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Unfair Disruption: Q&A with Professor Mark McKenna

Professor Mark P. McKenna is the John P. Murphy Foundation Professor of Law at the University of Notre Dame where he teaches and writes in the areas of intellectual property and privacy law. He is widely recognized as a leading intellectual property scholar, having been published in many of the most prestigious journals in his field. Professor McKenna recently co-authored a paper with Professor Mark Lemley, Professor of Law at Stanford Law School, titled Unfair Disruption.

DisCo spoke with Professor McKenna to discuss this recent article, and we summarize that conversation in this blog post. We recommend reading the full article to understand the intricacies of some of his arguments discussed in this Q&A session.

DisCo: Your paper speaks to the relationships between incumbents, disruption, regulation, and competition. What lessons would you want readers to take away from the paper?

McKenna: Our primary point is that incumbents often use legal tools – including but not limited to IP, antitrust, regulation, and a variety of business torts – to prevent disruption of their business models. That’s not always illegitimate – sometimes the legal tools are designed to give them that right, at least against certain kinds of disruptions. But it’s important for courts to differentiate between disruptions that implicate the underlying policy concerns of a legal regime (disruptions that might undermine incentives to invent or to disseminate, for example) and other disruptions that aren’t likely to have those effects even if they negatively impact a particular incumbent. In our view, courts sometimes are too eager to react to mere disruption when competition would be more socially valuable. We try to offer some tools to help differentiate the disruptions that do implicate underlying policy concerns from those that do not.

DisCo: You discuss in your paper the idea that plaintiffs often bring business tort claims for interference with prospective economic advantage, unjust enrichment, unfair competition or antitrust when the injury they are complaining of is not actually injury to competition but injury from competition. What are the best examples of this? And is this response something that policy should encourage or discourage?

McKenna: One way of answering that is to say that “unfair competition” is not redundant. Competition consists – necessarily – of trying to take away others’ prospective economic advantages, or to take away their customers, change the business model to one’s own advantage, etc. That doesn’t mean we don’t want any rules about how one is able to accomplish those ends. As a baseline, we don’t accept competition through fraud. But all of these claims run the risk of penalizing competition itself if we aren’t careful. So, in our view, taxi drivers shouldn’t get to avoid competition with Uber and Lyft just because those ride-sharing services disrupt the model for cabs. There are regulations on taxis that should also apply to those services – insurance requirements, for example. And it may well be unfair to ask the owners of cabs to pay for expensive medallions while others don’t have to pay to enter the market. But the solution to that problem isn’t to ban the ride-sharing services.

DisCo: Your argument that one of the most significant legal tools used to regulate disruptive entry is IP law might seem ironic, since one of the goals of IP law is to encourage innovation. What are some examples of this regulation?

McKenna: It’s true that there’s some irony there, although the way it encourages innovation is by giving legal rights that enable parties to block certain kinds of competition. That’s why we are careful to say that use of IP to prevent disruption isn’t always illegitimate. Indeed, IP laws are designed to give owners the right to block certain kinds of disruption in order to serve the underlying policy goals of IP. But it’s really important for courts to focus on the connection between an assertion of IP rights and the policy goals of IP, since some disruptions don’t implicate those goals even if they disadvantage particular market actors. One example we highlight is Aereo – a case in which the court reacted to a threat to the model of cable companies and broadcast networks even though, in our judgment, that threat was not particularly compelling in terms of copyright’s policy goals.

DisCo: You consider the various ways courts evaluate market disruption lawsuits, and argue that business tort doctrine has largely evolved to be skeptical of those claims, while IP’s treatment of market disruption has been much more uneven. For example, you talk about how sometimes courts reject market disruption arguments in IP, either because they see the value of the new technology or business model or because the harm claimed by the plaintiff seems remote. In other cases, courts are more receptive to claims of disruption. Why is there a mixed record in IP law?

McKenna: One of the reasons we put IP alongside those other doctrines was precisely to highlight the ways IP lags behind in this respect. We think IP can learn something from the evolution of those other doctrines. One reason it has been uneven may be, as you suggested, that IP does sometimes legitimately block disruption. It may also be that arguments about the ways disruption will affect the incumbent have strong rhetorical power in the IP context, because those arguments are deployed in a way that suggests the sky will fall on innovation or creative output if the challenged conduct is allowed.

DisCo: The paper discusses how the law of business torts, including IP, needs a metric to distinguish complaints that are about competition per se from those that are about conduct that is unfair independently. Why is it important to distinguish those complaints, and how can you distinguish them?

McKenna: It’s important to distinguish them because, if we don’t, we’re just penalizing parties for doing what competition entails, and we will lose the benefits of competition in those contexts. What we should want to prevent is competition in a form that undermines the policy goals of a legal system. We are in some respects deliberately leaving open the question of what those goals should be. But we don’t think we can determine which claims should be allowed without evaluating the claim in light of broader policy concerns. One way of doing that, we suggest, is to ask whether the injury the plaintiff complains of is one they might have suffered from conduct that clearly doesn’t violate the rights being invoked (so, for example, whether the copyright claimant’s loss might have been caused by other conduct that is clearly non-infringing). That’s an attempt to isolate harms that flow from conduct because the conduct is infringing. It’s an imperfect tool, but we think a good place to start.

DisCo: As a way to remedy conduct that is unfair independently of its competitive aspect, you propose adopting “IP injury” and “business tort injury” doctrines that parallel the existing “antitrust injury” doctrine. What is the “antitrust injury” doctrine, and what would a parallel “IP injury” and “business tort injury” look like?

McKenna: The purpose of the antitrust injury doctrine is to differentiate conduct that harms competition from conduct that harms competitors – the former, but not the latter, being the concern of antitrust. By analogy, the IP injury doctrine attempts to differentiate conduct that harms claimants in ways that connect to IP policy goals from conduct that simply harms the claimants. IP should be concerned only with the former, and we can take the same basic idea through all of the other torts. If a party can’t articulate how the harm complained of connects to the underlying policy goals of a legal regime, that should tell us something about the claim.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.