The Economic Case Against Licensing Negotiation Groups in the Internet of Things

USC CLASS Research Paper Series No. CLASS22-1

USC Legal Studies Research Paper Series No. 22-1

29 Pages Posted: 5 Jan 2022 Last revised: 10 Jan 2022

See all articles by Jonathan Barnett

Jonathan Barnett

University of Southern California Gould School of Law

Date Written: January 10, 2022

Abstract

Competition policy generally prohibits coordination among buyers or sellers, especially coordination on price, price-related inputs, and output. In licensing markets for standard-essential patents (“SEPs”), it has been periodically proposed that this rule should be relaxed to permit the formation of licensing negotiation groups (“LNGs”), which is expected to reduce transaction costs and the purportedly “excessive” royalties paid to SEP licensors. Based on the economic structure of wireless technology markets, and empirical evidence from over three decades of SEP licensing, this policy intervention is likely to degrade, rather than enhance, competitive conditions in wireless communications and other 5G-enabled markets encompassed by the “Internet of Things.” In the short term, LNGs would most likely result in a redistributive (not an efficiency) effect that shifts economic value from innovators to implementers in the wireless technology supply chain without necessarily passing on cost-savings to consumers. In the medium to longer term, LNGs are liable to impose significant efficiency losses by endangering the viability of licensing-based monetization models that have funded continuous R&D investment, promoted broad dissemination of technology inputs, facilitated robust entry in device production, and enabled transformative business models across a wide range of industries. While LNGs may reduce the transaction costs of SEP licensing, pooling structures have a demonstrated record of having achieved the same objective in patent-intensive information technology markets at a substantially lower risk of competitive harm.

Suggested Citation

Barnett, Jonathan, The Economic Case Against Licensing Negotiation Groups in the Internet of Things (January 10, 2022). USC CLASS Research Paper Series No. CLASS22-1, USC Legal Studies Research Paper Series No. 22-1, Available at SSRN: https://ssrn.com/abstract=3999461 or http://dx.doi.org/10.2139/ssrn.3999461

Jonathan Barnett (Contact Author)

University of Southern California Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
41
Abstract Views
464
PlumX Metrics