American Law and Economics Review Advance Access originally published online on December 5, 2006
American Law and Economics Review 2006 8(3):476-522; doi:10.1093/aler/ahl013
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Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law
University of California
Send correspondence to: Stephen Maurer, 2607 Hearst Avenue, University of California, Berkeley, CA 94720–7320; Fax: 1-510-643-9657; E-mail: smaurer{at}berkeley.edu or scotch{at}berkeley.edu.
We address the patent/antitrust conflict in licensing and develop three guiding principles for deciding acceptable terms of license. Profit neutrality holds that patent rewards should not depend on the rightholder’s ability to work the patent himself. Derived reward holds that the patentholder’s profits should be earned, if at all, from the social value created by the invention. Minimalism holds that licenses should not be more restrictive than necessary to achieve neutrality. We argue that these principles are economically sound and rationalize some key decisions of the twentieth century such as General Electric and Line Material.