In announcing these hearings, Chairman Muris noted the FTC� history of using public hearings as a tool for identifying and studying important public policy issues related to competition and consumer protection policies. This is the first time that the Antitrust Division has joined the Commission in sponsoring public hearings. A public report that incorporates the results of the hearings will be prepared after the conclusion of hearings.
The Relationship of Competition and Intellectual Property Law and Policy
The aims and objectives of intellectual property and competition law may seem, at first glance, to be at odds. For example, patent law establishes the statutory right of the patentee to exclude others from making, using, or selling the patent property. Competition law is aimed at combating unreasonable restraints on vigorous competition. Overly broad grants, interpretations or applications of intellectual property rights may unduly limit competition.
There has been, however, increasing recognition on the part of antitrust law enforcers and the courts in the U.S. that the two bodies of law are actually complementary, sharing the common purpose of promoting innovation and enhancing consumer welfare. Intellectual property law, properly applied, preserves the incentives for scientific and technological progress -- innovation. Innovation benefits consumers through the development of new and improved goods and services and spurs economic growth. Competition law, properly applied, promotes innovation and economic growth by prohibiting and deterring anticompetitive arrangements and monopolization that thwart the competitive process. Competition law and its enforcement also ensure that consumers have access to a wide variety of goods and services at competitive prices. Consequently, as competition law addresses the competitive implications of conduct involving intellectual property, and, as intellectual property law addresses the nature and scope of intellectual property rights, care must be taken to maintain proper incentives for the innovation and creativity on which the national economy depends.
The question of how to balance intellectual property and competition policy in particular circumstances has generated significant debate over the decades. During the 1970s, U.S. antitrust enforcement received justified criticism for policies overly hostile to the appropriate use of patents. These policies were subsequently revised.2 More recently, some have questioned whether certain intellectual property policies, practices, and doctrines incorporate a proper appreciation of competitive issues, including ways in which intellectual property protection may impede, rather than encourage, innovation. Others have raised questions on whether certain U.S. antitrust law approaches are properly appreciative of the need to promote innovation.
Matters that involve both intellectual property and competition policy can be exceedingly complex, both legally and factually. It is now well understood that an effective legal regime defining and protecting property rights is essential to a well-functioning competitive economy. Intellectual property law plays an important role in this overall property rights regime. As can other holders of property rights, a patent holder can attempt to preclude misappropriation of its intellectual property rights.
Intellectual property rights have limits. Patents and copyrights are granted for specific, limited periods of time. One cannot assert ownership rights over property for which he/she lacks a valid title. Other limits on intellectual property rights include prohibitions on abuse of the patent process and overly broad assertions of patent claims. Both of these prohibitions raise potential competition issues. Acquisition of patent rights, like other property rights, also may raise competition law concerns under section 7 of the Clayton Act. In addition, there are broader public policy issues involving intellectual property law. For example, if the patent review process is too permissive �� patents are granted too easily for trivial or non-existent improvements that do not meet statutory requirements for patentability - competition through entry and expansion by others may be impeded.
The Purpose and Scope of the Joint FTC/DOJ Public Hearings
The growth of the knowledge-based economy increases the need for competition and intellectual property law and policy to work in tandem to support and encourage ongoing innovation underlying that economy. Many of the issues, some of which are noted above, cannot be addressed solely by enforcing the U.S. antitrust laws, but can be addressed in our hearings, in which we are gathering facts about, and seeking to enhance the understanding of, how doctrines, practices and policies of each discipline affect both initial and sequential innovation in today� economy.
The joint FTC/DOJ public hearings will consider the implications of competition and intellectual property law for innovation and other aspects of consumer welfare. The goal is to promote dialogue, learning, and consensus building among the relevant business, consumer, government, legal, and academic communities on these topics. To develop appropriate policy, we must better understand a variety of practical considerations such as the types of issues that companies confront on a regular basis and the practical implications of various policy decisions. Our guiding consideration in developing policy is the impact on consumer welfare in the short and long run.
Policies for both competition and intellectual property raise legal and economic questions that are substantially linked. Topics central to the debate about intellectual property and competition law policy that hearing participants will have addressed include: the role of intellectual property in fostering innovation; competitive issues and concerns involving patents, specifically the type and scope of patents issued, patent examination procedures and criteria, and settlement of patent disputes; licensing of intellectual property; and standard setting.3 Our interest in the interaction of competition and intellectual property law is not limited to understanding how these issues are being addressed in the United States. The upcoming May 22 and 23 hearings will focus on an international comparative law treatment of the relationship of competition and intellectual property.
Examples of Issues under Consideration
To provide a fuller understanding of the subjects covered by these hearings, the paper will next elaborate on some of the issues on which we are gathering information and seeking public comment and discussion. The following is a selection of some of the topics likely to be of general interest to competition authorities in other APEC countries.
a. Scope and validity of patent rights
Comment has been solicited about competition issues arising from the scope and types of patents and the procedures and criteria under which they are issued. In the U.S., the National Academy of Sciences has noted that intellectual property rights have been strengthened since the early 1980s through legislation and judicial interpretations.4 Some observers allege that, all too often, important patents - especially in biotechnology and software - are overly broad and overly broad patents can inhibit follow-on innovation.5 Others contend that broad patents are essential to encourage high-risk research in entirely new fields.6 The hearings will explore, among other issues, the changes in procedure and presumptions that have strengthened intellectual property rights and the implications for both competition and intellectual property policy.
Refusals to license
Tensions arise between the two policy areas when a patent holder unilaterally refuses to license its intellectual property. In the U.S., some of the most frequently debated areas of licensing practices involve refusals to license patents. This debate was heightened in the U.S. by a federal appellate court decision in Independent Service Organizations Antitrust Litigation,7 involving a patent holder� refusal to license.8 Briefly, in that case, Xerox unilaterally stopped supplying patented replacement parts and diagnostic software to a group of independent service organization (�SOs��). The ISOs challenged this conduct as an antitrust violation, alleging that Xerox� purpose was to undermine the ISOs�� capacity to compete effectively in the service aftermarket. On appeal, the court upheld the lower court� grant of summary judgment for Xerox observing that: �i]n the absence of any indication of illegal tying, fraud in the Patent and Trademark Office, or sham litigation, the patent holder may enforce the statutory right to exclude others from making, using, or selling the claimed invention freely under the antitrust laws.��9
Some of the issues raised by this decision and under study in the joint FTC/DOJ public hearings are: Under what circumstances, if any, should there be limits on the rights of patent holders to refuse to deal? What should be the competition law standards for evaluating a unilateral refusal to deal by a patent holder? In addition, public comment has been sought on the current jurisprudence in this area and how it is affecting current licensing practices.
Standard Setting
Standard setting is another area that illustrates the tension between competition and intellectual property policy and one that has been the subject of U.S. antitrust enforcement. For example, anticompetitive issues in standard setting have arisen through attempts to influence the development of standards for which a firm holds intellectual property rights. In the FTC� case against Dell Computer Corporation,10 the respondent allegedly breached its commitment to disclose patents to a standard-setting organization before the organization developed a standard relying on those patents. To settle the FTC charges, Dell agreed not to enforce its patent rights against computer manufacturers complying with the standard. After considering the conduct at issue in Dell, some observers concluded that to require members of a standard-setting organization to agree to disclose all relevant patents (or patent applications) before a standard is chosen would place too great a burden on businesses and thus deter firms from participating in the standard-setting organization in the first place, thereby hindering innovation.11 Others have disagreed, asserting that the type of conduct alleged in Dell undermines the standard-setting process, impeding the innovations that may flow once a standard is established.12
Industrial compatibility standards are an important element of the discussion of intellectual property right issues. These standards can facilitate the development of new products based on new technologies and often involve firms disclosing and sharing patented technology. The standard setting process generally requires that competitors coordinate on a technology standard and, in such a situation, there are opportunities for anticompetitive behavior as companies exert their influence over the process. One goal of these hearings is to improve our understanding of how various standard setting practices promote innovation and competition, and how various practices might result in abuses of market power or disincentives for innovation.
After a standard has been established, there are many issues regarding access to the technology embodied in the standard. Limited access could restrict the number of competitors in the market and severely inhibit entry, but requiring open access could dilute the value of intellectual property rights. A question to consider is whether in some cases consumer welfare is best served by having the industry settle on a single standard or by encouraging the development of multiple competing standards. In any event, the hearings provide a needed opportunity to obtain a more complete understanding of the standard-setting process. Participants have been encouraged to discuss the influence of intellectual property and competition law on standard setting in the real world.
International Issues
Refusals to deal, licensing and standards, and other issues central to the intellectual property-based competition law disputes in the United States routinely have effects that reach beyond our border. Competition law enforcers in many jurisdictions often are asked to address complex antitrust issues arising from �orderless�� intellectual property with direct effects on consumers around the world.
Many of our international colleagues have already undertaken the process of reviewing their competition and intellectual property laws. Australia and Canada, to name two countries that are members of this forum, have recently addressed the intersection of competition and intellectual property laws. At the May 22 and 23 sessions of the joint FTC/DOJ public hearings, panels will discuss competition law approaches that are presently in place or are under consideration in jurisdictions outside the United States, providing an opportunity to enhance mutual understanding with our global competition law counterparts. The FTC and DOJ are looking forward to the international contributions to these hearings.13
Conclusion
The goal of these public hearings is to enhance our understanding of how innovation and competition interact and, as a consequence, they are very much a �ork in progress.�� At present, no settled views have emerged regarding the issues being addressed. While we have announced that there will be a public report after the conclusion of the hearings, it is too soon to tell what will be the scope and content of this report. Likely this will be the topic of much discussion as staff reviews and assimilates what has been learned. In the interim, we highly commend to you the public materials that are available on the agencies�� websites and welcome any comments that you may have.
1 For background on recent FTC cases involving patents in the pharmaceutical industry, see Prepared Statement of the Federal Trade Commission: Competition in the Pharmaceutical Industry, Presented by Timothy J. Muris, Chairman, before the Committee on Commerce, Science and Transportation, U. S. Senate (April 23, 2002) available by hyperlink at www.ftc.gov/opa/2002/04/biovail.htm.
2 See generally, U.S. Department of Justice and Federal Trade Commission, Antitrust Guidelines for the Licensing of Intellectual Property (1995) at www. ftc.gov/bc/guidelin.htm and www.usdoj.gov/atr/public/guidelines/ipguide.htm.
3 Details on the specific topics, panel participants, and dates for these hearings are available on both agencies�� websites: www.ftc.gov/opp/intellect/index.htm and www.usdoj.gov/atr/hearing.htm). In addition, transcripts of the hearings and public written comments submitted to date can be obtained from the same websites.
4 See generally, http://ip.nationalacademies.org.
5 See Suzanne Scotchmer, �tanding on the Shoulders of Giants: Cumulative Research and the Patent Law,�� 5 J. Econ. Persp. 29 (1991)
6 See, e.g., Carmen Matutes et al., �ptimal Patent Design and the Diffusion of Innovations,�� 27 RAND J. Econ. 34 (1995); Howard F. Chang, �atent Scope, Antitrust Policy, and Cumulative Innovation,�� 26 RAND J. Econ. 34 (1995).
7 203 F.3d 1322 (Fed. Cir. 2000), cert. denied, CSU, L.L.C. v. Xerox Corp., 121 S. Ct. 1077 (2001).
8 The United States Court of Appeals for the Federal Circuit in this case specifically rejected the analysis of the United States Court of Appeals for the Ninth Circuit in Image Technical Services v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997) which held that a patentee� exercise of its statutory right to exclude creates only a rebuttable presumption of a valid business justification for unilateral refusals to license or sell under the Sherman Act.
10 Dell Computer Corp., Dkt. C-3658, 121 F.T.C. 616, 1996 FTC LEXIS 291. The FTC press release is available at www.ftc.gov/opa/1996/9606/dell2.htm.
11 See, e.g., id., 121 F.T.C. at 632-333 & n. 11, 635-36 (Dissenting Statement of Commissioner Mary L. Azcuenaga.)
13 As with the other sessions of these hearings, detailed agendas will be available on the FTC and DOJ home pages, referenced above. Any interested person may submit written comments responsive to any of the topics to be addressed; such comments should be submitted no later than the last session of the hearings.