The interchange between antitrust and intellectual property laws has always presented formidable problems. Antitrust laws prohibit monopolies while intellectual property laws grant legal monopolies. Intellectual property rights confer on owners the right to exclude others from using the owner's intellectual property (subject to limitations that vary among the statutes). Often steps taken in pursuit of this end, however, appear anti-competitive and thus at odds with the principals of antitrust law. The right to exclude will be central in some cases, coincidental in others, and somewhere in between in the rest. Although the two sets of rules may share the common purpose of promoting innovation and enhancing consumer welfare, their methods are different. Intellectual property law grants monopolies to encourage advances in science and art and is not dictated by price while antitrust policy generally prohibit monopolies in order to enhance economic efficiency. The inherent conflicts between the fields of antitrust and intellectual property are complex and have been contemplated by federal antitrust enforcement officials. The Antitrust Division of the Justice Department ("DOJ") and the Federal Trade Commission ("FTC") have focused substantial enforcement efforts in the areas where intellectual property rights and the antitrust laws overlap.

Recent efforts made by DOJ and the FTC are testimony to the growing importance of intellectual property to United States (and international) commerce. Increasingly, deals concerning transfers and licensing of intellectual property are among the largest and most important transactions in the United States and global economies. Following is a synopsis of the guidelines that have been jointly created and adopted by the DOJ and FTC. The guidelines enunciate the antitrust enforcement policy of the agencies with respect to the licensing of intellectual property protected by patent, copyright, and trade secret law. The rationale behind the guidelines is to assist those who need to predict whether the agencies will challenge a practice as anti-competitive. The primary purpose of the guidelines are to minimize, and reconcile where possible, the inherent conflicts between antitrust and the intellectual property laws. The guidelines as drafted embody three general principles.

First, for the purpose of antitrust analysis, both agencies regard intellectual property as being essentially comparable to any other form of property. Standard antitrust analysis applies to intellectual property just as it would apply to any other forms of tangible or intangible property. Antitrust analysis contemplates the differences among patent, copyright, and trade secret forms of intellectual property in evaluating the specific market circumstances in which transactions occur, just as it does with other particular market circumstances. Since intellectual property law bestows on the owners of intellectual property certain rights to exclude others, certain types of conduct with respect to intellectual property may have anti-competitive effects against which the antitrust laws can and do protect. Thus intellectual property is not free from scrutiny under the antitrust laws.

Second, the agencies do not presume that intellectual property creates market power in the antitrust context. Market power is the ability to profitably maintain prices above, or output below, competitive levels for a significant period of time. Market power does not by itself offend the antitrust laws. For example, market power that is solely "a consequence of a superior product, business acumen, or historic accident" does not violate the antitrust laws.

Third, the agencies recognize that intellectual property licensing allows firms to combine complementary factors of production and is generally pro-competitive. Intellectual property derives value from its combination with complementary factors, which include manufacturing and distribution facilities, marketing, workforces, as well as combinations with other intellectual property assets. Licensing, cross-licensing, or otherwise transferring intellectual property can facilitate integration of the licensed property with these complementary factors. This increases the expected returns from intellectual property, thereby increasing the incentive for its creation and promoting greater investment in research and development. These various forms of exclusivity can also be used to give a licensee an incentive to invest in the commercialization and distribution of products embodying the licensed intellectual property and to develop additional applications for that property.

In the United States, patents confer rights to exclude others from making, using, or selling in the United States the invention claimed by the patent for a period of seventeen years from the date of issue. To gain patent protection, an invention must be novel, non-obvious, and useful. Copyright protection applies to original works of authorship embodied in a tangible medium of expression. A copyright protects only the actual form of expression, not the underlying ideas. Unlike a patent, which protects an invention not only from copying but also from independent creation, a copyright does not preclude others from independently creating similar forms of expression. Trade secret protection applies to information whose economic value depends on its not being generally known. Trade secret protection is conditioned upon efforts to maintain secrecy and has no fixed term. As with copyright protection, trade secret protection does not preclude independent creation by others. Courts struggle to adopt rules that give full effect to intellectual property rights while minimizing the degree to which those rights displace or undermine antitrust policy. As the Ninth Circuit recently stated when considering the scope of intellectual property rights and antitrust markets, "[a]t the border of intellectual property monopolies and antitrust markets lies a field of dissonance yet to be harmonized by statute or the Supreme Court."

Antitrust concerns often arise when a licensing arrangement harms competition among entities that would have been actual or likely potential competitors in a relevant market in the absence of the license. Restraints in intellectual property licensing arrangements are generally evaluated under the so-called "Rule of Reason," which is used to determine whether the restraint is likely to have anti-competitive effects and, if so, whether the restraint is reasonably necessary to achieve pro-competitive benefits that outweigh those anti-competitive effects.

The DOJ and FTC also employ the Rule of Reason to determine whether the licensing arrangement is a horizontal or vertical relationship. Antitrust analysis of intellectual property licensing arrangements examines whether the relationship among the parties is primarily horizontal or vertical in nature, or whether it has substantial aspects of both. A licensing agreement has a vertical component when it affects activities that are in a complementary relationship (i.e. the licensor may manufacture the product, and the licensees may operate primarily in distribution and marketing.) In addition to this vertical component, the licensor and its licensees may also have a horizontal relationship. The Agencies will treat a relationship between a licensor and its licensees, as horizontal when they would have been actual or likely potential competitors in a relevant market in the absence of the license. The existence of a horizontal relationship between a licensor and its licensees is merely an aid in determining whether there any be anti-competitive effects arising from a licensing arrangement. Such a relationship need not give rise to an anti-competitive effect, nor does a purely vertical relationship assure that there are no anti-competitive effects.

Some courts have concluded that certain restraints should be treated as per se violations of the antitrust laws without elaborate inquiry into the restraint’s competitive effect. Some examples of such restraints include: naked price-fixing, output restraints, and market division among horizontal competitors, as well as certain group boycotts and resale price maintenance. For example, a restraint in a horizontal relationship may increase the risks of price fixing, output restrictions, or the acquisition or maintenance of market power. The arrangement also poses the risk of retarding or restricting the development of new goods or processes. A restraint in a vertical relationship may anti-competitively forecloses access to, or increase competitors’ costs of obtaining important inputs, or facilitates coordination to raise price or restrict output. Harm to competition from a restraint in a vertical licensing arrangement also may occur if a licensing restraint facilitates coordination among entities in a horizontal relationship to raise prices or reduce output in a relevant market.

The juxtaposition of antitrust and intellectual property continues to challenge courts and those who must live with their rulings. The fact, however, remains that antitrust laws and intellectual property laws have common policy objectives, but accomplish these goals through different means. As a result of this very complex interplay, understanding the relationship between the two seemingly inconsistent policies is of vital importance to today’s businesses. The on going development and change in this relationship heighten the challenges facing businesses.