By Dirk Auer & Julian Morris (International Center for Law and Economics)
Thousands of patents underpin the technologies that power the digital economy. Coordination among firms developing and implementing these novel technologies has notably been facilitated in large part by Standards Developing Organizations (SDOs). Despite the evident benefits of standardization in general and SDOs in particular, certain aspects of these processes have come under severe scrutiny from scholars, antitrust authorities and courts. These critics argue that the standardization space suffers from two crippling market failures, namely “patent holdup” and “royalty stacking”. They thus conclude that opportunistic firms will squeeze their rivals’ profits, harming consumers and stifling innovation in the process. However, recent empirical scholarship strongly suggests that patent holdup and royalty stacking rarely, if ever, occur in the standardization space.
Against this checkered backdrop, our paper argues that standardization is an emergent phenomenon, where parties have strong incentives to design institutions and contractual relationships that mitigate the scope for opportunistic behavior (including patent holdup and royalty stacking). The paper explores how these incentives have likely enabled firms to avoid severe market failures. We argue that ignoring these complex market dynamics may cause antitrust authorities and courts to do more harm than good (notably by exacerbating patent holdout behavior). The paper then reviews recent regulatory interventions and questions whether this has indeed been the case. Finally, we suggest that antitrust authorities and courts should draw inspiration from acclaimed scholarship regarding both the evolution of cooperation and the management of common-pool resources.
Featured News
FTC Sues to Block Tempur Sealy’s $4.3 Billion Acquisition of Mattress Firm
Oct 24, 2024 by
CPI
Mexican Watchdog Proposes Fintech Reforms to Boost Financial Inclusion
Oct 24, 2024 by
CPI
AMA and ISMS File Antitrust Lawsuit Against MultiPlan Over Alleged Price-Fixing Scheme
Oct 24, 2024 by
CPI
Biden Administration Announces New AI Strategy to Boost National Security
Oct 24, 2024 by
CPI
Google Agrees to Provide AI-Related Documents in Monopoly Case
Oct 24, 2024 by
CPI
Antitrust Mix by CPI
Antitrust Chronicle® – Chevron
Oct 24, 2024 by
CPI
A Quartet of Decisions That Cripple Agencies
Oct 24, 2024 by
Richard J. Pierce
Goodbye, Chevron: Rediscovering the Virtues of an Independent Judiciary
Oct 24, 2024 by
Alexander Volokh
A New Era of Deference: From Chevron to Loper Bright
Oct 24, 2024 by
Daniel E. Walters
Loper Bright and Antitrust: Limited Impact on Enforcement, but a Clear Constraint on FTC Rulemaking
Oct 24, 2024 by
David Kully, Lynn Calkins & Kenneth Racowski