Reviving an Epithet: A New Way Forward for the Essential Facilities Doctrine

Abstract

The antitrust laws, in general, do not require firms to share their assets with rivals. When a particular asset is a natural monopoly and used as an input in other markets, however, the essential facilities doctrine requires that its owner share this asset with firms in related markets. In recent decades, the Supreme Court, as well as leading scholars, have criticized the doctrine, claiming it is economically inefficient and strains the institutional resources of the judiciary. The doctrine, nonetheless, has its share of defenders who believe it has a vital role to play in antitrust enforcement. Historically, the courts most often applied the doctrine to tangible natural monopolies like electric transmission grids and bottleneck railroad lines. In recent decades, specialized federal regulators have established open access regimes over these assets to ensure that natural monopolies are not extended into related markets that can be competitive. In this context, application of the doctrine is likely to be either redundant or counterproductive. Regulatory bodies are institutionally superior to the judiciary in fashioning and ensuring compliance with mandated access decrees. Insofar as regulators fail to perform their duties, courts should not act as a “backstop” to agency failure. Instead, Congress should strengthen the agencies’ statutory authority to establish open access regimes. Legal and technological developments over the past thirty years have conferred essential facility characteristics on certain intangible assets. Examples of these intangible essential facilities include patents on upstream research tools in biotechnology and the interfaces on certain high-technology platforms that exhibit significant network externalities and enjoy intellectual property protection. These assets have no feasible substitutes and are necessary inputs in multiple products, and so the associated monopoly power can be extended into adjacent markets that would otherwise be competitive. The essential facilities doctrine can thus be used to ensure that firms seeking to produce goods ranging from cancer therapies to spreadsheets have access to the necessary intellectual property. Because assets like gene patents and the interfaces on Microsoft Windows are often licensed in a market setting and are non-rivalrous goods, courts are institutionally capable of ordering access and setting the terms of sharing for intangible essential facilities. Advocating a break from the traditional applications of the doctrine, this Article argues that the essential facilities doctrine should not be applied to tangible natural monopolies that have been brought under regulatory open access regimes. Instead, it contends that the doctrine should be applied to a small segment of intangible assets that have acquired de facto natural monopoly status. This reorientation of the doctrine can act to promote competition and innovation without unduly burdening the capacity of the federal courts.