Profit Neutrality in Licensing: The Boundary Between Antitrust Law and Patent Law∗

For over a century, courts and commentators have struggled to find principles that reconcile patent and antitrust law, especially as to patent licensing. We interpret case law and commentary to arrive at three unifying principles for acceptable terms of license. Profit neutrality holds that patent rewards should not depend on the rightholder’s ability to work the patent himself. Derived reward holds that the patent holder’s profits should be earned, if at all, from the social value created by the invention. Minimalism holds that licensing contracts should not contain more restrictions than are necessary to achieve neutrality. We suggest that these principles are economically sound, and largely rationalize important decisions of the twentieth century. They also justify the Supreme Court’s controversial General Electric decision, which holds that patent holders can set prices charged by their licensees. We also discuss the suggestion in Line Material that competition between patent holders can (and should) be maintained even when the patents are blocking.