Preventing Patent Hold Up: An Economic Assessment of Ex Ante Licensing Negotiations in Standard Setting

42 Pages Posted: 8 May 2008 Last revised: 28 Dec 2013

Anne Layne-Farrar

Charles River Associates; Northwestern University

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI); Centre for Economic Policy Research (CEPR)

Jorge Padilla

Compass Lexecon

Date Written: May 5, 2008

Abstract

The quote in the title refers to a recurring principle in the Antitrust Guidelines for the Licensing of Intellectual Property, issued jointly by the US Department of Justice and the Federal Trade Commission in 1995. That report states that The Agencies' general approach in analyzing a licensing restraint under the rule of reason is to inquire whether the restraint is likely to have anticompetitive effects and, if so, whether the restraint is reasonably necessary to achieve procompetitive benefits that outweigh those anticompetitive effects. We apply this standard of evaluation to recent proposals for joint licensing negotiations in standard setting contexts, which have been offered as a solution to the problem of opportunistic licensing and patent hold up. We find that, to the contrary, joint negotiations are not reasonably necessary to prevent hold up. Instead, other more moderate policy solutions that take advantage of existing institutional features within standard setting bodies have a greater likelihood of preventing hold up without running the risk of anticompetitive licensee collusion that is present with joint negotiations. In particular, we posit that standard setting bodies should set voting rules to obtain majority support in the selection of technologies for a standard and should consider means of encouraging ex ante bilateral negotiations. In addition, competition authorities could focus on the enforcement of non-discriminatory licensing as a means of preventing anticompetitive opportunistic hold up.

Keywords: Standard Setting Organizations, Licensing, Ex Ante Negotiations, Patent Hold-Up

JEL Classification: L24, L44, K21

Suggested Citation

Layne-Farrar, Anne and Llobet, Gerard and Padilla, Jorge, Preventing Patent Hold Up: An Economic Assessment of Ex Ante Licensing Negotiations in Standard Setting (May 5, 2008). Available at SSRN: https://ssrn.com/abstract=1129551 or http://dx.doi.org/10.2139/ssrn.1129551

Anne Layne-Farrar (Contact Author)

Charles River Associates ( email )

1 South Wacker Drive
Suite 3400
Chicago, IL 60606
United States
312-377-9238 (Phone)

HOME PAGE: http://www.crai.com

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Gerard Llobet

Centre for Monetary and Financial Studies (CEMFI) ( email )

Casado del Alisal 5
28014 Madrid
SPAIN
34 91 429 0551 (Phone)
34 91 429 1056 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

77 Bastwick Street
London, EC1V 3PZ
United Kingdom

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

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