Antitrust Law Remedies in Intellectual Property Cases

Antitrust and Intellectual Property

Antitrust Law Remedies in Intellectual Property Cases

In any research paper it is important to first define the terms used prominently in order to make sure that the reader understands what is being said. In this case, the two terms that require definition are antitrust and intellectual property. According to a definition from Cornell University Law School "Trusts and monopolies are concentrations of economic power in the hands of a few." Thus, antitrust legislation would logically follow as "designed to protect competition and protect free trade" (Putnam). Mark Putnam, a business ethics expert, goes on to say that "Basically, antitrust laws prohibit price-fixing, allocating territories, boycotts, or any other kind of conspiratorial or monopolistic behavior between companies that unfairly restrain free trade." Intellectual property, however, is different entirely from a trust. The United States Patent and Trademark Office (USPTO) which deals almost exclusively with intellectual property defines it as "imagination made real…the ownership of [a] dream, an idea, an improvement, an emotion that we can touch, see, hear, and feel…an asset just like your home, your car, or your bank account." By this, the USPTO means that it is an idea that can become commerce because the originator makes it tangible and saleable. It is the confluence of these two ideas that is more difficult to understand.

Any idea that a person has is that individual's idea alone, so it makes sense that the individual should have a monopoly on that thought. However, when it comes to certain ideas, novelty can come into question. Anne Bingaman, an Assistant Attorney General (in the antitrust division) during the Clinton Administration, explains this well in a speech presented at the Federal Circuit Judicial Conference in 1994. She first says that "The various intellectual property regimes reward innovation by giving rights to creators to exclude others from using their inventions or the expression of their ideas without compensation" (Bingaman). This is implicit in the law, but there is a problem with some patents for intellectual property, in that, they do not pass certain tests of originality. "The awarding of patent-like protection in the absence of an adequate showing of novelty and non-obviousness, for example, can harm competition without serving the interest of rewarding innovation" (Bingaman). The intellectual property must be, without question, original to deserve a patent, and one of the functions of the patent office is to ensure this uniqueness. Miss Bingaman finishes her thought by saying "Strong intellectual property rights and vigorous antitrust enforcement are two sides of the same coin in promoting the common objective of innovation." Thus, they are not opposed as may seem the case upon first examination, but tools that can be used to ensure innovation continues unfettered.

A recent example of this type is the case against Google brought by the European Union. It has been revealed that "while Microsoft and partner Yahoo! Inc. have about a quarter of the U.S. web-search market, Google has almost 95% of the traffic in Europe" (White). Court documents were recently filed by Expedia, adding to the suit brought earlier by Yahoo! And Microsoft. The specific complaint lodged by Expedia (a travel website) was that "Google introduced a flight-search service last year that excludes any link to online travel agencies, which hampers customers' comparison shopping" (White). Google has, in this instance, withheld the ability of consumers to use other sites which are, intellectually, the same as their own. Because of the lack of originality in the website that Google has and the websites that it is blocking, Google's competitors have brought this lawsuit to the EU courts.

History of Antitrust and Intellectual Property Legislation

Antitrust legislation was first passed in 1890 with the Sherman Act (FTC). The basic premise behind the new law was that companies which engaged in forming trusts were stifling competition which was damaging to free exercise of the market. Another facet of the law is that companies cannot collude to fix prices or to have a joint monopoly of a market. During the early part of the twentieth century trusts in the U.S. oil, steel and railway industries were broken up, and a sugar trust was also disbanded. Following the Sherman Act, "the Clayton Act was passed in 1914" (FTC). Original antitrust legislation did not contain language over the governing of mergers and acquisitions. The Clayton Act repaired this oversight by requiring that all such actions between companies had to be approved by the Federal Trade Commission (FTC) prior to being ratified.

In the late nineteenth century, workers and consumers began to protest the treatment they were receiving at the hands of, what was considered, the privileged few. Trusts and monopolies ruled consumption markets, and that caused the wronged consumers begin to make their case before legislators and the courts. The social movement was much like that of unionization. Because of the greed of a few, the many were being treated unfairly. Thus, the government got involved and protected the rights of its citizens which is its primary occupation.

Competition is a way of life in America, and it was envisioned as such by the founding fathers. Though specific mention of competition cannot be found in the Constitution, or any of the other founding documents, the idea of free competition abounds in those documents. Christopher Demuth writes that "competition is a foundation of our constitutional order and a critical means of achieving our aspirations. In particular, it shapes our common life through elections, the separation of powers, federalism, free speech and religion, and competitive enterprise." The author argues that the Constitution does mention competition because it is to be the very fabric of human life in the new republic. Too many times this right of man had been suppressed by a class of people who believed that they had the right to individual rule and oppression because of their name, accumulated power or wealth. The United States was founded on the principles of the individual rights of all citizens vs. The monopolistic "rights" of the few. "The First Amendment decrees a system of intellectual laissez faire in which ideas compete for influence and acceptance. And the whole structure supports and regulates an economy premised on open competition" (Demuth). The idea of the founders was that competition would abound in everything and that the people (the marketplace) would determine the winner.

Intellectual property law common to Western societies is thought to have originated in England in 1624 with the Statute of Monopolies (Dent). This statute gave authors their first guarantee that their own work was not to be plagiarized or used unless the author gave permission. This was followed in 1710 by the Statute of Anne which actually gave copyright protections. The early laws protected a class of endeavors which have become known as intellectual property. These included patents (which can be broken down into utility patents, design patents and plant patents), trademarks, trade secrets and copyrights (USPTO).

Sherman and Clayton Acts

The first two pieces of antitrust legislation in the United States were the Sherman act of 1890 and the Clayton Act of 1914. The Sherman Act was used "to combat anticompetitive practices, reduce market domination by individual corporations, and preserve unfettered competition as the rule of trade" (Legal Information Institute). The Sherman Act has three sections which "delineate and prohibit specific means of anticompetitive conduct; deal with end results that are anticompetitive in nature, and; extends the provisions…to U.S. territories and the District of Columbia" (Legal Information Institute). Because the Sherman Act was limited in its scope and there were a lot of different cases that were not covered by the Act, the Congress passed the Clayton Antitrust Act in 1914. This Act added provisions against "price discrimination between different purchasers, if such discrimination tends to create a monopoly; exclusive dealing agreements; tying arrangements; and mergers and acquisitions that substantially reduce market competition" (Legal Information Institute). The provisions in these laws have been manipulated by the courts as more issues have arisen, but they are seen as the foundation of modern antitrust law.

The United States federal government has jurisdiction to enforce the statutes when they occur within the District of Columbia or are between the U.S. And a foreign entity. Also, the federal government will adjudicate the case when it concerns all citizens within the borders of the United States. That is why AT&T, and others that are broad in scope like that are seen as federal court cases (Cannon). However, the federal court has no jurisdiction when the antitrust involves intrastate commerce. So, every state has legislation, most of which are patterned after Sherman and Clayton, that handle these types of cases within the state.

The offenses that are primarily considered in antitrust cases are price fixing, rigging bids, patent pooling and mergers (Anthony). Price fixing is exactly what it sounds like. Firms collude to fix a certain price of a commodity, and that working together in this form of arrangement is the issue. Anytime competition is negated or, at least, the chance of competition is reduced because of the actions of one firm or more, the courts are going to get involved. Bid rigging is akin to price fixing in that a firm that is asking for bids on a project has preselected one of the bidders to win. The pooling of patents can actually be of an advantage to the market according to Sheila Anthony, the Commissioner of the Federal Trade Commission (FTC) President Bush, but becomes a problem "when a pooling arrangement harms competition among entities that are actual or potential competitors." The main focus of any of these violations is whether it is considered pro-competitive or anticompetitive behavior. The primary distinction here is that procompetitive actions are supposed to spur the competition and anticompetitive are not, they act as a negative influence. In general, the Department of Justice "weighs the likely procompetitive benefits against potential anticompetitive effects" (Bingaman). However, firms can use the potential procompetitive actions of one firm against it and file an antitrust case anyway.

In the case of intellectual property, the government seems to be less strict than they are with antitrust issues. But, there are cases when intellectual property can be regulated by the government if it is deemed to hinder competition. Also, intellectual property has to be proven original. Specious claims have been made before to the patent and trade office, and these are now being investigated for their validity.

Monopoly and Market Power

A monopoly can occur in any type of market because, although it may be difficult, a group can be formed that will be able to "corner" that product. "The term market refers to the group of consumers or organizations that is interested in the product, and is permitted by law and other regulations to acquire the product" (NetMBA). Thus, a market is not necessarily defined by the product or service that is being offered, but by the people who can purchase the product. Also, there is the issue of being able legally to purchase a product. If only one company can sell Uranium 235 to nuclear power plants (which is actually not the way it works), they would probably not be sued under the anti-competition rules because they sell a specialty product to a small number of consumers. It seems that antitrust suits are brought, mainly, when a large company or a group of relatively large companies is impinging smaller businesses (Goldman).

This brings up the point of whether it is more likely that large companies will face antitrust censure at a greater rate than small companies, and the answer to this seems to be yes. Of course, the justice department believes that they are not targeting an particular group of companies nor are they seeking out large wrong-doers. But, the evidence seems to point to the fact that larger companies do face a greater amount of scrutiny (Goldman). This could be because these types of companies are more visible, because the influence the buying ability of a larger mass of the population, or for other reasons (some believe that these decisions are often politically based (Cannon). The most likely reason though is that the companies influence the buying of a greater amount of customers. Since the purpose of the government in a republic is to protect the people, if a larger segment is being affected, they will receive the governments support. The Antitrust Division of the Justice Department has to investigate over one hundred cases per year (Bingaman) so their resources are stretched thin. Even though they may try to be as "fair and non-partisan" (Bingaman) as possible, they most likely, subconsciously, seek the larger cases because they are easier to win.

Cases exist where how large a company is seemed to matter when the case was decided. In Eastman Kodak v. Image Technical Service, two courts decided the case giving opposite verdicts, the second because of the relative size of Kodak (Bowen). In this case, Kodak stopped allowing business outside of their own network to buy new Kodak parts so that they could service Kodak proprietary equipment. The District court said that because the equipment was proprietary, and did not impinge on other copier companies, Kodak was within its rights to manage its business thus. The appellate court found differently. They stated that the smaller providers of service to Kodak machines were being stifled even though this was proprietary equipment and did not affect the market at large (Bowen). In comments analyzing the decision, the author of the summary stated that

"While superficially appealing, at bottom this explanation lacks coherence. Whether they self-service their equipment or not, rational fore-market consumers (those consumers who are not yet "locked in" to Kodak hardware) will be driven to Kodak's competitors if the price of Kodak equipment, together with the expected cost of aftermarket support, exceeds competitive levels" (Bowen).

The author's comment about this being superficially appealing is talking about the fact that it looks good to bring down a large company in favor of a group of small companies. However, when looked at logically, this is a non-case because consumers can just stop using Kodak equipment and patronize another manufacturer. The only problem is that the smaller, parasitic companies may lose business because of the action. If the goal in antitrust is to protect competition in order to protect the consumer, this case does not hold very much weight.

Essential Facilities

The size of a company does not always matter, but sometimes what the company does, in conjunction with the property it owns, does. "The essential facilities doctrine imposes liability when one firm, which controls an essential facility, denies a second firm reasonable access to a product or service that the second firm must obtain in order to compete with the first" (Pitofsky). What the doctrine is saying is that if a certain company holds a monopoly on a facility that is needed by others in order to compete, and there is no way that the facilities can be duplicated for a reasonable cost, then the company that owns the facility must allow the competitor use. The facility in question does not have to be a "brick and mortar building" it can be a newspaper (as was the case in Lorain Journal Co. v. United States) or it can be an electronic database (Associated Press v. United States) (Pitofsky). However, there have been many cases in which the facility needed by a competitor was a standard building.

In one case, Hecht v. Pro-Football, Inc., the court determined that "where facilities cannot be practicably be duplicated by would be competitors, those in possession of them must allow them to be shared on fair terms" (Pitofsky). In this case it was RFK Stadium in Washington, D.C., and the NFL believed that it had the right to use the facility because another could not be reasonably constructed. The court disagreed with the NFL though because they did have the resources to build a similar facility (Pitofsky). Therefore, the large company sometimes loses the case even when they are claiming that there has been anti-competition activity.

Intellectual Property

Competition is a positive aspect of the free market, but there are aspects to it that are sometimes troubling. Some believe that competition extends to what another actually owns. This is the case when someone pilfers intellectual property for personal gain. For many years the motion picture industry has been dealing with this fact because it is simple for employees or unscrupulous opportunists to steal money by somehow copying intellectual property. "According to the Motion Picture Association it is estimated that an excess of $3 billion is lost annually due to unauthorized copying, redistribution and pirating of movies" (Gudaitis, Poulos, and Johnson). The money lost is the reason for the amount of concern from the industry. The studios make a large gamble by producing a film, and they have to account for some amount of lost revenue due to intellectual property breach because the product is so hard to control. The industry's main defense is to take large violators to court, and to have TV spots and warnings at the beginning of the property regarding copyright infringement. Even after the product is purchased it is not wholly the property of the person who bought it because it contains property which reverts to the seller (Gudaitis, et al.). Thus, the motion picture industry must protect its property by any means that it can.

As a matter of fact, the U.S. Constitution guarantees copyrights to the American people. It states "Congress shall have the power to... promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries" (UCLA Library), in article 1 section 8. So, the founders thought that it was important enough to put in the constitution. The time periods for the various types of intellectual property (trade mark, copyright and patent) vary. Most patents now last 20 years and the holder has the option of renewing after that time, but some only last 14 years (USPTO). Copyrights are covered or the life of the author plus 70 years as of 1978, but the Congress is considering legislation that would extend that limit by at least 20 years (USPTO). Trademarks are only good for ten years according to the USPTO and there must be a letter of intent filed between the fifth and sixth year of this period. These time limits are in place so that a new author or composer or inventor can create property that may be like the older version, but is not exactly like the older version. If these patents, copyrights and trademarks were perpetual, there would be a lot more court cases regarding them.

The idea of allowing someone to patent an invention, service or idea was developed so that competition could be enhanced. Patents establish that an idea is unique and is the intellectual property of the owner of the patent. But, a patent does not have to be completely original, just have an original component. Apple has designed innovative new electronic gadgets in the past two decades that the rest of the electronics market envies. As soon as the iPod, iPhone, and iPad were sent to market with their dozens of new patents attached, they were quickly copied by the competition. This generated new patents as other companies needed something unique that set their machine apart. These patented devices generated new markets and a great deal of new competition because they became such market successes. The courts can choose to stop other companies from copying patents if the "new" product is too closely related to the original. However, they are loath to do this. The reason for that reluctance is that competition is the key to the free market, as has been discussed before, and narrow improvements or differences may be able to bring more competition to the market which is better for consumers.

Antitrust and Intellectual Property

The ability of companies to compete in order that consumers may benefit through lower prices and better products is inviolate in free market capitalism. However, the United States government cannot accept this fact without question because there are some objections to that thought within the U.S. Constitution. Although it has been considered to be a relatively insignificant member of the Bill of rights at times, the first amendment has what was a little used statement which says that citizens can "petition the government for a redress of grievances" (Ohlhausen). In recent decades this guaranteed right was used to determine whether actions were non-competitive, and therefore, counter to antitrust law, or justified due to this section of the Constitution. When it comes to the law, the Constitution always trumps law that has come after it. Citizens have a right to petition the government because the central role of a representative republic is to protect its citizens and act for them in collective endeavors. However, sometimes the government either tries to overstep its bounds or there are problems that the governors are not aware of. In these cases, the citizens sometimes must make the federal government aware of their opinions about matters.