Product Tying Involving Intellectual Property: Pro or Anti-innovation Effects

This paper analyses the effects of tying arrangements involving IP rights on innovation. Tying, with its ability to temporarily exclude others from the potential benefits deriving from innovation, is pro-innovative by providing firms the incentive to allocate resources to realize newer and better products. However, when tying is used with or in place of IP rights to only help protect entry or growth into a market, it could discourage innovation. Market dominance, especially coupled with technological tying can create a barrier towards competition. It is shown that most pro-competitive effects of tying can also be seen as pro-innovatory as intense competition in the marketplace is shown to lead to innovation. In more competitive markets firms are pushed to innovate in order to maintain or improve their positioning for their products. The courts are faced with a difficult balancing judgment regarding product tying involving IP.