Volume 49, Issue 2
Opening Remarks: The Administrative-Private Law Interface in IP
By David J. Kappos, Cravath
David Kappos,Cravath
On March 29, 2018, David Kappos, former Director of the United States Patent and Trademark Office, gave opening remarks at a conference on the intersection of patent law and administrative law presented at Harvard University Law School. After thanking the Project on the Foundations of Private Law and Professor Henry Smith for inviting him to participate, Director Kappos offered the following… Ed.
It is worth inquiring how we got to a place where the U.S. patent environment is ranked twelfth strongest in the world, well behind the strength of many important countries in Asia and Europe1. What steps have shaped the U.S. IP system and defined its intersection with administrative law? I’ll begin by recounting the problems the IP system faced 10 or 15 years ago. Then I’ll overview the U.S. government’s response to these problems, including changes in private and administrative law. I will next zero in on some of the administrative law responses in particular, and highlight the ways in which antitrust law has, in my view, breached the proper border between it and IP, specifically as it pertains to patents and copyrights. Finally, I’ll contemplate the consequences and confusion this has caused on the policy front, and opine on whether this systemic overstepping and confusion is here to stay, or if recent developments instead provide hope for a different, better approach to navigating the intersection between administrative and private law.
2. Looking Back: A Broken IP System
Ten years ago, there was widespread belief that the IP system was “broken” and patents were too strong. Included in this belief was concern over abuse of the patent system and fear of patent trolls2. Concerns over trolls became so prevalent that they began dominating policy-making.
Courts and legislators, especially in the United States, heeded the concerns over the patent system and acted in response. In a series of cases, all within the last 15 years, the U.S. Supreme Court has repeatedly cut away at patent strength through: stopping “automatic” injunctions against patent infringement
; reframing the “nonobviousness” requirement in a way that made it more difficult to secure patent rights
; altering the indefiniteness standard for patentability by creating a “reasonable certainty” test
; making it easier to award attorneys’ fees
(Octane Fitness and Highmark)
; and just last year, holding that the patent exhaustion doctrine—which precludes patent holders from enforcing their patent rights after selling a patented product—automatically applies (and cannot be circumvented), even when the patented item is sold outside the U.S.
3. While I believe many of these decisions were appropriate, and needed to rebalance the U.S. patent system, together they have certainly decreased its strength.
But whether you agree the just-mentioned decisions were appropriate or not, what has befallen patentable subject matter in the U.S. approaches a tragedy in the eyes of many observers, including myself. The U.S. Supreme Court has, through a series of opinions beginning in 2010, systematically narrowed the scope of subject matter that is eligible for patenting particularly in the fields of biotech and software. These cases severely constrict the U.S. patent system’s scope.4
Federal and state lawmakers have also worked during the past ten years to scale back the patent system, largely in response to patent troll concerns. Most notable was the 2011 passage of the America Invents Act, or AIA. Among other changes, the AIA established a substantial new administrative law overlay on the concept of patents as private law rights, with the post-grant review system, providing a robust new opportunity to invalidate patents in proceedings heard by the Patent Trial and Appeals Board.5 State legislators have also been busy addressing patent troll concerns. Many U.S. states have passed legislation imposing “tough[] rules” for infringement demand letters to put further downward pressure on patentees.6 Again, I recount all of this not to say it is all bad. Much of it is good. But taken together, it is fair to say the U.S. has addressed the troll problem, and then addressed it again and again and again.
3. Antitrust Responses to the IP System
Although the changes just discussed were primarily internal to the IP system, even as comprehensive as they have been they were not the only response to the supposedly broken patent system. Over the last decade, antitrust regulators around the world have grown increasingly hostile towards the perceived anti-competitive nature of patents. So let us now turn our attention to how antitrust concerns led to a misguided effort to weaken patents (and especially standard essential patents) and copyrights, and the ways these efforts—which I view as uncalled for incursions by administrative law into the role of the private law-based IP system—have manifested thus far.
The U.S. IP system’s many benefits stem from a constitutional grant of exclusivity to innovators in what the Supreme Court calls, a
legal monopoly
... to invoke the State’s power to prevent others from utilizing [a] discovery without [the inventor’s] consent.”7 But the U.S. antitrust regime derives from statutory provisions that expressly condemn both restraints of trade and monopolization.8 As a result, antitrust law and intellectual property law are viewed by some to be fundamentally incompatible. But this tension is not rooted in actual doctrine. In fact, the Supreme Court makes clear that it is not the possession of monopoly power that is unlawful, but the accompaniment of that power with anticompetitive conduct.9 Of course, patent rights do not inevitably lead to monopoly power—an innovator may have exclusivity over an invention, but there are nearly always competing products that place limits on the innovator’s market power.10
Unfortunately, differences in timescale tend to obscure these points. The consumer benefits of new products can far outweigh the consumer benefits of lowering prices on existing products.11 But, innovation is a driver of dynamic competition and the benefits of intellectual property rights occur in the longer term, while the short-term costs and exclusionary power of intellectual property rights are immediate and apparent.12 And, crucially, the negative effects of weakening the IP system are neither immediate nor apparent: when we weaken incentives to innovate, we cannot know what innovations we have preempted and how much better off those innovations would have made us.13 Consequently, there is a ready temptation to seize on seemingly undesirable market outcomes and draw on antitrust’s static competition agenda to use antitrust law as a vehicle to weaken intellectual property rights, even though neither antitrust doctrine nor antitrust objectives, properly understood, support that result. So it is a battle between administrative law and private law, with innovation incentives and long-term prosperity hanging in the balance.
It is through this lens that standard essential patents came to be viewed as Exhibit A for antitrust regulators seeking to correct what they viewed as an IP system exceeding its proper bounds. Their belief was fed by then-popular theories of SEP “friction” with antitrust, namely in the form of patent hold-up, royalty stacking and broken FRAND norms.
The theory of patent hold-up portends that SEP holders will take advantage of their status as a mandatory component of a technical standard by demanding excessive royalties, thereby “holding up” products that might otherwise enter the market covered by the standard.14 Royalty stacking posits that, as SEPs proliferate, royalties will add up to such a high level that the cost of the SEP-implementing products will rise to where manufacturing these products will no longer be viable.15 And the notion that FRAND norms are broken contends that these norms, under which SSOs require that members license their applicable patents on terms that are “Fair, Reasonable, and Non-Discriminatory,” are failing to protect against excessively high SEP royalties, thus detracting from their intended pro-competitive effect.16
Though these theories each sounded plausible ten years ago, intervening data has shown there is no evidence that hold-up, royalty stacking or the maladies they claim to impose on standards implementers actually occur.17 Yet concerns about these phenomena and the frictions they were thought to have caused persist counter-factually. These erroneous concerns have infected the global discussion around IP and standards and have spurred antitrust regulators to take action in the U.S. and abroad. In an example of administrative law taking aim at private law, the Federal Trade Commission has initiated proceedings on the theory that merely threatening or seeking an injunction or ITC exclusion order can constitute a violation of Section 5 of the FTC Act.18 In 2014, the then-Chairwoman of the FTC declared that “[i]n the standard-setting context, the risk of patent hold-up creates the type of competitive harm that falls properly within the scope of antitrust enforcement.”19 In another example, the former head of the Department of Justice Antitrust Division contemplated the merits of imposing antitrust liability not only against SEP owners who act deceptively in the standard-setting process, but even against those who purportedly violate F/RAND commitments, including by seeking an injunction.20
Similar trends have played out abroad. 2014 amendments to the Korea Fair Trade Commission’s Guidelines for Review of Unreasonable Exercise of Intellectual Property Rights, for example, included broadly defining what constitutes abusive action by those holding SEPs.21 The KFTC has subsequently taken aim at SEPs directly, holding that it has the right to dictate
licensing practices for SEPs.22
The administrative law incursion by antitrust authorities into private law IP rights is not limited to patents; the DOJ has targeted copyrights as well, as highlighted by its stance on performing rights organizations. PROs aggregate the IP rights of their members, individual contributors such as songwriters and publishers, and offer “blanket licenses” to their works, thereby enabling licensees such as television shows and restaurants to obtain the necessary rights to those works without negotiating many individual licenses.23 In 2016, the DOJ unexpectedly took the position that consent decrees under which two of the largest PROs, ASCAP and BMI, have long operated prohibit longstanding licensing practices.24 Under the DOJ’s view works co-created by members of different PROs would become unlicensable in practice.25 This position had already been rejected by the Copyright Office in a comprehensive 2014 review of the issue and, fortunately, has been rejected again by both the district and appellate courts in pointed rebukes of the DOJ’s plainly agenda-driven over-reach.26 But the fact that the DOJ asserted this view in the first place, together with its and the FTC’s views on SEPs noted earlier, sustain concern about administrative antitrust incursions into areas best left to the private law IP system, especially since such incursions are not unique to the United States.
4. How the Incursion Impacts IP Policy
Whether it’s the weakening of the U.S. IP system or antitrust regulation around the world, a once healthy ecosystem for standards-based innovation has been under siege. But we do not have to settle for a retreat to depressed levels of innovation in standards, if policymakers recognize that leadership in innovation requires carefully crafted policies that balance the interests of both implementers and innovators and build in flexibility.
Leadership in innovation policy means the administrative law require recognizing the tremendous risks innovators take on. Innovators make massive investments in research and development, and they do so under the likelihood of technical failure and the relentless pressure of market-based competition. Yet, in contributing patent-protected technologies to standards, innovators effectively surrender their most valuable competitive advantage to their rivals. There is no incentive for innovators to continue to contribute to standards in the face of such an unattractive investment environment, unless there is a commitment to protect the interests of innovators with strong private law IP rights enabling them to recoup their investments through reasonable royalties.
Naturally, implementers have a desire to acquire standardized technologies at the lowest possible cost. But this desire must square with sound public policy of incenting investments in innovation and the contribution of innovation to standards. Said differently, the interests of administrative agencies and their champions must be balanced with the interests of private law and the property rights it champions. If policy is guided by only one perspective, we will succumb to the short-term desire of implementers to pay less than the value they receive, with the long-term consequence of inventors disappearing in the face of poor returns on their sizable investments in innovation. And such “short-term win, long-term lose” scenarios rarely make for good public policy.
A system where everyone is incented to take, and no one to give, presents a classic tragedy of the commons. Licensing is the most natural and most scalable method of sharing value among few inventors and many implementers. But as we further and further reduce the royalties paid to inventors, the value generated by inventors is not so much licensed as it is appropriated. Without flexible and balanced policies going forward, continued contribution of innovation is simply an unsustainable prospect on the part of innovators.
5. Is Positive Change on the Horizon?
Fortunately, the tide may be turning at the U.S. Department of Justice. For the first time in its history, the DOJ’s top antitrust attorney is also a registered patent attorney. Since his appointment last September, he has stated publicly that previous antitrust policy “strayed too far” in protecting the interests of implementers at the expense of innovators and the “process of dynamic innovation itself.”27 A broad coalition including judges, academics, economists and government officials have signaled their support of his comments in a public letter.28 He has since advocated a “New Madison” approach to setting antitrust’s role in IP, premised on four principles that emphasize the limited role antitrust law should play in the context of standard essential patents, the importance of innovation incentives and the legality of patent holders’ refusal to license valid patents.29 And he is not alone in his thinking—others at the DOJ have echoed concern for the rights and interests of innovators.30
These recent developments demonstrate that authorities are beginning to realize that good policy calls for a balance between the interests all parties: administrative law and private law; implementers seeking to cut their input costs, and innovators seeking to improve their returns on investments in innovation. They also demonstrate increased recognition of the need for a sharper boundary between private and administrative law, and a limit on antitrust’s breach of the boundary between it and IP. As we listen to the panels that follow, we should contemplate ways to restore the proper balance of interests and respect the boundary between private and administrative law, so that our policies recognize and champion innovators’ efforts, thereby fostering an innovation environment that propels opportunity and prosperity.
* This article is based on a speech given by David Kappos at Harvard Law School in March 2018, and draws upon previous speeches and articles written by David Kappos. All references to time herein should be read in reference to that date. 1 U.S. CHAMBER OF COMMERCE GLOBAL INNOVATION POLICY CENTER, U.S. CHAMBER INTERNATIONAL IP INDEX: PATENTS (2018),
See e.g.
Ashby Jones,
In Fight Against ‘Patent Trolls,’ a New Arrow in the Quiver?
, WALL ST. J.: L. BLOG (Nov. 24, 2008, 8:45 AM),
3 Kirti Gupta & Jay P. Kesan,
Studying the Impact of eBay on Injunctive Relief in Patent Cases
1, 37, (Univ. of Ill. Coll. of Law, Research Paper No. 17-03, 2016) (discussing eBay Inc. v. MercExchange, LLC, 547 U.S. 388 (2006)),
available at
; KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007);
see also
Gene Quinn,
KSR the 5th Anniversary: One Supremely Obvious Mess,
IPWATCHDOG (Apr. 29, 2012),
and analyzing its impact five years after the decision); James R. Barney & J. Derek McCorquindale,
The Supreme Court’s
Decision Defines the Test for Indefiniteness
, FINNEGAN: IP UPDATES (June 4, 2014),
(quoting Nautilus, Inc. v. Biosig Instruments, Inc., No. 13-369, slip op. at 1 (S. Ct., 2014); Biosig Instruments, Inc. v. Nautilus, Inc., 715 F.3d 891, 898 (Fed. Circ. 2013)); Octane Fitness LLC v. Icon Health & Fitness Inc., 134 S.Ct. 1749 (2014); Highmark Inc. v. Allcare Health Management System Inc., 134 S.Ct. 1744 (2014); Russell Cass,
The Fee-Shifting Climate After Octane And Highmark,
LAW360 (Aug. 28, 2014, 7:46 AM),;
Impression Prods., Inc. v. Lexmark Int’l, Inc., 581 U.S. ___ (2017); Alex Noonan,
Impression v. Lexmark: Supreme Court Reverses Federal Circuit, Limits Scope of Post-Sale Patent Rights
, JOLT DIGEST (Colette Ghazarian ed., June 27, 2017),
; Jason Rantanen,
Impression v. Lexmark: Patent Rights Exhausted by Sale, Domestic or Abroad,
PATENTLYO (May 30, 2017),
; Kyle Straughan,
Lexmark Patent Exhaustion
, RUTTER MILLS PLLC (Apr. 18, 2017),
4 Bilski v. Kappos, 561 U.S. 593 (2010); Mayo Collaborative Servs. v. Prometheus Labs, Inc., 566 U.S. 66 (2012); Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S. 576 (2013); Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).
5 Leahy-Smith America Invents Act, Pub. L. No. 112-29, 125 Stat. 284 (2011) (codified in 35 U.S.C.);
Summary of the America Invents Act
(last visited Oct. 31, 2017).
6 Ruth Simon & Angus Loten,
States Revise Laws to Curb ‘Patent Trolls’: New Legislation Sets Tougher Rules Around Demand Letters
, WALL ST. J., (May 21, 2014),
7 Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 135 (1969) (emphasis added) (citations omitted).
8 15 U.S.C. § 1 (2012) (“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”); 15 U.S.C. § 2 (2012) (“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony[.]”).
9 Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004).
10 David J. Kappos,
The Antitrust Assault on Intellectual Property
, 31 HARV. J.L. & TECH. (forthcoming Spring 2018).
11 J. Gregory Sidak,
How Commissioner Vestager’s Mistaken Views on Standard-Essential Patents Illustrate Why President Trump Needs a Unified Policy on Antitrust and Innovation, 1 Criterion J. Innovation
721, 727 (2016).
12 Kappos,
note 10.
, e.g., Alexander Galetovic & Stephen Haber,
The Fallacies of Patent-Holdup Theory,
13 J. Competition L. & Econ. 1, 3-4 (2017) (first quoting Carl Shapiro,
Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting,
1 Innovation Pol’y & Econ. 119, 126 (2000); also quoting Mark A. Lemley & Carl Shapiro,
Patent Holdup and Royalty Stacking,
85 Tex. L. Rev. ¬¬¬1991, 2012 (2007)); Mark A. Lemley,
Ten Things to do about Patent Holdup of Standards (And One Not to)
48 B.C.L. Rev. 149, 154 (2007); Benjamin E. Hermalin & Michael L. Katz,
Information and the Hold-Up Problem
(Apr. 16, 2009),
available at
; Roger G. Brooks,
Patent “Hold-Up,” Standards-Setting Organizations and the FTC’s Campaign Against Innovators
, 39 AIPLA Q. J. 435, 441–42 (2011) (citation omitted).
See, e.g.
Damien Geradin, Anne Layne-Farrar & A. Jorge Padilla,
The Complements Problem within Standard Setting; Assessing the Evidence on Royalty Stacking
, 14 B.U. J. Sci. & Tech. L. 144, 145 (2008).
16 Yann Ménière,
Fair, Reasonable and Non-Discriminatory (FRAND) Licensing Terms,
European Commission Joint Research Centre, Institute for Prospective Technological Studies, Science and Policy Report (2015),
available at
See, e.g.
, J. Gregory Sidak,
The Antitrust Division’s Devaluation of Standard-Essential Patents
, 104 Geo. L.J. Online 48, 61 n.49 (2016) (listing 21 articles which demonstrate that “more than two dozen economists and lawyers had disproved or disputed the numerous assumptions and predictions of the patent-holdup and royalty-stacking conjectures.”).
Complaint 19–20, 23, In re Robert Bosch GmbH, FTC Docket No. C-4377 (2012); Complaint at 19, 25–27, In re Motorola Mobility LLC & Google Inc., FTC Docket No. C-4410 (2013).
19 Edith Ramirez, Chairwoman, Fed. Trade Comm’n, Standard-Essential Patents and Licensing: An Antitrust Enforcement Perspective, Address at 8th Annual Global Antitrust Enforcement Symposium, Georgetown University Law Center 7 (Sept. 10, 2014).
20 See Renata B. Hesse, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, IP, Antitrust and Looking Back on the Last Four Years, Address at Global Competition Review, 2nd Annual Antitrust Law Leaders Forum 15–21 (Feb. 8, 2013); Renata Hesse, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, The Art of Persuasion: Competition Advocacy at the Intersection of Antitrust and Intellectual Property, Address in Seattle, WA 9 (Nov. 8, 2013) (“We also continue to explore where there is room for liability under Section 2 of the Sherman Act in cases where holders of F/RAND-encumbered SEPs seek injunctive relief after a standard is in place. Even in cases where the patent holder did not intentionally deceive the SSO during the standards-setting process, competition and consumers can be harmed . . . .”).
21 Yoon & Yang LLC,
Korea Fair Trade Commission amends Guidelines for Review of Unreasonable Exercise of Intellectual Property Rights,
LEXOLOGY (Jan. 14, 2015),
22 James F. Rill & John M. Taladay,
The KFTC’s Extraterritorial Overreach,
23 Brief of the American Society of Composers, Authors and Publishers as
Amicus Curiae
Supporting Defendant-Appellee Broadcast Music, Inc. at 1, United States v. Broad. Music, Inc., No. 16-3830-cv (2d Cir. Aug. 24, 2017) [hereinafter ASCAP Br.];
see, e.g.
, Statement of the Department of Justice on the Closing of the Antitrust Division’s Review of the ASCAP and BMI Consent Decrees, Aug. 4, 2016, 2, 5–6 [hereinafter DOJ Closing Statement].
DOJ Closing Statement at 2–3, 5–6, 11–16; ASCAP Br. at 1, 4, 6–7; Letter from Maria A. Pallante, Register of Copyrights, United States Copyright Office, to Doug Collins, Vice Chairman Subcommittee on Courts, Intellectual Property and the Internet, United States House Concerning PRO Licensing of Representatives (Jan. 29, 2016) [hereinafter Copyright Office Views] at 1–2, 13–17.
25 Copyright Office Views at 23–24, 27–29;
DOJ Closing Statement at 3.
26 Copyright Office Views at 1–3; United States v. Broad. Music, Inc., 207 F. Supp. 3d 374, 376 (S.D.N.Y. 2016); United States v. Broad. Music, Inc. 16-3830-cv (summary order, 2nd Cir. Dec. 19, 2017).

27 Makan Delrahim, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Remarks at USC Gould School of Law – Application of Competition Policy to Technology and IP Licensing: Take It to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law (Nov. 10, 2017),
28 Letter to Makan Delrahim, Assistant Attorney General, Department of Justice Antitrust Division (Feb. 13, 2018),
(supporting Assistant Attorney General’s comments, “that the Antitrust Division of the Department of Justice will adopt an evidence-based approach in applying antitrust law equally to both innovators who develop and implementers who use technological standards in the innovation industries”).
29 Makan Delrahim, Assistant Att’y Gen., Antitrust Div., U.S. Dep’t. of Justice, Keynote Address at University of Pennsylvania Law School: The “New Madison” Approach to Antitrust and Intellectual Property Law (Mar. 16, 2018),
30 Roger P. Alford, Deputy Assistant Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Remarks at the American Chamber of Commerce in South Korea: Antitrust Enforcement in an Interconnected World (Jan. 29, 2018),
; Andrew C. Finch, Principal Deputy Assistant Atty’ Gen., Antitrust Div., U.S. Dep’t of Justice, Remarks at the Heritage Foundation: Trump Antitrust Policy After One Year (Jan. 23, 2018),
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The BPLA Co-Sponsors World IP Day Boston 2018. Powering change: Women in innovation and creativity
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Medical Design Briefs Summary
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In memoriam of Richard A. “Dick” Wise
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Announcement for the 8th Annual
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