My paper for the 2006 Cato Supreme Court Review, Missed Opportunities in Independent Ink, is now available on SSRN. Justice Stevens’ opinion for the unanimous court in Independent Ink rid antitrust law of the misguided, ill conceived, and universally criticized presumption of antitrust market power in patent tying cases. Very few dispute the wisdom of the Court’s decision. So what is there left to say about it?
Plenty I think. My thesis is that the Court missed a grand opportunity to clarify the role of antitrust law in regulating competitive conduct which facilitates price discrimination, and in particular, to get monopolization law out of the business of condemning competitive price discrimination. This has been a favorite topic of mine on this blog (see, e.g., the posts here, here and here). The abstract is below the fold. The Supreme Court’s opinion in Illinois Tool Works Inc. v. Independent Ink, Inc. rejecting the presumption of market power in antitrust tying cases is unequivocally good for consumers and eminently sensible. The presumption is at odds with the longstanding consensus among antitrust scholars, Congress, and the antitrust agencies that patents do not confer antitrust monopoly power. While Justice Stevens’ opinion should be applauded for taking an important step towards aligning a perplexing and muddled tying jurisprudence with economic sense and empirical reality, that attempt is both undeniably successful and incomplete because the Court fails to adopt the economic reasoning supporting its holding. A burgeoning economic literature demonstrates that a patent right merely confers to the seller the power to exclude perfect substitutes, a sufficient condition for price discrimination, and a power shared by virtually all firms in competitive markets across our modern economy. Unfortunately, both antitrust law and scholars sometimes conflate this power with the ability to influence market conditions which is the focus of modern consumer-welfare focused antitrust enforcement. This confusion is costly because it deters competitive price discrimination, which despite widely perpetuated economic myths, is not generally associated with consumer welfare losses and may benefit all consumers. While antitrust law has come a long way in terms of economic sophistication, the persistent association of anticompetitive inferences with an inherently competitive practice is evidence that it has not yet fully incorporated fundamental lessons from the economic literature.