Antitrust, Uncertainty, and Technological Innovation

• Author: Douglas H. Ginsburg
• DOI: 10.1177/0003603X7902400401
• Date: 01 December 1979
• Published date: 01 December 1979
• Subject Matter: Article

The Antitrust Bulletin/Winter 1979

ANTITRUST, UNCERTAINTY,

AND

TECHNOLOGICAL

INNOVATION

by

DOU(iLAS

H. GINSBURG *

SUMMARY

AND RECOMMENDATIONS

Technological innovation has been a significant force driv-

ing the economic growth of the United States for much of our

history. As the rate of domestic economic growth has slowed

over the last decade, signs have appeared suggesting

that

the

reason may be in large

part

a diminished propensity for inno-

vation among United States industries. In any event, contemp-

orary policy-makers are appropriately concerned with the

maintenance of a high level of technological innovation to se-

cure the economic future.

Avariety of explanations for the apparent decline in inno-

vativeness have been offered, including the burdens of re-

cently imposed environmental and other regulations; inflation,

which deters investment in risky projects and those

that

entail

deferred returns; and

antitrust

policies and practices,

that,

be-

cause they are often unclear, may prevent business activities

*Assistant Professor of Law, Harvard University.

AUTHOR'S NOTE: This article was adopted, in a slightly different

form, as the report of the Panel on the Impact of Antitrust Policies

and Practices on Industrial Innovation, of the Committee on Tech-

nology and International Economic and Trade Issues, of the National

Academy of Engineering/National Research Council, which sup-

ported the research. As of the time of this publication, however, the

Academy review process had not been completed, so

that

the paper

does not represent the official view of the Academy or of the

Council.

©1980 by Federal Legal Publications. Inc.

635

636 THE ANTITRUST BULLETIN

that

would contribute substantially to technological progress

while posing insubstantial threats to the preservation of

com-

petitive markets.

This report examines the major points of tangency be-

tween the antitrust laws and the innovative process in order

to determine whether those laws are likely to be unduly im-

pinging upon technological innovation. Since industrial organi-

zation is a primary concern of antitrust policy,

part

I begins

with a review of the literature on the relationship between

industrial market structure and technological innovation. Al-

though much work has been done in studying this relation-

ship, surprisingly little of consequence is known. This reflects

in part the intractable problems of measuring the innovation

phenomenon, without an adequate gauge of which it is impos-

sible to tell whether one or another market structure is more

conducive to technological progress. This much can be said,

however: perfectly competitive and tightly oligopolistic mar-

kets, as they exist in the overdrawn models of microeconomic

analysis, are probably less conducive to technological innova-

tion than are markets in which there is some structural con-

centration but relatively low barriers to entry. Traditional

antitrust policy with respect to market concentration does not,

therefore, seem likely to impair industry's capacity for techno-

logical innovation. At the same time,

the

Department of Jus-

tice has indicated its willingness to condone mergers

that

would otherwise be challenged if it can be shown

that

the

mergers would contribute to the innovative capacity of the

firms involved.

Certain new developments relating to industrial market

structure have more ominous implications for the rate of tech-

nological innovation. For example, proposals for wholesale in-

dustrial deconcentration, i.e., the dismemberment of large

firms in concentrated industries, could create significant disin-

centives for moderate-sized firms that would otherwise seek to

gain market share by aggressively innovating in product and

process technologies.

If

administered without particular regard

TECHNOLOGICAL INNOVATION 637

for the international competitive position of large domestic

firms, moreover, such a policy could impair both domestic

innovation and the ability of U.S. firms to compete abroad.

The Federal Trade Commission has created atroubling

new uncertainty about the impact of antitrust law on techno-

logical innovation in its case involving du Pont's titanium

dioxide production. That case appears to charge du Pont with

"unfair competition" because it developed and exploited a tech-

nically superior manufacturing process.

Part

II of this report reviews the position of the Depart-

ment of Justice regarding the circumstances under which joint

R&D

ventures may be undertaken without fear of

antitrust

challenge. The uncertainty of the Department's position, and

the limitations of its procedures for giving more concrete guid-

ance to interested firms are analyzed.

Part

III concerns the relationship between antitrust and

patent law as it may affect technological innovation. Particu-

lar attention is given to recent developments at the Federal

Trade Commission and in private antitrust litigation against

Xerox Corporation

that

have created grave doubts about the

relationship between patent exploitation and antitrust law,

with significant implications for incentives for firms to engage

in innovative activity.

The following recommendations are offered on the basis of

the full text of the report.

1. Abetter understanding of the relationship between in-

dustrial market structures and the propensity for technologi-

cal innovation is needed to inform antitrust policy so

that

it

may be conducted in a manner likely to encourage, or

at

least

not to discourage, technological innovation. To this end,

research into the relationship should be encouraged, with par-

ticular attention to the need for more adequate indices of in-

novation than economists have yet developed.

2. The relationship between the level of innovation and

the efficiency of R&D spending, on the one hand, and the de-