Article name - The Stochastic Relationship between Patents and Antitrust by Alan Devlin: A

Summary

Students list-

Vikram Chandra Sekhar 1750237

Neeti Nihal 1750353

Arvind 1750412

Gurmehar Singh Chawla 1750417

Prajna Kariappa 1750452

Ayaan Yahya 1750508

Kezia 1750554

Aneesh Johnson 1750108

Article Summary

SUMMARY

· The article focuses predominantly on the relationship between anti trust law and patents

· The article basis this relationship in the intellectual roots of competition law dominated
by the Chicago School and the Harvard School

· While the Chicago School focused on consumer welfare, the Harvard school was intent
on clamping down on any practice which would have anti-competitive effects on the
economy irrespective of whether those practices result in increase in consumer welfare or
not.

· The article illustrates the differences in the two approaches by referring to two cases
studies. It produces US v Aluminium Company of America to drive home the point that the
Harvard school was overbroad in its reach. Consequently, it barred even healthy competition
as dominance by itself was deemed anti competitive.

· This stands in contradistinction to the stated objectives of the Chicago school wherein
the aim was to protect the consumers in the economy. Basis these principles, Courts
sympathetic to the Chicago school of thought allowed, for instance, Microsoft to leverage its
dominance in the OS market to enter and sustain the word processing market.
· The article further examines the friction points between anti trust law and patent law by
examining the issues of patent misuse.

· The author conceptualises patent misuse as a method through which a patent holder tries
to expand its patent rights over products over which it has no such right. Usually, the author
avers, that this is undertaken by executing tying arrangements.

· The author feels that such arrangements do not have anti competitive effects provided they
take place in markets where the patent holder does not enjoy monopoly. In the absence of
monopoly, a consumer may buy the patented product from another competitor who does not
tie the product with another.

· In fact, the author points out the benefits arising out of such tie-in arrangements. They
help in increasing joint output and decreasing joint price, thereby maximising consumer
welfare. Moreover, such arrangements help in reducing transaction costs usually associated
with such patented products.

· This, the author argues, would be acceptable under the hicago school of thought and not
necessarily the Harvard school of thought.

THE STOCHASTIC RELATIONSHIP BETWEEN PATENTS AND ANTITRUST

Alan Devlin
 GROUP 5

STUDENT LIST

Ankita Malik - 1750145

Nandita M - 1750157
Neha Ramesh Bhat - 1750158
Krati Agarwal - 1750178
Sristi G Shetty - 1750466
Harkaran Singh Kochar - 1750520
Ishwarya Singh - 1750553

Sristi G Shetty – 1750466, 10 BBA LLB ‘A’ - CHAPTER 3 - PROBABILISM IN THE

PRESENCE OF ANTITRUST RULES - PART A: An Inverse Relationship between Patent
Rights and Antitrust Enforcement

● The author is of the opinion that there exists an inverse correlation between antitrust
enforcement and patent.
● If an unconstrained freedom of contract existed to a patentee, then it could easily
facilitate regulation by patentees.
● Main risk to an inventor of a patent with exclusive rights originates primarily from those
firms which are operating in the various markets to which the claimed product or process
has the right to exercise its exclusive rights.
● A holder of a patent is always interested in extracting more wealth through the exclusive
rights that he possesses and, in an attempt, to derive such value from his patented
invention, he shall be exposed to the risk of his patent being invalidated and in turn the
financial return on the investment that he made for the invention will also be lost. Such
risk originates from patentees competitors or rivals.
● If hypothetically, patentees were free to become parties to a contract with their
competitors or rivals, and if the law did not restrict them from being involved in such
 inter-rival contract, then it would surely help in securing their patent. However, the nature
of contracts entered would depend on

1. the industry in which it is involved

2. Specific nature of relationship between the contracting parties

Such an arrangement between the contracting parties would lead to one of the two forms.

1. The patentee who has been anticipating for an immediate financial return on his investment
without bearing any fear of future invalidity can either assign the patent to a third party along
with the right to exclude the patentee and that would be similar to an actual sale of the patent
granted to him as a result of which he shall be considered to have relinquished any future rights
that might arise from the product or the process. Or the patentee can license his rights with a
clause stating that he shall receive a continuous stream of royalty payments for a fixed time
period which the parties feel is convenient for them. And it is important to mention in both these
kinds of contract that if the patent is invalidated in the future date, then the assignee or licensee
would not have the right to repudiate the contract or challenge the validity of the patent if it
becomes questionable.

However, these options would not make the risk of invalidity or commercial failure disappear,
rather the risk is shifted to assignee or licensee and the same will be proportionately evaluated
and given to the assignor or licensor by way of purchase price. It does allow the inventor to
enjoy an acceptable return on his investment which will not be affected from any future
consequences.

2. The patentee could elect to bear the risk of future invalidity but could act in a particular way to
minimize the risk, such as by becoming a party to a contract with competitors to eliminate
challenge to his exclusive rights on his patent grant.

A patentee can protect its monopoly position from eradication by paying competitors to respect
its rights. It can be by way of paying money or mutual promises to respect and value each other’s
patents. However, the above-mentioned scenarios are not possible because the current
Competition law imposes constraints, such as post expiration royalties are prohibited, reverse
exclusionary agreements is considered illegal, even doctrine of licensee estoppel is eliminated by
Courts and the status of assignee estoppel is still ambiguous.

Harkaran Singh Kochar- 1750520, 10 BBA LLB B- Chapter 3- Probabilism in the presence of
Antitrust Rules - Part B- The Intellectual Foundation of Patent and Antitrust

This section of the paper talks about the failure of the law to properly address the lack of a
decent structure which would allow a nexus between the competition laws reducing the worth of
patents and the monopolizing power that patent law grants to the its holder (albeit limited). The
sub chapter goes onto summarize the different through which patents can control markets and
cause anti-competitive behavior. All this stems from the lack of the construction of antitrust rules
that achieve an ideal balance between ex ante incentives and the invalidation of improperly
granted patents.

1. Patents as Means to Leverage Monopoly Power

The article here attempts to argue that the traditional conception of antitrust law on patent’s
monopolizing power is largely based off of the ideas of the Chicago School and that the same is
highly flawed. It argues that the leverage based incentive theories which underly the patent
misuse doctrine does not affect the consumer welfare it deems to protect to the degree that has
been claimed. The doctrine is only justified when there is an economically cognizable consumer
injury. The author has argued that while the foundational concept of anti-trust in patent law was
noble there is a high degree of asymmetry between the purpose and the means.

2. Licensee and Assignee Estoppel

By using the example of now defunct principle of licensee estoppel wherein a risk averse
inventor can sign license of the patent to an investor who is willing to assume the risk including
that of the possibility of the dubious patent nature, the author begins to question whether the
negative effect on innovation outweighs the social benefit in having weak patents invalidated by
the courts.

3. The Protective Use of Patents

This refers to the exclusionary features of a patent. The difficulty this feature faces is the fact that
it can be difficult to determine when the exclusion is under the patent rights and when it crosses
over into a much broader sense which will impact markets and not individual entities.
Specifically, it is talking about how through the operation of contracts, rivals agree to stay out of
a patentee’s market. The article talks about the exclusionary agreements manufacturers enter into
with generic competitors by taking the case of pharmaceutical products (Lear v Adkins) which is
held illegal per se. The challenge the article talks about is the thin line of valid exclusion and
abuse of dominance to keep a monopoly as seen above.

Thus, there is a challenge in creating a reliable nexus between the traditional antitrust perspective
on intellectual property substantive rules that it has formulated in an attempt to achieve its
desired end.

Ankita Malik- 1750145, 10 BA LLB ‘A’ - Chapter 3 - Probabilism in the presence of Antitrust
Rules - Part C : Patent Rights in a Free Market Context

This section argues that, under the existing circumstances, offering patentees an unconditional
exemption from antitrust scrutiny would be a grave error.

● Contracts can be used in two different ways to protect an innovator's sunk investment
from being wiped out by an ex post determination of invalidity. The distinction arises
from a patent holder's decision to either absorb risk by marketing the invention directly or
to transfer risk to a third party via a license, assignment, or exclusive license.
● In the first example, a lack of antitrust regulation would allow the patentee to deal with
possible infringers to positively modify the probabilistic character of its intellectual
property. In the latter, a patentee could completely avoid the possibility of invalidity.
● The author also stipulated that it is undeniable that allowing patent holders to deal away
the danger of invalidity with competitors would result in "weak" patents. Those awarded
inadvertently, being granted exclusive authority. Such a result is considered unacceptable
by the author.
 ● Further, because consumer demand for the product using the patented technology means
that society is better off having the relevant product available at supracompetitive rates
than not having it available at all, the societal cost imposed by monopoly pricing is
deemed acceptable. When a patent, even a valuable one, fails to meet the standards of the
Patent Act, the technology is likely to be made accessible regardless of predicted
monopoly returns.
● Giving the holder of an imprudently awarded patent such a high amount of profit entails a
social cost with no corresponding benefit. The second danger is that valid patents are
used to cartelize markets and technologies by using them as a masking technique.
● The first key issue is whether the stated product or process has monopoly power linked to
it. If patentees are free to sign any contract they choose, they will naturally try to
monopolise markets that aren't covered by their patents.
● Thus, in conclusion, if increased patent reliability has a desirable impact on innovation
rates, it seems preferable to revise the patent system rather than allow private parties to
attempt to appropriate additional benefits for themselves.

Nandita M - 1750157, 10 BA LLB ‘A’ - Chapter 3 - Probabilism in the presence of Antitrust

Rules - Part D : Formulating the Optimum Balance -

Under this sub - section the author discusses the problem that arises when a patent is free of
antitrust oversight or regulations. If such patents are granted without the oversight of antitrust
regulations, then according to the author there are two repercussions. One, shall be with regard to
patents which do not have a considerable market value, shall then end up entering into large
price fixing agreements. Second, shall be the more obvious consequence which is, the patent
holder shall aim at perpetuity in terms of ensuring that antitrust regulations in general would
cease to exist in the first place. It is argued by the author that, while the first problem could be
taken care of by simply imposing certain antitrust regulations, there shall be a problem with
respect to the second concern. It is noted that while the supreme court of the united states
mentions that freedom of contract falls second to antitrust regulations, the same comes with a
trade off. This is to say that legal scrutiny or antitrust regulations could be detrimental to
innovation in general, wherein patentees may be demotivated to apply for or think of newer
technologies or innovations due to legal restrictions.

CHAPTER IV - ON THE NORMATIVE FOUNDATION OF ANTITRUST IMMUNITY

(1750158 - Neha Ramesh Bhat)

The final chapter of the article analyzes the conditions in which patentees can be justified in
being immune from antitrust violations. According to the author, a theoretical solution to the bad
patent dilemma is reformation of the patent prosecution system where only patents with highly
probable objective validity are approved by the PTO. This solution is difficult in practice as
explained by the author as the financial burden of providing the PTO with the manpower and
support facilities in order to accurately examine the enormous quantity of patent applications is
wasteful. Re-examination, in which a third party is given the chance to argue validity before the
PTO more cost effectively than through litigation, is also suggested as a solution, although the
author believes it is neither beneficial nor permanent. The author has also dealt with heightened
review and presumption of validity as a solution to the dilemma faced by inventors of potentially
lucrative and subjectively legitimate technology, but believes that presumption has limited ability
to prevent a patentee's property right from being invalidated. However, the author has placed his
belief in the best possible solution of granting gold-plated patent holders a qualified antitrust
immunity that gives the optimal amount of assurance and security provided they trust the PTO
to do a trustworthy job under heightened review. But to determine how qualified the antitrust
immunity enjoyed by patentees should be would still remain as a part of the dilemma. Speaking
on the role of Stochastic Regulation, the author states that the circumstances where the PTO
provides a relatively flawless screening function, with regard to the stochastic relationship
between patent rights and antitrust enforcement, paves way for the eradication of the latter.
Although the author believes that unless a two-tier review system is implemented the dilemma
concerning the quality of the innumerable issued patents will not be solved.