The Recent DOJ and FTC Policy Suggestions for Standard Setting Organizations – The Way Out of Standard-Essential Patent Hold-Up?

Jonas Hein

4/30/2014
(Original Publish Date: 5/2/2013)

When patent holders employ the threat of an injunction as a weapon against competitors, it raises eyebrows among antitrust lawyers and agencies instinctively. Such is the case when standard-essential patents are used to hold members of standard setting organizations hostage by threatening sunk technology investments. Prominently last year, Google purchased Motorola Mobility Inc., which included 17,000 patents predominately relating to smartphones, and Apple and Microsoft acquired Nortel Networks and its 6,000 telecommunications patents. The FTC and the DOJ reacted with concern about potential patent abuse in light of the ever-more salient "smartphone patent wars." In this setting, Renata Hesse, Deputy Assistant Attorney General at the DOJ, and Joseph F. Wayland, then Assistant Attorney General of the FTC, published governance suggestions aimed at lessening the likelihood of hold-up in the standardization process. This article applies a law and economics analysis to three of the suggestions: disclosure requirements, cross-licensing provisions, and limitations of exclusion through injunctions. The discussion addresses problems relating to joint negotiation and monopsony, as well as royalty stacking and cournot complements. It demonstrates how cross-licensing among upstream firms can effectively raise their downstream rivals’ costs, and it explores the concept of "reverse hold-up." The article finally concludes that Hesse and Wayland identify critical issues, but fail to provide a fully satisfying solution to the problem of standard-essential patent hold-up.