Standards, Patents and Policy (Public and Private) Tim Simcoe, University of Toronto Marc Rysman, Boston University

Note : From pooled sample of 13 SSOs, within SSO trends are all positive. Increasing IPR Disclosure

Potential Explanations Policy changes (patents & antitrust) Demand for standards (Internet) Demonstration effects (Dell and Rambus) Vertical dis-integration  Open innovation (R&D outsourcing) =>  Greater reliance on technology input market =>  Higher stakes standard-setting process Is it becoming harder to “cooperate on standards and compete on implementation?”

Some Facts About Disclosed Patents Overwhelmingly ICT patents Raw litigation probabilities  SSO Patent9.7 percent  “Average” Patent0.7 percent Selection vs. disclosure  Disclosure => citation boost Network effects & technological significance  Disclosure => litigation boost 8% go to jury vs. 2% for all litigated patents

The Hold-up Problem Standards => coordinated investments  Sunk costs : NRE, learning, installed base  Patent-holders can capture “quasi-rents”  Threat to markets and SSO reputation SSO Policy : Disclosure with RAND licensing  Careful screening of proposals  (F)RAND is a meaningless promise  Difficult counterfactuals  Adjudicating reasonable prices Contractual solution : Ex ante negotiation  Firms worry : Thickets, submarines, validity, inertia  SSOs worry : Antitrust (private suits), worse screening  Adjudication, Legislation, Guidance (VITA Letter)

A NAASTy Alternative to RAND Non-Assertion After Specified Time  Unrestricted pricing, followed by royalty-free license  Royalty-free (Time=0) vs. RAND (Time=patent-life) Benefits  No price negotiation Solves antitrust & engineering problems  Easy to adjudicate  Implementation Incentives  Innovation Incentives Costs  NAASTy prices Mimics underlying patent system

One Size Does Not Fit All Institutions evolve  SDOs => consortia => open-source  Private policy experiments RAND, Ex ante, GPL, NAAST? A role for public policy  SSOs lack enforcement power Coordination “in the shadow of” public policy  Active roles Consumer, “vendor neutral” participant, sponsor…

Backup Slides

(F)RAND is not Working Ambiguity  (F)RAND is a meaningless promise  Extremely difficult counterfactuals Adjudicating “reasonable” prices  Economic regulation Smythe vs. Ames Homogenous goods / administrative expertise  Collusion cases Addyston Pipe & Steel “Setting sail on a sea of doubt”  Patent infringement Georgia Pacific Exception that proves the rule (Shapiro & Lemley 2006)  Patent Awards

Implementing NAAST Monopoly pricing for how long?  That’s a good question… When to start the clock?  Start vs. end of SSO process Incentive to move fast : patent-holders vs. vendors SSO Participation  Same as RAND with teeth (W3C) What about “trolls”?  Separate issue