DOJ giving cover to monopolizing firms that breach antitrust rules

Posted by The Hill

DOJ giving cover to monopolizing firms that breach antitrust rules

By Michael Carrier

Imagine that a company makes a promise that an industry relies on, gains monopoly power as a result and then says “just kidding.” The head of the Department of Justice’s Antitrust Division, Makan Delrahim, recently gave this conduct an antitrust pass. That’s not right.

The setting for this scenario involves standards, which are ubiquitous in our high-tech, connected world. Our plugs fit into wall outlets, and our phones connect to wireless networks. The reason is simple. Industries have adopted standards with which companies build compatible products.

Some standards implicate patents. Here, there is a real concern that after companies are locked in to a standard, the patent holder will “hold up” the industry by demanding unreasonable royalties or even blocking products from the market.

For that reason, standards organizations have required patent holders to license on fair, reasonable and nondiscriminatory terms (FRAND).

These companies are essentially saying: “We don’t know if the standard ultimately incorporates our patents, but if it does (and to encourage the consideration of our technology), we agree that we will license on reasonable and nondiscriminatory terms.”

In a series of speeches, Assistant Attorney General (AAG) Delrahim has been skeptical of “patent holdup,” and in an address on Sep. 18, he stated that FRAND abuse would not violate antitrust law. He reached this remarkable position only through a series of mischaracterizations.

The first mischaracterization involves antitrust policy. On several occasions, Delrahim stated that the goal of antitrust law is to promote innovation and dynamic competition. Stated simply, this is the not the goal of antitrust.

Antitrust endeavors to promote consumer welfare through innovation and competition. As the Supreme Court made clear in FTC v. Actavis: “[P]atent and antitrust policies are both relevant in determining the ’scope of the patent monopoly.’”

The Supreme Court explained that it previously held that patent licenses violated antitrust law even if they “produce[d] supra-patent-permitted revenues.”

Even on the ground of promoting innovation, Delrahim’s stance is too truncated. For it summarily resolves the debate (ongoing for at least half a century) among economists about the market structure most conducive to innovation.

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