Carl Shapiro and A. Douglas Melamed ‘How Antitrust Law Can Make FRAND Commitments More Effective’ (2018) Yale Law Journal 127 (7) 2110

In this paper – which can be found here – the authors argue that antitrust laws have an important role to play in ensuring that the rules established by standard-setting organizations are effective in preventing the owners of standard-essential patents from engaging in patent holdup after the standard is established and becomes commercially successful. The paper begins by summarising how the standard setting system operates, and how it can lead to holdup. While this was described in some of the pieces reviewed over the last weeks, the authors provide a good summary of the topic: ‘The largest and most immediate commercial and antitrust concern regarding SEPs is that the owners of SEPs will command very substantial market power once the standard in question becomes widely adopted. Put simply: without some checks, SEP owners could opportunistically engage in patent holdup, taking advantage of the fact that the firms and users adopting the standard become individually and collectively locked in to the…

Makan Delrahim, Assistant Att’y Gen., Antitrust Div., Dep’t of Justice, Remarks at the USC Gould School of Law’s Center for Transnational Law and Business Conference (Nov. 10, 2017)

This is a speech by US Department of Justice Assistant Attorney General Makan Delrahim regarding the appropriate approach to standard-setting organisations (SSOs) (and FRAND). As you may or may not know, he is a registered patent lawyer—the first head of the Antitrust Division to be so, so it is unsurprising that he has strong views on the topic. He seems to favour letting IP law run its course unimpeded (or, as he puts it: “Antitrust enforcers should . . . strive to eliminate as much as possible the unnecessary uncertainties for innovators and creators in their ability to exploit their intellectual property rights, as those uncertainties can also reduce the incentives for innovation.”), and only have antitrust intervene exceptionally (‘In case anyone is inclined to misunderstand my comments, let me clearly state that there is an important role for antitrust scrutiny in the standard setting context.’) As he colourfully puts it: ‘Once upon a time, and in their best mode, [SSOs]…

Vincent Angwenyi ‘Hold-up, Hold-out and F/RAND: The quest for balance’ (2017) Journal of Intellectual Property Law & Practice 12 (12) 1012

This paper – which can be found here –  provides a good (and straightforward) overview of the various sides of the debate on how to deal with the standardisation of intellectual property rights, standard essential patents (SEPs) and their licensing. It covers a bit of the same ground as the paper just reviewed in the post below, but in a more detailed fashion. The relevance and recent prominence of SEPs derives from the fact that end-products in a number of economic sectors now require the incorporation of numerous patented technologies (resulting in a so-called multi-component product). The production of multi-component products requires manufacturers to manage patent thickets (i.e. networks of overlapping IP rights owned by multiple patent holders) and to obtain licences from multiple rights holders. The alleged patent thicket problem is linked to the hold-up problem because the threat of an injunction by a right holder against a patent implementer who has already invested heavily in the manufacture of…

Jorge Padilla, John Davies and Aleksandra Boutin ‘The Economic Impact of Technology Standards‘

This Compass Lexecon report – which can be found here – argues that standards can lead to significant efficiencies: they not only solve coordination problems, they also seem to promote more rapid innovation than would otherwise be the case. Whether standards accelerate innovation depends greatly on who the ‘gatekeeper’ to the technology is. Among possible ‘gatekeepers’, the most pro-competitive one are voluntary standard setting organisations (SSOs). SSOs and the licensing arrangements they support enable a “market for technology,” in which smaller and specialized technology providers can thrive. As a result, competition authorities should be loath to interfere with the contractual arrangements that underpin the functioning of SSOs, should as clauses regarding FRAND terms. In more detail, the paper is structured as follows: The paper begins with an overview of why standards are valuable. Standards help certain industries achieve scale, giving users and suppliers the confidence to buy or make compatible products. While not exclusive to the IT sector, the ‘economics of…

Herbert Hovenkamp ‘Antitrust and Information Technologies’ 2017 Fla. L. Rev. 68 419

This is a polished version of a lecture given by Hovenkamp last year, and it can be found here.  As the name indicates it provides an overview of “the relationship between competition policy and the technologies of information.” A first section looks at the relationship between digital technology and market power. In particular, digital technology affects the way firms exercise market power and also creates serious measurement difficulties. A pervasive problem in analysing power in digital markets is that sellers typically have a very high ratio of fixed to variable costs. This entails that prices must be considerably above short-run marginal cost to be profitable. As a result of this, many traditional measures of market power produce unacceptable false positives. These measures include the Lerner Index and other tools derived from it, but are not limited to them: “None of the antitrust tools for assessing power is particularly sensitive to the presence of fixed costs”. He thus concludes that antitrust…

Alexander Galetovic & Stephen Haber ‘The Fallacies of Patent Hold Up Theory’ (2017) Journal of Competition Law & Economics, 13(1) 1

This paper – which can be found here – criticises the patent hold-up theory, which underpins most antitrust concerns regarding SEPs. The first section describes patent hold-up theory, which is said to: “consist of five nested claims. First, that patent owners can systematically overcharge manufacturers for licenses to their patents through the economic mechanism of holdup—the opportunistic appropriation of a downstream firm’s quasi rents (revenues in excess of short-run costs). Second, that when there are multiple patent holders, each practicing holdup on a downstream firm, cumulative patent royalty rates become astronomically high—a phenomenon patent-holdup theorists termed “royalty stacking. Third, that the holdup problem is exacerbated when patented technologies are included in the industry standards necessary to make IT products interoperable and compatible. Fourth, that patent holdup, royalty stacking, and the inclusion of patented technologies in industry  standards are strangling innovation, most particularly in SEP-intensive IT products. Fifth, that the government must intervene to solve this problem; the market, left on…

Jorge L. Contreras, Fabian Gaessler, Christian Helmers, Brian J. Love ‘Litigation of Standards-Essential Patents in Europe: A Comparative Analysis’Berkeley Technology Law Journal (2018, forthcoming)

This paper – which can be seen here – provides a comparative empirical study of European patent litigation relating to standards essential patents (SEPs). The paper begins with a description of SEPs and, more interestingly for our purposes, of the contexts in which SEP litigation arises. The simpler type of litigation occurs when the holder of a SEP and its potential licensee disagree whether an offered royalty rate is, indeed, FRAND. However, some SEP holders’ transfer patents to non-practicing entities (NPEs), including patent assertion entities (PAEs), for a variety of financial and strategic reasons. This practice is sometimes referred to as “privateering”. There are already a number of well-known cases involving SEP assertions by PAEs and other NPEs.  Moreover, there is increasing evidence that operating firms, often participants in SDOs, have been transferring significant numbers of SEPs to PAEs for enforcement purposes in privateering transactions. PAEs accounted for approximately 19% of patent assertions between 2000 and 2008 in Germany and 9%…

Richard A. Epstein and Kayvan B. Noroozi ‘Why Incentives for “Patent Holdout” Threaten to Dismantle FRAND, and Why It Matters’ IP² Working Paper No. 17006

This paper – which can be found here – argues that existing regulatory and judicial activity has unduly protected implementers (i.e. potential licensees) against SEP holders. In particular, the authors: “stress that implementers owe a significant duty to negotiate FRAND licenses in good faith, which courts have largely overlooked and underenforced. We demonstrate that implementers’ good faith obligations are a critical component of basic FRAND architecture that is strictly necessary to the development of innovation-driven standards. (…) [FRAND enables] the standards development effort to yield commercial benefits that would not exist absent innovators’ voluntary participation. We show both theoretically and empirically that courts’ failure to appreciate these aspects of the FRAND bargain, combined with their over-reliance on liability rules, i.e., damages over injunctions, incentivizes the very patent holdout problem FRAND was intended to avoid. That outcome, in turn, has motivated innovators to reduce their participation in FRAND bargains, threatening to unravel a massive innovation-commercialization marketplace, and its innumerable positive externalities to…

Koren W. Wong-Ervin, Evan Hicks, and Ariel Slonim ‘Tying and Bundling Involving Standard-Essential Patents’ (2017) George Mason Law Review 24 1091

This paper – which can be found here –  slooks at whether it is “unfair” (and therefore unlawful) for a SEP holder to license its patents, including both SEPs and non-SEPs, on a portfolio basis. The basic argument is that “SEP and non-SEP portfolio theories of harm” advanced thus far are not economically sound (this is unsurprising, given that the very first sentence of the article is: “Competition agencies around the world have taken the unwarranted position that antitrust enforcement involving standard-essential patents (SEPs) upon which a patent holder has made an assurance to license on fair, reasonable, and nondiscriminatory (FRAND) terms should be subject to special rules or unique presumptions and burdens of proof” (emphasis is mine)). Instead, for these portfolios to infringe competition law there: “would have to be an exclusionary effect on other sellers because bundling thwarts buyers’ desire to purchase substitutes for one or more of the goods in the bundle from those other sellers to an…

Matthew Sipe ‘Patent Privateers and Antitrust Fears’ (2016) 22 Mich. Telecomm. & Tech. L. Rev. 191

this paper – which can be found here – deals with the relationship between patent assertion entities (a.k.a. patent trolls) and antitrust. This relates to privateering,  a practice through which a firm sponsors the assertion of IP claims by third parties (so-called patent assertion entities (“PAEs”)) with the ultimate objective of raising competitors’ costs without disclosing who is ultimately behind this practice. However,  PAEs act for themselvesin most cases, and their actions are not necessarily anti-competitive. PAEs are merely entities that acquire and enforce patents without actually practicing them – their business model is predicated on acquiring licensing fees from entities that actually provide goods and services (so-called “operating entities”). PAEs have been severely criticised, and it has been suggested that antitrust be deployed against them.  At first glance, the nexus between antitrust law and PAEs seems clear: if litigious patent trolls are unfairly deteriorating the markets for various patented goods, antitrust law can step in and reassert the proper rules…