The FTC argued that Intel harmed competition when it cut off its customers to gain leverage in unrelated commercial disputes involving the scope of competing intellectual property rights. The second principle, that competition promotes innovation, recognizes that firms have a powerful incentive to gain a march on their rivals by cutting costs or being first with new products or product improvements. But the first two are potential advantages of all large firms, regardless of the extent to which they face competition. And the third, the monopolist's possible advantage in appropriating the gains from innovation, could matter only when other means of assuring reasonable appropriability, such as intellectual property protection, are weak. Moreover, the case for relying on patent monopolies rather than competition to generate new products and cost-saving process improvements now seems less potent than it once appeared.
Innovation is a cumulative process.
New ideas and new production processes are commonly refined and improved over time. Broad intellectual property rights can offer rich rewards to initial innovation, but they may well impede follow-on innovation. After all, the economic incentives to improve a patented idea or process are limited when the improvement can be used only in conjunction with the original patent, as that improvement can be sold to only one buyer, the owner of the original patent. For this reason, a policy of fostering competition among owners of intellectual property could be justified solely in terms of its benefits in encouraging innovation, even ignoring consumer benefits from limiting the exercise of monopoly power. This principle encourages antitrust enforcers to promote competition in high-tech markets with little concern that doing so will hurt the goose that lays golden eggs.