Governing the Patent Commons

81 Pages Posted: 8 Aug 2019

See all articles by Dirk Auer

Dirk Auer

International Center for Law & Economics (ICLE)

Julian Morris

International Center for Law and Economics; Reason Foundation; IEA, Institute of Economic Affairs, U.K.

Date Written: August 5, 2019

Abstract

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.

Keywords: Antitrust, Intellectual Property, Patents, Holdup, Holdout, Innovation

Suggested Citation

Auer, Dirk and Morris, Julian, Governing the Patent Commons (August 5, 2019). Available at SSRN: https://ssrn.com/abstract=3432225 or http://dx.doi.org/10.2139/ssrn.3432225

Dirk Auer (Contact Author)

International Center for Law & Economics (ICLE) ( email )

5005 SW Meadows Rd.
Suite 300
Lake Oswego, OR 97035
United States

HOME PAGE: http://https://laweconcenter.org/author/dirkauer/

Julian Morris

International Center for Law and Economics ( email )

2117 NE Oregon St. Ste 501
Portland, OR 97232
United States

HOME PAGE: http://https://laweconcenter.org/author/julianmorriss/

Reason Foundation ( email )

United States

HOME PAGE: http://www.reason.org

IEA, Institute of Economic Affairs, U.K.

2 Lord North Street
London SW1P 3LB
United Kingdom

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