Monopolization Through Patent Theft
Citation: 103 Geo L.J. 47 (2014)
This Article explores how courts have created antitrust immunity for patent theft and why this rule is mistaken. Part I introduces basic antitrust concepts, including the antitrust cause of action for illegal monopolization. It shows how courts have applied these antitrust principles to patent fraud, for example, when a firm acquires monopoly power by enforcing a patent that it procured by committing fraud on the Patent Office.
Part II of this Article explores the argument—advanced by influential jurists— that a firm that monopolizes a market through patent theft does not violate the antitrust laws. In Brunswick Corp. v. Riegel Textile Corp., Judge Richard Posner reasoned that so long as a particular patent should issue to someone, who gets the patent and how that individual acquires it are of no antitrust consequence. The Brunswick rule is based on the assumption that patent theft does not create monopoly power; it merely transfers it from one firm to another. Judge Posner further argued that patent theft cannot affect the price paid by consumers because whoever controls the patent will charge the same profit-maximizing price. Thus, patent theft does not affect consumer welfare and is not a concern of antitrust law. Posner’s opinion has become the conventional wisdom. After Brunswick, monopolization through patent theft does not violate Section 2’s prohibition against illegal monopolization.
Part III explains why the rationales for immunizing patent theft from antitrust liability are unsound. Under some conditions, patent theft can create market power, not merely transfer it. For example, in a scenario involving substitute patents, if two patentable technologies could compete against each other and the owner of one of these technologies steals the other and patents both of them, the patent thief could acquire monopoly power that would not exist if the two patentable technologies were owned by competing firms. Independent of sub- stitute patents, which firm acquires a particular patent has competitive impli- cations because not all patent owners would exercise the exclusionary rights in the same way. Some patent owners may pledge their patents to the public domain. Others may enforce their patents less aggressively or more selectively. Additionally, not all patentholders price their patented inventions similarly. Part III describes how various regulatory, institutional, contractual, and market constraints can limit some patentees’—but not others’—ability to charge a monopoly price.
Patent theft also implicates innovation and efficiency concerns. Price competi- tion is only one facet of how competition affects consumer welfare. Dynamic competition is what spurs innovation, ensuring that consumers benefit from products being improved and entire new categories of consumer products being developed. Dynamic competition depends on proper incentives being in place.
Patent theft reduces the expected benefits of R&D. If one’s ideas can be misappropriated by a rival firm who can use a stolen patent to exclude the innovator from the market, the incentive to innovate is significantly reduced. Furthermore, as an innovator in the past, the true inventor may be more likely to take the monopoly profits associated with a valuable patent and reinvest them to develop future innovations. Finally, patent theft can impose inefficiency on the economy by encouraging patent suppression and discouraging the efficient licensing of technology. For all of these reasons, patent theft can reduce consumer welfare in a manner that antitrust law cares about.
Part IV explains why monopolization through patent theft violates Section 2 of the Sherman Act. Assuming that the patent thief has monopoly power, stealing a rival’s patent constitutes monopoly conduct. Patent theft is not competition on the merits, nor does it fall within any recognized antitrust defense. Both the excluded rivals (including the true inventor) and consumers who pay inflated prices suffer antitrust injury and are appropriate antitrust plaintiffs. Moreover, antitrust liability is appropriate for patent thieves who illegally monopolize a market because neither patent law nor various state causes of action provide a sufficient remedy to disgorge the ill-gotten gains of patent theft, to deter patent theft, or to compensate the victims of patent theft for their losses. Consequently, antitrust law should condemn monopolization through patent theft regardless of the fact that the true inventor could have patented the underlying invention. Patent theft should not be immune from antitrust scrutiny.