Anti-trust, but pro-innovation

Pratap Ravindran

According to Robert Pitofsky, while comprehensive empirical data is lacking, there is a widely-held view that markets in the New Economy are characterised by an increased rate of innovation, relative ease of entry and instability of market shares. Consequently, cartels and monopoly power in intellectual property markets will necessarily be short-lived and, in any event, will be ``defeated more quickly and efficiently by market forces such as new entry than by any band of bureaucrats.''

He told the conference: ``On average, market power probably is less durable in the hi-tech sector of the economy. As a result, it is unlikely that any dominant firm will eclipse competition for 50 years to the extent and in the way Alcoa dominated the aluminium market in the first-half of the 20th century. Nevertheless, we have seen that systems designed to encourage and protect innovation -- patents and copyrights -- can be and often are used to barricade a market against entry by new rivals. It also appears that network efforts occur more frequently in sectors of the economy characterised by intellectual property. Brand name recognition and reputation for reliability can create substantial advantages for incumbents. Finally, practices illegal under the anti-trust laws such as exclusionary conduct or intimidation tactics available only to very large firms can themselves impede entry by more efficient challengers. Market dominance for `only' 15 or 20 years can take enormous resources out of the economy and, by excluding innovative new entrants, foreclose alternative paths of technical development.''

How, then, can intellectual property rights be protected and innovation fostered without the erosion of consumer welfare?

According to Pitofsky, as in most other areas of anti-trust, most cases involving intellectual property that raise serious anti-trust problems are settled with conditions rather than litigated. ``Because areas of the economy characterised by intellectual property usually are dynamic rather than static, reliable predictions are difficult. This is a problem across-the-board, but it particularly applies to designing remedies that alleviate competitive problems without unduly interfering with innovation incentives.

He said that among the issues that need to be addressed are:

The need for caution among enforcement officials and courts in imposing remedial conditions so as not to undermine innovation;

The need for special attention to be given to the duration of orders, with duration often curtailed, because market changes in hi-tech markets with much intellectual property are likely to make those long-term orders obsolete if not downright harmful; and

The need, when network effects are present, for special attention to designing remedies that ensure reasonable access to the bottleneck product(s) or services(s).