for entrepreneurs to exploit their innovations commercially. Antitrust enforcement should complement, indeed, should reinforce, the value established by the creation of intellectual property rights.
There was a time when an endorsement of the value of intellectual property rights by a government official with antitrust enforcement duties might have raised eyebrows. Old case law viewed patents as monopolies and the role of antitrust enforcement as circumscribing the necessary evil of patent monopolies as narrowly as possibly. See, e.g., United States v. Line Material, Inc., 333 U.S. 287, 308-10 (1948). That view of an inherent conflict between antitrust and patent law is receding into the past.
For example, entry is a key part of the analysis in any antitrust case, and the antitrust world today generally appreciates that the establishment of intellectual property rights can promote entry into new markets. Although patents obviously prevent entry by infringing products in markets for patented products, they also can encourage new entry into developing markets. Because existing markets that are protected by patents might not have been developed without the promise of this protection, patents can accurately be described as facilitating entry.
One fundamental question in this area is whether intellectual property is like other property for purposes of antitrust analysis. In considering this question, it seems to me that we should keep in mind some obvious principles. First, intellectual property is property, that is to say it belongs to someone who has the right to exclude others from using it without his or her consent.(2) Second, intellectual property has attributes that distinguish it from personal property and real property -- that is why we have a different word for it. For example, enforcement of an owner's exclusive right to use physical property may be more easily accomplished, as a practical matter, than enforcement of an exclusive intellectual property right. It may be appropriate at least to consider this difficulty in evaluating certain kinds of conduct under the antitrust laws. Indeed, most differences between intellectual property and tangible property, along with other relevant facts, are routinely considered in antitrust analysis.
Our learning about and understanding of markets and the economics of markets is a continuing process. Antitrust enforcers should certainly be open to considering new ideas about how the rights associated with intellectual property can and should be distinguished from the ownership of tangible property in the analysis of antitrust liability. But for now, it seems fair to say that for antitrust purposes, intellectual property is generally treated like other forms of property.(3)
Two other principles seem to be generally accepted by government antitrust officials. The possession of intellectual property rights does not presumptively confer market power.(4) Second, intellectual property licensing can facilitate efficient commercial exploitation of intellectual property and can help integrate complementary intellectual property.(5) Consumers benefit from licensing because it expands access to intellectual property and can increase the speed and reduce the cost of bringing innovations to market.
Of course, anything we might say about the importance of protecting intellectual property is premised on the assumption that the intellectual property is properly obtained. Problems arise when particular intellectual property rights have not been obtained in the proper manner or are not deserved. Patent protection in the absence of novelty and non-obviousness can harm innovation by eliminating the incentives for the patent holder and others to engage in further pursuit of something that is novel and non-obvious. This leads to the more concrete topic of specific enforcement situations.
The antitrust implications of a fraudulently obtained patent is an area in which the Federal Trade Commission has maintained an enforcement interest. Some of you may recall the tetracycline case of the 1960's. The Commission brought the case to challenge certain agreements between Pfizer and American Cyanamid relating to tetracycline patents. Ultimately, the courts upheld the Commission's order requiring mandatory licensing of the patent in question at a fixed royalty. Charles Pfizer & Co. v. Federal Trade Commission, 401 F.2d 574 (6th Cir. 1968), cert. denied, 394 U.S. 920 (1969). The basic factual question in the tetracycline case was whether Pfizer and American Cyanamid made misrepresentations to and withheld essential information from the patent examiner, thereby deceiving him into granting a patent that otherwise would not have been approved. 401 F.2d at 578.
Since the Pfizer matter, which was brought under Section 5 of the Federal Trade Commission Act, the Commission has continued to pursue investigations involving anticompetitive enforcement of invalid patents, and there has been an interesting exchange of views on the standard that the Commission should apply. One school of thought has maintained that in an action under Section 5 of the FTC Act, the Commission's burden of proof of intent to deceive and materiality should be lower than the standard set forth by the Supreme Court in Walker Process Equipment, Inc. v. Food Machinery & Chemical Corp., 382 U.S. 172 (1965). Advocates of this approach have suggested that a showing of inequitable conduct, without clear and convincing proof of deceptive intent and "but for" materiality, might suffice to prove an unfair method of competition under Section 5 of the Federal Trade Commission Act. A contrary position is that we should look to the high standard of proof of intent and materiality required in recent decisions by the Court of Appeals for the Federal Circuit.(6) I think that a good argument can be made that the Commission should not adopt a more lenient standard, but until the Commission takes a position on the standard, the issue remains an interesting one for debate.
In the most recent matter in which the Commission addressed the validity of a patent, we tried an entirely new approach. Instead of initiating administrative litigation alleging fraud in securing a patent, the Commission, on September 15, 1992, sent a letter to the Commissioner of Patents and Trademarks, enclosing a sixty-five page memorandum by the Commission's staff. The staff memorandum expressed concerns about the validity of an alpha-interferon patent owned by Hoffman-La Roche, Inc. and summarized the extensive supporting materials.
The Commission letter referring the staff memorandum to the Patent and Trademark Office did not take a position on the validity of the patent, stating that "these issues are within the particular expertise of the Patent and Trademark Office." Two months later, on November 20, 1992, the Patent and Trademark Office ordered reexamination of the patent at the Commissioner's own initiative. On May 6, 1993, the examiner conducting the reexamination rejected the claims in the patent. It seems fair to say that this dramatic development would not have occurred but for the FTC's referral. I understand that the matter is on appeal under the procedures of the Patent and Trademark Office.
The extent to which antitrust should defer to the interest in allowing an innovator to profit from his or her invention arises in a number of different contexts. Assume for a moment that a firm has developed a unique, patented product without a close substitute, and that for whatever reason, the patent owner licenses a second company so that there are then two firms in the market. If after several years, the original patent owner reacquires the second firm's assets related to the patented product in question, should the elimination of competition between the two firms be challenged under Section 7 of the Clayton Act?
This situation arose in the Monsanto case.(7) In Monsanto, the Commission issued a complaint alleging that Monsanto's acquisition of the Ortho Consumer Products Division of Chevron Corporation would reduce competition in the market for producing and selling nonselective herbicides for residential use. Monsanto held the patent to glyphosate, the key ingredient in a herbicide sold under the Roundup brand. It entered a long term contract to sell glyphosate under the name "Shackle C" to Ortho, which used the patented ingredient in its herbicide sold under the Kleenup brand. These two brands dominated the highly concentrated market for residential nonselective herbicides. The consent agreement required Monsanto to divest its formulas and trademark for Kleenup plus its contractual rights to acquire a specified amount of Shackle C up through the year 2000, plus formulas for possible future substitute ingredients for glyphosate. In short, Monsanto was required to divest the business that Ortho had built based on Monsanto's glyphosate patent.
The competition that was eliminated by the merger was competition that Monsanto itself had created when it agreed to sell glyphosate to Ortho. The fact that Monsanto had the option not to enter the contract with Ortho in the first place was not a defense to the Section 7 claim.
Suppose we vary the factual situation somewhat. Assume the following hypothetical situation: a small firm that specializes in research successfully develops a promising new drug, but lacks the funds and expertise to carry the product through the regulatory approval process and bring it to market. Instead of simply selling the intellectual property to a large drug company, the research firm seeks assistance from a larger firm in commercializing the invention. The parties agree to a comarketing arrangement in which both firms have rights to sell the drug in the United States. Although they initially contemplate that both firms would promote the drug, the comarketing arrangement is unsuccessful because only one firm promotes the product, and the other free rides on its sales efforts. The small, research firm proposes to reacquire exclusive marketing rights from the pharmaceutical firm. Should the Commission challenge the reacquisition under Section 7 of the Clayton Act?
Perhaps we should consider the possibility that the long-term interest in encouraging innovators might militate in favor of permitting what would otherwise appear to be an anticompetitive acquisition. The prospect of an antitrust challenge further down the line might deter innovators from entering beneficial product development and marketing arrangements, delaying or perhaps even foreclosing product development, because of the concern that they could not extricate themselves if the deal does not work out as planned. The concern may be highlighted in situations in which a very small innovator embarks on an arrangement with a large firm in order to make its invention commercially viable. A small firm may lack the money and the expertise to move a product from the research lab to market without assistance from an established firm. Unless the parties are free to modify their arrangement over time, they may be discouraged from developing innovative solutions to the problem of how to introduce a new product. I raise these concerns simply to suggest that ascertaining how best to protect innovation is not always easy.
Analysis of a restraint in a license to intellectual property is another important subject. Although many restraints are analyzed under the rule of reason, history reminds us that enforcement attitudes toward intellectual property licenses can shift. For example, do you remember the "Nine No-Nos"? The "Nine No-Nos" were a list of nine categories of patent license restrictions that at one time, back in the 1970's, the Justice Department viewed as per se unlawful.(8) In contrast to the hostility toward licensing reflected in the "Nine No-Nos," Assistant Attorney General Bingaman has cited the importance of licensing to the economy and the need to encourage procompetitive licensing as one of the three guiding principles of current antitrust policy.(9) I agree. The 1988 International Guidelines also were premised on a benign attitude toward licensing and evaluated restrictions in an intellectual property license under the rule of reason unless the transaction is a sham.(10)
In applying rule of reason analysis to intellectual property transactions, the initial, and perhaps the most important, task is to identify the markets in which competition may be affected. It is useful to draw on the Commission's experience in merger cases to define markets. Traditional merger analysis raises questions about the production and sale of existing products, and, more specifically, the analysis of product market routinely revolves around supply or demand substitution among known products. A small number of recent Commission cases have considered competition in products that have not yet been brought to market and competition in research and development. The market analysis in these merger cases is particularly relevant in the intellectual property context.
Before turning to the cases, it is useful to classify the areas of competition they involve. First, firms compete to produce and sell products that are now on the market. These are present products. Second, there may be competition to produce a next generation of products that we can foresee, but that have not yet reached the market. I will call these future products. Third, there may also be competition in research and development to find or perfect such a future product or process. I will call this competition in research and development. In addition, in some cases there may be technology markets in which competing technologies are bought and sold. The draft Intellectual Property Guidelines published by the Department of Justice for public comment last August is helpful in recognizing the same distinctions, although the Department's terminology differs from the terms used in FTC complaints and from the terms I am using today. Rich Gilbert at the Department of Justice deserves a lot of credit for furthering the thinking in this area.
First, let us consider a case involving an acquisition of intellectual property that affected competition in present product markets. In 1990, the Commission accepted a consent order with Roche Holdings settling a complaint arising from the acquisition of Genentech.(11) The complaint alleged two existing product markets in which the intellectual property owned by one of the merging firms might have affected competition.(12)
First, the complaint alleged that Roche held a dominant market share of the highly concentrated world market for the production and sale of vitamin C and that Genentech had developed a patented new process for producing vitamin C through recombinant DNA technology. The order required divestiture of Roche's interest in a joint venture that was developing the DNA technology or divestiture of the intellectual property and any other assets relating to the production of vitamin C by the new process.
Second, the complaint alleged that Genentech had a "near-monopoly" on the United States market for human growth hormone and that Roche had conducted clinical trials on an alternative therapy, involving a growth hormone releasing factor. As I understood it, this therapy would not be covered by Genentech's patents, but might provide the same therapeutic benefit. The order required divestiture of Roche's intellectual property and other assets relating to its development of an alternative therapy.
The acquisition presented questions regarding elimination of potential entry into highly concentrated markets for existing products, and the remedy involved divestiture of intellectual property relating to new processes to make vitamin C and to achieve the therapeutic benefit of the growth hormone. In both markets the transaction combined an incumbent, dominant firm with a potential competitor in possession of a new technology.(13)
In the second category of cases, a merger may affect competition in future products or between a future product and a present product. Last month, the Commission accepted for public comment a consent order settling charges that Wright Medical Technology's acquisition of Orthomet violated Section 7 of the Clayton Act.(14) Wright is by far the leading supplier of small-joint orthopaedic implants used in human hands. The joints are the PIP, for the Proximal Interphalangeal Joint or mid-finger knuckle, the MCP, for the Metacarpophalangeal Joint, the one between the finger and the hand, and the CMC, for the Carpometacarpal Joint. That is near the wrist. The implants currently on the market provide some functionality, for example, for severely arthritic fingers, but apparently do not provide much lifting strength. Orthomet has a license from the Mayo Foundation to develop and commercialize new finger implants that would restore more strength than the existing implants. These products, however, are a long way from market and must undergo a long FDA regulatory approval process.
The complaint alleged two relevant product markets: (1) the manufacture and sale of orthopaedic implants used in the human hand; and (2) research and development of such orthopaedic implants. It alleged that Orthomet was a potential entrant into the implant market, and that both Wright and Orthomet were competitors in the research and development market.
The consent agreement provides that within six months, Wright must grant a nonexclusive license to the intellectual property obtained from Mayo through Orthomet to another company. If it fails to do so, then it must surrender its license back to the Mayo Foundation, the developer and owner of the basic technology, which apparently has the incentive and ability to find another medical device manufacturer to commercialize this technology. Under either alternative, the consent order is intended to ensure that an independent firm would be granted a license to the Mayo technology and given an opportunity to pursue the research.
The antitrust analysis in the Wright case presented some unusual challenges. For example, in deciding whether the new implant would be in the same relevant market as the Wright implant, the 5 percent price test from the DOJ/FTC Merger Guidelines was difficult to apply. Although the price of Wright finger joints was known, it was difficult to predict the price of the next generation of Mayo/Orthomet joints. The new implants might be so superior that virtually all patients would prefer them regardless of price. Or the new device might have enough drawbacks that consumers would consider price to be a significant factor in selecting an implant. The analytical precision implied by the 5 percent test falters in the face of these uncertainties. Evidence developed during the investigation that related to another orthopaedic implant market in which a superior product had been introduced suggested that the pricing of technologically superior implants might be constrained by less sophisticated devices. Other parts of the competitive analysis in the Wright Medical case seemed more routine.
Turning to the third category of cases, in a number of complaints, the Commission has alleged the existence of a research and development market, separate and distinct from other product markets. On November 10, 1994, the Commission accepted for publication a consent agreement with American Home Products Corporation to settle Section 7 charges arising from its acquisition of American Cyanamid Company. American Home Products Corp., File No. 941-0116 (November 10, 1994). The complaint alleged that the merger would lessen horizontal competition in the production and sale of certain diphtheria and tetanus vaccines.(15)
In addition, the complaint alleged a separate market for the research and development of rotavirus vaccine. Rotavirus is a diarrheal disease suffered by children. No rotavirus vaccine is presently on the market. The merging firms allegedly were two of the three firms that had rotavirus vaccine research projects either in or near the stage of clinical development, but none had obtained the necessary regulatory approvals to market a vaccine. The complaint alleged that this research and development market is highly concentrated with only three firms competing, and that entry was difficult because it took many years of development to bring a vaccine to the stage of clinical development and additional time to obtain regulatory approval and market the product.
Under the order, American Home Products is required within one year to find a nonexclusive licensee for the intellectual property and research results relating to the rotavirus vaccine that it acquired from Cyanamid. In the event that American Home Products fails to do so, then the Commission may appoint a trustee to divest an exclusive license to Cyanamid's rotavirus vaccine intellectual property and research. The licensing remedy is designed to ensure that American Home Products does not select one of the two parallel research projects (its own and Cyanamid's) for further investment and close down the other.
American Home Products raises several interesting issues. One question is whether research and development can represent a "line of commerce" for purposes of Section 7 of the Clayton Act. I think this is an appropriate case for the application of Section 7, although some might argue that there can be no commerce if the product is not on the market,(16) and the courts have not yet resolved the question. In the situation in which three independent firms are pursuing parallel (although not identical) research projects to develop a new vaccine, competition in research is difficult to ignore.
Another possible approach to the complaint that would have been more traditional would have been to allege that the three firms are actual potential competitors in the market for production and sale of rotavirus vaccine. The complaint was not framed in those terms, but if it had been, the problems of ascertaining the extent and nature of competition in future products that are not on the market would have been presented. That analysis presumably would have required information about the substitutability of the various vaccines which, in turn, would require information about such facts as the effectiveness and side effects of the vaccines, none of which was available. Applying the 5 percent test would have been difficult at best.
Commission complaints alleging research and development markets have involved well defined research projects directed toward bringing a specific future product to market. The Commission has not filed a case involving a broad research market, such as vaccine research. Although it is important not to define research markets too broadly, it is also important not to exclude research activities that may produce the breakthrough to the new product. Promising ideas sometimes come from unexpected quarters. For example, even if a foreign firm cannot compete in the domestic market, its innovations could be licensed to a firm that can compete in the United States. Like other analysis under Section 7, this requires careful attention to the facts.
Earlier this month, the Commission accepted for public comment a consent agreement with Sensormatic Electronics Corporation, settling charges that its acquisition of certain assets of Knogo Corporation violated Section 7.(17) Again the Commission alleged an R & D market. Both companies make electronic article surveillance (EAS) systems for use by retailers to protect against shoplifting. EAS systems provide a warning when a special label attached to merchandise by the retailer triggers an alarm on hardware located at the store's exit, unless the label is neutralized by the clerk at the time of sale.
The case centered on competition in research and development to develop a new "source labelling" system, in which manufacturers would apply the EAS label to the product or its packaging, eliminating the need for retailers manually to affix labels to merchandise. No such system has been perfected, and the complaint alleged a market limited to "research and development of disposable labels developed or used for source labelling" and manufacturing processes in North America.
Challenging a transaction on the basis of the elimination of competition in research and development is relatively new, and to my knowledge, such a challenge has not yet been successfully (or unsuccessfully) litigated. From a policy perspective, the separate identification of R&D markets may improve our analysis in some cases. Take, for example, the Commission's successful challenge to PPG Industries' acquisition of Swedlow.(18) The Court of Appeals adopted the district court's (and the Commission's) definition of the relevant market, which was "aircraft transparencies requiring, for want of a better term, high technology to produce, without regard to the materials of which they are fabricated." 798 F.2d at 1502, quoting 628 F. Supp. at 884. The court rejected the parties' argument that they did not compete since their transparencies were of different materials (glass and plastic). The court found that the companies competed not only in bidding against one another on new airframe designs, but also "at the stage of research and development as transparency manufacturers try to influence airframe customers about types of transparencies for future generations of aircraft." Id. at 1505.
The Commission was successful in challenging the merger on the basis of its competitive impact in the "high technology" transparency market. Although the opinion is a little unclear, the relevant market apparently encompassed competition in aircraft transparencies then on the market, future products that were in development, and research and development. I am confident that the end result of the competition analysis would have been the same if the Commission had specifically alleged separate product markets of aircraft transparencies currently in production, next generation aircraft transparencies, and research and development in aircraft transparencies. It might, in fact, have clarified the antitrust analysis.
So far I have talked about basic principles underlying competition policy as it applies in the intellectual policy context and about a few cases, particularly some recent cases at the Commission. Now let me look forward to consider how much our current policies and record of enforcement tell us about future cases. This question goes to the subtitle of the seminar --Litigating and Advising in an Era of Uncertainty.
There are indeed some sources of uncertainty for a lawyer advising in this area. The first source of uncertainty is a possible shift in enforcement attitudes. For example, on November 10, 1988, the Department of Justice released the 1988 International Guidelines.(19) One example illustrates why intellectual property guidelines should be read with caution. In Case 10 of the 1988 guidelines, the Department took the position that generally "it is not concerned with the amount of license royalties or the basis upon which license royalties are measured." 4 CCH Trade Reg. Reporter 13,109.89 at 20,632. Despite a footnote cautioning that there was judicial precedent to the contrary, the Department confidently stated: "[i]n particular, a royalty provision based on total unit sales of a product regardless of whether it is made using the licensed technology may save licensors the costs of determining the extent to which its licensees' production utilizes the licensed technology."
After reading Case 10 of the 1988 guidelines, counsel for a software supplier might have felt comfortable about the company's adoption in 1988 of a "per processor" license under which computer companies agreed to pay royalties for software on the basis of its sales of computers containing a particular type of processor. After all, the Department was not concerned with the calculation of royalties, and it specifically endorsed the use of total sales as efficient. Six years later, Microsoft learned that a per processor license might also be viewed as an exclusive dealing.(20) The August 1994 draft Intellectual Property Guidelines warn that "a royalty arrangement based on total sales of a licensee's product, regardless of whether it is made using the licensed technology" may be like an exclusive dealing arrangement. 7 CCH Trade Reg. Rep. 50,141 at 49,071. In advising on the wisdom of adopting a licensing practice this year, you need to know present enforcement intentions, and prudence may suggest that you keep in mind that technology is not the only thing that can change.
Another potential source of uncertainty stems from the pace of change in some high technology markets. In some industries, in particular, our ability to predict changes in the market is not what we would like it to be. Entirely predictable innovation is probably a conflict in terms. There will always be developments that take us by surprise. This is a fact of independent significance that enforcement officials should keep in mind. Nevertheless, in perhaps a surprising number of cases, we find evidence that tells us a great deal about what can be expected to occur in a given market.
I believe that the uncertainty about government policy in this area is occasionally exaggerated. The enforcement agencies are already sensitive to the need to consider factual differences among industries, such as a variance in the pace of change. Changes in the law and enforcement policies tend to be evolutionary, not revolutionary. This is borne out by the Intellectual Property Guidelines that the Department of Justice published for comment last August. Plainly, it will be an important event when those guidelines issue in final form. Although I do not know exactly what that final form will be, I feel confident that the guidelines will be well considered and responsible and will not present major surprises.
The government has a responsibility to make its policies as clear as possible and to provide whatever policy guidance it can. It is also important that the enforcement agencies be open to revising policy, when change is warranted. Abrupt, radical changes in policy can create uncertainty in the business community and may involve a greater risk of creating a policy that overdeters innovation or that does not provide sufficient protection against anticompetitive practices or both. This does not mean we should be oblivious to differences in high technology markets and intellectual property. Let me stress again that the uncertainties of rapidly changing high technology markets and differences in intellectual property are already taken into account in the highly fact-intensive analysis in a Section 7 or a rule of reason case.
Various suggestions have been offered for improving antitrust analysis in this area. For example, some scholars, including Tom Jorde, who is here today, have proposed some very thoughtful, specific suggestions for revisions in the merger guidelines to take account of industries characterized by rapid technological change.(21) Although I do not favor amending the merger guidelines now, I do foresee the possibility that we might want to revise them after we have had a little more experience. Even now we are considering some of the ideas that these scholars have put forward as we deal with individual cases. To give one example, in the Wright Medical Technology case, one difficult issue was determining whether a new, improved orthopaedic implant would be in the same product market as existing implants. Although the Commission did not use the specific criteria for market definition proposed by the authors, I considered opinion of industry experts about the likely market impact of such an improvement that was very like the evidence the authors would have us consider. Scholars often lead the way for government policy-makers, which may be a useful point to remember when you make your case to the government.
One complaint I hear from those who stress the uncertainty of the law in this area is that even given an analytical framework, they do not know how to weigh the facts. But how to weigh the facts is an eternal question that comes up in almost all antitrust cases. The flexibility of the antitrust laws that enables us to take into account a very wide variety of complex factual situations is really a positive aspect of the law and should be seen as an opportunity to make the best case for your client without the constraints of detailed regulations that may not anticipate your needs. We see this every day in our review of cases under Section 7 of the Clayton Act, where the analysis is so dependent on the particular facts of each industry.
One guiding principle will serve you well, and that is that maintaining an environment in which innovation can flourish is a fundamental concern in antitrust. Incentives to innovate ultimately are diminished if innovators cannot realize the value of their innovations through bringing a product to market or through licensing or sale of the technology. In my opinion, antitrust policy is highly unlikely soon to depart from this principle.
1. E.g., Washington Post, January 17, 1995, at A-16 and January 20, 1995, at B-1.
2. "The rights conveyed by a patent grant are really no different from the rights of the owner of a tangible asset, such as a sawmill, to exclude others from using it -- the owner possesses the property and it is his unless and until someone else can obtain his consent to use it." "The Antitrust Implications of International Licensing: After the Nine No-Nos," Remarks of Charles F. Rule, Deputy Assistant Attorney General (later Assistant Attorney General), before the Legal Conference sponsored by the World Trade Association and the Cincinnati Patent Law Association (October 21, 1986) at 7.
3. See "Antitrust, Innovation and Intellectual Property," Address by Anne K. Bingaman, Assistant Attorney General, before the Program on Antitrust and Intellectual Property, Stanford Law School (October 7, 1994) (hereafter "Bingaman Stanford Speech").
4. Bingaman Stanford Speech at 9-10; Antitrust Enforcement Guidelines for International Operations--1988 (hereafter cited as "1988 International Guidelines," 4 CCH Trade Reg. Rep. 13,109.10 3.6 (November 10, 1988)(". . . the Department recognizes that intellectual property--even a patent--does not necessarily confer a monopoly or market power in any relevant market." footnote omitted).
5. Bingaman Stanford Speech at 10; 1988 International Guidelines, 4 CCH Trade Reg. Rep. 13,109.10, 3.61.
6. E.g., FMC Corp. v. Manitowoc Co., 835 F.2d 1411, 1415 (Fed Cir. 1987).
7. Monsanto Co., Docket No. C-3458 (September 1, 1993).
8. Remarks by Bruce B. Wilson, Deputy Assistant Attorney General, Antitrust Division, before the Michigan State Bar Antitrust Law Section, September 21, 1972, reprinted in 5 CCH Trade Reg. Rep. 50,146 (transfer binder).
9. Bingaman Stanford Speech at 10.
10. 1988 International Guidelines 3.62.
11. Roche Holdings, Ltd., 113 F.T.C. 1086 (1990).
12. The complaint also alleged that both Roche and Genentech were engaged in research and development on CD4-based therapeutics for AIDS/HIV infection. No marketable product had emerged from the research. The order required mandatory licensing on request of Roche's patents in this field.
13. Commissioner Owen dissented from that order, saying that it was speculative whether the potential entry would occur. 113 F.T.C. at 1107-8.
14. Wright Medical Technology, Inc., File No. 951-0015 (December 8, 1994).
15. Divestiture of certain assets, principally intellectual property, was ordered to remedy these competitive concerns. I dissented from the remedy on the ground that divestiture of an ongoing business unit would have a greater chance of viability.
16. See SCM Corp. v. Xerox Corp., 645 F.2d 1195, 1210-11 (2d Cir. 1981), cert. denied, 455 U.S. 1016 (1982).
17. Sensormatic Electronics Corp., File No. 941-0126 (January 4, 1995)(Commissioner Azcuenaga concurring in part and dissenting in part).
18. F.T.C. v. PPG Industries, Inc., 798 F.2d 1500 (D.C. Cir. 1986).
19. The August draft of the Intellectual Property Guidelines indicate in the first footnote the specific sections of the 1988 guidelines that are being superseded.
20. Complaint 26, United States v. Microsoft Corporation, Civil Action No. 94-1564 (D.D.C., filed July 15, 1994).
21. Hartman, Teece, Mitchell and Jorde, Assessing Market Power in Regimes of Rapid Technological Change, 2 Industrial and Corporate Change 317 (1993).