FTC Chair Deborah Majoras spoke sense on Recognizing the Procompetitive Potential of Royalty Discussions in Standard Setting:

[J]oint ex ante royalty discussions that are reasonably necessary to avoid hold up do not warrant per se condemnation. Rather, they merit the balancing undertaken in a rule of reason review. We would apply the rule of reason to joint ex ante royalty discussions because, quite simply, they can be a sensible way of preventing hold up, which can itself be anticompetitive. Put another way, transparency on price can increase competition among rival technologies striving for incorporation into the standard at issue. They may allow the “buyers” (the potential licensees in the standard-setting group) to get a competitive price from the “sellers” (the rival patentees vying to be incorporated into the standard that the group is adopting) before lock in ends the competition for the standard and potentially confers market power on the holder of the chosen technology. (Indeed, a few SSOs do this already: SSOs that require members to license incorporated technology to each other royalty-free12 have already, in effect, collectively negotiated a royalty arrangement.) If joint ex ante royalty discussions succeed in staving off hold up, we can generally expect lower royalty rates to lead to lower marginal costs for the standardized product and lower consumer prices.13 By mitigating hold up, joint ex ante royalty discussions might also make possible the more timely and efficient development of standards. A reduction in ex ante uncertainty on royalty rates may “reduce the extent to which litigation is needed to resolve issues relating to patent and standards.”14 Joint ex ante royalty discussions also could prevent delays in the implementation of the standard resulting from ex post litigation (or threats of it), which may involve “inefficient allocation of resources intended for innovation.”15

While one recoils from the thought of the antitrust industry getting its uncomprehending (but greedy) mitts on standard-setting, Majoras' common sense is at least a step on the road to rationality.

The occasion was a conference on STANDARDIZATION AND THE LAW: DEVELOPING THE GOLDEN MEAN FOR GLOBAL TRADE held at Stanford Law School on Sept. 23, 2005.

posted by James DeLong @ 9:07 AM | Standards

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