A new test to eradicate predatory innovation (and non-price strategies)

I am very pleased to announce that my latest article entitled ~ The « Enhanced No Economic Sense » Test: Experimenting With Predatory Innovation ~ is now available for download on SSRN. It will be published later this year at the NYU Journal of Intellectual Property and Entertainment Law.

In this paper, I explain how to improve the very famous « no economic sense test » in order to deal with predatory innovation and other practices unrelated to price. In a sense, this article complements the one I published last year, « Predatory Innovation: The Definite Need for Legal Recognition« .

The goal? To stop creating this incomprehensible jurisprudence in which judges and competition authorities create a test of legality per case (I’m barely exaggerating, as shown in the article). I hope that you will find it convincing, and if not, do not hesitate to let me know, all comments are very welcome. Oh, and if you are convinced, do NOT hesitate to also let me know (obviously).

LINK TO THE ARTICLE ON SSRN

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Abstract

This paper originates from a long-standing anachronism of antitrust law in regard to high-tech markets. Conventional wisdom assumes that antitrust law mechanisms are well suited to the study of practices in technology markets and that only adjustments are to be made here and there. This is untrue. Several practices fall outside the scope of antitrust law because mechanisms for assessing the legality of practices are not adequate. In fact, no one can accurately identify a typical legal approach for non-price strategies. A chaotic jurisprudence emerges from it, which we will show.

With this paper, our ambition is to contribute to the literature by advancing a new test, called the “enhanced no economic sense” test, to be applied to non-price strategies. Various tests have been designed over the years to address the legality of diverse practices under antitrust law. Some of them are based on price analysis, including the test of the equally efficient rival, the rising rivals’ costs test, and the profit sacrifice test. Some others are based on comparison, such as the balancing test, the test of disproportionality, and the compatibility test. They all suffer from multiple flaws. None of them, in fact, address non-price strategies such as predatory innovation without creating numerous type-I or II errors. Conversely, the test proposed in this article results in the creation of a uniform rule of law, which will ultimately increase consumer welfare by encouraging companies to keep innovating.

Only the no economic sense test comes close to achieving this goal, which is why this article proposes a new version of the latter. Its utility is shown by applying it to most of the major cases which dealt with predatory innovation, namely, Berkey Photo, the North-American and European version of the Microsoft case and the iPod iTunes litigation.

LINK TO THE ARTICLE ON SSRN

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