How Does the Federal Trade Commission Decide Whether Intellectual Property Licenses Violate Anti-trust Laws?

Day Five of the US Visit II

In late March, the author had the opportunity to make a journey to the United States at the invitation of the U.S. government in order to better understand how the US intellectual system operates. On the fifth day of the visit, the author went to the Federal Trade Commission (the “FTC”), and the following is a brief record of his visit there.

The FTC is the administration in charge of investigating and taking action against unfair competition and anti trust in the US. During the visit, FTC officials showed us a map showing that as of 1900, only the US and Canada had enacted competition laws, including unfair competition law and the anti trust law. Later by 1960, Sweden, France, and Japan passed legislation on competition. By 1980, many countries in Europe and South America passed competition laws, as well as Australia, India, Thailand, and South Africa. By 2012, almost all states of the world had laws in that field, except for a few African countries.

Competition law is very important, and a report issued by McKinsey & Co. in 2004 that investigated thirteen developing countries over twelve years found that the greatest indicator of whether a country is rich or poor is productivity. So, what is the impetus for productivity? When McKinsey & Co. investigated labor resources, capital formation, corporate governance, education, and competition, the conclusion they reached was that the most important impetus for productivity comes from competition. When the government limits competition, the more competitive company are unable to replace those with poor efficiency. At that time, the development of the economy slows and the country remains poor.

The earliest competition law in the US was the Sherman Act, passed in 1890. Afterwards, in 1914, US lawmakers revised this law and passed two new laws, the FTC Act and the Clayton Act. The first of these two laws explains the Sherman Act and establishes an anti trust enforcement authority, the FTC. The latter law regulates the limits on mergers between companies, the procedure for civil anti-trust lawsuits, and the responsibility of the FTC and anti trust the bodies of the Department of the Justice.

The FTC now has eleven departments, and the department that received us, the Competition Bureau, has one hundred and eighty attorneys and eighty non-lawyer employees. They closely cooperate with the Economic Bureau, which has forty to fifty economists focused on anti-trust. The Department of Justice shares some of responsibilities with the FTC, and they are both in charge of the civil enforcement of unfair practices and anti-trust, examination of mergers, and passage of court issued injunctions against unfair practices and anti trust. The two authorities have agreed that they will not investigate the same case. The FTC also has the power to issue administrative orders. As regulated in law, however, some enforcement power is exercised by the Department of the Justice, which has the sole right to bring criminal prosecution. State law also have competition laws, which include anti trust laws and regulations related to the Clayton Act. Individuals and companies can also bring suit against monopolistic behavior for civil compensation and injunctions. But, state laws are limited, and monopolies tend to be trans-state. Therefore, the federal and state anti trust organs often cooperate, with the state administration providing local monopoly information, the federal organs providing support to the states organ, and both sides being able to review confidential information.

With respect to the anti trust investigations, the FTC has held that mergers can result in market dominance, and, for this reason, any mergers that could damage the market competition should be illegal. Yet, most mergers are carried out with no legal problems. Almost ninety five percent of the mergers in the US have been approved with no additional conditions, but undergoing analysis to evaluate whether the merger will benefit or damage competition is inevitable. As per the Hart-Scott-Rodino Act, all mergers above $ 383.6 million must first be approved before the transaction, and the general period for the examination is thirty days. But, the Department of Justice and the FTC can require the companies to submit supplementary materials, in which case the companies involved must present all of the relevant materials and wait another thirty days.

Another FTC official introduced us to the relationship between competition laws and intellectual property laws. In the 1980’s, the relationship between US competition law and intellectual property law was very complicated since intellectual property law, especially patent law, was adopted to support monopolies. On the other hand, however, competition law is a means to combat monopolies, but the tools that provide the greatest benefit to intellectual property holders, such geographic limits and use limits are not the objects of anti-trust law. But, in the 1980’s, US authorities became aware of the common importance shared by anti trust and intellectual property in the promotion of innovation. Based on this, the Department of Justice and the FTC passed the IPR Licensing Guidelines in 1995, whose principles include:

Intellectual property licensing is generally valid and effective, but aside from “naked restrictions” on competition, transactions with a low market share can enjoy the safe harbor principle from examination, and intellectual property is kind of property right rather than a monopoly right. Therefore, it should not be held that intellectual property will lead to dominant market position and should be analyzed like any other property, taking into accounts its special conditions. In a 2004 report, the FTC concluded that patent law and the anti trust law provide checks and balances, as both promote the innovation and increase the welfare of the consumers. The US Supreme Court accepted the report and positively used this report. In 2011, the FTC promulgate another joint report that it will combat anti competitive agreements involving intellectual property, including intellectual property holders that plot to damage the interests of consumers or commit any other acts that may hinder competition through exclusion. In such situations, officials enforcing official competition will give full consideration to whether the agreement will damage the efficiency of competition, and demand other evidence of damages. Therefore, only those anti competitive plans that will lead to a greater influence than they will promote efficiency will be questioned.

The author also asked the US representatives about their opinions in the patent discrimination case filed by Microsoft against the Motorola. After Google’s acquisition of Motorola, Motorola sued the Microsoft claiming that part of its products were infringed by Microsoft. But, according to Microsoft, it wished to purchase the patents at a fair and reasonable price, but Motorola’s offer was much higher than that made to other companies, and that discrimination is because of a monopoly in patents. The US officials replied that the current laws have no specific regulations over this activity. Therefore, they are also closely watching the judgment in this case, and, due to the fact that the case is currently in litigation, they could not provide many detailed comments.

In closing, the above record was taken by the writer himself, who saw many contents that might be incomplete and less accurate when revising. He decided to put them on our website primarily to share with our readers, and any opinions or corrections are warmly welcomed. Since the US authorities highlight the protection of personal information, unless the other party agrees, we will not publicize the names of any of the involved parties on the Internet; thank you for your understanding.

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