New Paper on SSOs, SEP and Antitrust by Joanna Tsai & Joshua Wright

Adam Mossoff —  18 August 2014

An important new paper was recently posted to SSRN by Commissioner Joshua Wright and Joanna Tsai.  It addresses a very hot topic in the innovation industries: the role of patented innovation in standard setting organizations (SSO), what are known as standard essential patents (SEP), and whether the nature of the contractual commitment that adheres to a SEP — specifically, a licensing commitment known by another acronym, FRAND (Fair, Reasonable and Non-Discriminatory) — represents a breakdown in private ordering in the efficient commercialization of new technology.  This is an important contribution to the growing literature on patented innovation and SSOs, if only due to the heightened interest in these issues by the FTC and the Antitrust Division at the DOJ.

“Standard Setting, Intellectual Property Rights, and the Role of Antitrust in Regulating Incomplete Contracts”

JOANNA TSAI, Government of the United States of America – Federal Trade Commission
JOSHUA D. WRIGHT, Federal Trade Commission, George Mason University School of Law

A large and growing number of regulators and academics, while recognizing the benefits of standardization, view skeptically the role standard setting organizations (SSOs) play in facilitating standardization and commercialization of intellectual property rights (IPRs). Competition agencies and commentators suggest specific changes to current SSO IPR policies to reduce incompleteness and favor an expanded role for antitrust law in deterring patent holdup. These criticisms and policy proposals are based upon the premise that the incompleteness of SSO contracts is inefficient and the result of market failure rather than an efficient outcome reflecting the costs and benefits of adding greater specificity to SSO contracts and emerging from a competitive contracting environment. We explore conceptually and empirically that presumption. We also document and analyze changes to eleven SSO IPR policies over time. We find that SSOs and their IPR policies appear to be responsive to changes in perceived patent holdup risks and other factors. We find the SSOs’ responses to these changes are varied across SSOs, and that contractual incompleteness and ambiguity for certain terms persist both across SSOs and over time, despite many revisions and improvements to IPR policies. We interpret this evidence as consistent with a competitive contracting process. We conclude by exploring the implications of these findings for identifying the appropriate role of antitrust law in governing ex post opportunism in the SSO setting.