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Reconceptualizing the Role of Intellectual Property Rights in Shaping Industry Structure

Posted by on Friday, May 31, 2019 in Articles, Volume 72, Volume 72, Number 4.

Peter Lee | 72 Vand. L. Rev. 1197 (2019) |


Technological and creative industries are critical to economic and social welfare, and the forces that shape such industries are important subjects of legal and policy examination. These industries depend on patents and copyrights, and scholars have long debated whether exclusive rights promote industry consolidation (by shoring up barriers to entry) or fragmentation (by promoting entry of new firms). Much hangs in the balance, for the structure of these IP-intensive industries can determine the amount, variety, and quality of drugs, food, software, movies, music, and books available to society. This Article reconceptualizes the role of patents and copyrights in shaping industry structure by examining empirical profiles of six IP-intensive industries: biopharmaceuticals; agricultural biotechnology, seeds, and agrochemicals; software; film production and distribution; music recording; and book publishing. It reveals that exclusive rights play multiple roles in influencing industry structure, and it distinguishes their effects along two underappreciated dimensions. First, it distinguishes the effects of exclusive rights at different times, arguing that patents and copyrights contribute to the initial entry of new firms, particularly in young fields, but that over time exclusive rights facilitate industry concentration by erecting barriers to entry and serving as assets that incumbents seek to amass in mergers and acquisitions. Second, it distinguishes along the value chain within any given industry, arguing that exclusive rights most prominently promote entry in “upstream” creative functions—from creating biologic compounds to producing movies—while tending to contribute to concentration in downstream functions focused on commercialization, such as marketing and distributing drugs and movies. As a corollary, this Article shows that exclusive rights play multiple roles in shaping industry structure, from directly enabling entry or exclusion to subtly influencing firm behavior in ways that advance fragmentation or concentration. This Article provides legal and policy decisionmakers with a more robust understanding of how patents and copyrights contribute in myriad ways to both fragmentation and concentration, depending on context. Drawing on these insights, it explores potential interventions from antitrust law and reforms to intellectual property law—including conditioning the acquisition of exclusive rights on the size and market position of a rights holder—to ensure robust competition and innovation.

Peter Lee