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The Anti-Innovation Peril Of Global Antitrust | Stock News & Stock Market Analysis

Antitrust regulators from around the world are frequent news items in the United States — almost never for a good reason.

Attention has come as the Korea Fair Trade Commission (KFTC), the Japan Fair Trade Commission, China’s National Development and Reform Commission, and the European Union’s Competition Directorate have imposed fines approaching or exceeding $1 billion in individual cases against industry-leading U.S. high-technology firms, including Intel, Microsoft, Qualcomm, and Google, often also insisting on changes to operations or pricing that will reduce the firms’ competitive advantages.

XAutoplay: On | OffNew KFTC chairman Kim Sang-Jo, for one, recently promised even more aggressive activity against use of intellectual property to advance leading firms’ positions. U.S. authorities should take note — and action.

The targeted firms are all successful innovators with extensive intellectual property (IP), and use of their IP has been a focus of antitrust regulators’ complaints. Antitrust regulators have interpreted competition law to prevent innovation-based competition by limiting foreign firms’ ability to profit from innovative success, viewing a single firm’s use of its own IP at the expense of competitors as anti-competitive.

Paradoxically, the higher the value of the innovation, the larger the punishment imposed on a firm succeeding by its virtue.

Targeting leading foreign firms helps competing firms at home (along with some foreign competitors and downstream purchasers) while increasing officials’ power over global commerce. But the expanding scope of KFTC and other regulatory bodies — particularly with their focus on restraining use of legally-granted IP rights by individual firms, not cartels — harms both the U.S. economy and economic progress around the world.

Innovation, strong and stable property rights, trade, and respect for the rule of law are key pillars of economic progress and national success. Commitment to these four principles by the U.S. and other nations, largely those described as “the West,” in the seven decades following World War II powered an unprecedented increase in global prosperity (an almost fourfold increase in per capita GDP, accounting for more than three-fourths of the improvement in living standards in the last 10,000 years).

Protection of intellectual property rights that promote innovation, of trade that distributes innovative products, and of legal rules that secure unbiased treatment of rights-holders, is critical to continued advancement. Because of this, multilateral agreements under the aegis of the World Trade Organization (WTO) now incorporate protections against many actions impairing trade-related intellectual property rights.

While using WTO procedures to enforce international trade rules is an obvious first-best route to fight violations, WTO dispute resolution is a notoriously lengthy process — one that also can be distorted by the same forces that impel antitrust authorities to put protection of domestic firms over rules that promote competition, especially competition in innovation. For the same reason, discussions among antitrust authorities, including U.S. officials, can fall prey to similar incentives to expand regulators’ reach.

A provision of U.S. trade law, Section 301 of the Trade Act of 1974, allows independent U.S. action to combat violations of trade agreements, and an amendment to the law commonly labeled “Special 301,” directs the U.S. Trade Representative (USTR) annually to list nations that violate U.S. intellectual property rights and prioritize negotiations with nations that are the worst offenders.

Despite legitimate fears that departures from multilateral dispute resolution processes can undermine global rule-based trade regimes — that Section 301 could devolve into a trade-distorting protectionist tool — this “naming and shaming” approach, combined with priority for discussions with the other nations, is consistent with our international commitments.

Properly implemented, it can complement and reinforce those commitments, prodding compliance with international undertakings that benefit people around the world. Given the bold actions of entities like the KFTC, USTR would be justified in putting nations whose antitrust authorities undermine competition and devalue intellectual property on the Special 301 lists and even initiating an investigation under its broader Section 301 authority, which also can produce negotiated solutions rather than departure from WTO accords.

Those who champion open trade should know that enforcing trade rules is critical to maintaining an open-trade regime — and that preventing other nations from systematically targeting cutting-edge U.S. firms helps not just the U.S. economy but a broader global economy based on innovation, competition, and law.

The best means to protect IP rights, promote competition, and enforce trade rules may be debated, but the need to support those goals, and the risk evolving antitrust regimes pose to them, should be common ground.

  • Cass is dean emeritus of Boston University School of Law; former commissioner and vice chairman of the U.S. International Trade Commission; and co-author of “Rules of Creation: Property Rights in the World of Ideas” (Harvard Univ. Press 2013).

 

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