Nonbanks in the Payments System: Vertical Integration Issues
AbstractWe examine the intersection of patents and antitrust where a patent holder uses the monopoly power it possesses in the market for a patented product to exclude competitors in an adjacent market and attempt to monopolize or monopolize the adjacent market. The present scheme for awarding patents cannot judge when the issuance of a patent will lead to the appropriate balance between innovation and efficiency. Where a patent holderâs invention uses an interface with adjacent products, the patent holder may be tempted to extend its patent monopoly into adjacent markets that depend upon the interface with the patented invention. Economic theory suggests that it is inappropriate to immunize a patent holder from antitrust liability when it attempts to extend its patent monopoly into adjacent markets, because it could decrease consumer surplus. Courts have expressed their reluctance to scrutinize a patent holderâs innovations and design changes, because of the potential benefits of the innovations and their reluctance to second-guess the marketplace. However, applying traditional antitrust principles, courts have found that monopolists could be liable for unlawfully extending their monopoly positions into adjacent markets in the areas of computer peripherals and software applications; aftermarkets for replacement parts, service and maintenance of durable goods; design changes to medical devices; and changes in drug formulas. While the patent laws provide a spur to innovation by granting limited monopoly rights, the antitrust laws curb the excessive reach of these monopoly rights by acting as a check on excessive expansion of the scope of the patent grant.
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Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 07-23.
Date of creation: 2007
Date of revision:
Contact details of provider:
Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
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Other versions of this item:
- Nicholas Economides & William N. Hebert, 2007. "Patents and Antitrust: Application to Adjacent Markets," Working Papers 07-07, NET Institute, revised Aug 2007.
- K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- Q34 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Natural Resources and Domestic and International Conflicts
- L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts
- L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-09-30 (All new papers)
- NEP-COM-2007-09-30 (Industrial Competition)
- NEP-NET-2007-09-30 (Network Economics)
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