Do We Always Favour Dynamic Competition over Static Price Competition when Excluding Imitation?

Transcription

1 Max Planck Institute for Intellectual Property and Competition Law Do We Always Favour Dynamic Competition over Static Price Competition when Excluding Imitation? Josef Drexl 3 March Introduction (1) The title of the conference: An anti IP statement? Rather: (1) Asking an unconventional question (2) Launching a more sophisticated and differentiated debate Who is afraid of killing the sacred cow? (3) Revisiting our way of thinking about IP (4) Improving policy making How we should do it? From economic insights to normative conclusions Possible methodology: Using competition analysis as an intermediary between economics and the law and an instrument to better understand IP markets But: Industrial organization economists are not very good in assessing the effects of IPRs 2 1

2 2 The conventional wisdom of competition lawyers (1) Two general observations: (1) Complementarity of IP law and competition law Distinction between competition by imitation and competition by substitution IPRs do two things: (i) exclude competition by imitation and (ii) thereby promote competition by substitution (i.e. innovation) Conclusion: Pro competitive character of IPRs! Reason: They promote innovation through excluding imitation 3 2 The conventional wisdom of competition lawyers (2) Two general observations: (2) Competition law can only protect price competition Assumption: Imitation = price competition Exclusivity = dynamic competition (innovation) Conclusion: If competition law enforcers restrict IP, they will inevitably enhance price competition and harm innovation Never intervene in IPRs!! See: US DoJ Antitrust Monopoly Report 2008 (officially withdrawn 2009) 4 2

3 3 Asking unconventional questions Two very general questions: Does exclusivity always promote innovation? Does imitation always reduce incentives to innovate? Breaking these questions down by revisiting: The innovation paradigm: IPRs protect innovation Can we equate the subject matter of protection with innovation? The incentive paradigm: IPRs create incentives for innovation Why do firms invest in innovation? IP as property or as a business tool? The imitation v. innovation paradigm: Imitation reduces innovation What are the effects of imitation on the incentives to invest in innovation? 5 4 Revisiting the innovation paradigm (1) Do IPRs protect innovation? Can the subject matter of protection be equated with innovation? Terminological clarity needed: The subject matter of protection is defined by law, while innovation is term used in economics Never confuse a legal concept with a term used in economics! e.g.: never call an IP right a monopoly rights. IPRs are exclusive rights! And never call an invention an innovation! 6 3

4 4 Revisiting the innovation paradigm (2) Ask Wikipedia and you may get it right or wrong! Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. 7 4 Revisiting the innovation paradigm (2) Ask Wikipedia and you may get it right or wrong! Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. 8 4

5 4 Revisiting the innovation paradigm (2) Ask Wikipedia and you may get it right AND wrong! Innovation is the creation of better or more effective products, processes, services, technologies, or ideas that are accepted by markets, governments, and society. Innovation differs from invention in that innovation refers to the use of a new idea or method, whereas invention refers more directly to the creation of the idea or method itself. 9 4 Revisiting the innovation paradigm (3) Conclusion (1) Innovation = a term of economics that describes a process from the generation of an idea to the product that reaches and is accepted by the consumer (2) Subject matter of IP protection = legally defined intermediary achievements in the innovation process, rather than the process itself (3) Many different IPRs may be lined up on the innovation chain! (4) Many people contribute to the innovation process without being rightholders! 10 5

6 4 Revisiting the innovation paradigm (3) The killing of the sacred cow If all persons who participate also imitators who enhance the in the innovation process creation and distribution of better are innovators, products will have to be considered innovators Example: Online distribution of music Also the provider of P2P file sharing software is an innovator as regards the distribution of music. The example shows that there can be conflicting interests of innovators in the innovation chain. The copyright legislature should also care about incentives to innovate in the distribution industry (e.g.: OLG Düsseldorf v. OLG Hamburg on Rapidshare) 11 5 Revisiting the incentive paradigm (1) Do IPRs create incentives for innovation? A critique: (1) When we talk about incentives we are talking about economic incentives (2) It is not the IPR that pays but the market. Right holders can only recoup their investment if the subject matter of protection is valued by consumers as input in marketable products (3) IPRs do not aim at enabling rightholders to recoup their investment, but to grant them a business opportunity to recoup their investment in the market in competition with other firms (4) Innovation as better products appreciated by consumers is not identified by IP law but competition in the market (dynamic competition) 12 6

7 5 Revisiting the incentive paradigm (2) Policy conclusions (1) IPRs improve business opportunities of rightholders and raise the likelihood that they will invest in innovation. But excessive protection may harm the incentives of other actors in the innovation chain to invest in innovation (2) The incentive trade off : IP law should abstain from protection if protection harms incentives to innovate of other actors in the innovation chain than it produces incentives for innovate for the rightholder (3) Competition law may intervene in IPRs with the aim of protecting dynamic competition, i.e. of preventing rightholders from lowering the incentives of other players to innovate This may include, for instance, a duty to license (see incentives balancing approach, European Microsoft case) 13 6 Revisiting the imitation v. innovation paradigm (1) Does imitation always reduce innovation? Critique: (1) Licensing allows imitation and, at the same time, increases incentives for innovation of both the rightholder and the licencee Licensors can recoup investment in innovation more easily Licencees as distributors and potential follow on innovators (2) It is not the imitation by itself that reduces incentives of the rightholder to innovate, but the impairment of the business opportunities to recoup its investment where imitation takes place without consent and remuneration 14 7

8 6 Revisiting the imitation v. innovation paradigm (2) Does imitation always reduce innovation? Policy conclusions: (1) In favour of a pro active paradigm shift in politics: From counterfeiting & piracy to licensing (2) Changes to the exclusivity paradigm in the following cases (a) Unnecessary IP protection (design protection for spare parts) (b) Property owner v. innovator (Patent trolls; US Supreme Court in ebay) (c) Weaker v. stronger innovator (European courts in Magill and Microsoft) (d) IPRs acquired with the only purpose of disturbing incentives to innovate of others (EU Commission in Boehringer Ingelheim) 15 6 Revisiting the imitation v. innovation paradigm (3) An interesting case for discussion: In re Quimonda (U.S. Bankruptcy Ct. E.D. Va. 10 Oct. 2011): Facts: Court: Insolvency of a German firm holding, among others, U.S. patents in chip technology. The German administrator of the insolvency wants to terminate non exclusive licences with the objective of reaching higher prices when selling the patents. U.S. public order v. applicability of German insolvency law The German rule would create uncertainty and reduce incentives of licencees to invest in making full use of the invention and thereby reduce innovation (imitation has to IP) 16 8

9 7 Conclusion (1) Imitators are innovators and imitation is part of the innovation process! Most important question: How do we achieve optimal imitation as part of maximising the innovation trade off Do not generally replace exclusivity by liability rules!! Imitation usually constitutes a win win situation for rightholders and users (imitators). Exclusivity creates a market for the subject matter of protection for identifying the appropriate price for the subject matter Policy principle 1: The law should favour market solutions for consensual imitation (patent pools, collective management of copyrights, licensing in general) Policy principle 2: Exclusion of imitation does not always create a positive trade off for innovation and, therefore, the law sometimes has to limit exclusivity with the objective of promoting dynamic competition and innovation (2) Owners of IPRs are not necessarily innovators Think carefully when replacing the regulation paradigm of IP by a broad property paradigm 17 And now, it is for you to agree or to disagree. 18 9