Against Intellectual Monopoly

indications of the abuse of the patent system for legalistic
reasons. The Polaroid v. Kodak settlement is widely credited as an important
signal of the value of defensive patenting.18 It is unclear what it is that
society gained from that settlement, as all it did was restore monopoly in a
relatively important consumer market and bring almost to bankruptcy an
otherwise thriving company, Kodak. With the windfall payment it received,
Polaroid neither created new innovations nor new employment and valueadded; it just enriched its lawyers, its executives, and, albeit marginally, its
shareholders. Similarly, we have the following statement from Roger Smith
of IBM:
    The IBM patent portfolio gains us the freedom to do what we need to do through
cross-licensing - it gives us access to the inventions of others that are key to rapid
innovation. Access is far more valuable to IBM than the fees it receives from its
9,000 active patents. There's no direct calculation of this value, but it's many times
larger than the fee income, perhaps an order of magnitude larger.19
    This recognizes that patents are just a trading tool among "big players."
Instead of a competitive market for innovations, we have an oligopolistic
market for patents structured around the patent-pool mechanism we discussed in the previous chapter. This use of cross-licensing of patents is not
merely the innocuous sharing among existing firms in the industry. Nor,
as Bessen points out, are patent pools merely a good tool for navigating
the patent thicket. They are also a wonderful instrument for preventing
new firms from entering the industry. New firms, not having a portfolio of
defensive patents, and not participating in the patent pool, find that they
cannot legally compete with the existing oligopoly.
Using Patents to Block Competition
    First off, patents and "intellectual property" more generally are, by definition, aimed at blocking competition, as their main aim is to prevent others
from competing with the innovator by producing the same thing either a
little more cheaply or of a little better quality. Although this is trivial, and
we have repeated it ad nauseam, it is good to keep the idea in mind. Now,
let us move to the less obvious ways in which patents are strategically used
to block competition.20
    The idea, widely advertised in business courses and management textbooks, that cross-licensing, patent pools, and patents more generally can
be used to block entry and enhance collusion has not escaped the notice of
firms. Following the increased enforcement of the antitrust laws after the
Second World War, the chemical and petrochemical industries pioneered the use of patent law as a legal method to collude and block entry. As the
number of possible examples is long, and the general principle is rather
clear, we will be brief. Here are some samples:

    Both American Telephone and Telegraph and General Electric, for example,
expanded their in-house laboratories in response to the intensified competitive
pressure that resulted from the expiration of key patents.... Patents also enabled
some firms to retain market power without running afoul of antitrust law. The 1911
consent decree settling the federal government's antitrust suit against GE left their
patent licensing scheme largely untouched, allowing the firm considerable latitude
in setting the terms and conditions of sales of lamps produced by its licensees,
and maintaining an effective cartel within the U.S. electric lamp market.... Patent
licensing provided a basis for the participation by GE and DuPont in the international cartels of the interwar chemical and electrical equipment industries. U.S.
participants in these international market-sharing agreements took pains to arrange
their international agreements as patent licensing schemes, arguing that exclusive
license arrangements and restrictions on the commercial exploitation of patents
would not run afoul of U.S. antitrust laws 21
    In recent years, there have been innovative efforts to expand the use of
patents to block competitors. For example, we find the following:
    A federal trade agency might impose $13 million in sanctions against a New Jersey
company that rebuilds used disposable cameras made by the Fuji Photo Film Company and sells them without brand names at a discount. Fuji said yesterday that the
International Trade Commission found that the Jazz Photo Corporation infringed
Fuji's patent rights