Economic theory views patents as policy instruments aimed at fostering innovation and diffusion. Three major implications are drawn regarding current policy debates. First, patents may not be the most effective means of protection for inventors to recover R&D investments when imitation is costly and first mover advantages are important. Second, patentability requirements, such as novelty or non-obviousness, should be sufficiently stringent to avoid the grant of patents for inventions with low social value that increase the social cost of the patent system. Third, the trade-off between the patent policy instruments of length and breadth could be used to provide sufficient incentives to develop inventions with high social value. Beyond these three implications, economic theory also pleads for a mechanism design approach: an optimal patent system could be based on a menu of different degrees of patent protection where stronger protection would involve higher fees, allowing self-selection by inventors.

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The question addressed by the paper is whether standard procedures and widely accepted insights of competition policy remain valid when one deals with potentially anti-competitive conduct in innovative industries. The question of appropriateness arises because competition in these industries displays features that are radically different from those encountered in traditional sectors of the economy. Competition is for the market rather than in the market, dynamic aspects of competition matter more than allocative aspects, intellectual property rights (IPR) reinforce network effects present in knowledge-based industries. The paper examines why these differences matter with respect to market delineation, assessment of intensity of competition and, predatory conduct. It also raises the question to what extent competition law limits the innovator's rights not to license them to others, especially when they correspond to essential facilities. It explores the problem created by excessive protection as well as the holdup problem that arises in a context of sequential innovations. It examines the antitrust position in regard to the treatment of collaborative arrangements among holders of IPR's, such as cross-licenses, patent-pools and joint standard settings. Finally, it presents a discussion on a possible role of competition law in shaping intellectual property laws in order to benefit from the complementarity's between intellectual protection and antitrust rules.

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