NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Profit Neutrality in Licensing: The Boundary between Antitrust Law and Patent Law

Stephen M. Maurer, Suzanne Scotchmer

NBER Working Paper No. 10546
Issued in June 2004
NBER Program(s):   LE   PR

For over a century, courts and commentators have struggled to find principles that reconcile patent and antitrust law, especially as to patent licensing. We interpret case law and commentary to arrive at three unifying principles for 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 patent holder's profits should be earned, if at all, from the social value created by the invention. Minimalism' holds that licensing contracts should not contain more restrictions than are necessary to achieve neutrality. We argue that these principles largely rationalize important decisions of the twentieth century. They also justify the Supreme Court's controversial General Electric decision, which holds that patentholders can set prices charged by their licensees.

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Document Object Identifier (DOI): 10.3386/w10546

Published: Maurer, S. and S. Scotchmer. "Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law." American Law and Economics Review 8: 476-522. 2006.

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