Deal or no deal? Licensing negotiations in standard-setting organizations

Antitrust Law Journal

Volumn 77, Issue 3, 2011, Pages 855-888

  Gilbert, Richard J ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

Author keywords

[No Author keywords available]

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EID: 84857174864     PISSN: 00036056     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (81)

1. See, e.g., Jonathan L. Rubin, Patents, Antitrust, and Rivalry in Standard- Setting, 38 RUTGERS L.J. 509, 513-514 (2007).
2. See, e.g., U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, ANTITRUST ENFORCEMENT AND INTELLECTUAL PROPERTY RIGHTS: PROMOTING INNOVATION AND COMPETITION 38 (2007) ( " A holder of IP incorporated into a standard can exploit its position if it is costly for users of the standard to switch to a different technology after the standard is set.") [hereinafter IP REPORT], available at http://www.justice.gov/atr/public/hearings/ip/222655.pdf.
3. Joseph Farrell et al., Standard Setting, Patents, and Hold-Up, 74 ANTITRUST L.J. 603 (2007).
4. see OLIVER E. WILLIAMSON, THE ECONOMIC INSTITUTIONS OF CAPITALISM: FIRMS, MARKETS, RELATIONAL CONTRACTING (1985).
5. R.H. Coase, The Nature of the Firm, 4 ECONOMICA 386 (1937).
6. Paul L. Joskow, Vertical Integration and Long-term Contracts: The Case of Coal-Burning Electric Generating Plants, 1 J.L. ECON. & ORG. 33 (1985).
7. Benjamin Klein, Robert G. Crawford & Armen A. Alchian, Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, 21 J.L. & ECON. 297 (1978).
8. Oliver D. Hart, Incomplete Contracts, in 2 THE NEW PALGRAVE: A DICTIONARY OF ECONOMICS 752 (John Eatwell, Murray Milgate & Peter Newman eds., 1987). The ability to act opportunistically does not imply that rights holders necessarily exercise this ability.
9. See Frequently Asked Questions, ANSI, http://www.ansi.org/about-ansi/ faqs/faqs.aspx?menuid=l.
10. See Roger D. Blair & Jeffrey L. Harrison, Antitrust Policy and Monopsony, 76 CORNELL L. REV. 297, 306 (1991) ("[M]onopsony power is to the demand side of a market what monopoly power is to the supply side."). In what follows I use the terms "buyer market power by an SSO" and "SSO monopsony power" to refer to the collective exercise of buyer market power and monopsony power by members of the SSO. Concerns about licensee holdup can arise if the SSO has buyer market power that falls short of monopsony power.
11. See, e.g., David J. Teece & Edward F. Sherry, Standards Setting and Antitrust, 87 MINN. L. REV. 1913, 1928, 1931 (2003). While members of an SSO are often actual or potential competitors in markets for products that employ a technology included in a standard, such competition is not necessary for joint royalty negotiation to have anticompetitive effects. Technology users have a joint interest in securing a low royalty, and through collective action may be able to negotiate a lower royalty than any one of them could obtain through independent bilateral negotiation.
12. See Business Review Letter from Thomas O. Bamett, Assistant Att'y Gen., to Robert A. Skitol, Drinker, Biddle & Reath, LLP (Oct. 30, 2006) [hereinafter VITA Letter], available at http://www.justice.gov/atr/public/ busreview/219380.pdf.
13. Business Review Letter from Thomas O. Bamett, Assistant Att'y Gen., to Michael A. Lindsay, Dorsey & Whitney LLP (Apr. 30, 2007) [hereinafter IEEE Letter], available at http://www.justice.gov/atr/public/busreview/222978.pdf.
14. See, e.g., J. Gregory Sidak, Patent Holdup and Oligopsonistic Collusion in Standard-Setting Organizations, 5 J. COMPETITION L. & ECON. 123, 173 (2009).
15. Chairman Deborah Piatt Majoras, Fed. Trade Comm'n, Recognizing the Procompetitive Potential of Royalty Discussions in Standard Setting, Remarks at Conference on Standardization and the Law: Developing the Golden Mean for Global Trade 7 (Sept. 23, 2005) ("[J]oint ex ante royalty discussions that are reasonably necessary to avoid holdup do not warrant per se condemnation. Rather, they merit the balancing undertaken in a rule of reason review."), available at http://www.ftc.gov/speeches/majoras/050923stanford.pdf.
16. R. Hewitt Pate, Assistant Att'y Gen., Antitrust Div., U.S. Dep't of Justice, Competition and Intellectual Property in the U.S.: Licensing Freedom and the Limits of Antitrust, EU Competition Workshop 9 (June 3, 2005) ("There is a possibility of anticompetitive effects from ex ante license fee negotiations, but it seems only reasonable to balance that concern against the inefficiencies of ex post negotiations and licensing holdup."), available at http://www.justice.gov/atr/public/speeches/209359.pdf.
17. The Agencies describe the general analytic framework for evaluation of collaborations among competitors in Fed. Trade Comm'n & U.S. Dep't of Justice, Antitrust Guidelines for Collaborations Among Competitors (2000) [hereinafter Guidelines for Collaborations Among Competitors], available at http://www.ftc.gov/os/2000/04/ftcdojguidelines.pdf.
18. Damien Geradin & Anne Layne-Farrar, The Logic and Limits of Ex Ante Competition in a Standard- Setting Environment, COMPETITION POL'Y INT'L, Spring 2007, at 79, 97.
19. James F. Rill & Christopher J. MacAvoy, Ex Ante Licensing Negotiations in Standard Setting and the Rule of Reason, ANTITRUST REP., Dec. 2010, at 67.
20. See, e.g., Joseph Farrell & Michael L. Katz, The Economics of Welfare Standards in Antitrust, COMPETITION POL'Y INT'L, Autumn 2006, at 3.
21. Ken Heyer, Welfare Standards and Merger Analysis: Why Not the Best?, COMPETITION POL'Y INT'L, Autumn 2006, at 29.
22. See, e.g., Mark R. Patterson, Antitrust and the Costs of Standard-Setting: A Commentary on Teece and Sherry, 87 MINN. L. REV. 1995, 1999-2003 (2003).
23. See Mark A. Lemley & Carl Shapiro, Patent Holdup and Royalty Stacking, 85 TEX. L. REV. 1991, 1992 (2007).
24. Michael A. Carrier, Why Antitrust Should Defer to the Intellectual Property Rules of Standard-Setting Organizations: A Commentary on Teece and Sherry, 87 MINN. L. REV. 2019, 2030-31 (2003) ("Holdup affects IP owners as well as IP users.").
25. See, e.g., Roger G. Brooks & Damien Geradin, Interpreting and Enforcing the Voluntary FRAND Commitment (July 20, 2010), available at http://ssrn.com/abstract=1645878.
26. See, e.g., Mark A. Lemley, Intellectual Property Rights and Standard-Setting Organizations, 90 CALIF. L. REV. 1889, 1913 (2002) ("One of the most common requirements imposed on IP owners is an obligation to license IP rights on reasonable and nondiscriminatory terms. But virtually no SSO policies specify what that phrase means, leaving courts to decide what terms are 'reasonable.'").
27. Patrick D. Curran, Standard-Setting Organizations: Patents, Price Fixing, and Per Se Legality, 70 U. CHI. L. REV. 983, 983 (2003).
28. Gil Ohana, Marc Hansen & Omar Shah, Disclosure and Negotiation of Licensing Terms Prior to Adoption of Industry Standards: Preventing Another Patent Ambush?, 24 EUR. COMPETITION L. REV. 644, 648 (2003).
29. Nokia Corp. v. Qualcomm, Inc., No. 06-509-JJF, 2006 U.S. Dist. LEXIS 61383 (D. Del. Aug. 16, 2006).
30. Agere Sys. Guardian Corp. v. Proxim, Inc., 190 F. Supp. 2d 726 (D. Del. 2002).
31. Townshend v. Rockwell Int'l Corp., 55 U.S.P.Q. 2d (BNA) 1011, 1018 (N.D. Cal. 2000).
32. See Final Order, Rambus, Inc., FTC Docket No. 9302 (Feb. 2, 2007), available at http://www.ftc.gov/os/adjpro/d9302/070205finalorder.pdf.
33. Opinion of the Commission on Remedy, Rambus, Inc., FTC Docket No. 9302, (Feb. 2, 2007), available at http://www.ftc.gov/os/adjpro/d9302/070205opinion. pdf.
34. see, e.g., Rudi Bekkers & Joel West, The Limits to IPR Standardization Policies as Evidenced by Strategic Patenting in UMTS, 33 TELECOMM. POL'Y 80 (2009).
35. Robert P. Merges & Jeffrey M. Kuhn, An Estoppel Doctrine for Patented Standards, 97 CALIF. L. REV. 1 (2009). For an analysis of the merits of ex ante contracting and FRAND royalty terms.
36. see Luke M. Froeb, Bernhard Ganglmair & Gregory J. Werden, Patent Hold Up and Antitrust: How a Well-intentioned Rule Could Retard Innovation (Vanderbilt Law & Economics Research Paper No. 11-3, 2010), available at http://ssrn.com/abstract=1735587.
37. See also Anne Layne-Farrar, Considering Whether Ex Ante Joint Negotiations Within Standard Setting Are "Reasonably Necessary," GLOBAL COMPETITION POL'Y, Spring 2008, Vol. 5, No. 1.
38. Anne Layne-Farrar, Gerard Llobet & A. Jorge Padilla, Preventing Patent Hold Up: An Economic Assessment of Ex Ante Licensing Negotiations in Standard Setting, 37 AIPLA Q.J. 445 (2009) (Once pivotal players obtain reasonable rates, the "non-discriminatory" component of a RAND licensing commitment ensures that other pivotal players receive reasonable rates as well.).
39. See John Nash, Two-Person Cooperative Games, 21 ECONOMETRICA 128 (1953).
40. Ken Binmore, Ariel Rubinstein & Asher Wolinsky, The Nash Bargaining Solution in Economic Modelling, 17 RAND J. ECON. 176 (1986).
41. See, e.g., Henrik Horn & Asher Wolinsky, Worker Substitutability and Patterns of Unionisation, 98 ECON. J., 484,487-88 (1988) (applying Nash bargaining to exclusive bargaining with trade unions).
42. Alp E. Atakan, Bargaining: Separately or Together?, 11 REV. ECON. DESIGN 295, 2 9 7 ( 2 0 0 8 ) .
43. See B. Douglas Bernheim & Michael D. Whinston, Exclusive Dealing, 106 J. POL. ECON. 64, 71 (1998).
44. see also Ilya R. Segal & Michael D. Whinston, Naked Exclusion: Comment, 90 AM. ECON. REV. 296 (2000) (discussing pivotal buyers in the context of exclusive dealing arrangements).
45. ANSI policy states that "Voluntary consensus standards serve as the cornerstone of the U.S. standardization system. These documents arise from an open process that depends upon data gathering, a vigorous discussion of all viewpoints, and agreement among a diverse range of stakeholders." A N S I , OVERVIEW OF THE U . S . STANDARDIZATION SYSTEM 2 ( 2 d ed., July 2 0 0 7 ) , available at http://publicaa.ansi.org/sites/apdl/Documents/ News%20and%20Publications/Other%20Documents/US-Stdzn-System-FINAL.pdf.
46. I E E E - S A STANDARDS BOARD, I E E E - S A STANDARDS BOARD OPERATIONS MANUAL §5.4.1 (2011), available at http://standards.ieee.org/guides/opman/ sect5.html.
47. JEDEC, JEDEC MANUAL OF ORGANIZATION AND PROCEDURE § 5 (rev. of JM21M, M a y 2 0 0 8 ) , available at http://www.jedec.org/sites/default/files/ JM21P%5Bl%5D.pdf.
48. The IEEE requires that at least 75 percent of a working group must vote on a proposed standard and 75 percent of the votes must be in the affirmative to adopt the standard. IEEE-SA STANDARDS BOARD, I E E E - S A STANDARDS BOARD OPERATIONS MANUAL § 5 . 4 . 3 . 1 (2011), available at http://standards. ieee.org/guides/ opman/sect5.html.
49. VITA STANDARDS ORGANIZATION, VSO POLICIES AND PROCEDURES § 7.2.1.1 (rev. 2.6, Nov. 2005), available at http://www.vita.com/home/VSO/ vso-pp-r2d6.pdf.
50. See, e.g., Joseph Farrell & Garth Saloner, Coordination Through Committees and Markets, 19 RAND J. ECON. 235 (1988). Switching also may be difficult if alternatives are risky, if there is high demand for backward compatibility, or if switching would incur a loss of experience economies.
51. MPEG LA, ATSC Patent Portfolio License Briefing 7 (Mar. 25, 2010) (PowerPoint presentation), http://www.mpegla.com/main/programs/ATSC/Documents/ atscweb.ppt.
52. MPEG LA, AVC Patent Portfolio License Briefing 8-9 (May 1, 2011) (PowerPoint presentation), http://www.mpegla.com/main/programs/avc/Documents/ avcweb.ppt.
53. MPEG LA, MPEG-2 Systems Patent Portfolio License Briefing 7 (Apr. 1, 2011) (PowerPoint presentation), http://www.mpegla.com/main/programs/m2s/ Documents/m2sweb. ppt.
54. (see MPEG-2 Systems FAQ, MPEG LA, http://www.mpegla. com/main/programs/ M2S/Pages/FAQ.aspx.
55. AVC/H.264 License Agreement, MPEG LA, http://www.mpegla.com/main/ programs/AVC/Pages/Agreement.aspx.
56. See Media / Licensing Programs Archive, MPEG LA, http://www.mpegla.com/ main/pages/MediaArchive.aspx.
57. Media / Licensing Programs, MPEG LA, http://www.mpegla.com/main/pages/ media.aspx.
58. See DVB-T, SISVEL, http://www.sisvel.com/english/licensingprograms/dvbt/ licensingprogram.
59. See CDMA2000, SISVEL, http://www.sisvel.com/english/licensingprograms/ cda2/licenseterms.
60. See Via Licensing-FAQs, http://www.vialicensing.com/about/faq.aspx.
61. See Via Licensing-IEEE 802.11, VIA LICENSING, http://www.vialicensing. com/licensing/IEEE8021l-fees.cfm.
62. See Via Licensing-Advanced Audio Coding, ACC License Fees, VIA LICENSING, http://www.vialicensing.com/licensing/aac-fees.aspx.
63. See Via Licensing-MPEG-2 AAC Standard, Overview, VIA LICENSING, http://www.vialicensing.com/licensing/mpeg2aac-overview.aspx.
64. Via Licensing-MPEG-2 AAC Standard, License Fees, VIA LICENSING, http://www.vialicensing.com/licensing/mpeg2aac-fees.aspx.
65. See Via Licensing-OpenCable Applications Platform, OCAP License Fees, VIA LICENSING, http://www.vialicensing.com/licensing/ocap-fees.aspx.
66. See Royalty Rates under DVD6C Licensing Program, DVD6C LICENSING GROUP, http://www.dvd6cla.com/royaltyrate.html.
67. See DVD Patent Joint Licensing Program Frequently Asked Questions, DVD6C LICENSING GROUP, http://www.dvd6cla.com/faq.html.
68. Robert D. Willig, Pareto-Superior Nonlinear Outlay Schedules, 9 BELL J. ECON. 56, 56 (1978) ("For any uniform price unequal to marginal cost, there is a nonlinear outlay schedule that is preferred by each consumer and that yields greater vendor profit.").
69. See R. Preston McAfee & Marius Schwartz, Opportunism in Multilateral Vertical Contracting: Nondiscrimination, Exclusivity, and Uniformity, 84 AM. ECON. REV. 210 (1994). Note that licensing terms with late adopters can disadvantage early adopters even if late adopters are differentially locked in to the licensed technology as a consequence of investments that are specific to the technology, because the patentee can take advantage of lock-in by charging higher fixed fees.
70. For example, a licensing arrangement that prevents the licensee from dealing in other technologies may encourage the licensee to develop and market the licensed technology or specialized applications of that technology. U.S. Dep't of Justice & Fed. Trade Comm'n, Antitrust Guidelines for the Licensing of Intellectual Property 1 4.1.2 (1995), available at http://www.ftc. gov/bc/0558.pdf.
71. See, e.g., Business Review Letter from Joel I. Klein, Assistant Att'y Gen., Antitrust Div., U.S. Dep't of Justice, to Gerrard [sic] R. Beeney, Esq., Sullivan & Cromwell, at 13 (June 26, 1997), available at http://www.usdoj.gov/atr/public/busreview/215742.pdf.
72. Business Review Letter from Joel I. Klein, Assistant Att'y Gen., Antitrust Div., U.S. Dep't of Justice, to Garrard R. Beeney, Esq., Sullivan & Cromwell, at 14 (Dec. 16, 1998), available at http://www.usdoj.gov/ atr/public/busreview/2121 .pdf.
73. See, e.g., ANSI, 62-2007 ANSI Patent Policy Revision (2007), available at http://publicaa.ansi.org/sites/apdl/ Reference%20Documents%20Regarding%20ANSI%20Patent%20Policy/62-2007%20ANSI%20 Patent%20Policy%20Revision.pdf.
74. See, e.g., Mark A. Lemley, Ten Things to Do About Patent Holdup of Standards (and One Not to), 48 B.C.L. REV. 149, 157 (2007).
75. François Lévêque & Yann Ménière, Technology Standards, Patents and Antitrust, 9 COMPETITION & REO. NETWORK INDUS. 29, 3 9 - 4 0 (2008).
76. See Oliver E. Williamson, Credible Commitments: Using Hostages to Support Exchange, 17 AM. ECON. REV. 519 (1983).
77. See, e.g., Thomas E. Cooper, Most-Favored-Customer Pricing and Tacit Collusion, 17 RAND J. ECON. 377 (1986).
78. Thomas E. Cooper & Timothy L. Fries, The Most-Favored-Nation Pricing Policy and Negotiated Prices, 9 INT'L J. INDUS. ORG. 209 (1991).
79. Aaron S. Edlin, Do Guaranteed-Low-Price Policies Guarantee High Prices, and Can Antitrust Rise to the Challenge?, 111 HARV. L. REV. 528 (1997). MFC clauses do not necessarily prevent discriminatory outcomes even if applied to all licensees.
80. See, e.g., Richard Schmalensee, Standard- Setting, Innovation Specialists and Competition Policy, 57 J. INDUS. ECON. 526, 543 (2009) ("[T]he different strategic positions of integrated firms and innovation specialists may lead to the selection of inferior standards.")
81. The IEEE alone has an active portfolio of nearly 1300 standards and projects under development. See News & Events, IEEE STANDARDS ASSOCIATION, http://standards.ieee.org/announcements/index.html.