IP and Antitrust (Competition Law) Prof. Matthew Sag Loyola University School of Law

IP Rights as a solution to some basic economic problems Many intellectual goods are expensive to make, but cheap to copy Ability to copy may lead to an under-production of innovative or creative goods or services

The ‘Solution’ of IP rights creates some further problems Rights not perfectly aligned with economic rationale Rights confer market power (sometimes) Fractured entitlements creates transaction costs

IP/Antitrust Common Issues IP ‘off the rails’ ‘bad patents’ Copyright over facts Functional trademarks Misuse of IP rights Spurious claims Anti-competitive settlements to game the regulatory system Post-term licensing Middle men with market power E.g. ASCAP, Patent Pools Lower transaction costs, but decrease some forms of competition

Google | Android According to the European Commission, Google is hindering the development of innovation, and market access for rival mobile operating systems, applications and services. Google made about $11 billion last year from advertising sales on Android phones

Google | Android | What’s the problem Android is free an open source, but it cost a lot to develop Google uses copyright and contract to … Maintain a cohesive ecosystem? Anti-Fragmentation Agreement Agreement to pre-install the whole Google bundle of apps Exclude rival open source mobile operating systems? Exclude rival apps?

Image © European Union.

Google invested in Android to protect Search – Incentive = Exclusion Other apps and search tools not shut out entirely (but defaults are sticky) Android is more open that Apple OS (But Apple is not a search engine) Concern with fragmentation is more than just a pretext The bundled products are designed to work together

Lessons from Microsoft Microsoft argued that its license restrictions we legally justified because, in imposing them, Microsoft was simply ‘exercising its rights as the holder of valid copyrights.’ U.S. courts gave some latitude to Microsoft where restrictions applied to look and feel of the desktop. But taken too far, this argument “… is no more correct than the proposition that use of one's personal property, such as a baseball bat, cannot give rise to tort liability.”

For More Information and to Stay in Touch Professor Matthew Sag Institute for Consumer Antitrust Studies Loyola University Chicago School of Law msag@luc.edu www.luc.edu/antitrust www.luc.edu/antitrust/globalcompetition