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Due to its nature as a right to exclude, a patent can have a powerful effect on the market. Though in theory the patent is meant to serve a defensive function, some have chosen to use it as a more offensive tool: obtaining questionable royalties from inadvertent infringers, or raising a competitor’s operating costs. It is this ability to use patents to extract an unfair monopoly rent that has spurred the main U.S. antitrust enforcement agencies — the Department of Justice (DOJ) and the Federal Trade Commission (FTC) — to conduct several studies into the effect of patent assertion entities (PAEs) have on the market.
There is no clear indication that the agencies have come to a consensus that PAEs’ activities hinder — or promote — competition. Much of their potential effect is unclear, because PAEs usually settle their cases below the threshold of litigation costs. However, each agency is clearly concerned that PAEs may aggregate large numbers of patents that original patentees were unable or unwilling to assert due to the weakness of their claims. The agencies worry that PAEs may be able to exploit a variety of tactics to obtain licensing fees far in excess of any value derived from the use of the claimed inventions. On the other hand, PAEs’ activities can be pro-competitive, because PAEs can help inventors who have patented valuable technology but are unable to exploit it themselves, unable to locate infringing firms, or unable to collect appropriate royalties and fees. By helping these individual inventors, PAEs improve the functioning of the market for ideas.
But, if one wanted to use antitrust principles to fight back against unscrupulous PAE activities, what can be done within the antitrust realm to address the potential market abuses arising from PAE activities? There are several colorable antitrust theories that may limit PAE activities:
- Clayton Act, Section 7: This is probably the strongest claim that one can make regarding a transfer of patent rights. A transfer of patents to a PAE can change enforcement incentives in a manner that might harm competition. The transfer can augment the owner’s ability to harm or exclude rivals, gaining incremental market power in the process. Enhancing one’s position through such a transfer may be considered a misuse of market power, and the PAE would be facilitating such misuse.
- Sherman Act, Section 1: Like a Clayton Section 7 claim, a patent transfer may be cast as an unreasonable restraint of trade under Section 1 of the Sherman Act. Pooling patents at a PAE can be reasonably compared to the patent pooling arrangement that the U.S. Supreme Court declared unlawful in United States v. Singer Manufacturing Co., 374 U.S. 174 (1963), particularly if a PAE collected patents from competing inventors. If a claimant can prove that some of the patent contributors would have continued to compete but for the PAE’s activities, a colorable Sherman Section 1 claim may be made.
- Sherman Act, Section 2: Of the Sherman claims, a Section 2 is likely to be stronger than a Section 1 claim. Monopolization or attempted monopolization does not require collusion of any sort, and also does not require that the bad actor actually succeeded in its attempt. However, a plaintiff must prove: (1) the possession of monopoly power in the relevant market, and (2) the willful acquisition or maintenance of that power. Though patents are generally acknowledged to provide its holder with a legal monopoly over the patent product’s market, a patent grant often fails to provide an economic monopoly, which is key for a monopolization claim. And, while bad acts are easier to identify in PAE activity (such as creating barriers to entry to raising rivals’ costs), a monopolization claim requires showing that the exclusionary conduct is not justified by its pro-competitive efficiencies.
Review of each of the above theories indicates that using antitrust law to address patent trolling may prove futile. While antitrust law has been broadly effective over the course of its history, consistent application in the patent field has proved elusive. The antitrust theories articulated above may prove too narrow or too weak to cover most patent transfers. Moreover, given a general judicial preference for freedom to contract, any plaintiff relying on antitrust law in the innovation field will face a significant hurdle: the brute force of American capitalism that undergirds many courts’ reluctance to use antitrust law to confine commercial activity.
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