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…

Gunther Friedl and Christoph Ann ‘A cost-based approach for calculating royalties for standard-essential patents (SEPs)’(2018) The Journal of World Intellectual Property 21 369

This article, which can be found here, proposes a novel approach for calculating FRAND royalties, based upon average total cost per patent plus a reasonable return for the patent holder. Unlike the methods discussed in the paper above – which focus on the value of a patent – this method is cost-based. The paper is structured as follows: An introductory section explains why standards are important and why FRAND obligations are imposed. A significant increase in the relevance of standards can be predicted in the near future. Industry 4.0 will greatly increase the degree to which industrial processes will depend upon the exchange of information not only between people, but also between toolkits, that is, between “hardware.” The same holds true for a number of new technologies such as autonomous driving, data compression, or 3D printing. Standard-setting organizations (SSOs) are tasked with the development and creation of standards by identifying and selecting the most suitable technologies for the standard. It goes…

Ashish Bharadwaj ‘A note on the neglected issue of reverse patent holdup’. (2018) Journal of Intellectual Property Law & Practice 13(7) 555

The purpose of this article – which can be found here – is to provide a comparative analysis of EU, US and Indian case law on reverse patent holdup in the context of standard essential patent licensing. The piece is structured as follows: The paper begins with a discussion of patent holdup and reverse holdup in general terms. Technological standards have become ubiquitous. Such standards foster interoperability, avoid inefficient rivalry between competing systems and facilitate competition in downstream product markets. It has been held that firms that commit their patents to a standard – and thereby own standard essential patents (SEPs) for the purposes of that standard – often abuse their dominant position by demanding excessive royalties or by seeking injunctive relief against infringers of their essential patents. Owning a SEP provides its holder with a certain amount of market power, because users of the standard must reach a licensing agreement with the patent holder. Theoretically, a SEP holder can…

ric Biber, Sarah Light (Berkeley), J. B. Ruhl, and James Salzman (UCLA) “Regulating Business Innovation as Policy Disruption: From the Model T to Airbnb” (2017) 70 Vand. L. Rev. 1561

The argument of this paper – which can be found here – is straightforward: scholarship about the platform economy has been ahistorical; focusing on the immediacy and novelty of the platform economy misses the fact that its interaction with the legal system does not raise fundamentally new questions from a law and policy perspective. From a business or economic perspective, history is full of technological and management advances that fundamentally disrupted business models over a brief period of time. This is not to say that current developments do not pose challenges to public policy. Regulatory policy generally—even necessarily—presumes a certain kind of organizational model for the activities that it regulates.  When business innovation upends that pre-existing model, the result is a disjunction between the structure of the regulatory system and the industry that is being regulated: a policy disruption. This has occurred in the past. Debates over whether and how the regulatory system should adjust to the rise of platforms…

Kenneth A. Bamberger and Orly Lobel ‘Platform Market Power’ (2018) 32 Berkeley Tech. L.J. 1051

In this paper – which can be found here – the authors seek to develop a framework for considering the market power of platform companies that use digital technology to connect a multisided network of individual users. Throughout, they use Uber as an example.  The framework identifies a number of questions that may be helpful in assessing whether a platform has market power. The first question one should ask is whether the success of a platform is a result of innovation or of undesirable regulatory arbitrage. The authors argue that understanding the net impact of digital platforms requires careful inquiry into the gains arising from the entry of platforms into mature markets and their disruption of staid industries; and to the harm they may pose to regulatory protections set out to protect valuable social goods. This means that antitrust law cannot be asked to answer – as it has been asked to do by some authors – questions of regulatory…

Peter Menell  ‘Economic Analysis of Network Effects and Intellectual Property’ in Ben Depoorter & Peter S. Menell (eds.), Research Handbook on the Economics of Intellectual Property Law: Vol I. Theory (2018)

This piece – which can be found here – is a rather long , but very comprehensive book chapter that surveys and integrates the economic, business strategy and legal literatures on IP, competition and network effects. It is structured as follows: Part I introduces network effects. I have done this to death in the past, so I’m not going to repeat it here. Suffice it to say that the author looks mainly at demand side network effects, and what its implications are for IP and competition policy: ‘In a static economic model (i.e., one without innovation), consumers benefit from robust competition within product standards. Open access to product standards encourages realization of network externalities. Although bandwagon effects can enhance consumer welfare in a static context, they can also make it more difficult for developers of improved platforms to enter the market. Consumers and suppliers of complementary products can face significant switching costs in migrating from one platform to another.’ Like…

David Evans and Richard Schmalensee ‘Network Effects: March to the Evidence, Not to the Slogans’ (2017) Antitrust Chronicle

The basic position of this paper – which can be found here – is that: ‘Competition authorities (…) with support from some dismal scientists, saw the dark side of network effects. Firms could rig the race to become the winner and thereby “tip” the market to make themselves monopolies. And even if a firm won fair and square, network effects would result in insurmountable barriers to entry and would be the font of permanent monopoly power. (…) A recent argument in this debate is that online platforms have troves of data that make network effects even more potent. Unfortunately, this view of network effects evolved from a seminal economic contribution to a set of slogans that don’t comport with the facts.” A first section looks at the economics of networks. This covers the origins of theoretical studies on this topic – which focused on telephone networks and fax machines, and standard-tipping (i.e. the VCR-BetaMax war). Theoretical refinements to the theory…

RBB Brief 54 ‘An innovative leap into the theoretical abyss: Dow/DuPont and the Commission’s novel theory of harm’

This paper contradicts the paper below. It describes how, in Dow/DuPont, the Commission  adopted an innovation theory of harm that is based on a much broader concern than before: namely, that the parties would find it profitable to reduce overall R&D investments post-merger, causing a reduction in the number of innovative pesticide products (as yet unidentified) at some unspecified time in the future.  It then describes the old approach of the Commission, which was concerned with late stage pipeline products. It notes that the assessment of: “a pipeline product (for which practically all the innovation work has been done) and an existing product is substantively no different to the assessment of a merger between two already existing products. In both of these cases, the concern is that the internalisation of the constraint between the rival products may give the merged entity an incentive to increase prices or reduce output, perhaps even discontinuing one of the products altogether to avoid cannibalisation of…