Archives For F. Scott Kieff

Although not always front page news, International Trade Commission (“ITC”) decisions can have major impacts on trade policy and antitrust law. Scott Kieff, a former ITC Commissioner, recently published a thoughtful analysis of Certain Carbon and Alloy Steel Products — a potentially important ITC investigation that implicates the intersection of these two policy areas. Scott was on the ITC when the investigation was initiated in 2016, but left in 2017 before the decision was finally issued in March of this year.

Perhaps most important, the case highlights an uncomfortable truth:

Sometimes (often?) Congress writes really bad laws and promotes really bad policies, but administrative agencies can do more harm to the integrity of our legal system by abusing their authority in an effort to override those bad policies.

In this case, that “uncomfortable truth” plays out in the context of the ITC majority’s effort to override Section 337 of the Tariff Act of 1930 by limiting the ability of the ITC to investigate alleged violations of the Act rooted in antitrust.

While we’re all for limiting the ability of competitors to use antitrust claims in order to impede competition (as one of us has noted: “Erecting barriers to entry and raising rivals’ costs through regulation are time-honored American political traditions”), it is inappropriate to make an end-run around valid and unambiguous legislation in order to do so — no matter how desirable the end result. (As the other of us has noted: “Attempts to [effect preferred policies] through any means possible are rational actions at an individual level, but writ large they may undermine the legal fabric of our system and should be resisted.”)

Brief background

Under Section 337, the ITC is empowered to, among other things, remedy

Unfair methods of competition and unfair acts in the importation of articles… into the United States… the threat or effect of which is to destroy or substantially injure an industry in the United States… or to restrain or monopolize trade and commerce in the United States.

In Certain Carbon and Alloy Steel Products, the ITC undertook an investigation — at the behest of U.S. Steel Corporation — into alleged violations of Section 337 by the Chinese steel industry. The complaint was based upon a number of claims, including allegations of price fixing.

As ALJ Lord succinctly summarizes in her Initial Determination:

For many years, the United States steel industry has complained of unfair trade practices by manufacturers of Chinese steel. While such practices have resulted in the imposition of high tariffs on certain Chinese steel products, U.S. Steel seeks additional remedies. The complaint by U.S. Steel in this case attempts to use section 337 of the Tariff Act of 1930 to block all Chinese carbon and alloy steel from coming into the United States. One of the grounds that U.S. Steel relies on is the allegation that the Chinese steel industry violates U.S. antitrust laws.

The ALJ dismissed the antitrust claims (alleging violations of the Sherman Act), however, concluding that they failed to allege antitrust injury as required by US courts deciding Sherman Act cases brought by private parties under the Clayton Act’s remedial provisions:

Under federal antitrust law, it is firmly established that a private complainant must show antitrust standing [by demonstrating antitrust injury]. U.S. Steel has not alleged that it has antitrust standing or the facts necessary to establish antitrust standing and erroneously contends it need not have antitrust standing to allege the unfair trade practice of restraining trade….

In its decision earlier this year, a majority of ITC commissioners agreed, and upheld the ALJ’s Initial Determination.

In comments filed with the ITC following the ALJ’s Initial Determination, we argued that the ALJ erred in her analysis:

Because antitrust injury is not an express requirement imposed by Congress, because ITC processes differ substantially from those of Article III courts, and because Section 337 is designed to serve different aims than private antitrust litigation, the Commission should reinstate the price fixing claims and allow the case to proceed.

Unfortunately, in upholding the Initial Determination, the Commission compounded this error, and also failed to properly understand the goals of the Tariff Act, and, by extension, its own role as arbiter of “unfair” trade practices.

A tale of two statutes

The case appears to turn on an arcane issue of adjudicative process in antitrust claims brought under the antitrust laws in federal court, on the one hand, versus antitrust claims brought under the Section 337 of the Tariff Act at the ITC, on the other. But it is actually about much more: the very purposes and structures of those laws.

The ALJ notes that

[The Chinese steel manufacturers contend that] under antitrust law as currently applied in federal courts, it has become very difficult for a private party like U.S. Steel to bring an antitrust suit against its competitors. Steel accepts this but says the law under section 337 should be different than in federal courts.

And as the ALJ further notes, this highlights the differences between the two regimes:

The dispute between U.S. Steel and the Chinese steel industry shows the conflict between section 337, which is intended to protect American industry from unfair competition, and U.S. antitrust laws, which are intended to promote competition for the benefit of consumers, even if such competition harms competitors.

Nevertheless, the ALJ (and the Commission) holds that antitrust laws must be applied in the same way in federal court as under Section 337 at the ITC.

It is this conclusion that is in error.

Judging from his article, it’s clear that Kieff agrees and would have dissented from the Commission’s decision. As he writes:

Unlike the focus in Section 16 of the Clayton Act on harm to the plaintiff, the provisions in the ITC’s statute — Section 337 — explicitly require the ITC to deal directly with harms to the industry or the market (rather than to the particular plaintiff)…. Where the statute protects the market rather than the individual complainant, the antitrust injury doctrine’s own internal logic does not compel the imposition of a burden to show harm to the particular private actor bringing the complaint. (Emphasis added)

Somewhat similar to the antitrust laws, the overall purpose of Section 337 focuses on broader, competitive harm — injury to “an industry in the United States” — not specific competitors. But unlike the Clayton Act, the Tariff Act does not accomplish this by providing a remedy for private parties alleging injury to themselves as a proxy for this broader, competitive harm.

As Kieff writes:

One stark difference between the two statutory regimes relates to the explicit goals that the statutes state for themselves…. [T]he Clayton Act explicitly states it is to remedy harm to only the plaintiff itself. This difference has particular significance for [the Commission’s decision in Certain Carbon and Alloy Steel Products] because the Supreme Court’s source of the private antitrust injury doctrine, its decision in Brunswick, explicitly tied the doctrine to this particular goal.

More particularly, much of the Court’s discussion in Brunswick focuses on the role the [antitrust injury] doctrine plays in mitigating the risk of unjustly enriching the plaintiff with damages awards beyond the amount of the particular antitrust harm that plaintiff actually suffered. The doctrine makes sense in the context of the Clayton Act proceedings in federal court because it keeps the cause of action focused on that statute’s stated goal of protecting a particular litigant only in so far as that party itself is a proxy for the harm to the market.

By contrast, since the goal of the ITC’s statute is to remedy for harm to the industry or to trade and commerce… there is no need to closely tie such broader harms to the market to the precise amounts of harms suffered by the particular complainant. (Emphasis and paragraph breaks added)

The mechanism by which the Clayton Act works is decidedly to remedy injury to competitors (including with treble damages). But because its larger goal is the promotion of competition, it cabins that remedy in order to ensure that it functions as an appropriate proxy for broader harms, and not simply a tool by which competitors may bludgeon each other. As Kieff writes:

The remedy provisions of the Clayton Act benefit much more than just the private plaintiff. They are designed to benefit the public, echoing the view that the private plaintiff is serving, indirectly, as a proxy for the market as a whole.

The larger purpose of Section 337 is somewhat different, and its remedial mechanism is decidedly different:

By contrast, the provisions in Section 337[] are much more direct in that they protect against injury to the industry or to trade and commerce more broadly. Harm to the particular complainant is essentially only relevant in so far as it shows harm to the industry or to trade and commerce more broadly. In turn, the remedies the ITC’s statute provides are more modest and direct in stopping any such broader harm that is determined to exist through a complete investigation.

The distinction between antitrust laws and trade laws is firmly established in the case law. And, in particular, trade laws not only focus on effects on industry rather than consumers or competition, per se, but they also contemplate a different kind of economic injury:

The “injury to industry” causation standard… focuses explicitly upon conditions in the U.S. industry…. In effect, Congress has made a judgment that causally related injury to the domestic industry may be severe enough to justify relief from less than fair value imports even if from another viewpoint the economy could be said to be better served by providing no relief. (Emphasis added)

Importantly, under Section 337 such harms to industry would ultimately have to be shown before a remedy would be imposed. In other words, demonstration of injury to competition is a constituent part of a case under Section 337. By contrast, such a demonstration is brought into an action under the antitrust laws by the antitrust injury doctrine as a function of establishing that the plaintiff has standing to sue as a proxy for broader harm to the market.

Finally, it should be noted, as ITC Commissioner Broadbent points out in her dissent from the Commission’s majority opinion, that U.S. Steel alleged in its complaint a violation of the Sherman Act, not the Clayton Act. Although its ability to enforce the Sherman Act arises from the remedial provisions of the Clayton Act, the substantive analysis of its claims is a Sherman Act matter. And the Sherman Act does not contain any explicit antitrust injury requirement. This is a crucial distinction because, as Commissioner Broadbent notes (quoting the Federal Circuit’s Tianrui case):

The “antitrust injury” standing requirement stems, not from the substantive antitrust statutes like the Sherman Act, but rather from the Supreme Court’s interpretation of the injury elements that must be proven under sections 4 and 16 of the Clayton Act.

* * *

Absent [] express Congressional limitation, restricting the Commission’s consideration of unfair methods of competition and unfair acts in international trade “would be inconsistent with the congressional purpose of protecting domestic commerce from unfair competition in importation….”

* * *

Where, as here, no such express limitation in the Sherman Act has been shown, I find no legal justification for imposing the insurmountable hurdle of demonstrating antitrust injury upon a typical U.S. company that is grappling with imports that benefit from the international unfair methods of competition that have been alleged in this case.

Section 337 is not a stand-in for other federal laws, even where it protects against similar conduct, and its aims diverge in important ways from those of other federal laws. It is, in other words, a trade protection provision, first and foremost, not an antitrust law, patent law, or even precisely a consumer protection statute.

The ITC hamstrings Itself

Kieff lays out a number of compelling points in his paper, including an argument that the ITC was statutorily designed as a convenient forum with broad powers in order to enable trade harms to be remedied without resort to expensive and protracted litigation in federal district court.

But, perhaps even more important, he points to a contradiction in the ITC’s decision that is directly related to its statutory design.

Under the Tariff Act, the Commission is entitled to self-initiate a Section 337 investigation identical to the one in Certain Alloy and Carbon Steel Products. And, as in this case, private parties are also entitled to file complaints with the Commission that can serve as the trigger for an investigation. In both instances, the ITC itself decides whether there is sufficient basis for proceeding, and, although an investigation unfolds much like litigation in federal court, it is, in fact, an investigation (and decision) undertaken by the ITC itself.

Although the Commission is statutorily mandated to initiate an investigation once a complaint is properly filed, this is subject to a provision requiring the Commission to “examine the complaint for sufficiency and compliance with the applicable sections of this Chapter.” Thus, the Commission conducts a preliminary investigation to determine if the complaint provides a sound basis for institution of an investigation, not unlike an assessment of standing and evaluation of the sufficiency of a complaint in federal court — all of which happens before an official investigation is initiated.

Yet despite the fact that, before an investigation begins, the ITC either 1) decides for itself that there is sufficient basis to initiate its own action, or else 2) evaluates the sufficiency of a private complaint to determine if the Commission should initiate an action, the logic of the decision in Certain Alloy and Carbon Steel Products would apply different standards in each case. Writes Kieff:

There appears to be broad consensus that the ITC can self-initiate an antitrust case under Section 337 and in such a proceeding would not be required to apply the antitrust injury doctrine to itself or to anyone else…. [I]t seems odd to make [this] legal distinction… After all, if it turned out there really were harm to a domestic industry or trade and commerce in this case, it would be strange for the ITC to have to dismiss this action and deprive itself of the benefit of the advance work and ongoing work of the private party [just because it was brought to the ITC’s attention by a private party complaint], only to either sit idle or expend the resources to — flying solo that time — reinitiate and proceed to completion.

Odd indeed, because, in the end, what is instituted is an investigation undertaken by the ITC — whether it originates from a private party or from its own initiative. The role of a complaining party before the ITC is quite distinct from that of a plaintiff in an Article III court.

In trade these days, it always comes down to China

We are hesitant to offer justifications for Congress’ decision to grant the ITC a sweeping administrative authority to prohibit the “unfair” importation of articles into the US, but there could be good reasons that Congress enacted the Tariff Act as a protectionist statute.

In a recent Law360 article, Kieff noted that analyzing anticompetitive behavior in the trade context is more complicated than in the domestic context. To take the current example: By limiting the complainant’s ability to initiate an ITC action based on a claim that foreign competitors are conspiring to keep prices artificially low, the ITC majority decision may be short-sighted insofar as keeping prices low might actually be part of a larger industrial and military policy for the Chinese government:

The overlooked problem is that, as the ITC petitioners claim, the Chinese government is using its control over many Chinese steel producers to accomplish full-spectrum coordination on both price and quantity. Mere allegations of course would have to be proven; but it’s not hard to imagine that such coordination could afford the Chinese government effective surveillance and control over  almost the entire worldwide supply chain for steel products.

This access would help the Chinese government run significant intelligence operations…. China is allegedly gaining immense access to practically every bid and ask up and down the supply chain across the global steel market in general, and our domestic market in particular. That much real-time visibility across steel markets can in turn give visibility into defense, critical infrastructure and finance.

Thus, by taking it upon itself to artificially narrow its scope of authority, the ITC could be undermining a valid congressional concern: that trade distortions not be used as a way to allow a foreign government to gain a more pervasive advantage over diplomatic and military operations.

No one seriously doubts that China is, at the very least, a supportive partner to much of its industry in a way that gives that industry some potential advantage over competitors operating in countries that receive relatively less assistance from national governments.

In certain industries — notably semiconductors and patent-intensive industries more broadly — the Chinese government regularly imposes onerous conditions (including mandatory IP licensing and joint ventures with Chinese firms, invasive audits, and obligatory software and hardware “backdoors”) on foreign tech companies doing business in China. It has long been an open secret that these efforts, ostensibly undertaken for the sake of national security, are actually aimed at protecting or bolstering China’s domestic industry.

And China could certainly leverage these partnerships to obtain information on a significant share of important industries and their participants throughout the world. After all, we are well familiar with this business model: cheap or highly subsidized access to a desired good or service in exchange for user data is the basic description of modern tech platform companies.

Only Congress can fix Congress

Stepping back from the ITC context, a key inquiry when examining antitrust through a trade lens is the extent to which countries will use antitrust as a non-tariff barrier to restrain trade. It is certainly the case that a sort of “mutually assured destruction” can arise where every country chooses to enforce its own ambiguously worded competition statute in a way that can favor its domestic producers to the detriment of importers. In the face of that concern, the impetus to try to apply procedural constraints on open-ended competition laws operating in the trade context is understandable.

And as a general matter, it also makes sense to be concerned when producers like U.S. Steel try to use our domestic antitrust laws to disadvantage Chinese competitors or keep them out of the market entirely.

But in this instance the analysis is more complicated. Like it or not, what amounts to injury in the international trade context, even with respect to anticompetitive conduct, is different than what’s contemplated under the antitrust laws. When the Tariff Act of 1922 was passed (which later became Section 337) the Senate Finance Committee Report that accompanied it described the scope of its unfair methods of competition authority as “broad enough to prevent every type and form of unfair practice” involving international trade. At the same time, Congress pretty clearly gave the ITC the discretion to proceed on a much less-constrained basis than that on which Article III courts operate.

If these are problems, Congress needs to fix them, not the ITC acting sua sponte.

Moreover, as Kieff’s paper (and our own comments in the Certain Alloy and Carbon Steel Products investigation) make clear, there are also a number of relevant, practical distinctions between enforcement of the antitrust laws in a federal court in a case brought by a private plaintiff and an investigation of alleged anticompetitive conduct by the ITC under Section 337. Every one of these cuts against importing an antitrust injury requirement from federal court into ITC adjudication.

Instead, understandable as its motivation may be, the ITC majority’s approach in Certain Alloy and Carbon Steel Products requires disregarding Congressional intent, and that’s simply not a tenable interpretive approach for administrative agencies to take.

Protectionism is a terrible idea, but if that’s how Congress wrote the Tariff Act, the ITC is legally obligated to enforce the protectionist law it is given.

Public comments on the proposed revision to the joint U.S. Federal Trade Commission (FTC) – U.S. Department of Justice (DOJ) Antitrust-IP Licensing Guidelines have, not surprisingly, focused primarily on fine points of antitrust analysis carried out by those two federal agencies (see, for example, the thoughtful recommendations by the Global Antitrust Institute, here).  In a September 23 submission to the FTC and the DOJ, however, U.S. International Trade Commissioner F. Scott Kieff focused on a broader theme – that patent-antitrust assessments should keep in mind the indirect effects on commercialization that stem from IP (and, in particular, patents).  Kieff argues that antitrust enforcers have employed a public law “rules-based” approach that balances the “incentive to innovate” created when patents prevent copying against the goals of competition.  In contrast, Kieff characterizes the commercialization approach as rooted in the property rights nature of patents and the use of private contracting to bring together complementary assets and facilitate coordination.  As Kieff explains (in italics, footnote citations deleted):

A commercialization approach to IP views IP more in the tradition of private law, rather than public law. It does so by placing greater emphasis on viewing IP as property rights, which in turn is accomplished by greater reliance on interactions among private parties over or around those property rights, including via contracts. Centered on the relationships among private parties, this approach to IP emphasizes a different target and a different mechanism by which IP can operate. Rather than target particular individuals who are likely to respond to IP as incentives to create or invent in particular, this approach targets a broad, diverse set of market actors in general; and it does so indirectly. This broad set of indirectly targeted actors encompasses the creator or inventor of the underlying IP asset as well as all those complementary users of a creation or an invention who can help bring it to market, such as investors (including venture capitalists), entrepreneurs, managers, marketers, developers, laborers, and owners of other key assets, tangible and intangible, including other creations or inventions. Another key difference in this approach to IP lies in the mechanism by which these private actors interact over and around IP assets. This approach sees IP rights as tools for facilitating coordination among these diverse private actors, in furtherance of their own private interests in commercializing the creation or invention.

This commercialization approach sees property rights in IP serving a role akin to beacons in the dark, drawing to themselves all of those potential complementary users of the IP-protected-asset to interact with the IP owner and each other. This helps them each explore through the bargaining process the possibility of striking contracts with each other.

Several payoffs can flow from using this commercialization approach. Focusing on such a beacon-and-bargain effect can relieve the governmental side of the IP system of the need to amass the detailed information required to reasonably tailor a direct targeted incentive, such as each actor’s relative interests and contributions, needs, skills, or the like. Not only is amassing all of that information hard for the government to do, but large, established market actors may be better able than smaller market entrants to wield the political influence needed to get the government to act, increasing risk of concerns about political economy, public choice, and fairness. Instead, when governmental bodies closely adhere to a commercialization approach, each private party can bring its own expertise and other assets to the negotiating table while knowing—without necessarily having to reveal to other parties or the government—enough about its own level of interest and capability when it decides whether to strike a deal or not.            

Such successful coordination may help bring new business models, products, and services to market, thereby decreasing anticompetitive concentration of market power. It also can allow IP owners and their contracting parties to appropriate the returns to any of the rival inputs they invested towards developing and commercializing creations or inventions—labor, lab space, capital, and the like. At the same time, the government can avoid having to then go back to evaluate and trace the actual relative contributions that each participant brought to a creation’s or an invention’s successful commercialization—including, again, the cost of obtaining and using that information and the associated risks of political influence—by enforcing the terms of the contracts these parties strike with each other to allocate any value resulting from the creation’s or invention’s commercialization. In addition, significant economic theory and empirical evidence suggests this can all happen while the quality-adjusted prices paid by many end users actually decline and public access is high. In keeping with this commercialization approach, patents can be important antimonopoly devices, helping a smaller “David” come to market and compete against a larger “Goliath.”

A commercialization approach thereby mitigates many of the challenges raised by the tension that is a focus of the other intellectual approaches to IP, as well as by the responses these other approaches have offered to that tension, including some – but not all – types of AT regulation and enforcement. Many of the alternatives to IP that are often suggested by other approaches to IP, such as rewards, tax credits, or detailed rate regulation of royalties by AT enforcers can face significant challenges in facilitating the private sector coordination benefits envisioned by the commercialization approach to IP. While such approaches often are motivated by concerns about rising prices paid by consumers and direct benefits paid to creators and inventors, they may not account for the important cases in which IP rights are associated with declines in quality-adjusted prices paid by consumers and other forms of commercial benefits accrued to the entire IP production team as well as to consumers and third parties, which are emphasized in a commercialization approach. In addition, a commercialization approach can embrace many of the practical checks on the market power of an IP right that are often suggested by other approaches to IP, such as AT review, government takings, and compulsory licensing. At the same time this approach can show the importance of maintaining self-limiting principles within each such check to maintain commercialization benefits and mitigate concerns about dynamic efficiency, public choice, fairness, and the like.

To be sure, a focus on commercialization does not ignore creators or inventors or creations or inventions themselves. For example, a system successful in commercializing inventions can have the collateral benefit of providing positive incentives to those who do invent through the possibility of sharing in the many rewards associated with successful commercialization. Nor does a focus on commercialization guarantee that IP rights cause more help than harm. Significant theoretical and empirical questions remain open about benefits and costs of each approach to IP. And significant room to operate can remain for AT enforcers pursuing their important public mission, including at the IP-AT interface.

Commissioner Kieff’s evaluation is in harmony with other recent scholarly work, including Professor Dan Spulber’s explanation that the actual nature of long-term private contracting arrangements among patent licensors and licensees avoids alleged competitive “imperfections,” such as harmful “patent hold-ups,” “patent thickets,” and “royalty stacking” (see my discussion here).  More generally, Commissioner Kieff’s latest pronouncement is part of a broader and growing theoretical and empirical literature that demonstrates close associations between strong patent systems and economic growth and innovation (see, for example, here).

There is a major lesson here for U.S. (and foreign) antitrust enforcement agencies.  As I have previously pointed out (see, for example, here), in recent years, antitrust enforcers here and abroad have taken positions that tend to weaken patent rights.  Those positions typically are justified by the existence of “patent policy deficiencies” such as those that Professor Spulber’s paper debunks, as well as an alleged epidemic of low quality “probabilistic patents” (see, for example, here) – justifications that ignore the substantial economic benefits patents confer on society through contracting and commercialization.  It is high time for antitrust to accommodate the insights drawn from this new learning.  Specifically, government enforcers should change their approach and begin incorporating private law/contracting/commercialization considerations into patent-antitrust analysis, in order to advance the core goals of antitrust – the promotion of consumer welfare and efficiency.  Better yet, if the FTC and DOJ truly want to maximize the net welfare benefits of antitrust, they should undertake a more general “policy reboot” and adopt a “decision-theoretic” error cost approach to enforcement policy, rooted in cost-benefit analysis (see here) and consistent with the general thrust of Roberts Court antitrust jurisprudence (see here).

by Hon. F. Scott Kieff, Commissioner, International Trade Commission (on leave from academic post as Fred C. Stevenson Research Professor at George Washington University School of Law)

I join all the others in congratulating Professor Wright on his accomplishments at the FTC. As both an academic and government official myself, I’ve long benefited from Dr. Wright’s work in academia and in government. I’ve also greatly enjoyed a ring-side view of the his upbeat and thoughtful manner for constructively engaging the diverse perspectives offered by personnel across the government, academic, and private sectors. Thanks to President Obama’s nomination and the Senate’s confirmation, Commissioner Wright consistently brought to bear a most serious and productive set of carefully considered ideas in both law and economics that he prudently adapted for helpful real world application. I thank Commissioner Wright for all that he has given to our country, and I wish him all continued success in the many important academic endeavors to which he has returned.

Our book, Competition Policy and Patent Law Under Uncertainty: Regulating Innovation will be published by Cambridge University Press in July.  The book’s page on the CUP website is here.

I just looked at the site to check on the publication date and I was delighted to see the advance reviews of the book.  They are pretty incredible, and we’re honored to have such impressive scholars, among the very top in our field and among our most significant influences, saying such nice things about the book:

After a century of exponential growth in innovation, we have reached an era of serious doubts about the sustainability of the trend. Manne and Wright have put together a first-rate collection of essays addressing two of the important policy levers – competition law and patent law – that society can pull to stimulate or retard technological progress. Anyone interested in the future of innovation should read it.

Daniel A. Crane, University of Michigan

Here, in one volume, is a collection of papers by outstanding scholars who offer readers insightful new discussions of a wide variety of patent policy problems and puzzles. If you seek fresh, bright thoughts on these matters, this is your source.

Harold Demsetz, University of California, Los Angeles

This volume is an essential compendium of the best current thinking on a range of intersecting subjects – antitrust and patent law, dynamic versus static competition analysis, incentives for innovation, and the importance of humility in the formulation of policies concerning these subjects, about which all but first principles are uncertain and disputed. The essays originate in two conferences organized by the editors, who attracted the leading scholars in their respective fields to make contributions; the result is that rara avis, a contributed volume more valuable even than the sum of its considerable parts.

Douglas H. Ginsburg, Judge, US Court of Appeals, Washington, DC

Competition Policy and Patent Law under Uncertainty is a splendid collection of essays edited by two top scholars of competition policy and intellectual property. The contributions come from many of the world’s leading experts in patent law, competition policy, and industrial economics. This anthology takes on a broad range of topics in a comprehensive and even-handed way, including the political economy of patents, the patent process, and patent law as a system of property rights. It also includes excellent essays on post-issuance patent practices, the types of practices that might be deemed anticompetitive, the appropriate role of antitrust law, and even network effects and some legal history. This volume is a must-read for every serious scholar of patent and antitrust law. I cannot think of another book that offers this broad and rich a view of its subject.

Herbert Hovenkamp, University of Iowa

With these contributors:

Robert Cooter, Richard A. Epstein, Stan J. Liebowitz, Stephen E. Margolis, Daniel F. Spulber, Marco Iansiti, Greg Richards, David Teece, Joshua D. Wright, Keith N. Hylton, Haizhen Lee, Vincenzo Denicolò, Luigi Alberto Franzoni, Mark Lemley, Douglas G. Lichtman, Michael Meurer, Adam Mossoff, Henry Smith, F. Scott Kieff, Anne Layne-Farrar, Gerard Llobet, Jorge Padilla, Damien Geradin and Bruce H. Kobayashi

I would have said the book was self-recommending.  But I’ll take these recommendations any day.

My colleague Tom Hazlett and his Information Economy Project at GMU is putting on a wonderful conference this week.  The public event is a debate between Michael Heller and Richard Epstein on the Gridlock Economy.  Following that event is an academic conference including: Harold Demsetz, Michael Meurer, F. Scott Kieff, Adam Mossoff, Kevin Werbach, Thomas Hazlett, Gerald Faulhaber, Doug Lichtman, Robert Merges and Chris Newman.

gridlock_dotsbadgeThe conference agenda is available here and includes what should be a wonderful keynote from one of my UCLA advisors, Harold Demsetz, on “Transaction Cost Tragedies.”

The conference announcement describes the event as follows:

This event will explore a paradox that broadly affects the Information Economy. Property rights are essential to avoid a tragedy of the commons; defined properly, such institutions yield productive incentives for creation, conservation, discovery and cooperation.  Applied improperly, however, such rights can produce confusion, wasteful rent-seeking, and a tragedy of the anti-commons.

This conference, building on Columbia University law professor Michael Heller’s book, The Gridlock Economy, tackles these themes through the lens of three distinct subjects: “patent thickets,” reallocation of the TV band, and the Google Books copyright litigation.

Disclosure: I am a Senior Fellow at the Information Economy Project.  But don’t hold that against them.  Check out the conference!

UPDATE 3:  It just keeps getting better.  Now we’ve added Mike Baye, formerly Director of the Bureau of Economics at the FTC, now returned to his post at Indiana.  He’ll be moderating and I’m sure commenting on many of the papers. 

UPDATE 2: And now Susan DeSanti, newly-appointed Director of the Office of Policy and Planning at the FTC has signed on for our industry/regulator roundtable.  A not-to-be-missed event! 

UPDATE:  We’re delighted to announce that Bill Kovacic will be joining us to deliver the conference’s morning keynote, as well.  A great conference just got even better!

 For the third year, Josh and I have organized the annual George Mason Law School/Microsoft Conference on the Law and Economics of Innovation.  The conference is at the Arlington Hilton on May 7; registration is free. 

This year’s conference is on “Online Markets vs. Traditional Markets,” and once again we have a stellar line-up.  The (beautifully re-designed) conference website is here.  You can register for the conference here

This year features a keynote address from Susan Athey (Harvard Economics; Clark Medal winner), as well as the following presentations:

Peter Klein (Missouri Economics)– Does the New Economy Need a New Economics?
Thomas W. Hazlett (George Mason Law) – The Role of Exclusive Spectrum Rights in Wireless Network Innovations: Of Newtons, Blackberries, iPhones & G-Phones
Eric Goldman (Santa Clara Law) – The Economics of Reputational Information

Florencia Marotta-Wurgler (NYU Law) – Does Anyone Read Fine Print? A Test of the Informed Minority Hypothesis
Howard Beales (George Washington Business) – Public Goods, Private Information, and Anonymous Transactions: Providing a Safe and Interesting Internet
Peter Swire (Ohio State Law) – Privacy and Antitrust

Philip J. Weiser (Colorado Law; DOJ)— Re-evaluating the Theory and Realities of Online Contracts
Randal C. Picker (Chicago Law) — The Mediated Book
F. Scott Kieff (Wash U. Law (moving to George Washington Law)) — Commerce in the Shadow of the Commons: Business Models in Cyberspace

We’ll also have an industry roundtable to reflect on the day with representatives from Microsoft, Amazon and Facebook.

Should be a great conference–Please join us!

This post is from F. Scott Kieff (Wash U./ Hoover)

I, too, join the rest of the participants in congratulating Michael Carrier on this great book about this great topic.  I have enjoyed reading Michael’s work in the past and I enjoyed meeting him at a conference last year.  He is a wonderfully warm, bright, and engaging person.  Although I wish that I had more of an opportunity to fully read his impressive text before the date of this on-line symposium, I am grateful for the opportunity to read a great deal of the book and to at least skim the remainder.  The wonderful conference that Damien Geradin and his colleagues hosted on these same issues in Amsterdam these past few days was a pleasant distraction.  (For Damien’s conference click here).

Because I share everyone’s support for Michael and his new book, as already detailed by others, I will focus my contribution here on some ways in which the book might have been able to achieve a greater impact.  Recognizing that every project could be improved in some ways, and that ultimately the author must make the difficult choices between completeness and clarity, about his own voice and message, etc, I offer my comments on the chance that those who read Michael’s great book might wonder whether there happens to have been or remain different approaches to the ideas he explores.

As it turns out, the interface between patents and antitrust was one of the two central motivators behind the present US patent statutes, which were codified as the 1952 Patent Act.  In fact, one of the two principle drafters of the ’52 Act, Giles Rich, wrote a series of five articles in the 1940’s that bear a title not unlikely to show up in a computer search on this topic.  (The other principle drafter who also wrote a great deal about the statute was Pat Federico).  And while the 1940’s were indeed a long time ago, because Giles Rich went on to be the longest sitting federal judge, the world’s most famous patent scholar and jurist, the widely recognized father of the modern American Patent System, and a judge on the court that hears most patent appeals, these papers were conveniently republished in a 2004-2005 volume of the Federal Circuit Bar Journal.  The citation is:  Giles S. Rich, “The Relation Between Patent Practices and the Anti-Monopoly Laws,” 14 Fed. Circuit B.J., at pages 5, 21, 37, 67, and 87 (2004-2005).  (The other articles by Judge Rich that are republished in that volume also are instructive on the points explored in Michael’s book).

Judge Rich explored an approach that is focused on predictable validity and enforcement rules rather than the more flexible approaches advocated by Michael (and many others).  Rich was not alone.  His approach was followed in the writings of a diverse group of leading commercial jurists at the time like Learned Hand and Jerome Frank.  (It is worth noting for reasons explored below that if using modern political labels, Judge Frank would be seen as a liberal populist).

The judiciary was not the only branch of government to follow Rich’s view.  Rich provided extensive explicit testimony before Congress about the goals of the ’52 Act in re-aligning the interface between patents and antitrust and in creating an objective standard for determining patent validity.   Congress agreed with the approach he offered in his testimony when it voted for the statute.  The Supreme Court in turn expressly and extensively relied on that legislative history, and especially Judge Rich’s testimony, in the well-known Dawson decision on patents and antitrust in 1980.  That approach was also affirmed by the current Supreme Court in the ITW v. III case. 

As Judge Pauline Newman has reminded on several occasions in law review articles and speeches, we can fast forward to the late 1970’s, when the economy was in difficult times, like it was in the 1940’s and is today, to see that a very diverse pair of US Presidents decided to also adopt an approach to patents like that urged by Rich, Federico, Hand, Frank, and others.  President Carter decided, after a careful study, to put forth a statute designed to strengthen the patent system by creating the Federal Circuit, and President Reagan signed the bill after Congress passed it.

For the past several years, there has been a number of academics writing about this approach to patents – an approach that might be seen as focused on the theory of property more generally (as compared with just intellectual property).  The group includes Richard Epstein, Steve Haber, Troy Paredes (now on leave from this academic work), Henry Smith, Joseph Straus, David Teece, Polk Wagner, Josh Wright, and me (these folks listed so far have worked together on a range of recent works arising out of the Hoover Project on Commercializing Innovation), as well as Michael Abramowicz, John Duffy, and Adam Mossoff.  While a recent posting on Patently-O labels one of these folks listed here (me) as “conservative,” it is not clear what is meant by that term.  If the term is given its normal modern political meaning then it is curious to note that Charles Burson, Al Gore’s former Chief of Staff, co-authored one the recent opinion pieces I helped put together on patent reform, since it is not clear that he would fit that definition of the term.  Then again, this is an approach also advocated by President Carter and Jerome Frank, who also don’t easily fit the modern political use of the term conservative.  Put differently, the issues don’t break down nicely along mainstream political lines.  Nor do most people for that matter.  Nor do folks break down along lines of being pro patent or anti-patent.  These issues are more complex.  And so is any good academic. 

The most direct reason why it makes sense to go though all of this intellectual history, naming all of these names of folks who have written about the topics Michael explores (but in a different way than he does), is that Michael’s book does not seriously address any of them or their work.  Indeed, Michael has confirmed that his book doesn’t cite to or even mention most of these names or their work.  And the few times when he does mention some of them, it is in a very minor way, for propositions that are uncontroversial and different from the potential areas of debate they would have with him.  Two notable exceptions, which I appreciate, are Joseph Straus and me.   Michael mentions me once in a short catalog of different approaches to patent theory.  And while he does mention one or two of Joseph’s pieces that have discussed a lack of evidence of a patent hold up problem in the European biotechnology setting, and Michael seems to conclude in that section of his book that patents have posed less of a problem for basic science than some might have feared, he still concludes that “A few high-profile lawsuits against researchers would knock out the scaffolding currently supporting this precarious state of affairs.”  What is so precarious about this state of affairs and why would a few lawsuits disrupt it?  A few airlines crash once in a while and yet the airline sector still does business and people who elect for safety reasons to drive over taking commercial flights are generally not seen as acting in a sufficiently rational way to drive prudent policy on the issue.  Rather than trying to sit as a seemingly neutral judge weighing the empirical evidence Michael elects to discuss in this part of the book, a reader might want to know more about the reasons why patent hold up in this area is not a big issue (and why an “experimental” or “fair” use exception may be) and the book would have made a greater impact in this area if it had addressed more of that work. 

The bottom line is that while Michael has good reasons for not engaging the body of work discussed here, readers might like to at least know about the work, as well as the history, so that they can make up their own minds about these issues after due consideration of the range of views.  For those who are interested, much of it is available for free download on the web at 

A more indirect reason why it matters to consider these other views is that many of them apply a form of comparative institutional analysis generally associated with the field of New Institutional Economics.  In addition to taking seriously the transaction cost problems of property rights that underlie a big part of Michael’s analysis, this comparative approach also takes seriously the political economy problems that underlie how government actors will apply different decision-making rules.  Application of this comparative analytical framework highlights some of the complexities of the more flexible approaches Michael recommends in his book. 

For example, when it comes to dealing with the problem of bad patents (and there are many such patents – ones that don’t really meet the requirements for validity but have nonetheless been issued by the PTO), Michael endorses the currently-popular proposals for more flexible approaches to weeding out.  These proposals generally go by several names including “second window,” “opposition,” “reexamination,” etc.  In his words:

“An added bonus of the proposal would be its effect on antitrust. By providing a low-cost avenue to remove invalid patents, it would reduce the incidence of market power”

But as economists love to say, there is no such thing as a free lunch.  Faster and less financially expensive proceedings for policing bad patents are not without their costs.  The way they go faster and burn fewer dollars per hour in attorney time is that they allow an official actor, whether in the PTO or the courts, the flexibility and discretion to deny patents based on a subjective report about what was within the skill of those in the prior art, rather than the objective and more-fact-based inquiry into the contents and existence of actual laboratory notebooks, printed publications, and sample products which has been the rule since the 1952 Act. 

Flexibility sounds cool – who wants to be rigid? – but it has a significant Achilles heel.  Giving courts and examiners a pass from having to get the hard evidence that used to be required to prove invalidity over the prior art does not come without serious cost. Asking a decision maker to use her legal or technical expertise as the primary basis for her decision about what she thinks the state of the art was at a particular time in history gives her greater discretion than asking an ordinary jury whether a particular document or sample product existed at a particular time and what that document actually contains. By increasing the discretion of government bureaucrats, flexibility increases uncertainty, not decreases it, and it gives a built-in advantage to large companies with hefty lobbying and litigation budgets. That may be a big reason why some big firms want it, but what’s good for some big businesses is not always good for business overall.

Indeed, while much is made about the uncertainty of patents – it’s all the rage today – one of the central problems with many of the legal changes that Michael proposes is that these changes inject into the patent system a much greater uncertainty, and an uncertainty of a much more pernicious type.  Business can deal well with factual uncertainty – in fact many forms of business thrive on it (think options, futures, insurance, etc) – but the one type of uncertainty that is particularly bad for business overall is the uncertainty caused by having the underlying legal rules of the game enforced as a function of fashion and politics. But this is what you get when the enforcement mechanism (the details of the particular framework of the legal institutional design) are matters of flexible discretion. 

And to take things back to where they started, we have already run this experiment in this country.  The relevant legal framework for adjudicating patentability before the 1952 Act was that courts were asked to determine whether a patented invention constituted an “invention.”  A bit of a tautology.  And very flexible. 

The drafters of the 1952 Act did not think that the words “obviousness” and “nonobviousness” were any clearer, on their face.  But they picked these words precisely because they wanted to jettison the interpretive baggage associated with the old legal framework and create a new body of case law that focused on more objective factors. 

History can sometimes offer us some good ideas; and while we often like to emphasize the importance of invention, our efforts to re-invent our legal thinking in this area without the benefit of that historical wisdom may not play out so well. 

Symposium Halftime

Josh Wright —  30 March 2009

We’re halfway through the TOTM symposium on Professor Carrier’s Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law.  I’ve provided links to Monday’s posts on the book related to antitrust issues:

The comments to those posts are still live.  So feel free to get in there and mix it up.

In the meantime, Tuesday morning we’ll start on the IP side of things with posts from: Dennis Crouch (Patently-O/Missouri), Brett Frischmann (Cornell/ Loyola), and F. Scott Kieff (Wash U./ Hoover) and then close up by giving Professor Carrier the floor to respond to both sets of posts, comments, and just about anything else.

Welcome to the first TOTM Blog Symposium.  This is a format we hope to make more use of on TOTM in the future and we’ve got an ideal project to start with.  For the next two days (and maybe three) we’ll be discussing Professor Michael Carrier’s (Rutgers) forthcoming book: Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law.  We’ve invited a number of leading commentators in both intellectual property and antitrust law to contribute to the symposium.  I’m thrilled that each has agreed to participate.  The lineup includes: Dan Crane (University of Chicago/ Cardozo), Geoff Manne (TOTM/LECG), Phil Weiser (Colorado), Dennis Crouch (Patently-O/Missouri), Brett Frischmann (Cornell/ Loyola), F. Scott Kieff (Wash U./ Hoover/ and on his way to GW), Mike Carrier, and me.

The format will be as follows.  Today we’ll have posts from Crane, Manne, Weiser, and Wright on aspects of Innovation for the 21st Century which focus on competition policy.  Tomorrow, Professors Frischmann, Kieff, and Crouch will focus on the intellectual property related proposals.  Professor Carrier will have the opportunity to respond to the posts Tuesday evening or Wednesday.  And of course, we hope that both participants and our normal group of high quality commentators will find some time to mix it up in the comments.  The participants have been given broad leeway to discuss general themes in Carrier’s work or hone in on specific policy proposals.

With the formalities out of the way, you can expect the first of Monday’s posts to start in the early morning and then we’ll add throughout the day with posts from Crane, Manne, and Wright.

See you soon.

On March 30th and 31st, TOTM will hold its first blog symposium.  The topic will be Michael Carrier’s (Rutgers) forthcoming book: Innovation for the 21st Century: Harnessing the Power of Intellectual Property and Antitrust Law (from Oxford University Press).


We’ve invited a number of leading scholars from the fields of antitrust and intellectual property to comment on Professor Carrier’s book.  Here is a description of the book’s contents from Professor Carrier:

Innovation for the 21st Century offers ten proposals, from pharmaceuticals to peer-to-peer software, that will help foster innovation.  Of the ten proposals, three target antitrust topics that may be of interest to your readers: (1) settlement agreements between brand and generic firms in the pharmaceutical industry, (2) an innovation-markets framework to be applied to pharmaceutical mergers in which the “products” are in preclinical or clinical trials, and (3) standard-setting.  The book also offers a primer on patent, copyright, and antitrust law, as well as the IP-antitrust intersection.

On Monday, March 30th, we will focus primarily on the antitrust aspects of Carrier’s proposals.  The four discussants will be: Dan Crane (University of Chicago/ Cardozo), Geoff Manne (TOTM/LECG), Phil Weiser (Colorado), and yours truly.

On Tuesday, March 31st, we will focus primarily on the intellectual property aspects of Carrier’s work.  The three discussants will be:  Dennis Crouch (Patently-O/Missouri), Brett Frischmann (Cornell/ Loyola), and F. Scott Kieff (Wash U./ Hoover/ and on his way to GW).

On Tuesday afternoon or Wednesday morning (depending on the length of the posts), Carrier will post a response.  In the meantime, I do hope that the participants, Professor Carrier, our normal cadre of excellent commenters will mix it up in the comments throughout (mix it up, of course, in the civil and respectful tone that we usually see here).

I want to thank this great lineup of antitrust and IP scholars for agreeing to participate.  It should be a lot of fun.

The symposium will be a joint production, thanks to Dennis Crouch, with posts going up both here and Patently-O.

More details to be announced soon. For now, buy the book!  See you on March 30th and 31st.