For sound economic reasons, the antitrust laws, in general, do not require firms to share their assets with rivals. When a particular asset has natural monopoly characteristics and is used as an input in other markets, however, the essential facilities doctrine requires that the asset be shared with firms in related markets. In recent decades, the Supreme Court and leading scholars have criticized the doctrine, claiming it is economically inefficient and taxes the institutional capacity of the judiciary.
Historically, the courts most often applied the doctrine to tangible natural monopolies like electric transmission grids and bottleneck railroad lines. In recent decades, specialized federal regulators have established open access regimes over these assets to ensure the associated monopoly power is not extended into markets that can be competitive. In this context, application of the doctrine is likely to be either redundant or counterproductive. Regulatory bodies are institutionally superior to the judiciary in fashioning and ensuring compliance with mandated access decrees. Insofar as regulators fail to perform their duties, courts should not act as a “backstop” to agency failure. Instead, Congress should strengthen the agencies’ statutory authority to establish open access regimes.
Legal and technological developments over the past thirty years have conferred essential facility characteristics on certain intangible assets. Examples of these intangible essential facilities include patents on upstream research tools in biotechnology and the interfaces on high-technology platforms that exhibit significant network externalities and enjoy intellectual property protection. These assets have no feasible substitutes and are necessary inputs in multiple products. As a result, firms can foreclose competition in adjacent markets by denying rivals of access to these critical assets. To mitigate this possibility, the essential facilities doctrine can be used to ensure that firms seeking to produce goods ranging from cancer therapies to computer operating systems have access to the necessary intellectual property. Because assets like gene patents and the interfaces on Microsoft Windows are frequently licensed in a market setting and are non-rivalrous, courts are institutionally capable of ordering access and setting the terms of sharing for intangible essential facilities.
Advocating a break from traditional applications of the doctrine, this Article argues that the essential facilities doctrine should not be applied to tangible natural monopolies that have been brought under regulatory open access regimes. Instead, it holds that the doctrine should be applied to a small segment of intangible assets that have acquired de facto natural monopoly status. This reorientation of the doctrine can act to promote competition and innovation without unduly burdening the federal courts.
- Essential Facilities Doctrine,
- Natural Monopoly