Thibault Schrepel  ‘The Antitrust Blockchain Paradox’ 3 Geo. L. Tech. Rev. (Forthcoming)

This paper, which can be found here, seeks to portray the challenges that might arise regarding unilateral practices as a result of the deployment of blockchains.     It is structured in three parts: The first section details how unilateral practices can be implemented on blockchain and draws a risk map. It begins by describing how the blockchain works. This was already described in my reviews above, but it is worth pointing out that the author places some weight on the existence of two main forms of blockchain: public blockchains, also called permissionless or open blockchain, and private blockchains, also called permissioned blockchains. The main difference is that in the latter the permission to access the contents of the blockchain may be restricted to certain participants only. In practice, semi-private and private blockchains can have a multitude of access levels. The paper then turns onto conditions for the enforcement of competition law against unilateral practices. It begins by noting that there are…

European Parliament Report on ‘Competition issues in the Area of Financial Technology (FinTech)’

This Report, which can be found here,  provides an interesting overview of potential competition issues in this sphere, while acknowledging ‘the discussion about the competition problems is still hypothetical‘. Even as I am unable to summarise the (136 pages) Report, it is worthwhile emphasising that the authors believe that the application of competition law to potential anticompetitive behaviours in the FinTech sector faces several challenges, the most relevant being the difficulty in applying existing tools and methodologies to new market phenomena such as: (i) many providers operating in multi-sided markets, with concomitant difficulties in terms of market definition and identifying market power; (ii) the possibility of network effects operating as barriers to entry, together with restrictions on interoperability and the adoption of standards; (iii) the role that access to data can have in restricting competition. As far as it goes, these observations are in line with widespread concerns about digital platforms more generally – and with the recent report on the…

Thomas F. Cotter, Erik Hovenkamp and Norman Siebrasse on ‘Switching Costs, Path Dependence and Patent Holdup’

Patent holdup occurs when a patent holder extracts higher royalties ex post than it could have negotiated ex ante, where the difference is not explained by an increase in the technology’s value. To date, the literature principally has focused on—indeed, sometimes conflated—two potential sources of holdup: the sunk costs the user has incurred ex ante to adopt the technology, and the “switching costs” of adopting an alternative ex post. This paper holds that the common source of holdup is neither sunk nor switching costs as such, but rather path dependence – and in particular the opportunistic exploitation of path dependence effects that magnify the value of the patented invention relative to the best available alternative. The paper, which can be found here, is structured as follows: Part II discusses the prior literature on patent holdup, along with the early literature on path dependence. Many commentaries on patent holdup confuse two important concepts – sunk and switching costs. A reader may reasonably…

Gregory J. Werden and Luke M. Froeb ‘Why Patent Hold-Up Does Not Violate Antitrust Law’ (forthcoming, Texas Intellectual Property Law Journal)

As the title indicates, this paper argues that patent hold-up, as courts and commentators define the term, does not undermine the competitive process and thus cannot give rise to a valid antitrust claim, at least in the US. The paper is available here and is structured as follows: Part II describes patent hold-up and sets out the economic framework employed by many antitrust intervention advocates. A relatively recent phenomenon is that important standards are encumbered by many—perhaps thousands—of Standard Essential Patents (SEPs). “Inventors” own SEPs and grant licences to them, while “implementers” manufacture or sell standard-compliant components or devices. Antitrust intervention advocates argue that these sunk costs permit inventors to engage in “opportunism” by demanding royalties that could “capture part of the fruits of another’s investment,” i.e., part of the sunk investment of implementers. This “opportunistic” behaviour by inventors is what generally is meant by the term “patent hold-up.” Out of a conviction that inventor opportunism is a serious problem, advocates of…

Jorge Contreras ‘Much Ado about Hold-Up’

This paper criticises the longstanding debate about patent holdup – and particularly about whether it is a systemic issue. In short, the paper argues that the ongoing hunt for empirical evidence of systemic patent hold-up in standardised product markets, or lack thereof, is a fruitless academic exercise. The paper can be found here and is structured as follows: Part I offers some essential background on standard setting and standards-essential patents. As I am sure we are now all fed up with this, I will skip it. Part II explores the interrelated questions that form the core of the current hold-up debate: how is hold-up defined, and what can empirical evidence tell us about hold-up in today’s technology-driven markets? The notion of economic hold-up originated with Oliver Williamson’s leading work on transaction costs and information asymmetry in the 1980s. The owners of specific assets are vulnerable to opportunistic behaviour by potential transaction partners who act dishonestly (e.g., by using deceptive means to…

Noel Maurer and Stephen Haber ‘An Empirical Analysis of the Patent Troll Hypothesis: Evidence from Publicly-Traded Firms’ (2018) Hoover Institution Working Paper no. 17003

Do firms that earn revenues from licensing their patent portfolios, rather than producing physical products – often referred to as patent assertion entities (PAEs) or, more disparagingly as ‘patent trolls’ – frustrate or facilitate innovation? According to one view, PAEs purchase specious intellectual property and then file frivolous lawsuits in order to extort revenues from operating companies that would rather settle than go through the expense of litigation. The revenues earned by PAEs are therefore a tax on innovation: dollars that would be spent on R&D by operating companies are diverted to non-productive uses. A business model based on using low value patents to file frivolous lawsuits for their nuisance value, with little risk of being countersued, should yield easy returns—and a high yield, low risk business model that is not characterized by barriers to entry should proliferate rapidly. It follows, accordingly, that PAEs are a systemic threat to innovation, economic growth, and consumer welfare, and thus the laws governing…

Jorge Padilla, Douglas H. Ginsburg and Koren W. Wong-Ervin ‘Antitrust Analysis Involving Intellectual Property and Standards: Implications from Economics’ (forthcoming, George Mason Law Review)

The paper, which can be found here, provides an overview of the economics of innovation and IP protection, licensing, and compulsory licensing, with specific applications to standards development and standard-essential patents. The authors also propose principles based on their economic analysis that courts and antitrust agencies can apply at each stage of an antitrust inquiry. The paper concludes with a summary of the approach to IP applied in China, the European Union, India, Japan, Korea, and the United States. The paper covers a lot of ground (and is quite long). I will try to summarise the argument as much as possible, but, to make it easier to read, I will also attempt to flag the specific topics addressed at each point, so that you may focus on those matters of greater interest to you. The paper is structured as follows: Section II summarises the relevant economic literature. While consumers gain from increases in static efficiency in the short run, economics teaches us…

Ariel Ezrachi on ‘EU Competition Law Goals and The Digital Economy’ (2018) Report for BEUC – The European Consumer Organisation

This paper  can be found here. I have already reviewed it in an earlier post. At the time, I focused on the article’s overview of the goals of EU competition law. However, the article also contained a detailed discussion of the impact that the digital economy may have on these goals. I was unable to review this discussion then, so I propose to do it here. Competition policy is one of several instruments used to advance the goals of the European Treaties. According to the European Commission, competition on the market is protected as a means of enhancing consumer welfare and of ensuring an efficient allocation of resources. This notwithstanding, EU competition law has also consistently been held to protect ‘not only the interests of competitors or of consumers, but also the structure of the market and, in so doing, competition as such.’ Moreover, a genuinely indigenous objective is worthy of note, namely that of promoting European market integration. In addition…

Philippe Aghion, Stefan Bechtold, Lea Cassar and Holger Herz ‘The Causal Effects of Competition on Innovation: Experimental Evidence’ (2018) The Journal of Law, Economics, and Organization 34(2) 162

This paper, which can be found here, adds to the literature on the relationship between competition and innovation, which has been the subject of longstanding attention by economists. However, existing empirical studies on competition and innovation suffer from a number of limitations. The authors seek to address these limitations as regards a specific type of innovation models – so called ‘Step-by-Step Innovation Models’. Their study shows that, as long as key assumptions of the step-by-step innovation model are met, theoretical predictions of this model are confirmed by laboratory empirical data. Section 2 looks at ‘Step-by-Step Innovation Models’. The main characteristic of step-by-step innovation models when compared with previous Schumpeterian models (where competition is for the market) is that innovation incentives do not depend on post-innovation rents only, but rather on the difference between post-innovation and pre-innovation rents of incumbent firms. In the basic model setup, an industry consists of two firms which produce the same good and compete over selling the…

Peter Georg Picht  ‘FRAND determination in TCL v. Ericsson and Unwired Planet v. Huawei: Same same but different?’ Max Planck Institute for Innovation & Competition Research Paper No. 18-07

This paper, which can be found here,  compares Unwired Planet/Huawei – a UK case reviewed here, and which appeal was discussed last week – and TCL/Ericsson, a US case. TCL deals with Ericsson-owned SEPs and Ericsson-granted licences, while Unwired Planet focuses on SEPs acquired by Unwired Planet from Ericsson. While looking at similar sets of facts, the courts arrived at different conclusions regarding how to determine FRAND royalty rates. This paper argues that this difference arises from the courts’ take on two core approaches in FRAND royalty calculation – “top-down” and “comparable prior licences” (‘Comparables’). Unwired Planet can be said to have favoured a ‘Comparables’ approach, while TCL looks more favourably at the top-down approach. The paper contends that both methods are important in FRAND licensing, it is unlikely that either a top-down or Comparables approach will – or should – prevail as the obviously best approach to complex cases. The paper is structured as follows: Section II provides the…