Patent Wars: How the Government Can Best Address Anticompetitive Patent Accumulation by Updating the Horizontal Merger Guidelines

Abstract

On February 13, 2012, the European Commission approved Google’s acquisition of Motorola Mobility. On the same date, the Department of Justice (DOJ) announced it was closing investigations of Google’s acquisition of Motorola and acquisitions made by Microsoft, Apple and Research in Motion. Many in the press have reported that Google’s acquisition of Motorola is a defensive measure against a wave of attacks against Google’s Android operating system. Google itself has publicly stated that Android was under a systematic legal attack by Microsoft, Apple and other companies and that recent patent acquisitions by these companies posed a continuing threat. Not surprisingly, Google paid a 73% premium for Motorola, even though the average premium for acquisitions in the wireless equipment industry has been 32% in the past five years. Patents are becoming an ever increasing part of the battle for the smartphone and tablet market. A smartphone produced today might involve as many as 250,000 patent claims. Many of these patents can be overlapping and overbroad. Patent infringement suits drive up legal costs for competitors and result in new licensing fees that increase per unit costs. License holders charge different licensing fees to some competitors versus others in order to get a competitive advantage. Patent pools, where competitors pool together patents, can lead to collusive and other anticompetitive behavior. The types of activities that antitrust law is meant to protect against are already happening in today’s patent war. The decision of the DOJ to close its investigations of patent acquisitions postpones the greater issue of how patent law and antitrust law will interact in the future. By not addressing this conflict, the DOJ is allowing patent law to carve out large exceptions to antitrust law that will hurt competition. This note seeks to make the case that the DOJ and FTC should become proactive by addressing patent acquisitions in the Horizontal Merger Guidelines.