INNOVATION AND ANTITRUST
Materials
(Also related to innovation is my article on the Intel FTC proceeding, discussed on the Exclusionary Practices page.)
Discussion
Some people, and some courts, still stumble over whether antitrust is only about price competition, or whether it also protects competition to make new and better products. The clearly correct - and relatively uncontroversial - answer is that all forms of competition are within the scope of antitrust's concern.
A related question is whether Clayton Act Section 7 reads on combinations of firms that are not presently selling anything in competition with one another, but are engaged in similar R&D, and are thus potential competitors at some point down the road. Assume that it does.
Leaping over those initial stumbling blocks, we get to the real question for legal policy: is it so hard to predict the future course of R&D in dynamic, innovative markets, and so difficult to know whether a given deal will help or harm consumers in the long run, that enforcers should refrain from action involving firms that do not presently compete? Should they abstain always? As a general rule, with rare exceptions? Or does sound enforcement require a generally skeptical view of mergers and acquisitions involving overlapping R&D?
My article was a literature survey, commissioned for inclusion in the Antitrust Law Journal's 2003 Symposium on Antitrust Issues in the Pharmaceutical Industry. It argued for the middle approach: abstention as a general rule, with rare exceptions. It deconstructed the unfortunate and semantically awkward term "innovation market," and summarized the relevant case law and commentary.
Bush Administration enforcers said little, and did little, about "innovation markets" until the FTC's decision, early in 2004, not to challenge the Genzyme/Novazyme transaction. Chairman Muris gave his reasons for approving the transaction. Commissioners Leary and Swindle joined in the result but, curiously, not in Chairman Muris' statement. Commissioner Thompson vigorously dissented. Commissioner Jones Harbour did not take a position but issued a statement sympathetic to the Thompson dissent. (For an analysis see David A. Balto & Scott A. Sher, Refining the Innovation Focus: The FTC's Genzyme Decision, Antitrust (Spring 2004).)
I fell ill and was unable to participate in the Commission's February 2004 workshop, but the FTC kindly posted my presentation anyway. Had I been present, I would have made these observations:
The debate between the Chairman and Commissioner Thompson over whether and when business combinations involving similar R&D programs should be "presumed illegal" seems sterile.
On the one hand, no one - including those don't like "presumptions" - argues that the Commission was wrong to take a very close look at this deal.
On the other hand, no one, at least to my knowledge, has argued that if the factual analysis in Chairman Muris's statement is correct, the deal did no harm to competition. (See page 9 of my presentation.)
Whether we're talking about "innovation markets" or regular old markets for real goods, surely we are long past the point where "presumptions" about injury flowing from increased market concentration can condemn a merger even though the enforcer has no "story" of competitive injury - and the merging parties have a persuasive "story" demonstrating no harm to competition.)
So it all comes down to facts, and factual predictions, not presumptions? (See page 10 of my presentation.)