Vertical Restraints and Intellectual Property Law: Beyond Antitrust

Abstract

This Article describes how intellectual property (IP) law regulates six types of vertical restraints: restrictions on the field or location of use; restrictions on sharing; control over the frequency of use; restrictions on repair and modification; packaging requirements; and impediments to a buyer's decision to exit its relationship with a seller. There are three reasons to focus on IP oversight of vertical restraints separately from antitrust oversight. First, IP law covers a broader range of vertical restraints. Second, economic analysis of the antitrust-IP conflict focuses mainly on the potential of vertical restraints to exclude downstream competitors. IP doctrines that regulate vertical restraints raise additional policy concerns including whether IP law should aid a seller's attempt to control: the economic life of a durable good; sharing of copyrighted works and patented technology; arbitrage that undermines price discrimination; or a buyer's exit decision. Third, because IP law uses different policy instruments it possibly offers more effective regulation of vertical restraints, and should be used to complement antitrust regulation. IP doctrines that discourage vertical restraints generally cause smaller rent-seeking problems than antitrust doctrines with a similar effect. IP rules that provide background entitlements are relatively clear compared to antitrust rules which require uncertain rule of reason analysis. Furthermore, IP prohibitions that are implemented through preemption or misuse do not give rise to treble damages, and can only be used defensively. In contrast, broad antitrust regulation of vertical restraints creates a threat of opportunistic suits because of uncertainty, the lure of treble damages, and the possibility of initiating an opportunistic or anti-competitive suit against a vulnerable defendant.