Why is the government suspicious of patent owners who don't want to vertically integrate? - IPWatchdog.com

CC BY-SA 3.0. By Coolcaesar on August 12, 2006.

According to the United States Department of Justice Merger Guidelines, vertical mergers can be problematic because they may affect competition in the marketplace. See Non-Horizontal Merger Guidelines. Indeed, according to USDOJ vertical merger enforcement policy, vertical mergers can create significant and enduring costs to an affected marketplace, particularly where the vertical merger increases a monopolist’s ability to exercise market power through barriers to entry.

Why then is the United States government suspicious of patent owners who simply invent and patent and then seek to license their innovation for others to manufacture and commercialize? Why do federal courts seem to punish those who engage in a licensing business model as if those patent owners are somehow engaging in some grand subterfuge calculated on manipulating the market?

In short, why does U.S. policy with respect to patent owners and patent licensing seem to be in direct opposition to U.S. antitrust policy relating to vertical mergers? If vertical mergers are anticompetitive and particularly bad when dealing with a monopolist then why are patent owners, who we are told over and over again are in possession of a limited monopoly, encouraged (if not demanded) to vertically integrate in order to escape characterization as a patent troll?

If you do a Google search you’ll find all kinds of references to the fact that patent trolls do not make anything. How truly ironic it is that in a country where monopolies are discouraged and the federal government takes the position that vertical integration is bad that our collective understanding has become this: patent owners who do not vertically integrate innovation with manufacturing and commercialization are evil. That is exactly backwards!

The so-called patent troll problem has been created in significant part simply by gross over definition of what qualifies one to be called a patent troll. Frankly, the term patent troll has evolved to mean nothing more than this: You are a patent owner who is suing me. Essentially, whether one is a patent troll is in the eye of the beholder. If I’m on the receiving end of a patent lawsuit then you are a patent troll, regardless of whether you are an innovator, regardless of whether you are an operating company, regardless of how you acquired the patents.

Such an over-inclusive definition of the term patent troll is, of course, absurd. Yet the term persists. What is equally absurd is vilifying patent owners who do not vertically integrate and champion those who do vertically integrate. Once upon a time that would have lead Antitrust regulators to be suspicious, particularly given those urging vertical integration, as indicative of exemplary and moralistic behavior are the largest corporations in the world.

Maybe it is time for Antitrust regulators to rethink the notion of vertical integration in the innovation market and realize that innovators who patent and license are per se engaging in pro-competitive conduct. Those multinational giant corporations that specializing in vertical integration are the ones engaging in anti-competitive conduct and should be forced to answer some serious questions.

Gene Quinn Gene Quinn is a patent attorney and a leading commentator on patent law and innovation policy. Mr. Quinn has twice been named one of the top 50 most influential people [...see more]

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10 comments so far.

CW
July 31, 2017 01:37 pm
Because big business makes big campaign donations, and they want to snap up any valuable patents. Independent inventors can’t afford the same lobbying muscle.
Anon
July 29, 2017 05:20 pm
“Furthermore, under eBay, a patent owner that actually makes and sells the patented product has a distinct advantage in being far more likely to be able to get an injunction against an infringing competitor.”

The improper importation of “make” into the equation of equity, and the lack of really understanding the nature of a patent (the item being transgressed) as a negative right.

I am not impressed with Broken Scoreboards.

I am even less impressed with attorneys who do not recognize a Broken Scoreboard when they should.
Paul F. Morgan
July 29, 2017 02:42 pm
I don’t understand the alleged analogy here?
The J.D. has never had any AT problem with non-exclusive licenses, and whoever heard of a PAE that offered anything but non-exclusive licenses?
Furthermore, under eBay, a patent owner that actually makes and sells the patented product has a distinct advantage in being far more likely to be able to get an injunction against an infringing competitor.
Anon
July 29, 2017 10:27 am
This article dovetails nicely with the Marshall Phelps article vis a vis the historical notion that the US system was built for the “genius” of the common man – and directly away from the British system that favored monied interests (that is, having a system that was not built on costs as screening effects – be those screening effects “quality” related or otherwise).
Edward Heller
July 28, 2017 04:17 pm
ValGuy,

1. The SIPs need to be identified per country or else the participants must agree not to enforce them.

2. The total RR of all SIPs needs to be set, eg, 5%. The royalty for each (double patenting taken into consideration) SIP per country is to be its proportionate share of the entire pie, per country.

Simple, elegant solution.
Anon2
July 28, 2017 02:05 pm
Great article Gene!

Although one could argue anti-trust laws themselves are “questionable”, the unmistakable hypocrisy/double standard exhibited by anti-patent types in government is deplorable.
Tesia Thomas
July 28, 2017 10:22 am
@Valuationguy

YES! Exnovation is ever present in standards orgs.
I joined ASTM and since joining, YKK has since made propositions to change the standard, which hasn’t been drastically changed in years, to include dimensions of products.
Dimensions don’t matter when everyone is making the same exact thing, down to the size.
…Until you introduce a competing product that doesn’t look very similar to the standard but is still able to meet and beat the standard and functions just as what the standard covers.

And, they have zero’d in on the definition of zippers as having “teeth” which excludes my product from the standard.

It’s exnovation.
https://en.wikipedia.org/wiki/Exnovation
Valuationguy
July 28, 2017 09:38 am
Gene,
While the gov’t ‘guidelines’ talk a good game for the crowd….you have the understand that these vertical integration guidelines only apply once the afffected market is shrunk to around 3-4 humongous competitors.

The main fault of the guidance is NOT the vertical integration….it is the lack of enforcement of CLEAR COLLUSION (which itself is an anti-trust issue) by industry competitors within the global standards organizations. The lock-in caused by these often highly technical standards is what gave rise to the entire patent troll meme in most cases. The complete lack of any legal responsibility on the part of the standard organizations…..which should be regulated as a monopoly itself since that is the SOLE PURPOSE of these organizations (to set a SINGLE technical standard of compatibility in order to lower the COSTS to industry participants)….is the underlying cause of 95% of the “patent troll” issue.

If the STANDARDS ORGANIZATIONS were forced to take responsibility for negotiating and/or litigating against the patents THEY incorporate into their standard….both patent owners and manufacturers would have a much less costly process for resolving the disputes. Patent owners wouldn’t have to separately litigate every user of the standard and infringing manufacturers would still be able to ‘contribute’ to their own defense thorough information submissions to the standards organizations.

Understanding that manufacturers are forced into “efficient infringement” by the ECONOMICS (even if we assume the court system was efficient in getting to the truth regarding infringement and damages) is key to solving the problem. No manufacturer wants to have a cost that its competitors might NOT have….it puts them at a clear disadvantage in the market. The lack of visibility on the rates that competitors are paying to use the same patents just adds to the problem.

Having the standard organizations take responsibility for any infringement incorporated into the standard still puts the individual patent owner at a clear disadvantage….an industry-supported standards organization would likely be MUCH better funded than the patent owner to conduct a legal battle…but it also gives rise to the possibility of additional outside support funding the patent owners…since they only have to have ONE victory to see an adequate return on investment (rather than suing each manufacturer individually…)

Back in the day (very early 80’s), gov’t anti-trust regulators looked highly askance as these global standards organization were growing more powerful…recognizing the clear opportunities for collusion between competitors. However, as the years passed and the corporate-gov’t swinging door started moving faster (shifting gov’t to protect national corporations over the little guy…..individual patent owners, voters, employees, etc.)…gov’t began looking the other way….’in the interests of lowering costs’….not recognizing that the costs were not really being lowered…they were just shifting them off the corporations and onto the backs of the little guy….who labored more but received LESS for their labors. Corporate capitalism at its finest.

PS – I usually have no use for gov’t anti-trust policies…but this is a rare instance of industry collusion where I believe a good anti-trust enforcement would be useful and necessary given the overall cost of our current legal system.
IP Student
July 28, 2017 08:55 am
@Gene,

Great article as always. Why is it that prominent IP attorneys seem to never be witnesses in the committee, but random witnesses are being called from the woodworks as Issa orchestrates a parade of nonsensical rhetoric? Similarly, the industry itself seems to frustrate the goal of IP attorneys and inventors alike, as PTAB challenges and litigation costs begin to outweigh benefits for both sides?

Quick error to fix: “How truly ironic it is that in a country were monopolies are discouraged ” Were needs the “h”
Anon
July 28, 2017 08:44 am
One word: propaganda.

Tends to work rather well when people do not realize that a patent is a negative right, as opposed to a positive right to make something.