Comments for Do standard setting organizations’ rules stand in the way of innovation? Bribosia Timothée 21 December 2016 Intellectual Property rights grant market power to the inventors as to provide incentives for innovation. Indeed, if the technology concerned does not have a substitute technology, the inventor enjoys significant market power. The IP policies adopted in most SSOs precisely aim to mitigate the risk of such abusive uses of monopoly power granted by SEPs. In this comment, we will talk…Read moreIntellectual Property rights grant market power to the inventors as to provide incentives for innovation. Indeed, if the technology concerned does not have a substitute technology, the inventor enjoys significant market power. The IP policies adopted in most SSOs precisely aim to mitigate the risk of such abusive uses of monopoly power granted by SEPs. In this comment, we will talk about the main problems to be solved concerned the licensing of standard patents. First of all, in order to understand the role of licensing, it is important to ask that question “what are the goals that companies pursue”? These goals can be quite diverse: prevent copying/preserve exclusivity, to have licensing revenue, to prevent suits, to enhance reputation, … Second, there are more and more licensing in the case of Standard Essential Patents. The patent pools have also proven to be a successful mechanism to facilitate licensing in the context of standards (for example, the DVD standards in 1997-1998; 3G technology in the mid-1990s). Third, there are not only positive points of this process. Indeed, with a growing number of standard essential patents and a growing lack of transparency about essentiality of patents and ownership of patents. That growing number of patents makes the problem of royalty stacking more prominent. Furthermore, there is a lack of clarity on what FRAND means. The lack of transparency and of clarity on FRAND may lead to excess royalty rates. Indeed, the combination of that large number of SEPS and the lack of transparency drives up transaction costs up thereby hindering the licensing process. That is caused by two things: licensors find it more difficult to enforce IP rights and licensees find it more difficult to identify which IP to license in and who owns it. Fourth, a patent ambush is a clear example of a breakdown of the standardization system. It means that a company first hides when it holds essential IP rights over the standard being developed. In that case, the others companies are locked into using it. That patent ambush reduces the possibilities of innovation for the others firms and has a negative impact of both consumer welfare and competiveness. An example of a solution to this problem would be to have an unrestricted participation in standard-setting and a transparence in the procedure for adapting the standard in question. Later, the standardization agreement must not contain obligation to comply with the standard and provide access to the standard on fair, reasonable and non-discriminatory terms. Without this regulation, we can say “the rules stand in the way of innovation”. In the sense that only one firm will benefit from this standardization. http://www.law.northwestern.edu/research-faculty/searlecenter/innovationeconomics/documents/Spulber_Standard_Setting_Organizations_and_SEPs.pdf http://ec.europa.eu/competition/publications/cpn/2011_1_1_en.pdf http://scholarship.law.berkeley.edu/cgi/viewcontent.cgi?article=1392&context=californialawreview https://definitions.uslegal.com/s/standard-setting-organization-sso/ https://www.oecd.org/daf/competition/47381304.pdf Show less Reply Axel Mugisha 21 December 2016 Standardization can be harmful for Consumer’s Surplus as a single firm gets more market power and in result of this less diverse products for consumers. I’m going to proove this trough real life examples. First, as a kid I used to play to video games. I had an XboX and all my friend a PlayStation. Unfortunately we couldn’t share our video…Read moreStandardization can be harmful for Consumer’s Surplus as a single firm gets more market power and in result of this less diverse products for consumers. I’m going to proove this trough real life examples. First, as a kid I used to play to video games. I had an XboX and all my friend a PlayStation. Unfortunately we couldn’t share our video games and this was embarassing for me. I had to buy a PS although I prefered an XboX. Another example I can give is with iPhone users. Almost all the smartphone on the available market requires the same loaders. Their price are very affordable. However, iPhone users must buy a different loader, incompatible with other smarthphones, for their phones. Therefore, Apple can charge prices that can be judged excessive by some of it’s clients. Also this process can lead to abuse of dominant position. This was the case with Intel, who sells the standard processor for computers and the European commission find them for giving « rebates to computer manufacturers on condition that they bought all, or almost all of their x86 CPUs from Intel » and for « direct payments to OEMs to halt or delay the launch of specific products containing a competitor’s x86 CPUs and to limit the sales channels available to these products »(1). Sources : (1) http://ec.europa.eu/competition/publications/cpn/2009_3_5.pdf , page 1, first paragraph. Show less Reply Mathieu Phuong Henaux 19 December 2016 In this comment, I would like to try to answer the question « Do standard setting organizations’ rules stand in the way of innovation ? ». As mentioned in the beginning of the article, standardized technologies are omnipresent yet not everybody is aware of its presence. Technology keeps on evolving; this might let us believe that there is constant innovation…Read moreIn this comment, I would like to try to answer the question « Do standard setting organizations’ rules stand in the way of innovation ? ». As mentioned in the beginning of the article, standardized technologies are omnipresent yet not everybody is aware of its presence. Technology keeps on evolving; this might let us believe that there is constant innovation but the question is what really is hidden behind the evolution of technology. The article uses as illustration the “format war” between Blu-Ray and HD-DVD (Sony and Toshiba). After some research on the internet, Wikipedia describes “format war” as “competition between mutually incompatible proprietary formats that compete for the same market (…)”.  We can clearly confirm that Sony won the war as most of us know Blu-Ray where others have maybe barely heard of HD-DVD. Having competition like a format war seems pretty advantageous for the consumer as it will get him better off than without competition. It has different effects on the producers as they have to find something innovative. In cases like a format war, patents might not be enough because producers need incentives to keep on innovating and we all know that innovating can be very costly. Producers have to estimate the benefits and see if it is worth it comparing to the costs that would be incurred. Next, we learn in the article that standards are implemented by standard-setting organizations (SSOs). The article also mentions open licensing of the required IP rights. Open license allows the user to “access, re-use and redistribute a work with few or no restrictions.”  I do not think open licensing is the best solution, thought I it might be good in the short run. I think that with open licensing, other firms have a basis on which they can start innovating, which generates incentives for the competing firms. The problem here is that the firm that gave the open license might not be as innovative as predicted while competitors can thanks to the open license. This is something that must be discussed and settled as it would be unfair for the firm sharing its knowledge. In this case I doubt that the sharing undertaking will keep on innovating, knowing that it benefits more to competitors than itself. There are also policy issues. On the one hand standards can highly benefit consumers but a lot of litigation activities have taken place. SSOs might be a determinant factor when it comes to foster innovation. On the other hand, I have to agree that this litigation might decrease the incentive to innovate. Basically, a kind of ‘balance’ is needed between the innovative firms and the SSOs’ rules to make sure innovation keeps on taking place. In the article, there is also the term “essentiality.” I must totally agree with Josh Lerner and Jean Tirole when it comes to the two facets of essentiality. Both instances must be completed yet they are hard to achieve together. They form a kind of contradiction, making it very hard to respect. Maybe something else has to be invented and regulated in order to fulfill essentiality. Finally, the FRAND terms. It is disappointing, from my point of view, that the US applies RAND instead of FRAND. The Fair part of the terms is very important in order to come to an agreement. Without the Fair part, one can easily abuse of its advantageous position. Theoretically, FRAND seems pretty attractive yet in practice it is very hard to achieve. In my opinion, FRAND terms are a really good idea but the problem here is its regulation. FRAND terms cannot be standardized as it is impossible to establish terms that would be possible to apply in every case. In contrast, I have to agree with Romesh Vaitilingam when he says that “most of the firms have been on both sides of the table.”  His statement makes sense as most of the firms here have innovated or at least tried to, meaning they usually both have been defendants and claimants. This might be a first step in creating a sort of standardized FRAND terms. To conclude, I think that NO, currently SSO’s rules do not stand in the way of innovation or at least not completely. Effectively, I think that standardized rules help innovation by using some kind of protection. On the other side, the system is not perfect. Some improvements are still needed to make a better system for the use of standardized technologies when it comes to innovation.  https://en.wikipedia.org/wiki/Format_war  http://opendefinition.org/guide/  http://www.techpolicy.com/Blog/January-2014/Standard-Essential-Patents-The-Question-of-FRAND-L.aspx Show less Reply Dirk Auer 29 November 2016 Winston Churchill once said that democracy is the worst form of Government, except for all others that have been tried. In this comment, I will argue that much of the same might be said about FRAND pledges. Despite inherent weaknesses, such pledges have become the norm to address the market power issues raised by standardization. This is probably due to…Read moreWinston Churchill once said that democracy is the worst form of Government, except for all others that have been tried. In this comment, I will argue that much of the same might be said about FRAND pledges. Despite inherent weaknesses, such pledges have become the norm to address the market power issues raised by standardization. This is probably due to the absence of strong alternatives. Though standards can yield vast benefits , creating them is not without difficulties. In most cases, high-tech innovations rest on a myriad of patents. As a result, it takes a vast coordination effort to create new technologies. This is where standard setting organizations (SSOs) come into play. Engineers from different firms gather within these SSOs to design the technologies of tomorrow. In doing so, they face a crucial decision: choosing which patented technologies will make up the standard. How these decisions are made can have large market power ramifications. Imagine a simplified example. A hypothetical industry, comprising eight firms, gets together to create the Video Player of the Future (“VPF”). Three of these companies are competing manufacturers. They don’t own any technology (in the SSO world, they are referred to as “implementers”). The five other firms merely license technology (“licensors”). Of these five licensors, one has a patent on the only viable video format. Another firm has a patent on the only usable lens. Finally, the last three firms offer competing/substitutable disc technologies. To create a fully functional VPF player, each implementer must obtain a license for the lens, the video format, and the disc technology. When they meet within the SSO, the eight firms will thus have to agree which of these technologies they include in the standard. The lens technology and video format raise the least problems. The owners of these two technologies gain no extra market power from the standardization process. Whatever the SSO does, these licensors will hold patents that are essential to the VPF player. The only issues are Cournot complements (also referred to as Royalty stacking) and potential holdup. First, firms that hold complements each set their monopoly price. The cumulative price is higher than if the complements were held by a single monopolist. Both firms and consumers are left worse-off. Second, standard setting may lead to opportunistic behavior where licensors threaten to litigate implementers in order to extract higher rents. Choosing the disc technology raises more issues. When the engineers meet, they will have to make a big decision: either leave the disc technology out of the standard or choose a single disc technology. Ideally, the SSO would leave the disc technologies out of the standard. This would maintain the benefits of standardization while ensuring there is competition between the licensors of disc technologies. Unfortunately, this might not always be possible (for example, because the other technologies have to be designed around the disc). The engineers might thus have to decide on a single technology. Doing so removes competition between the disc technologies. Summarizing, the standardization process leads to two issues: the creation of market power through the standardization agreement, and questions regarding the pricing of standard essential patents (these include royalty stacking and potential hold-up). Though they raise distinct legal questions, both of these problems are usually addressed – at least to some extent – by requiring SSOs to take FRAND pledges from the holders of essential patents. The idea behind FRAND is simple: companies agree that they will charge “Fair Reasonable And Non-Discriminatory” rates in exchange for participation in the standard. This should limit the prices that firms can charge once they are accepted in a standard. The problem is that enforcing FRAND pledges has proved problematic. One need only glance at other network industries, such as telecommunications and electricity, to see why this is the case. When these industries were first liberalized, most firms were subjected to rate of return regulations, and then price cap regulations. In both cases, regulators ultimately lacked the necessary information to efficiently perform their duties. FRAND pledges raise similar problems. They force antitrust authorities and judges to act as price regulators, even though they lack the relevant information. This problem is even more acute in the SSO context than in traditional network industries. Patents are incredibly idiosyncratic compared to commodities like telecommunications and electricity. Moreover, the very definition of an essential patent is that it no longer has any close substitutes against which its price can be compared. Incentive compatible schemes, where firms’ returns depend on their performance compared to a benchmark, are thus out the question. This has led many scholars to look for alternatives to FRAND pledges. One such alternative was proposed by Lerner and Tirole. They suggest that firms offer “structured price commitments” before they are selected into a standard. Firms holding substitutable technologies would thus compete for the market. Unfortunately, this solution is far from perfect. For a start, it may be impossible for firms to put a price on their technology years before it actually reaches the market or before the standard materializes. Second, though this solution limits hold-up problems, it does little to address royalty stacking issues (holders of patents without substitutes would have no incentive to offer a low price). Third, this solution might be hard to implement because competition between SSOs could drive firms towards those organizations with laxer rules. More speculatively, recent research regarding public decision-making might also be relevant. Lalley, Posner & Weyl suggest that Quadratic Voting induces parties to reveal their true valuations in collective decision-making procedures. The basic idea is an auction where parties can buy as many votes as they like. The cost of each vote is the square of the number of votes bought by the party. The winning proposal is the one with the most votes. The money that is collected is divided equally between the voters. Though the authors do not refer to this possibility, SSOs might use quadratic voting to decide whether licensors can price freely or whether the technology should be given away for free. Inducing firms to reveal their true valuations could help alleviate royalty stacking and holdup problems. There are, of course, considerable difficulties. Most notably, it would probably be necessary to modify the money allocation mechanism to ensure that licensors always earn a positive return after the vote. This would affect firms’ incentives during the auction. Though the Quatratic Voting example is probably closer to science fiction than reality, and Lerner and Tirole’s price commitments would be hard to apply, they illustrate an important point. There is ample scope for mechanisms leading to more efficient outcomes than FRAND pledges. The big challenge is to find such mechanisms.  There are huge benefits to be had if firms can agree upon a single interoperable technology – think of Wifi, 3/4/5G, or Blu-Ray. This is notably due to network effects, which can make fragmentation more harmful than monopoly.  For example, the Blu-Ray player calls upon roughly 8864 standard essential patents. This is the number of patent contained in the “Blue One” patent pool, which contains all the patents that are necessary to produce a Blu–Ray player. See http://www.one-blue.com/license-programs/bd-player-recorder/. Because including non-essential patents in pools can raise antitrust issues, we must assume that a large chunk of these 8864 patents are “standard essential”.  See Mark A Lemley & Carl Shapiro, Patent holdup and royalty stacking, 85 TEX. L. REV. (2006).  Including substitutes (in this case, multiple disc technologies) in the list of patents required to comply with a standard is akin to a cartel. In other words, including substitutes in the list of patents required to comply with a standard turns them into complements.  If this is possible, including disc technology in the standard would be anticompetitive.  JEAN-JACQUES LAFFONT & JEAN TIROLE, COMPETITION IN TELECOMMUNICATIONS 84 (MIT press. 2001).  Id., at 44; 85; and 86.  Id., at. 52.  Josh Lerner & Jean Tirole, Standard-essential patents, NBER WORKING PAPERS (2013).  Id., at 36.  See Eric A Posner & E Glen Weyl, Voting squared: quadratic voting in democratic politics, 68 VAND. L. REV., 475 (2015). See also, Steven P Lalley & E Glen Weyl, Quadratic voting, AVAILABLE AT SSRN 2003531 (2015). Show less Reply Kabanda Alice 2 December 2015 As we already know the patent system plays an important role in innovation. The development of a new product or technology can involve various inventions, which can be taken by different parties. In order to develop and successfully launch a product, companies need to combine these multiple inventions together. In order to organize the interaction between the different parties when…Read moreAs we already know the patent system plays an important role in innovation. The development of a new product or technology can involve various inventions, which can be taken by different parties. In order to develop and successfully launch a product, companies need to combine these multiple inventions together. In order to organize the interaction between the different parties when developing new solutions, some innovators gather themselves around a specialized organization. When competing firms within an industry get together to agree on something, people may think it will be a bad thing for consumer’s welfare. But in the case of standard-setting in technology industries, it is mostly the opposite: consumers can benefit a great deal. We can take for example the Wi-Fi which assure the consumer to be able to connect to the internet. Furthermore, by having a standard, consumers will adopt technologies faster because they know that multiple players support the technology. Therefore, it will allow companies to lower costs by increasing manufacturing volume and eliminating switching costs. Standard technologies also create new markets by avoiding standard wars. Voluntary standard-setting organizations (SSOs) enable industry participants to meet, establish and select the technology that will be used as the standard. For example, the Institute of Electrical and Electronics Engineers established the standard for Wi-Fi. However, most of the selected technologies are protected by patents or other exclusive IP rights owned by a member. Those patents will become standard-essential patents (SEP). The owners of a SEP included in a standard will control the standard because this patent gives them the right to enjoin anyone else from using it. In this sense, standards that include SEPs may provide opportunities for anti-competitive behavior. Indeed, once the standard becomes successful and that everybody has adopted the innovation, then the owner of the SEP has a market power and could try to charge a very high price for it by using the patent to leverage his position and impose higher royalty rates. As everybody will be locked in, they will have no other choice than to pay the high price. Such behavior potentially raises licensing costs in the industry, distorts the market for innovation and discourages adoption of standard. In order to prevent this bad behavior, the SSO will often ask,as condition to include a technology in a standard, to license it on “fair, reasonable, and non-discriminatory” (FRAND) terms to anyone interested in adopting the standard. This is to ensure that the market power that is generated by ownership of SEPs cannot be exercised. “FRAND commitments serve to promote the standard by assuring firms that use it that they will not be blocked from bringing their products to market as long as they are willing to pay reasonable royalties for any SEPs.”However, there are no clear definition of what is covered by such license, nor what is the appropriate compensation for its use. A better approach to FRAND is needed. sources: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2390416 https://en.wikipedia.org/wiki/Standards_organization#International_organizations http://www.techpolicy.com/Blog/January-2014/Standard-Essential-Patents-The-Question-of-FRAND-L.aspx http://www.eventbrite.com/e/interview-with-josef-drexl-standard-setting-organizations-and-processes-challenges-and-tickets-16479990094 http://www.iso.org/iso/ES/home/standards/standards-in-education/education_innovation-list/educational_innovation-detail.htm?emid=2261 Show less Reply Antoine Mounzer 2 December 2015 “Do standard setting organizations’ rules stand in the way of innovation?” – I don’t think so As Sophie Poukens mentioned in her article, there have been these past few years some sort of innovation network growing (i.e. interoperability). Indeed, every time a new product is released, whether cutting edge or existing technology, that product is somehow already connected with existing and/or…Read more“Do standard setting organizations’ rules stand in the way of innovation?” – I don’t think so As Sophie Poukens mentioned in her article, there have been these past few years some sort of innovation network growing (i.e. interoperability). Indeed, every time a new product is released, whether cutting edge or existing technology, that product is somehow already connected with existing and/or future items on the market. This is made possible thanks to the standard essential patent and, we must face it, that’s smart. Our civilisation wants to have everything connected for simplicity and range of use. However, blurred rules decided by the SSO make things not as simple as we think it is. In other words, orchestrate essential patents is not as easy as connecting a Bose Sound System to a Sony PlayStation via Bluetooth any other mean. This has come to the question stated earlier. The first thing I would like to say which is that without rules there wouldn’t be any SSO so this question could be rephrased as : Do SSOs stand in the way of innovation ? The answer to this question is simple giving the elements in the text. Without standards, interoperability would we less effective and wouldn’t lead to such progress. Having said that, the real problem is the blurred rules around these essential patents and the unbalanced market power. If laws protect consumers against abusive market power there should be laws that protects licensees against abusive cow-boy patent holders and SSOs. Beyond the two conditions for a patent to be essential, in order to be part of the Standardized patent pool, the patent owner should accept unbendable rules, legal rules. His reward being the fact that his patent will be used world wild for innovative technology. If he doesn’t agree, his patent shall remain outside the pool and thus unused by the next gen companies. There should be incentive to encourage standardization but the fact that a patent could be part of the pool is already a big reward regarding the future royalties coming from thousands of companies. All in all, the pricing rules will be at an equilibrium just like free markets does. At the beginning, the patent holder won’t have any market power (considering it is not essential yet) so negotiations can be handled and price will be taken into consideration by demand. So the only things to take into consideration are R&D investment, return on these and the incentive to standardize it. But the key is to avoid a unbalanced market power. There will be no hold up if the patent holder commits to the initial agreement. It is important to keep in mind that it is the licensees who promote innovation. As a result, they must be protected as a priority such as consumers (who are the base of economic growth) must be protected against monopolists. Sources – https://www.youtube.com/watch?v=8a07jTJIZbc – “LLSM2041 Economics of innovation lecture 10” – http://www.ipdigit.eu/2015/07/do-standard-setting-organizations-rules-stand-in-the-way-of-innovation/ – http://apps.americanbar.org/antitrust/at-committees/at-ip/pdf/abstracts/20_lerner_efficient_patent_pools.pdf Show less Reply Erica Canzani 2 December 2015 I agree with the idea of the author related to the fact that litigation on standard setting organizations, characterized by ambiguous rules, can be useful in order to confer practical meaning and to find effective solutions to this complicated topic. On the other hand I think it is also very important to try to speed this process in order to…Read moreI agree with the idea of the author related to the fact that litigation on standard setting organizations, characterized by ambiguous rules, can be useful in order to confer practical meaning and to find effective solutions to this complicated topic. On the other hand I think it is also very important to try to speed this process in order to avoid a reduction of investments in standards-compliant technologies or a decrease in their use, due to the power of the owners of standard essential patents to ask for excessive royalties. Standards are very desirable for the society indeed, as reported by the authors J. Kattan and C.Wood in the article “ Standard-essential Patents and the problem of hold-up”, by facilitating interoperability, they simplify product development, increase the consumer market and eliminate the switching costs for consumers who want to shift from the product of one firms to another product developed by another firm and thus increasing price competition. Standards do not only support consumers and foster development in technologies, but are also desirable for producers. Indeed, companies whose patents have been chosen by the intellectual property policies of standard setting organizations (“SSO’s) to be included in a standard, will deeply increase their profits and market power. This is due to the fact that, after a patent is included in a standard, it becomes essential to the consumer because it must be used to comply with that standard. Therefore, since the owners of standard essential patents usually gain direct benefit from being included under a standard; it is very important to put a strong constraint on their ability to implement a patent hold out. It is true that no consensus has yet emerged on how it is possible to better define the common licensing restrictions on Reasonable and Non-Discriminatory terms, or Fair, Reasonable, and non-discriminatory terms (F/RAND). Nevertheless, I think that a good starting point might be to evaluate the value of the patent for each SEP holder before the adoption of the standard, therefore focusing on the ex-ante value of the patent. But other possible solutions can be taken under consideration. Indeed, as outlined by the authors K. Kuhn, F. Scott Morton, H. Shelanski in the article “ Standard setting organizations can help solve the standard essential patents licensing problem”, it is necessary to create strong commitment for the SEP holder, once involve in a standard, to respect the FRAND clause. Another possible solution is to create independent agents, such as a judge or an arbitror, in order to evaluate quickly and with low costs whether an offer is a F/RAND. This action would also help small firms that usually are not able to support the higher costs of litigations. Finally a very useful mechanism to solve the problem to hold out is to define the steps that must be taken by parties in order to resolve disputes over a F/RAND’s rate, validity, essentiality or infringement before an exclusion order may be requested against the licensee. – 2004, K. A. Jakobsen, “Revisiting standard-setting organizations’ patent policies”, Northwestern Journal of Technology and Intellectual Propert – 2013, K.A. Kuhn, F. Scott Morton, H. Shelanski “ Standard setting organizations can help solve the standard essential patents licensing problem”, CPI Antitrust Chronichle – J. Kattan, C. Wood “Standard-essential patents and the problem of hold-up” Show less Reply Andrea Italiano 2 December 2015 I’d like to focus attention on the role of the F/RAND commitments in trying to solve the ‘hold up’ and the associated litigation costs as well as that of ‘royalty stacking’ problems. As emerges in the literature, solutions from ‘within’ the industry are preferable, the SSO in order to codify more credible F/RAND commitments have to reform their IP rights policies.…Read moreI’d like to focus attention on the role of the F/RAND commitments in trying to solve the ‘hold up’ and the associated litigation costs as well as that of ‘royalty stacking’ problems. As emerges in the literature, solutions from ‘within’ the industry are preferable, the SSO in order to codify more credible F/RAND commitments have to reform their IP rights policies. (In line with (1)). Indeed, I think that, while the subsequent rulings of the courts following litigations can practically define ambiguous F/RAND criteria, too, this process needs to be helped via some internal SSO reforms. For example, to solve the problem of high litigation costs from the challenging party during an ‘hold up’, it is needed a mechanism that blocks ‘cost-raising’ actions by the patent owner, such as exclusion orders, before some precise steps have been taken. Those can be waiting for the evaluations of third parties (as I will talk later). Of course, this kind of mechanisms need to be codified and agreed before the standard is set. The need of mediating third parties to complement SSO arises because because as Adam Smith said “People of the same trade seldom meet together… but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”. I think for example that representative of consumers organizations or specialized competition policy agencies (not having in the patent owners their payers) could have a role in SSO. This in order to stay in between the voluntary market-driven SSO and state control as in China. Another way to reduce the market power leading to ‘hold ups’ is deciding fixed royalties before the lincensees invest (2). All these measures must be directed to avoiding ex-post disagreements and litigation costs. Finally, the problem of ‘royalty stacking’ is well dealt with by J.Contreras, which proposes pseudo patent pool agreements, in which the patent holders set a collective royalty. Here the previously fragmented owners result incentivized in offering a simple and understandable patent license. References: (1) ‘Kuhn, Morton, Shelanski ‘Standard Setting Organization Can help Solve the Standard Essential Patents Licensing Problems’ (2) ‘J.Contreras A pseudo-Pool Approach to Standards-Based Patent Licensing’ Show less Reply Corentin Decock 2 December 2015 In this comment, and as lots of pertinent complements have been previously added by my colleagues, I would like to further the examples displayed and better understand the factors that lead to the acceptance of a technology as a standard. By establishing standards, there is a will to guarantee compatibility and interoperability in the sector of activity, which has obviously…Read moreIn this comment, and as lots of pertinent complements have been previously added by my colleagues, I would like to further the examples displayed and better understand the factors that lead to the acceptance of a technology as a standard. By establishing standards, there is a will to guarantee compatibility and interoperability in the sector of activity, which has obviously huge benefits for consumers. And this is a good thing for firms that don’t have the market power to establish their own standards. For those who have it, this is not a big deal to impose other technologies. For example, Apple has been able to make its business successful without always using standards of the market. Apple’s iPhones indeed never used the standard micro-USB plugs to be charged. This also applies to Apple’s laptops where you can’t find the classical VGA connector, making it an opportunity for the company to sell adaptors. However this is on the edge to change, at least for Switzerland, as Federal Council decided to impose the universal charger to all smartphones manufacturers (http://www.rts.ch/info/suisse/7283800-le-chargeur-universel-debarque-en-suisse-des-2017.html). This decision is on its way to be approved by the UE in a short time (http://ec.europa.eu/environment/resource_efficiency/news/up-to-date_news/25032014_en.htm). The acceptance of a standard technology also greatly depends on the brand loyalty of the consumers. A feature has bigger chances to be widely accepted if the company that introduced it has been able to establish loyalty amongst its clients – what Apple has managed to do. This doesn’t limit itself to the IT industry: the car industry is also concerned. The success of a vehicle doesn’t only depends on its characteristics but also on the loyalty of its clients and on the awareness they have about substitutes. Microsoft’s Windows became a standard in operating system because of several elements but remains at the top because most people don’t know there are alternatives. For a technology to be largely widespread, it also needs to be accepted and supported by stakeholders, like distributors, producers, and so on. Regarding the example given over the Blue-Ray – HD DVD war, this story is repeating itself. Jemina Kiss from the Guardian (http://www.theguardian.com/media/2008/feb/19/digitalmedia.sony) explains indeed that several elements carried weight in the winning of Sony. First of all, Sony benefited from its other activities – especially in the video games market – to impose its Blu-Ray to consumers. They advertised on the fact that you wouldn’t need to buy another device to watch films in HD as it was already included in the console. Secondly, content producers tilted the scale in favor of Sony when most of the biggest ones in America decided to only use Blu-Ray (Disney, MGM, Warner Bros and Fox). Finally retailers sounded the death knell when the giant Wal-Mart announced that it would only stock Sony’s format. All this to say that no matter the excellence of the technology, a company has to be supported and well surrounded to be able to impose its technology as a standard. Show less Reply Huili He 1 December 2015 Debates upon standard setting organizations’ rules go to two balance weighting processes. The first one is the balance between the proper reward to the patent owner and the license fee that other potential innovators need to pay to get in this standard, both of which affect innovation. The higher the reward to patent owners, the more incentive to innovation, which…Read moreDebates upon standard setting organizations’ rules go to two balance weighting processes. The first one is the balance between the proper reward to the patent owner and the license fee that other potential innovators need to pay to get in this standard, both of which affect innovation. The higher the reward to patent owners, the more incentive to innovation, which however leads to higher cost for the outsiders to use this patent standard, slowing down or decreasing potential innovations. The lower the license fee, the broader this patent standard will spread out across the industry, but which will discourage the initial innovators. The Key to achieve the ideal of fair patent standard lies not only the theoretical idea, but more on the application and regulation of using this patent standard (This turns to the typical question of the optimal patent standard length and breadth). One possible approach to solve this conflict goes to the regulator, that is, to supervise the patent owners’ behavior, to distinguish whether patent owners opportunistically take advantage of its market power to charge unreasonably high license fee to the outsiders or not. By doing so, patent standard insiders will accordingly adjust the price or license fee to a reasonable level to avoid being accused of anti-competitive. The second one is the balance between the efficiency of innovation and ultimate customers’ well-being. In economic cases, normally, a monopoly or oligopoly is more efficient in exploiting limited sources, especially in newly emerging area. Establishing a standard is good for a group of elite innovators to focus on this specific technology and industry to achieve the highest, thus optimize social resource and avoid wasted energy due to duplication but incompatible work. But after innovating phase, when it goes to the market, competition law should be enforced to protect customers’ benefit. Since concentrated power in a standard by the patent owners help them gain obvious market power, it is easy for them to set price high, which forms a sellers’ market. Then, it is necessary to do the price-cost assessment to judge whether the price goes too far as abusive to the customers. If prices are significant above cost, or the margin is too high, it can be identified as abuse, which should be regulated. Therefore, the question is not whether to set a standard to facilitate innovation or to not set standard on behalf of the customers, but rather the questions of how to set a proper standard to motivate innovations in the innovating phase and to prevent the patent owners from harming the customers after they are actually put into the market. Show less Reply BEKKAL Abdelfettah 30 November 2015 SSOs are voluntary organizations consisting of industry members that develop and disseminate technology standards. There are about one thousand SSOs in operation, with many thousands of members. SSOs have many benefits like the share of information by users, the decline of market entry cost and the division of labor. On the one hand, antitrust authorities consider SSOs as a form of…Read moreSSOs are voluntary organizations consisting of industry members that develop and disseminate technology standards. There are about one thousand SSOs in operation, with many thousands of members. SSOs have many benefits like the share of information by users, the decline of market entry cost and the division of labor. On the one hand, antitrust authorities consider SSOs as a form of pro‐competitive horizontal cooperation .On the other hand, academics and practitioners talks about the hold-up issue linked to some SSOs.This issue arise when investments in a new standard are irreversible. In order to solve this problem ,there are some private solutions like the disclosure rules where the SSOs require members participating in technical deliberations to disclose relevant patents. This solution provides SSO participants the opportunity to evaluate trade‐offs between technical quality and the implementation cost; however there are some issues linked to this private solution namely the blanket disclosures and the absence of guarantee concerning the information provision. Another solution to the hold-up problem may be the making of some commitments regarding the conditions and the terms of any standardized license. The most famous commitment is the FRAND “fair reasonable and non‐discriminatory”.The significant inconvenience of the FRAND is the disagreement about the reasonable royalty rate between parties. A third solution may be to negotiate ex ante the terms and conditions especially prices before any irreversible investment. The negotiation is collective when network effects are important ,if not it is bilateral. This solution has some weaknesses notably the collusion issue and the decrease of the incentive to participate in any SSO. Finally, the problem of hold-up may be solved if firms have the possibility to determine the relevant patent. Joseph Farrell, Jhon Hayes, Calr Shapiro, Theresa Sullivan (2007),” Standard setting ,patents ,and hold up”,Antitrust law journal. Justus Baron , Daniel F. Spulber (2015),”Technology Standards and Standards Organizations:Introduction to the Searle Center Database”, Northwestern University. Timothy Simcoe (unknown) “Can standard setting organizations address patent hold-up? Comments for the Federal Trade Commission”, Boston University School of Management. Show less Reply Christopher Preining 29 November 2015 One of the earlier accounts of a standard setting organization (SSO) dates back to the beginning of the 20th century. The British “Engineering Standards Committee” initially simplified the construction sectors varying measures to increase efficiency in the market. The institution, which later became known as the British Standards Institution in 1931, went on to standardize many other areas in need…Read moreOne of the earlier accounts of a standard setting organization (SSO) dates back to the beginning of the 20th century. The British “Engineering Standards Committee” initially simplified the construction sectors varying measures to increase efficiency in the market. The institution, which later became known as the British Standards Institution in 1931, went on to standardize many other areas in need of harmonization. (1) Today international standard organisations (ISOs) exist for multiple fields of research, industry and technology on an international level. The International Communication Union for example coordinates the standard setting in the field of telecommunications. Many other such international entities exist to further the implementation of standards and enable national industry standards to be adapted for international trade. Lately a new branch of standard setting bodies has evolved. Industry consortia, also known as standard setting organisations today, coordinate these endeavours between firms instead of as before between governmental or supranational organisations. Examples of such industry consortia are: World Wide Web Consortium (W3C), which has set standard for CSS, HTML and XML, but also the Bluetooth or RFID (Radio Frequency Identification) SSOs. The latter having provided the industry with patents from multiple firms to ease access to their technology. Let us examine the benefits of such patent pools known as SSOs. A government release by the United States Patent and Trademark Office details, “patent pools can eliminate the problems associated with blocking patents or stacking licenses […] while at the same time encouraging the cooperative efforts needed to realize the true economic and social benefits of […] inventions” (2). The study issued by the USPTO was concerned with the formation of patent pools in the biotech industry. The conclusions derived from their analysis can, however, be reapplied to different industry sectors, such as information technology. The lowering of legal hurdles, as well as the advantage of lower transaction costs of a firm with a patent pool or SSO, rather than with multiple firms, fosters innovation. Furthermore, possible litigation threats through unknowingly using patents are decreased through the formation of SSOs. Small firms can readily gain access to technologies and thus contribute through their individual innovations to the progress in a specific technological segment. (2) As risks associated with capital intense R&D spending increase, a standard setting organisation can function as an insurance towards the latter. Patent pools generate a consistent flow of income, if utilized by the industry, and thus incentivize firms to provide their patents. (2) Such an example is provided by the MPEG patent pool/SSO, in which each member gets an equal pay-out and has access to the pools’ patents. This increased form of information exchange within the group of an SSO fosters inter-company development and can boost efficiency as overlapping areas of research are reduced through communication. (2) This practice of information/patent sharing and licensing is more important in capital intensive industries such as the biotech and IT industry. From a simple competitive aspect, SSOs can lead to diminishing competition through setting standards and thereby eliminating alternatives, or making the implementation of alternatives increasingly harder. However, the lack of standards can lead to wide-spread confusion in markets (which is why the Engineering Standards Committee was founded over a hundred years ago) and create difficulties for consumers who demand compatibility between companies’ products, i.e. the Bluetooth SSO. Ergo, the implementation of SSOs fosters innovation in their specific industry, can lead to increased communication between companies and lowers legal hurdles as well as costs involved with licensing various patents. (1) Robert C. McWilliam. BSI: The First Hundred Years. 1901-2001. A Century of Achievement. 2001. Thanet Press. London (2) United States of America. United States Patent and Trademark Office.PATENT POOLS: A SOLUTION TO THE PROBLEM OF ACCESS IN BIOTECHNOLOGY PATENTS? By Jeanne Clark, Joe Piccolo, Brian Stanton, and Karin Tyson. N.p.: United States Patent and Trademark Office, 2000. Print. Show less Reply Leave a Reply Cancel reply Your email address will not be published. Required fields are marked *Comment You may use simple HTML tags to add links or lists to your comment:<a href="url">link</a> <ul><li>list item 1</li><li>list item2</li></ul> <em>italic</em> <strong>bold</strong>Name * Email * Notify me by email when the comment gets approved.