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
Judge Mehta Questions Both Sides in Landmark Google Antitrust Case
May 2, 2024 by
CPI
FCC Urges Urgent Funding for Removal of Chinese Telecom Equipment from U.S. Networks
May 2, 2024 by
CPI
Former Pioneer CEO Facing Potential Criminal Charges For Colluding With OPEC
May 2, 2024 by
CPI
South Korea’s Antitrust Regulator Greenlights K-Pop Powerhouse Deal
May 2, 2024 by
CPI
Exxon’s Pioneer Purchase Approved, Former CEO Barred from Board
May 2, 2024 by
CPI
Antitrust Mix by CPI
Antitrust Chronicle® – Economics of Criminal Antitrust
Apr 19, 2024 by
CPI
Navigating Economic Expert Work in Criminal Antitrust Litigation
Apr 19, 2024 by
CPI
The Increased Importance of Economics in Cartel Cases
Apr 19, 2024 by
CPI
A Law and Economics Analysis of the Antitrust Treatment of Physician Collective Price Agreements
Apr 19, 2024 by
CPI
Information Exchange In Criminal Antitrust Cases: How Economic Testimony Can Tip The Scales
Apr 19, 2024 by
CPI