Intellectual property in the forms of inventions and processes are protected by patents, a government license or authority protecting the innovator from having their invention made, used, or sold without their permission. A good patenting system should encourage innovation by giving inventors financial motive, generating interest in investment in research, stimulating overall innovation and leading to progress. However, the manipulation and profiteering of the current patent system transforms patents into an anti-competition tool for corporations to increase their market share and often pushes the true goal of patents—to boost overall innovation—out of focus. To add onto the confusion, the very definition of a patent, an individual monopoly held over an invention, blurs the line between when patents do and do not violate antitrust law. Today, at the forefront of the patent and antitrust conversation are three key concerns, private patenting arrangements, patent quality, and patent trolling, all of which have the potential to pose antitrust concerns harmful to innovation and to the economy.\

The Problem with Anti-Competitive Markets
With the elimination of competition, corporations do not have to focus on making the best product at the best price possible. Instead, their market power allows them to control the price as desired, forcing consumers to bear inflated prices while innovation slows because of a lack of financial incentive to invest in research and development (R&D). Maintaining a level of competition is vital to the health of the economy by protecting consumers and encouraging companies to innovate and lower their prices. 

When Myriad Genetics patented two genes, BRCA1 and BRCA2, linked to breast and ovarian cancer, their patents allowed them to restrict other institutions from using and studying the genes. While the testing conducted by Myriad with use of the patents had benefits to patient health, the hefty $2,400 price tag deterred many, with only 22% of self-pay patients opting for testing (Cook-Deegan, Kieran). 

When the Supreme Court in Association for Molecular Pathology v. Myriad Genetics, Inc. suspended Myriad Genetics’s patents on the basis that genes are unpatentable, five other labs started offering testing that day, ending Myriad Genetics’s “gene monopoly” (Park). The added competition did not negatively impact innovation or drive investors to take back their funds, rather increasing R&D, quality of testing, and expanding availability of testing. 

Antitrust cases like Association for Molecular Pathology v. Myriad Genetics, Inc. protect consumers by “push[ing] courts to clarify recent doctrine” and acting as a “complement... for rules in regulated markets“ (Shelanski 1959). However, antitrust cases have decreased dramatically in recent decades: from 1970-1979, there were an average of 6.2 oligopoly and monopoly enforcement cases, with a peak of fifteen  in 1971, while in the last ten years, only one was filed in 2011 for an average of 0.1 cases per year ("Antitrust Division," "Antitrust Division"). Similarly, from 1970-1979, there were an average of 267.1 Sherman §1 (restraint of trade) investigations annually, while this number was a mere 39.4 investigations annually from 2010-2019. Civil non-merger actions and Federal Trade Commision non-merger antitrust enforcement actions also saw similar declines in the recent years.

Private Patenting Arrangements
Every year, hundreds of thousands of patents are filed and three quarters approved (Adam, Lemley). Especially in technology industries, companies today have amassed portfolios of thousands of patents, with one estimate of active patents per smartphone being nearly 250,000, making it virtually impossible to manufacture a new technology product without facing patent litigation on grounds of patent infringement ("Form S-1"). 

To compensate, many companies ally themselves by sharing their patents through private arrangements like cross-licensing, in which licenses two or more parties to use patented (or copyrighted) material in exchange for a similar license, or through patent pools, where two or more patent owners agree to license a patent or patents to one another or a third party. Such arrangements are widely used among many industries, with one study estimating that “cross-licensing accounts for 50% of all licensing arrangements in the telecommunications and broadcasting industry, 25% in the electronic components sector, and 23% in the pharmaceutical industry” (Jeon and Lefouili). 

Conducted with consideration to antitrust law and without the intent to hurt competition, cross-licensing and patent pools have a multitude of pro-competitive benefits, both to the corporation and to the economy. To corporations, such arrangements nullify the risk of patent litigation based upon patent infringement by clearing blocking patents, or patents that would cause other inventions to infringe on the earlier patent, while allowing for more efficient R&D. In particular, pooling two-way blocking patents, or patents that would require licenses from one another to be practiced, has pro-competitive benefits by allowing for more efficient production and development of a product. This allows for the creation of better and more effective products, giving such arrangements economic value. Thus, many companies have broad cross-licensing agreements and patent pools with Apple and Microsoft having broad cross-licensing arrangements from as far back as 1997, Google and SAP having long-term patent cross-licensing agreements on product and software patents, and Google and Samsung having arrangements lasting until 2024 (Jalfin).  

Cross-licensing on some occasions has been able to create a barrier for industry newcomers by blocking access to patents that, in some cases, are essential to businesses, hindering innovation and eliminating competition. Patent pools containing substitute, or competing, patents are a bigger antitrust concern, as while complementary patent pools have recognized benefits, including increased efficiency of innovation and ability to clear blocking patents, pools consisting of substitute patents pose antitrust concerns by allowing the patent holders to collude to create a duopoly (or oligopoly) allowing the setting of setting monopoly prices on an originally competitive market and dividing of markets. Smaller competitors, in such a scenario, must navigate their way through thousands of patents, sometimes including blocking patents, to avoid litigation (Takenaka). 

One example of anticompetitive practices associated with patent pooling was when the Pillar Point Partners patent pool over laser eye surgery techniques effectively established a duopoly between the two firms who had received FDA approval to perform the patented technique, which, according to the FTC, allowed the firms to “raise, fix, stabilize and maintain the price that physicians must pay to perform [laser eye surgery] procedures” (Carlson 338). 

Cross-Licensing and Patent Pooling Reform
Generally, patent pools that do not control a large fraction of an industry’s potential R&D  can have pro-competitive benefits by allowing for more efficient development and avoiding paying for costly infringement litigation. However, pools of substitute patents pose antitrust concerns that can hinder innovation and hurt industries. 

In one study, analysis of court’s decision on antitrust cases featuring cross-licensing and patent pools found that “the decisive factor in the antitrust review of patent pooling arrangements was the presence of restrictive licensing terms,” and that courts did not conduct sufficiently thorough economic analysis to accurately conclude “whether the patents involved in the arrangement are substitutes or complements” (Gilbert). In Standard Oil Co. v. United States, The Supreme Court’s analysis of Standard Oil of Indiana’s patent pool that combined patents related to gasoline focused on the benefits of cross-licensing and complementary patent pools rather than investigation of the relationship of the patents involved. The Supreme Court revisited the issue of cross-licensing in United States v. Line Material Co., where it similarly emphasized the legality of cross-licensing for efficient production rather than the relationship held between the patents (Gilbert). 

Rather than focusing on the extent of licensing restraints on downstream products, which courts typically concentrate on, focusing on the examination of the competitive relationships between the patents within a pool paints a better picture of the true extent of the patent pool’s influence and legality. While courts’ focus on licensing clearly shows arrangements’ downstream restraints, such analyses can sometimes fail to completely address whether the agreements in question prevent competition that would have happened in their absence. In substitute pools, the risk remains that competition is eliminated among licensors to increase royalties regardless of the presence of restrictive licensing terms, which clear economic analysis would address.

The approach mentioned above, however, faces challenges when directed towards the many technological patent pools containing thousands of patents. Review of all the patents and an analysis of each of their validity would be both exhaustive and unfeasible on most occasions due to the complicated nature of patent examination. Thus, for such pools, enlisting the help of the private sector can better pinpoint the patents and patent relationships of concerns. By inviting the competition, who dedicates far more resources than a court to research of their competitor, to help identify the patents of concerns, courts can more easily obtain leads of which patents to examine without shifting through thousands of patents.

Patent Quality
The number of patents granted has increased exponentially from recent decades, from less than 1% annually from 1930-1982 to 5.7% in recent years ("Too Many Patents"). With this rapid growth in patents and the size of patent portfolios, patent quality has become a main concern of politics in recent years. On average, the average patent examiner spends a mere eighteen hours examining patents, including their original application, researching relevant inventions, talking to the inventor and their attorney, and making a final evaluation of the invention (Lemley). In one study conducted by the University of San Diego, it was found that some 28% of all patents were either partially or completely invalid, according to the requirements of the Patent Act, with this estimate being as high as 39-56% for software and business methods (Jones). Some other estimates suggest that as much as 90% of prominent high-tech companies’ portfolios contain dubious or invalid patents (Berman).

Generally, definitions of patent quality focus on its validity (patentability and likeliness to be upheld in the face of litigation) and valuation (driven by supply and demand), but an important aspect of patent quality is that valuation and validity do not correlate to the innovativeness of the patent. An innovative patent can be worthless if it has no real-life application or revenue-generating potential, while an invalid patent with no innovation can derive value from its giving the patent owner the right to sue. Thus, establishing criteria for patent quality is difficult, highly individual, and often uses subjective opinion. While programs like USPTO’s inter partes review have tried to reduce the complexity and arduousness of analyzing, limited success has been found (Berman). 

Patent Quality Reform
The basis for concerns surrounding patent quality come from the argument that poor patent quality poses a threat to competition by having invalid, vague patents used as the basis for patent infringement lawsuits, wrongly implicating and damaging businesses and hurting the integrity of the patent system. While the quantity and quality of patents has become a great concern, ultimately, most low-quality patents do not hurt markets as by filing patent lawsuits. Some 46% of patents litigated are found to be invalid, making litigation a risk for the underlying patent (Allison & Lemley). Thus, most low-quality patents cannot be used on the grounds of patent litigation and simply do not generate profits. Patent offices should focus their resources on important and potentially bad patents that derive value from their usability in court in patent infringement claims instead of posing new regulations and restrictions, as doing so could ultimately make markets more anticompetitive by increasing the price of R&D, deterring new entrants. 

To combat the current patent quality problem, rather than impose new restrictions on patents, the government should focus on increasing due process and creating explicit and established goals for patentability and patent validity. Legislation should strike a careful balance between regulation and patent freedom by focusing on the proportionality of increased patent quality from increased regulation and the cost of such regulation, which would include loss of competition and larger entry barriers. Such clarification and greater enforcement of due process will create a clearer patent law that will reduce anticompetitive practices by restricting harmful litigation arising from patent infringement claims based on invalid patents without creating new entry barriers. 

Patent Trolling
In addition to patent quality, practices like patent trolling, where patents are bought with the purpose of suing others on the basis of patent infringement, have been pushed into the spotlight. Patent trolls do exist, usually in the form of non-practicing entities (NPEs), relying on small, quick settlements to compensate for the high expense of legal defense. However, as previously mentioned, litigating patents often puts the patent at risk for invalidation, and thus, the majority of NPEs look for high-quality patents that can remain in the face of litigation to bring in profits (Berman). 

Patent trolls often receive more credit for their share of opportunistic patent litigation—according to one study, non-practicing entities (NPEs, companies that license but do not practice patents and often the center of the patent trolling discussion) accounted for only 21% of software-related patent suits and only 9% of hardware suits (Chien). Overall, NPEs very rarely win their cases, with NPEs only winning 8% of cases and 9.2% counting default judgements, compared to 40% and 50% in product-producing companies, respectively (Allison et al.). 

Patent Trolling Reform
Though patent trolls are less widespread than often reported, addressing and prohibiting patent-trolling and similar practices will protect the integrity of the patent system and help restore healthy levels of competition among various markets, in turn benefiting consumers and the economy as a whole. 

First, to change the economics of patent trolling, shifting fees from a prevailing defendant to the plaintiff can deter NPEs and other entities from patent trolling. As of 2020, the cost of patent litigation can cost as much as $4 million in higher-stakes cases and because of thus expensiveness, many victims decide to settle to save costs (Krajec). By requiring plaintiffs to post a bond in the beginning of their case to cover some of the legal expenses of the defendant, patent trolling would decrease because of this extra cost to litigate.

Adding transparency to the current patent litigation system, such as requiring plaintiffs to prove exactly what they are suing upon and informing defendants of every party of interest of benefactor from the case would protect defendants from patent trolling by saving them resources to know whether the plaintiff actually owns the patent(s) it is asserting and protect competition by exposing patent trolls’ often anticompetitive intentions.

The Importance of Public R&D Investment
As per the Bayh-Dole Act of 1980, inventions arising from government-funded research gives the government a “nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world” regardless of the degree of investment commensurate to the invention, while allowing inventors, including large corporations, to retain ownership (35 U.S.C. � 202(c)(4), "Intellectual Property Policy"). 

Government investment in R&D fuels innovation by allocating resources for organizations in need while also funding research in areas corporations would otherwise not engage in. In addition, federal funding encourages the discovery of new inventions in the private sector, with one study conducted in the NIH showing that “a $10 million boost in NIH funding leads to a net increase of 2.3 patents” and another showing that around a third of U.S. patents rely on government-funded research (Azoulay, Fleming). Similar incentives, like R&D tax incentives and direct government support, have been shown to boost innovation (Westmore).

However, despite federal R&D funding’s established benefits, government funding in proportion to GDP has declined since the 1970s. Government and private-sector interests are often not in alignment, as while the government seeks to protect the consumer, the private sector seeks to generate the maximum profit possible. Because of this disagreement and the expensiveness of R&D, the attempted “technology transfer” of the 1970s-1980s failed to generate the same pace of R&D as with government funding ("Federal R&D"). Thus, lack of federal research funding continues to cause an imbalance favoring corporate interests over research in the interest of consumers ("The Government's"). 

Having greater federal funding of scientific and technological research is indirectly pro-competitive by clearing future blocking patents while also boosting overall innovation. Because of the Bayh-Dole Act, instead of an exclusive license to the inventor, government-funded patents are also licensed to the government, introducing the government as a competitor in the market. This, however, is a concern to inventors (mainly those who do not do much government contracting) as government involvement in the market could potentially damage their market share or profitability.

Conclusion
The protection of intellectual property is key to incentivising and encouraging innovation, a key component towards the progress of an economy. Patents, government-granted licenses giving inventors an individual monopoly over their invention, are tools to increase innovation by giving financial incentives to inventors. However, with the increased number of patents on increasingly complex, and often abstract ideas, along with larger and more intricate private patenting arrangements among the private sector have raised several antitrust concerns in recent years. Private patent arrangements’ pro-competitive benefits, while significant, can be outweighed by their antitrust concerns, where they can form entry barriers and be used as a means to increase royalties. By focusing on the competitive relationship between the patents involved instead of the restrictiveness of licensing, a more complete examination of the pro- and anti-competitive effects of such an arrangement could be conducted.

Recent years have seen a spike in the number of patents approved annually, raising questions about the anti-competitive potential of lower-quality patents. However, data proves that the majority of “bad patents” are not an antitrust matter, rather simply do not generate profit and that the majority of NPEs do not rely on bad patents for profitability, as NPEs rarely win their cases. Using vague or poor-quality patents for the grounds of litigation, as in patent trolling, can be addressed by focusing on increasing due process instead of new restrictions will help reduce the existing patent quality problem without increasing entry barriers for new firms.

The current patent system, while supporting many new inventions every year and creating a more innovative economy, has several flaws. In this rapidly evolving world with new, rapidly evolving technologies, the policy and framework surrounding intellectual property protection must adapt to facilitate a more competitive and more efficient economy.

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