Thomas F. Cotter

The Essential Facilities Doctrine

This comprehensive book provides an extensive overview of the major topics of antitrust law from an economic perspective. Its in-depth treatment and analysis of both the law and economics of antitrust is presented via a collection of interconnected original essays. The contributing authors are among the most influential scholars in antitrust, with a rich diversity of backgrounds. Their entries cover, amongst other issues, predatory pricing, essential facilities, tying, vertical restraints, enforcement, mergers, market power, monopolization standards, and facilitating practices.

Strict Liability and Its Alternatives in Patent Law

In this Article, Professors Blair and Cotter pose two questions. First, is the U.S. patent system really a regime of strict liability, as it is often said to be? Second, however the current regime might be described, is it the best of all possible alternatives? In answer to the first question, Blair and Cotter argue that patent law is best conceived of as a modified strict liability system, in which the defendants liability often depends upon the defendants receipt of actual or constructive notice of the patent. In answer to the second question, Blair and Cotter examine a variety of alternatives, including an intent-based system, a negligence system, and a pure strict liability system. They conclude that a system of modified strict liability may be the best choice among imperfect alternatives, but that lawmakers should consider altering the patent marking statute, 35 U.S.C. § 287, in some respects.

A New Framework for Determining Reasonable Royalties in Patent Litigation

Conventional analysis often assumes that there are only two theoretical options for calculating a reasonable royalty in patent disputes: a “pure ex ante” approach, under which a court reconstructs the hypothetical bargain the parties would have struck prior to infringement, based on the information available to them at that time; and a “pure ex post” approach, under which the court considers the bargain the parties might have reached as of some later date such as the date of judgment. The first approach avoids patent holdup — basing the royalty partly on the infringers sunk costs — but cannot easily explain other longstanding features of how royalties are calculated, and can lead to awards that reflect the parties’ erroneous ex ante expectations. By contrast, the pure ex post approach uses more accurate information about the invention’s actual value, but it also enables the patentee to capture some of the patent’s ex post holdup value. In this Article, we show that a “contingent ex ante” framework, under which the court reconstructs the bargain the parties would have reached ex ante, based on all relevant information that is available ex post, is superior to both of the conventional approaches. More specifically, our framework enables courts to base the royalty on the most accurate information available of patent value while avoiding the holdup risk arising from the pure ex post approach. We analyze how courts can apply our approach in various settings, including cases involving SEPs, sequential infringement, regulatory uncertainty, and unexpected exogenous events.

Anticompetitive Patent Injunctions

The current approach for determining when courts should award injunctions in patent disputes involves a myopic focus on the hardships an injunction might impose on the litigants and the public. This article demonstrates, however, that courts sometimes could rely instead on a consideration far more relevant to the patent systems goal of promoting innovation: the extent to which the right to exclude was actually a necessary quid pro quo for the plaintiffs decision to bring its products to market. We illustrate the value of this approach with a critique of a recent Federal Circuit decision, Trebro Mfg. Inc. v. FireFly Equipment, LLC, which held that injunctive relief may be appropriate when a defendant infringes a patent that the plaintiff-competitor does not practice, and against which it lacked any legal protection when it entered the relevant downstream market. These circumstances — which are increasingly common in industries with rich markets for secondhand patents, result in the formation of what we refer to as a “diagonally integrated” nonpracticing entity (NPE) — a producer who owns a patent it does not practice, and who competes with downstream rivals who use (or would like to use) the patented technology. We develop a simple model showing that if such a firm acquired the unpracticed patent after entering the relevant product market, an injunction poses a threat to competition and consumer welfare that is not offset by any plausible benefit to innovation. Further, diagonally integrated NPEs have a perverse incentive to exclude or substantially limit all use of the patented technology, making them more likely to seek excessive licensing fees and aggressively seek injunctive relief than are conventional, “unintegrated” NPEs. This effort to foreclose all use of a technology is novel in the patent literature, but the spirit of this tactic is well known in antitrust: a dominant firm acquires patents that it has no intent to use simply in order to deny the technology to rivals, thus perpetuating its dominant position. The model’s implications also extend to a range of topics at the core of contemporary patent policy debates, including patent privateering, FRAND-encumbered patents, and preemptive patenting. It also suggests that in considering appropriate remedies the court should weigh competition concerns more seriously, particularly when there is little or no tradeoff with innovation concerns.

The Value of the Standard

Standard-setting organizations (SSOs) often require member firms to license their standard-essential patents (SEPs) on undefined “fair, reasonable, and nondiscriminatory” (FRAND) terms. Courts and commentators in turn have proposed various principles for calculating FRAND royalties, among them that the royalty should not reflect “the value of the standard.” As we show, however, this principle could be understood to mean any or all of three distinct concepts, namely that the royalty should not reflect the implementer’s sunk costs; that the patentee should not be able to extract any of the value resulting from network effects; or that the royalty should be proportionate to the patent’s contribution to the standard. This Article proposes, as an alternative benchmark, that a FRAND royalty should reflect the incremental contribution of the patent to the value of the standard. This principle combines two related ideas: first, that royalties should reflect the hypothetical bargain the parties would have struck ex ante (prior to standard adoption), in view of the incremental value of the technology over unpatented alternatives as revealed ex post; and second, that multiple patents reading on a standard should be valued in proportion to their marginal contribution (“ex post Shapley pricing”). Our proposal would prevent patentees from extracting sunk costs or a disproportionate share of standard value, but (contrary to some approaches) it would enable them to draw some of the increased value resulting from network effects. We show that our approach is more consistent with sound innovation policy, and suggest some practical applications.

Legal Pragmatism and Intellectual Property Law

The legal pragmatism movement that came to prominence in the 1990s adopted a skeptical attitude toward “foundationalism�? – the idea that any one body of law can be adequately explained by some grand, foundational theory, or united by a single goal or value. The pragmatists’ embrace of anti-foundationalism, in turn, emphasizes the virtues of concepts such as value pluralism, practical reason, and what Cass Sunstein refers to as “incompletely theorized agreements�? for reaching consensus on particulars when opinions differ at a higher level of abstraction. In this Essay, I argue that a legal pragmatist approach to intellectual property (IP) law has both strengths and weaknesses. Among its strengths are its recognition of the competing values that animate IP policy and doctrine; its understanding of the limits of both instrumental and natural rights theories in explaining and shaping the contours of IP rights; and its appreciation for the common law method of incrementally adapting doctrine to changing technological environments. At the same time, however, a legal pragmatism that naively embraces totality-of-the-circumstances tests may induce overcompliance on the part of IP users. An approach that overemphasizes the unquantifiable and the incommensurable may inhibit the use of economic analysis as a tool (albeit an imperfect one) for precisely stating one’s assumptions, predicting consequences, and testing results; and, more generally, may blunt the critical edge necessary to counter the ever-expanding scope of some IP rights. Policymakers, in short, should avoid the temptation to turn legal pragmatism’s anti-foundationalist stance itself into a foundational principle of IP policy.