New International Arrangements in Intellectual Property and Competition Law

  • John H. Barton


Intellectual property plays an increasingly important role in the international Intellectual Property1 (IP) law and antitrust law can no longer be viewed separately. Technology has become so important that IP incentives to research must be maintained in order to benefit the consumer. There will be no investment in research unless there is a chance of recouping the investment through supranormal profits, i.e. profits based on sales at prices above marginal cost. At the same time, this dynamic efficiency goal must be balanced against a more traditional static efficiency goal, in order to ensure appropriate allocation of non-research resources and to avoid the inflation of prices to the consumer. The balance between these dynamic and static goals must be reflected in the supporting bodies of IP and competition law. It may today be among the most important issues in antitrust law, both because of the growth in the scope of intellectual property, especially of patents,2 and because of the fundamental importance of technology to the future of the economy. If this is true domestically, it is even more true internationally. Because economic growth is heavily dependent on technology,3 encouragement of technology can only accelerate the global consumer benefits of free trade.4 Moreover, nations often attempt to compete through encouraging their technologically-advanced industries. By negotiating the TRIPS Agreement, the world has now chosen to recognize the importance of IP in world trade. At a static level, TRIPS implies that the developing nations will pay royalties to developed nations, who are the current leaders in technology. This, of course, is a broadly discussed phenomenon, particularly with respect to pharmaceuticals.5 But, of far greater importance to the future, the dynamics of the new system may be likely to favor the industries of developed nations. The IP rights which these developed-world industries hold may sometimes prove anticompetitive by enabling these industries to slow entry of others into the market and thus prolong their period of market dominance. Evaluation of this possibility requires a much deeper analysis of the way that intellectual property rights are used. A response to it is likely to require the definition of certain specific antitrust principles, and possibly their harmonization, as in the form of a World Trade Organization (WTO) Code.6 This paper explores three specific contexts in which IP rights may prolong developed-world market dominance, and generally describes the IP/competition law principles likely to be helpful. It concludes by exploring whether these principles need to be harmonized through an international code and defining first steps to be taken.7


Intellectual Property World Trade Organization Competition Policy Federal Trade Commission Trips Agreement 
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  1. 2.
    See T. Maris (Chairman, U.S. Federal Trade Commission), “Competition and Intellectual Property Policy: The Way Ahead”, before American Bar Association, Antitrust Section Fall Forum, Washington, D.C., Nov. 15, 2001.Google Scholar
  2. 3.
    R. Solow, “Technological Change and the Aggregate Production Function”, 39 Rev. Econ. & Star. 312(1957). There are, of course, arguments that infant industry protection can favor innovation and dynamic competition at the expense of static competition. This is generally true only in certain circumstances. The argument in text is much broader — that free trade and dynamic innovation work in parallel.CrossRefGoogle Scholar
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  4. 6.
    The parties to the Doha Ministerial Conference in November 2001 agreed to steps towards antitrust negotiations as part of the new round of world trade negotiations. World Trade Organization, Ministerial Conference, Ministerial Declaration, WT/MIN(01)/ DEC/W1, 14 Nov. 2001. Almost certainly, however, these negotiations will concentrate on more traditional trade-antitrust issues such as cartels.Google Scholar
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    See R. Anderson, “Intellectual Property Rights, Competition Policy and International Trade: Reflections on the Work of the WTO Working Group on the Interaction between Trade and Competition Policy” (World Trade Forum, 2001, Vol. 3, Ch.17). There is of course a much broader international antitrust agenda that includes, for instance, procedural responses to national monopolies, export cartels, and the taming of anti-dumping law. See generally, e.g., Report (2001) of the Working Group on the Interaction Between Trade and Competition Policy to the General Council World Trade Organization, WT/WGTCP/5, 8 October 2001; Report (2000) of the Working Group on the Interaction Between Trade and Competition Policy to the General Council, World Trade Organization, WT/WGTCP/4, 30 November 2000; and the earlier reports in the same series. Although most of the discussion in these reports is about cartels, the issues of IP and competition policy are raised in 104 of the 2000 report.Google Scholar
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    An interesting example is presented in Re British Interactive Broadcasting/open, E.C. Comm. 1999/781/E.C, [2000] 4 C.M.L.R. 901. Among the relevant markets, several of which seem likely to have network externalities, are those for digital interactive television services, pay television, wholesale supply of films and sport to pay television, technical services, and for customer access infrastructure for telecommunication.Google Scholar
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    See, e.g., Report of the NIH Working Group on Research Tools (1998), available at; J. Barton, “The Balance between Intellectual Property Rights and Competition: Paradigms in the Information Sector”, [1997] 7 E.C.L.R. 440.
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    See Warshafsky, The Patent Wars (1994).Google Scholar
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    There is sometimes substantial asymmetry in such cross licenses. See, for example, the license attached as Exhibit F to the License Development and Marketing Agreement of May 9, 1997, between Microsoft Corp. and Citrix Systems, attached as Exhibit 10 to Citrix System’s 8-K filed with the SEC on June 20, 1997. Under this agreement all Citrix patents are licensed to Microsoft, while only some Microsoft patents are licensed to Citrix. Another example is posed by the various licenses that IBM obtained from Taiwanese computer manufactures during the 1980s. See, e.g., Bermar et al., “IBM nears patent accords with many Taiwanese makers”, PC Week, Sept. 12, 1988, p. 133; March and Burke, “Cloners feel patent pressure”, PC Week, Dec. 5, 1988, p. 53.Google Scholar
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    See T. Cotter, “Intellectual Property and the Essential Facilities Doctrine”, 44 Antitrust Bull. 211 (1999). The European analogue of the doctrine is applied in Radio Telefis Eirann v. Commission of the European Communities, [1995] ECR 1–743 (Magill) and later reviewed, but not applied, in Oscar Brommer GmbH & Co. v. Mediaprint Zeitungs-und Zeitschriftenverlag GmbH & Co., Case C-7/97 (ECJ 1998).Google Scholar
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    For a model of the likely incentives to innovate among oligopolists, the way these incentives vary with the number of firms, and the implications for the law, see J. Barton, “Antitrust Treatment of Oligopolies with Mutually Blocking Patent Portfolios”, 69 Antitrust Law Journal 69 (3), 2002, pp. 851–882.Google Scholar
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    In this sense, the Code would elaborate on Article 40 of TRIPs, which specifically authorizes controls on “Anti-competitive practices in contractual licenses,” and creates a consultation obligation to protect the interests of a nation alleging that anti-competitive practices are affecting it.Google Scholar
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    Note that this cannot be said of intellectual property agreements such as TRIPs. Because of the actual flow of rents and the differences among nations in their balancing of short and long term interests, such an agreement is not necessarily in the interest of all. See J. Barton, “The Economics of TRIPS: International Trade in Information-Intensive Products”, 33 George Washington L. R. 413 (2001).Google Scholar
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    W. Kolasky, “U.S. and EU Competition Policy: Cartels, Mergers, and Beyond”, Address Before the Council for the United States and Italy Bi-Annual Conference, New York, Jan. 25, 2002. Deputy Attorney General Kolasky specifically noted differences between the United States and Europe over the essential facility doctrine. See also Final Report, International Competition Policy Advisory Committee, February 28, 2000, available at Although the key issues discussed in this report are the traditional ones involving cartels etc., there is a short discussion of the IP-antitrust issues as part of the discussion of e-commerce questions at pp. 287–293.Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2003

Authors and Affiliations

  • John H. Barton
    • 1
  1. 1.Law SchoolStanford UniversityStanfordUSA

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