The Complements Problem within Standard Setting: Assessing the Evidence on Royalty Stacking

35 Pages Posted: 6 Dec 2006 Last revised: 25 May 2014

Damien Geradin

Tilburg Law & Economics Center (TILEC); University College London - Faculty of Laws

Anne Layne-Farrar

Charles River Associates; Northwestern University

Jorge Padilla

Compass Lexecon

Date Written: January 8, 2008

Abstract

Royalty stacking, the most recent incarnation of the complements problem identified in the early 1800s by French engineer Augustine Cournot, has received considerable attention. The potential for royalty stacking within standard setting efforts arises from the fact that downstream manufacturing companies can face multiple upstream gatekeepers, each of whom must grant a license to their "essential" patents before the downstream firms can legally commercialize the standard. Some authors have claimed that in high-tech industries - which are frequently characterized by cumulative innovation, dispersed ownership of patents, and cooperative standard setting efforts - the cost of obtaining all necessary licenses is too high, such that innovation has been thwarted and consumers have been harmed. In this paper, we assess the case for royalty stacking within standards and find the evidentiary support weak at best. We note that the relevant question is not whether royalty stacking is possible, as the theoretical arguments behind it have withstood the test of time, but whether it is common enough and costly enough in actuality to warrant policy changes. The available evidence suggests not, implying that any policy changes aimed at solving royalty stacking are likely to cause more (unintended) harm than they cure.

Keywords: Royalty Stacking, Patent Thicket, Patent Holdup, Anticommons, Innovation, Patent Licensing

JEL Classification: D42, K21, L12, L40, L96

Suggested Citation

Geradin, Damien and Layne-Farrar, Anne and Padilla, Jorge, The Complements Problem within Standard Setting: Assessing the Evidence on Royalty Stacking (January 8, 2008). Boston University Journal of Science and Technology Law, Vol. 14, No. 2, 2008. Available at SSRN: https://ssrn.com/abstract=949599

Damien Geradin

Tilburg Law & Economics Center (TILEC)

Tilburg, 5000 LE
Netherlands

University College London - Faculty of Laws ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

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

Jorge Padilla

Compass Lexecon ( email )

Paseo de la Castellana 7
Madrid, 28046
Spain

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