Wednesday, June 29, 2016

New Papers on FRAND

I haven't read these yet myself, so I may have comments after I have done so.

1.  Alexander Galetovic and Kirti Gupta have posted a paper on ssrn titled Royalty Stacking and Standard-Essential Patents:  Theory and Evidence from the World Mobile Wireless IndustryHere is a link to the paper, and here is the abstract: 
The royalty stacking hypothesis is based on the Cournot-complement model. It states that the royalties individually set by each standard essential patent holder (SEP holder) may add up to prohibitively high levels. We develop an equilibrium model with general log-concave constant-pass-through demand, downstream oligopoly and endogenous entry into manufacturing. Each SEP holder independently sets a linear royalty to maximize her individual profit.
The model shows that roughly 10 SEP holders suffice to significantly reduce equilibrium output; with 100 SEP holders output nearly collapses. As the number of SEP holders increases (i) the equilibrium price rises; (ii) quantity falls (iii) individual SEP holders royalties and margins fall; and (iv) downstream manufacturing concentrates.
We look for evidence of royalty stacking in the world mobile wireless industry. The number of SEP holders for the widely deployed 2G, 3G, and 4G wireless cellular standards protractedly grew from 2 in 1994 to 130 in 2013. We find no evidence of royalty stacking. Between 1994 and 2013: (i) the number of devices sold each year rose 62 times or 20:1% per year on average; (ii) controlling for technological generation, the real average selling price of a device fell between 11:4% and 24:8% per year (iii) the introductory average selling price of successive generations fell over time; (iv) neither the average gross margin of SEP holders nor of non-SEP holders shows any trend; (v) the number of device manufacturers grew from one to 43; (vi) since 2001, concentration fell and the number of equivalent manufacturers rose from six to nine.
2.  Pierre Larouche and Florian Schuett has posted a paper on ssrn titled    Here is a link to the paper, and here is the abstract:
As part of the standard-setting process, certain patents become essential. This may allow the owners of these standard-essential patents to hold up implementers of the standard, who can no longer turn to substitute technologies. However, many real-world standards evolve over time, with several generations of standards succeeding each other. Thus, standard setting is a repeated game in which participants can condition future behavior on whether or not hold-up has occurred in the past. In the presence of complementarity between the different patents included in the standard, technology contributors have an incentive to discipline each other and keep royalties low, which can be achieved by threatening to exclude contributors who have engaged in hold-up from future rounds of the process. We show that repeated standard setting can sustain FRAND royalties provided the probability that another round of standard setting will occur is sufficiently high. We also examine how the decision-making rules of standard-setting organizations affect the sustainability of FRAND royalties.
3.  Nicolas Petit has posted a paper titled The Antitrust and Intellectual Property Intersection in European Union Law, which is a chapter in a forthcoming edited volume titled Handbook of Antitrust, Intellectual Property and High Tech (Roger D. Blair & D. Daniel Sokol editors, Cambridge University Press, forthcoming).  Here is a link to the paper, and here is the abstract:
In European legal scholarship, many articles discuss the equilibrium reached in the case-law of the Court of Justice of the European Union (“CJEU”) when the EU antitrust prohibitions apply to, and restrain, the free and ordinary use of intellectual property rights (“IPRs”). We call this the antitrust-IP intersection. The most interesting feature of this literature is perhaps the common assumption that a unifying substantive perspective, vision or theory on IPR underpins the intersection point reached by the antitrust case-law. Whilst the theory of “absolutism” can be quickly disposed of, several other theories like inherency, exceptionalism or complementarity have been described as the lynchpin of the antitrust-IP intersection. Our paper offers a different reading of the case-law. It submits that the antitrust-IP intersection does not rest on any unitary theory which, in turn, bespeaks the Court’s vision of the social function of IPRs. Instead, the main feature of the CJEU case-law is that a specific methodology is applied to antitrust cases with IPR ramifications. The CJEU deals with most of such cases under a rule-based approach, instead of a standard-based approach. By rule-based approach, we refer to the ex ante setting of structured tests of liability, by opposition to ex post case-by-case resolution on grounds of a pre-determined, general standard (e.g., reasonableness, competition on the merits, efficiency, fairness, equity, etc.). As will be seen below, this approach has many virtues, not least in terms of legal certainty. But it also has a major qualification. Whilst the Court has consistently formulated rules of liability and justifiability at the antitrust and IP intersection, it has at the same time often embedded abstract standards within those rules. The implications of this mixed approach are unclear.
Discussion of Huawei v. ZTE at pp. 17-18, 23-24, 29-30.

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